---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

F O R M 20 - F

|                                                       |                                                                                                   
|------------------------------------------------------ | --------------------------------------------------------------------------------------------------
|o                                                      | REGISTRATION STATEMENT
  PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                       |                                                                                                   
|OR                                                    
|                                                      
|x                                                      | ANNUAL REPORT PURSUANT TO
  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934            
|                                                       |                                                                                                   
|For the fiscal year ended December 31, 2004           
|                                                      
|OR                                                    
|                                                       |                                                                                                   
|o                                                      | 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: 0-12332

SCITEX CORPORATION LTD.(Exact name of
Registrant as specified in its charter and translation of Registrants name
into English)

Israel(Jurisdiction of
incorporation or organization)

3 Azrieli Center, Triangular Tower, 43rd
Floor, Tel Aviv 67023, Israel(Address of
principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of
the Act:None

Securities registered or to be registered pursuant to Section 12(g) of
the Act:Ordinary Shares, NIS 0.12 nominal (par)
value per share(Title of
Class)

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:None(Title of
Class)

Indicate
the number of outstanding shares of each of the issuers classes of capital or
common stock as of December 31, 2004:

38,066,363 Ordinary Shares, NIS 0.12 nominal (par)
value per share

Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

xYesoNo

Indicate
by check mark which financial statement item the Registrant has elected to
follow.

oItem
17xItem 18

---

---



TABLE OF CONTENTS

|             |                                                              |     
|------------ | ------------------------------------------------------------ | ----
|             |                                                              | Page
|             |                                                              |     
|INTRODUCTION | 4                                                           
|             |                                                             
|PART I       |                                                              | 5   
|             |                                                              |     
|Item 1.      | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
  AND ADVISERS      | 5   
|             |                                                              |     
|Item 2.      | OFFER STATISTICS AND EXPECTED TIMETABLE                      | 5   
|             |                                                              |     
|Item 3.      | KEY INFORMATION                                              | 5   
|             | A. Selected
  Financial Data                                 | 5   
|             | B.
  Capitalization and Indebtedness                         | 8   
|             | C. Reasons for
  the Offer and Use of Proceeds               | 8   
|             | D. Risk Factors                                              | 8   
|             |                                                              |     
|Item 4.      | INFORMATION ON THE
  COMPANY                                 | 19  
|             | A. History and
  Development of the Company                  | 19  
|             | B. Business
  Overview                                       | 21  
|             | C. Organizational
  Structure                                | 30  
|             | D. Property,
  Plants and Equipment                          | 31  
|             |                                                              |     
|Item 5.      | OPERATING AND FINANCIAL
  REVIEW AND PROSPECTS               | 31  
|             | A. Operating
  Results                                       | 33  
|             | B. Liquidity
  and Capital Resources                         | 44  
|             | C. Research and
  Development, Patents and Licenses          | 49  
|             | D. Trend
Information                                         | 50  
|             | E. Off-Balance Sheet
Arrangements                            | 51  
|             | F. Tabular Disclosure of
Contractual Obligations             | 52  
|             |                                                              |     
|Item 6.      | DIRECTORS, SENIOR
  MANAGEMENT AND EMPLOYEES                 | 53  
|             | A. Directors
  and Senior Management                         | 53  
|             | B. Compensation                                              | 56  
|             | C. Board
  Practices                                         | 57  
|             | D. Employees                                                 | 63  
|             | E. Share
  Ownership                                         | 64  
|             |                                                              |     
|Item 7.      | MAJOR SHAREHOLDERS AND
  RELATED PARTY TRANSACTIONS          | 65  
|             | A. Major
  Shareholders                                      | 65  
|             | B. Related
  Party Transactions                              | 69  
|             | C. Interests of
  Expert and Counsel                         | 72  
|             |                                                              |     
|Item 8.      | FINANCIAL INFORMATION                                        | 73  
|             | A. Consolidated
  Statements and Other Financial Information | 73  
|             | B. Significant
Changes                                       | 74  
|             |                                                              |     
|Item 9.      | THE OFFER AND LISTING                                        | 74  
|             | A. Offer and
  Listing Details                               | 74  
|             | B. Plan of
  Distribution                                    | 75  
|             | C. Markets                                                   | 75  
|             | D. Selling
  Shareholders                                    | 75  
|             | E. Dilution                                                  | 75  
|             | F. Expenses of
  the Issue                                   | 75  
|             |                                                              |     

2

---

---



|           |                                                                                |   
|---------- | ------------------------------------------------------------------------------ | --
|Item 10.   | ADDITIONAL INFORMATION                                                         | 76
|           | A. Share
  Capital                                                             | 76
|           | B. Memorandum
  and Articles of Association                                    | 76
|           | C. Material
  Contracts                                                        | 80
|           | D. Exchange
  Controls                                                         | 81
|           | E. Taxation                                                                    | 81
|           | F. Dividends
  and Paying Agents                                               | 91
|           | G. Statement by
  Experts                                                      | 92
|           | H. Documents on
  Display                                                      | 92
|           | I.   Subsidiary
  Information                                                  | 92
|           |                                                                                |   
|Item 11.   | QUANTITATIVE AND
  QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 92
|           |                                                                                |   
|Item 12.   | DESCRIPTION OF
  SECURITIES OTHER THAN EQUITY SECURITIES                       | 93
|           |                                                                                |   
|PART II    |                                                                                | 93
|           |                                                                                |   
|Item 13.   | DEFAULTS, DIVIDEND
  ARREARAGES AND DELINQUENCIES                              | 93
|           |                                                                                |   
|Item 14.   | MATERIAL MODIFICATIONS
  TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 93
|           |                                                                                |   
|Item 15.   | CONTROLS AND PROCEDURES                                                        | 94
|           |                                                                                |   
|Item 16A.  | Audit Committee Financial Expert                                               | 94
|Item 16B.  | Code of Ethics                                                                 | 94
|Item 16C.  | Principal Accountant Fees and Services                                         | 94
|Item 16D.  | Exemptions From the Listing Standards for
  Audit Committees                   | 95
|Item 16E.  | Purchases of Equity Securities by the
  Issuer and Affiliated Purchasers       | 95
|           |                                                                                |   
|PART III   |                                                                                | 96
|           |                                                                                |   
|Item 17.   | FINANCIAL STATEMENTS                                                           | 96
|           |                                                                                |   
|Item 18.   | FINANCIAL STATEMENTS                                                           | 96
|           |                                                                                |   
|Item 19.   | EXHIBITS                                                                       | 97
|           |                                                                                |   
|SIGNATURES |                                                                               

3

---

---



(SCITEX LOGO)

INTRODUCTION

Unless indicated otherwise by the context,
all references in this Annual Report to:

|  |                                                                                                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | we, us, our, Scitex, or the Company are to Scitex
  Corporation Ltd. and its wholly owned and/or majority owned subsidiaries;                                                                                                               
|  |                                                                                                                                                                                                                                                       
| | dollars or $ are to United States dollars;                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                       
| | NIS or Shekel are toNew Israel
  Shekels;                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                       
| | the Companies Law or the Israeli Companies Law are to the Israeli
  Companies Law, 5759-1999;                                                                                                                                                     
|  |                                                                                                                                                                                                                                                       
| | the SEC are to the United States Securities and Exchange
  Commission;                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                       
| | Discount and CEI are to Discount Investment Corporation Ltd. and
  Clal Electronics Industries Ltd., respectively, our principal shareholders;                                                                                                    
|  |                                                                                                                                                                                                                                                       
| | Clal are to Clal Industries and Investments Ltd., the parent of
  CEI; and                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                       
| | Scitex Vision and Scitex Vision International are to Scitex
  Vision Ltd. (formerly known as Aprion Digital Ltd.), our majority owned
  subsidiary, and Scitex Vision International Ltd., Scitex Visions wholly
  owned subsidiary, respectively.

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

Except for the
historical information contained in this Annual Report on Form 20-F, certain
information contained herein, includingy, without limitation, information
appearing under Item 4. Information on the Company and Item 5. Operating and
Financial Review and Prospects, are forward-looking statements (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934).
Forward-looking statements are based on various assumptions (some of
which are beyond our control) and may be identified by the use of
forward-looking terminology, such as may, can be, will, expects,
anticipates, intends, believes, projects, continues, plans,
seeks, potential, and similar words and phrases.  Actual results could differ materially from those
contained in
forward-looking statements due to a variety of factors, including, but not
limited to:

|  |                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------
| | risks in
  product and technology development;                                                                                           
|  |                                                                                                                                          
| | market
  acceptance of new products and continuing product demand;                                                                       
|  |                                                                                                                                          
| | the impact
  of competitive products and pricing;                                                                                        
|  |                                                                                                                                          
| | changes in
  domestic and foreign economic and market conditions;                                                                        
|  |                                                                                                                                          
| | timely
  development and release of new products by strategic suppliers;                                                                 
|  |                                                                                                                                          
| | the impact
  of our accounting policies;                                                                                                 
|  |                                                                                                                                          
| | risks
  relating to the integration of new businesses;                                                                                   
|  |                                                                                                                                          
| | risks
  relating to pursuing strategic alternatives; and                                                                                 
|  |                                                                                                                                          
| | those risks
  set forth under Item 3D. Risk Factors in this Annual Report as well as
  those discussed elsewhere in this Annual Report.

Except as may
be required by law, we do not undertake, and specifically disclaim, any
obligation to release publicly the results of any revisions which may be
required to any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
forward-looking statements.

4

---

---



USE OF TRADE NAMES

Unless indicated
otherwise by the context, trade names, trademarks and/or service marks
appearing throughout this Annual Report are trademarks of Scitex, its
subsidiaries and/or its affiliates and may be registered in certain
jurisdictions.  Scitex and the Scitex
logo are trademarks and service marks of Scitex. Scitex Vision, Idanit, Aprion,
CORjet, TURBOjet, Superjet, Grandjet, Xljet, VEEjet and DreAM are trademarks of
Scitex Vision Ltd. or its subsidiaries. Jemtex and Gema II are trademarks of
Jemtex InkJet Printing Ltd.

P A R T  I

|                  |                                                      
|----------------- | -----------------------------------------------------
|ITEM 1.           | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|                  |                                                      
|Not
  applicable. |                                                      
|                  |                                                      
|ITEM 2.           | OFFER STATISTICS AND EXPECTED TIMETABLE              
|                  |                                                      
|Not
  applicable. |                                                      
|                  |                                                      
|ITEM 3.           | KEY INFORMATION                                      
|                  |                                                      
|A.                | SELECTED FINANCIAL DATA                              

The following
selected consolidated statement of operations data for the years ended December
31, 2002, 2003 and 2004 and the selected consolidated balance sheet data as of
December 31, 2003 and 2004 are derived from our audited consolidated
financial statements set forth elsewhere in this Annual Report, which have been
prepared in accordance with generally accepted accounting principles in the
United States (U.S. GAAP).  The
selected consolidated statement of operations data for the years ended December
31, 2000 and 2001 and the selected consolidated balance sheet data as of
December 31, 2000, 2001 and 2002 are derived from audited consolidated
financial statements not appearing in this Annual Report, which have been
prepared in accordance with U.S. GAAP.

The following selected financial data should
be read in conjunction with Item 5. Operating and Financial Review and
Prospects and the consolidated financial statements and the notes thereto and
the other financial information appearing elsewhere in this Annual Report.

5

---

---



BALANCE
SHEET DATA

|                                                                              |  |                               |         |      |   |         |   |      |         |      |   |         |    |   |         |   
|----------------------------------------------------------------------------- |  | ----------------------------- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | -- | - | ------- | --
|                                                                              |  | December
  31,                |        
|                                                                              |  |                               |        
|                                                                              |  | 2004                          |         | 2003 |   | 2002    |   | 2001 |         | 2000 |  
|                                                                              |  |                               |         |      |   |         |   |      |         |      |  
|                                                                              |  | (U.S.
  dollars in thousands) |        
|                                                                              |  |                               |        
|Working capital (continuing operations)                                       |  | $                             | 142,634 | *    | $ | 30,390  | * | $    | (17,577 | )*   | $ | 23,037  |    | $ | (32,377 | ) 
|Working capital (discontinued operations)                                     |  | $                             | (2,193  | )    | $ | 129,667 |   | $    | 113,881 |      | $ | 90,672  |    | $ | 91,579  |   
|Cash, cash equivalents and short term investments (continuing
  operations)   |  | $                             | 160,585 | *    | $ | 83,258  | * | $    | 41,917  | *    | $ | 49,991  |    | $ | 18,943  |   
|Cash, cash equivalents and short term investments (discontinued
  operations) |  |                               |        |      | $ | 16,056  |   | $    | 15,717  |      | $ | 18,018  |    | $ | 29,136  |   
|Total assets                                                                  |  | $                             | 274,153 |      | $ | 394,085 |   | $    | 373,456 |      | $ | 401,690 | ** | $ | 685,928 | **
|Long term liabilities (continuing operations)                                 |  | $                             | 15,520  |      | $ | 13,268  |   | $    | 7,100   |      | $ | 24,218  |    | $ | 39,342  |   
|Long term liabilities (discontinued operations)                               |  |                               |        |      | $ | 5,431   |   | $    | 6,359   |      | $ | 5,289   |    | $ | 7,504   |   
|Share capital                                                                 |  | $                             | 6,205   |      | $ | 6,205   |   | $    | 6,205   |      | $ | 6,205   |    | $ | 6,205   |   
|Shareholders equity                                                          |  | $                             | 154,274 |      | $ | 224,698 |   | $    | 221,179 |      | $ | 260,162 | ** | $ | 506,332 | **

* Includes a restricted cash deposit in a
bank, the balance of which was $20,203,000, $18,262,000 and $18,000,000 (as of
December 31, 2002, 2003 and 2004, respectively), and is presented in the
balance sheet as a restricted deposit.

** Adjusted retroactively to reflect a change in the method of accounting
for an investment from the cost method to the equity method.

6

---

---



STATEMENT
OF OPERATIONS DATA

|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|------------------------------------------------------------------------ |  | ------------------------------------------------------- | ------- | ---- | - | ------- | - | ----- | ------- | ----- | - | -------- | - | - | ------- | -
|                                                                         |  | Year Ended
  December 31,                               |        
|                                                                         |  |                                                         |        
|                                                                         |  | 2004                                                    |         | 2003 |   | 2002    |   | 2001* |         | 2000* |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |  
|                                                                         |  | (U.S.
  dollars in thousands, except per share amounts) |        
|                                                                         |  |                                                         |        
|Revenues:                                                                |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Products                                                                 |  | $                                                       | 78,418  |      | $ | 60,653  |   | $     | 52,847  |       | $ | 59,573   |   | $ | 132,590 |  
|Services                                                                 |  |                                                         | 7,581   |      |   | 5,638   |   |       | 5,098   |       |   | 4,174    |   |   | 28,793  |  
|Supplies                                                                 |  |                                                         | 42,186  |      |   | 36,589  |   |       | 27,716  |       |   | 27,691   |   |   | 32,227  |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Total revenues                                                           |  |                                                         | 128,185 |      |   | 102,880 |   |       | 85,661  |       |   | 91,618   |   |   | 193,610 |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Cost of
  revenues:                                                      |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Cost of products                                                         |  |                                                         | 44,132  |      |   | 36,062  |   |       | 28,336  |       |   | 29,100   |   |   | 72,063  |  
|Cost of services                                                         |  |                                                         | 12,176  |      |   | 12,824  |   |       | 12,009  |       |   | 12,415   |   |   | 23,144  |  
|Cost of supplies                                                         |  |                                                         | 14,759  |      |   | 14,326  |   |       | 10,492  |       |   | 9,299    |   |   | 13,281  |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Total cost of revenues                                                   |  |                                                         | 71,067  |      |   | 63,212  |   |       | 50,837  |       |   | 50,814   |   |   | 108,488 |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Gross profit                                                             |  |                                                         | 57,118  |      |   | 39,668  |   |       | 34,824  |       |   | 40,804   |   |   | 85,122  |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Expenses                                                                 |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Research and development costs  net                                     |  |                                                         | 12,449  |      |   | 11,070  |   |       | 7,060   |       |   | 6,083    |   |   | 19,185  |  
|Sales and marketing                                                      |  |                                                         | 19,990  |      |   | 15,322  |   |       | 14,896  |       |   | 18,271   |   |   | 36,928  |  
|General and administrative                                               |  |                                                         | 16,614  |      |   | 15,147  |   |       | 13,581  |       |   | 16,376   |   |   | 21,592  |  
|Amortization of intangible assets                                        |  |                                                         | 6,137   |      |   | 5,871   |   |       | 2,944   |       |   | 8,460    |   |   | 6,807   |  
|Impairment of goodwill and other intangible
assets                       |  |                                                         | 5,235   |      |   | 2,967   |   |       |        |       |   | 14,986   |   |   |        |  
|Restructuring charges                                                    |  |                                                         |        |      |   | 1,590   |   |       |        |       |   | 500      |   |   |        |  
|Gain from sale of operations                                             |  |                                                         |        |      |   |        |   |       |        |       |   |         |   |   | 201,821 |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Operating income (loss)                                                  |  |                                                         | (3,307  | )    |   | (12,299 | ) |       | (3,657  | )     |   | (23,872  | ) |   | 202,431 |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Financial income (expenses)  net                                        |  |                                                         | (276    | )    |   | (2,651  | ) |       | (3,139  | )     |   | (2,928   | ) |   | 1,717   |  
|Other income (loss)  net                                                |  |                                                         | 470     |      |   | 787     |   |       | (26,270 | )     |   | (13,034  | ) |   | (2,448  | )
|Write-down of investment in an associated company                        |  |                                                         |        |      |   |        |   |       |        |       |   | (149,704 | ) |   |        |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Income (loss) before taxes on income                                     |  |                                                         | (3,113  | )    |   | (14,163 | ) |       | (33,066 | )     |   | (189,538 | ) |   | 201,700 |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Tax benefit (Taxes on income)                                            |  |                                                         | 67      |      |   | (2,402  | ) |       | 648     |       |   | (2,957   | ) |   | (32,723 | )
|Share in losses of associated companies                                  |  |                                                         | (1,418  | )    |   | (5,637  | ) |       | (4,106  | )     |   | (67,507  | ) |   | (80,637 | )
|Minority interests in results of a subsidiary                            |  |                                                         | 71      |      |   | 3,546   |   |       |        |       |   |         |   |   |        |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Net income (loss) from continuing operations                             |  |                                                         | (4,393  | )    |   | (18,656 | ) |       | (36,524 | )     |   | (260,002 | ) |   | 88,340  |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Net income from discontinued operations                                  |  |                                                         | 51,646  |      |   | 20,043  |   |       | 4,494   |       |   | 6,982    |   |   | 5,820   |  
|Income loss from disposal of assets                                      |  |                                                         |        |      |   |        |   |       |        |       |   |         |   |   | 1,097   |  
|Total income from discontinued operations                                |  |                                                         | 51,646  |      |   | 20,043  |   |       | 4,494   |       |   | 6,982    |   |   | 6,917   |  
|Cumulative effect of an accounting change at the
  beginning of the year |  |                                                         |        |      |   |        |   |       |        |       |   |         |   |   | 20,609  |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Net
  income (loss)                                                      |  | $                                                       | 47,253  |      | $ | 1,387   |   | $     | (32,030 | )     | $ | (253,020 | ) | $ | 74,648  |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Earnings (loss) per share
basic                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Continuing operations                                                    |  | $                                                       | (0.11   | )    | $ | (0.43   | ) | $     | (0.84   | )     | $ | (6.04    | ) | $ | 2.07    |  
|Discontinued operations                                                  |  | $                                                       | 1.28    |      | $ | 0.46    |   | $     | 0.10    |       | $ | 0.16     |   | $ | 0.16    |  
|Cumulative effect of an accounting
change                                |  |                                                         |        |      |   |        |   |       |        |       |   |         |   | $ | (0.48   | )
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|                                                                         |  | $                                                       | 1.17    |      | $ | 0.03    |   | $     | (0.74   | )     | $ | (5.88    | ) | $ | 1.75    |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Earnings (loss) per share
diluted                                       |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Continuing operations                                                    |  | $                                                       | (0.11   | )    | $ | (0.43   | ) | $     | (0.84   | )     | $ | (6.04    | ) | $ | 2.04    |  
|Discontinued operations                                                  |  | $                                                       | 1.28    |      | $ | 0.46    |   | $     | 0.10    |       | $ | 0.16     |   | $ | 0.16    |  
|Cumulative effect of an accounting
change                                |  |                                                         |        |      |   |        |   |       |        |       |   |         |   | $ | (0.48   | )
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|                                                                         |  | $                                                       | 1.17    |      | $ | 0.03    |   | $     | (0.74   | )     | $ | (5.88    | ) | $ | 1.72    |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Weighted average number of shares outstanding(in
thousands)             |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|basic                                                                   |  |                                                         | 40,336  |      |   | 43,018  |   |       | 43,018  |       |   | 43,018   |   |   | 42,847  |  
| diluted                                                                |  |                                                         | 40,336  |      |   | 43,018  |   |       | 43,018  |       |   | 43,018   |   |   | 43,299  |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  
|Dividends
  per share                                                    |  | $                                                       | 2.36    |      |   |        |   |       |        |       |   |         |   |   |        |  
|                                                                         |  |                                                         |         |      |   |         |   |       |         |       |   |          |   |   |         |  

* Adjusted retroactively to reflect a change in
the method of accounting for an investment from the cost method to the equity
method.

7

---

---



|                  |                                           
|----------------- | ------------------------------------------
|B.                | CAPITALIZATION AND INDEBTEDNESS.          
|                  |                                           
|Not
  Applicable. |                                           
|                  |                                           
|C.                | REASONS FOR THE OFFER AND USE OF PROCEEDS.
|                  |                                           
|Not
  Applicable. |                                           
|                  |                                           
|D.                | RISK FACTORS                              

The following important factors, together
with others that appear with the forward-looking statements made by, or on
behalf of, Scitex in this Annual Report, or in Scitexs other SEC filings and
public statements, could affect our actual results and could cause our actual
results to differ materially from those expressed in any forward-looking
statements.

Risks Related to Our Business and Our
Industry

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have incurred substantial net losses in
  the past, and we may incur losses again in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  | Although our
  net income (including from discontinued operations) for the years ended
  December 31, 2003 and December 31, 2004 was approximately $1.4 million
  and $47.3 million, respectively, we incurred net losses (including from
  discontinued operations) in the years ended December 31, 2001 and
  December 31, 2002 of approximately $253.0 million (including $215.9 million
  associated with our holdings in Creo Inc., or Creo) and $32.0 million
  (including $22.3 million associated with our holdings in Creo), respectively.
  In respect of continuing operations, we incurred net losses in the years
  ended December 31, 2002, 2003 and 2004 of approximately $36.5 million,
  $18.7 million and $4.4 million, respectively. We may continue to incur losses
  in the future, which could materially adversely affect our business and
  financial condition, as well as the value and market price of our
  shares.  Even if we maintain
  profitability, we cannot assure you that future net income will offset our
  cumulative losses.                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | If the slow-down in expenditures by
  commercial printers resumes, our business and results of operations may be
  materially adversely affected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  | Commercial
  printers are the customers of a large portion of our products and services.
  The general deterioration of the economy worldwide and the curtailment of
  advertising budgets have resulted in a slow-down of capital investment by
  commercial printers beginning late in 2001 through the end of 2002 (and to a
  lesser extent into 2003). During the slow-down period, many companies,
  including current and potential customers, postponed or decreased further
  capital investment and/or employed longer evaluation and purchase procedures,
  thereby lengthening the sales cycles and implementation periods of our
  products and services. Since 2003, we identified a moderate improvement in
  the general market for commercial printers equipment, including in the wide
  format printing systems segment, in which we operate. However, we are unable
  to predict the duration of said improvement or the extent of any impact that
  it may have on our results of operations.
  If this improvement reverses and the slow-down in expenditures by
  commercial printers resumes, it would reduce our sales and could result in
  pressure on the price of our products, each of which would have a material
  adverse effect on our operating results.

8

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be deemed an investment company
  under the Investment Company Act of 1940.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  | We sold the
  business of Scitex Digital Printing Inc., or SDP, one of our two principal
  operating subsidiaries, to Kodak in January 2004 and have invested a portion
  of the cash proceeds from the sale in short and long term investments. As
  previously announced, we are also engaged in preliminary negotiations for the
  possible sale of our holdings in Scitex Vision. If and when we do consummate
  such sale, we may receive additional cash proceeds that we may wish to invest
  in various ways. We currently operate, and intend to continue operating, in a
  manner that would allow us not to be deemed an investment company under the
  Investment Company Act of 1940, or the Investment Company Act. This may
  include investing the cash proceeds from the sale of SDP (and Scitex Vision,
  if applicable) in a manner that will cause us to have less than 40% of our
  total assets (exclusive of cash and government securities), determined on an
  unconsolidated basis, invested in investment securities (as that term is
  defined in the Investment Company Act). If more than 40% of our total assets
  were invested in investment securities, we may be deemed to be an
  investment company under the Investment Company Act, unless we qualify for
  an exemption. If we were deemed to be an investment company, we would not be
  permitted to register under the Investment Company Act without obtaining
  exemptive relief from the SEC because we are incorporated outside of the
  United States and, prior to being permitted to register, we would not be
  permitted to offer or promote our securities in the United States.  As a result, we may elect to make
  investments (including of said cash proceeds) or dispose of certain
  investments on terms that may not be as favorable to us as if we were not
  potentially subject to regulation under the Investment Company Act.  If we are deemed to be an investment
  company, we could be found to be in violation of the Investment Company Act.  A violation of that law could subject us
  to material adverse consequences.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Our future results could be adversely
  affected by a permanent impairment of the carrying amount of our equity and
  other investments, as well as other long-lived assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  | We review
  long-lived assets and certain identifiable intangibles for impairment
  whenever events or changes in circumstances indicate that the carrying amount
  of an asset may not be recoverable in accordance with applicable financial
  accounting standards.  We also
  annually review goodwill for impairment in accordance with applicable financial accounting standards. In
  addition, we review our equity and other investments in companies for
  potential impairment, depending on the classification of the investment, in
  accordance with applicable accounting principles and/or relevant guidance
  published from time to time.  As such,
  we evaluate whether conditions may warrant revised estimates of the
  recoverability of the carrying amount of these assets and which, in certain
  situations, may result in the recognition of an impairment loss. Consequently, our future
  results could be adversely affected by changes in events and circumstances
  that would result in a permanent impairment of the carrying amount of our
  long-lived assets or investments.  You should read the foregoing discussion with the
  description of our critical accounting policies in Item 5 below under the
  caption Impairment of goodwill, intangible assets and other long-lived
  assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | We are undergoing, and may in the future
  undergo, tax audits and may have to make material payments to tax authorities
  at the conclusion of these audits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  | We conduct
  business globally and a substantial part of our operations was conducted in
  various countries during the 1990s.
  Accordingly, not all of the tax returns of our operations during the
  1990s are final and are subject to further audit and assessment by the
  applicable tax authorities. For example, in order to resolve a tax audit of our U.S.
  subsidiaries for the years 1992 through 1996, we paid to the U.S. Internal Revenue Service (IRS)
  an aggregate sum of approximately $21.5 million until 2002, and in 2004 we
  paid an aggregate sum of approximately $11.6 million to the IRS and other
  U.S. state tax authorities. We cannot assure you that we will not be
  subject to further tax audits or assessments for years for which our tax
  returns are not final. If we become subject to further tax audits or
  assessments, we may be required to pay additional taxes, as a result of which,
  our future results may be adversely affected. For more information about these audits and other tax assessments,
  please see under Item 5.B  Liquidity & Capital Resources  Tax Audits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

9

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our majority owned subsidiary, Scitex
  Vision, fails to satisfy covenants set forth in its revolving credit line
  facilities and long-term loans, the banks may be able to call the loans and
  Scitex Vision may be required to raise additional funds on unfavorable terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | As of June
  20, 2005, Scitex Vision owed a gross amount of approximately
  $42.5 million to Israeli banks under its revolving credit line
  facilities and long-term loan agreements.
  These credit lines are secured by a floating charge on Scitex Visions
  assets and by approximately $13.0 million of restricted deposits. Under these
  credit lines, Scitex Vision is required to adhere to certain financial and
  other restrictive covenants such as equity level, profitability and financial
  ratios.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | In the past,
  Scitex Vision failed to meet certain of the requirements of these credit
  lines but was able to cure such default following negotiations with the banks
  and by raising additional funds from us and other shareholders of Scitex
  Vision. However, we cannot assure you that Scitex Vision will be successful in
  satisfying these covenants in the future. Any failure by Scitex Vision to
  observe covenants or satisfy conditions under these credit lines, some of
  which are not in our or Scitex Visions control, may result in the banks
  accelerating Scitex Visions obligations, which would obligate Scitex Vision
  to immediately repay all loans made by the banks plus penalties, and the
  banks would be entitled to exercise the remedies available to them under
  these credit lines, including enforcement of their floating charge. This
  would have a material adverse effect on us. In addition, in such event Scitex
  Vision may be required to enter into another agreement with the banks or to
  secure financing from other sources. If adequate funds are not available on
  terms favorable to Scitex Vision from the banks or other resources, Scitex
  Visions (and consequently, our) operations and financial results will be
  materially adversely affected.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | We are exposed to decreases in the value of
  our financial investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | As of
  December 31, 2004, we held, on a consolidated basis, approximately $160.6
  million in cash and cash equivalents. We hold part of our cash on hand in a
  variety of financial instruments, including different types of investment
  grade bonds.  If the obligor of any of the bonds we hold defaults or
  undergoes a reorganization in bankruptcy, we may lose all or a portion
  of our investment in such obligor.  We may also be subject to loss to
  the extent that the market value of these bonds decline. This will harm our
  financial condition. For information
  on the types of our investments as of December 31, 2004, see Item 11 
  Quantitative and Qualitative Disclosures About Market RiskPresentation of
  Exchange Rate and Interest Rate Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Because we have sold the business of SDP,
  our indirect wholly owned subsidiary, our business is less diversified, which
  reduced, and may in the future reduce, our earnings and might make us more
  susceptible to negative conditions in our remaining businesses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | In January
  2004, we completed the sale of substantially all of the assets and business
  of SDP to Eastman Kodak Company, or Kodak.
  As a result of this sale of the business of SDP to Kodak, we no longer generate revenues from
  these operations and our net income is no longer affected by the results of
  SDP. In addition, as a result of this divestiture, our business is now less
  diversified and thus more dependent on our remaining businesses, mainly the
  business of Scitex Vision.
  Consequently, we are now more sensitive to conditions and trends in
  the remaining industries in which we operate, mainly in the wide and
  super-wide format segment of the industrial inkjet digital printing market.
  Our inability to overcome any negative conditions and trends in the
  industries in which we operate could have a negative impact on our financial
  condition.                                                                                                                                                                                                                                                                                                                                                                                                                   

10

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because the digital printing market is
  characterized by technological and other changes, our success depends on our
  ability to predict and respond to market developments or demands, and to
  continually develop new and more technologically advanced products and
  product enhancements that achieve market acceptance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  | The digital
  printing market is characterized by technological changes and improvements
  and frequent new product introductions and enhancements.  Our financial performance and growth is
  dependent upon our ability to continuously develop, introduce and deliver
  commercially viable products and technologies on a timely basis that offer
  customers enhanced performance at competitive prices. The ongoing
  introduction of new technologies and products across our product lines is
  intended to keep pace with rapid market changes and to minimize the effect of
  competitive product offerings and pricing.
  However, we cannot assure you that we will have the financial
  resources, marketing and distribution capability or the technology to compete
  successfully. We believe that our industry will continue to be characterized
  by technological advances and a relatively short product life cycles resulting
  in continued risk of product obsolescence.                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The market for digital printers and printer
  supplies is very competitive.  We may
  lose market share and our results may suffer if we cannot compete
  effectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  | The digital
  printing and printing supplies markets are very competitive and competition
  may increase in the future.
  Competition may come from existing vendors and new market entrants,
  including competitors that may have greater research and development, management,
  financial, technical, manufacturing, marketing, sales, distribution, name
  recognition and other resources than those currently available to us. For example, we are facing
  increased competition for the sale of inks for use with our printing systems,
  which caused us to reduce our prices for certain products.  Also, in the past few years several Asian
  producers, mostly from China, have entered the super-wide format printing
  market with low cost products emulating Scitex Visions entry-level printing
  systems. Scitex Vision faces strong competition in this market, mainly in
  China.  Scitex Vision is also facing
  strong competition in the field of flatbed industrial UV-curable ink-jet
  printers. Increased competition could have a material adverse effect on our
  business, financial condition and operating results through pricing pressure,
  loss of market share and other factors.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Some of our holdings are in companies with
  no proven business model or that may be unable to obtain future financing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  | Some of the
  companies in which we invested, including Jemtex, our majority-owned
  subsidiary, are emerging companies with no substantial operating history or a
  proven business model and have extensive research and development and
  marketing costs and limited revenues, if any.  In order to succeed, these companies may require additional
  capital to fund these costs, which may prove to be difficult to obtain.  If these companies are unable to obtain
  sufficient financing from their current shareholders, which may also include
  additional investments by us in these companies, or from new financing
  sources, their continued operations may be at risk.  In addition, even if such companies are able to finance their
  operations, there is no assurance that their products or technology will
  achieve market acceptance or that their business model will prove to be
  profitable. This could adversely affect our business.                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | It may be difficult for us to find
  replacement suppliers for key components of our products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  | There are a
  limited number of potential suppliers of certain key components of our
  products, including components of inkjet printheads, drying systems and
  inks.  Accordingly, any problems that
  may occur with respect to the delivery, quality or cost of these components
  could result in product shortages or quality assurance problems.  If our current suppliers of such
  components are unable or unwilling to provide these components to us, it may
  be difficult to find qualified suppliers or to replenish inventories of
  components on a timely basis, and this could cause our operating results to
  suffer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

11

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our intellectual property rights are
  difficult to protect and if we are unable to adequately protect such rights,
  our business may be materially adversely affected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | Our
  intellectual property rights, particularly existing or future patents, may be
  invalidated, circumvented, challenged, infringed, or required to be licensed
  to others, despite efforts to protect them.
  Furthermore, others may develop similar or superior technologies,
  duplicate or reverse-engineer our technology, or design around our patents,
  or those licensed to us.  If we fail
  to protect our intellectual property rights, we would be less able to
  differentiate our products and revenues will likely decline.  While we are not aware of any material
  infringement claims against us, third parties may assert infringement claims
  against us in the future and these claims may require us to enter into
  license arrangements or result in protracted and costly litigation,
  regardless of the merits of these claims.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Our operating results may be subject to
  quarterly fluctuations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | Our
  operating results may be subject to quarterly fluctuations as a result of a
  number of factors.  In particular, we
  do not typically have a significant backlog of orders at the beginning of
  each quarter and, as a result, may experience fluctuations in operating
  results based upon the timing of the receipt of orders and the shipment of
  products. We generally receive orders, ship and record a significant
  portion of our revenue within the same quarter. Thus, we may not learn of
  shortfalls or quarterly fluctuations in sales until late in, or shortly after
  the end of, the reporting periods.
  Other factors which have contributed, and may in the future
  contribute, to fluctuations in our quarterly results of operations include:                                                                                  

| |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                       
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                       | general
  economic conditions;                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                       | the capital
  spending patterns of our customers;                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                       | market
  acceptance of new products;                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                       | the high
  level of competition that we encounter;                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                       | the size and
  timing of orders, including order deferrals, and subsequent shipments.;                                                
| |                                                                                                                                                                                                                                                                                                                                                                                       | software and
  hardware development problems;                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                       | one-time
  charges;                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                       | mergers or acquisitions;                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                       | credit risks
  associated with certain customers or certain geographical areas.;                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                       | the timing
  of our new product introductions or enhancements or that of our competitors
  or providers of complementary products; and
| |                                                                                                                                                                                                                                                                                                                                                                                       | disruptions
  in, or changes in the quality of, our sources of supply.                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                       
| | Accordingly,
  the results of past periods should not be relied upon as an indication of our
  future performance. Our operating results have from time to time been, and
  may in some future periods be, below expectations of public market analysts
  or investors.  This has resulted, and
  if this occurs in the future would likely result, in a decline in our share
  price.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products may contain undetected defects
  that could harm our reputation, result in the loss of customers and revenues,
  and expose us to product liability claims.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  | We typically
  offer six to twelve month warranty programs with respect to our
  products.  Our warranty generally
  provides that we will repair or replace products with defects in materials or
  workmanship or that fail to meet agreed-upon specifications.  Although we perform comprehensive quality
  tests before delivering our products, our products may contain defects that
  may not be discovered before the products are supplied to customers.  Any defects or errors in the products
  could result in exposure to product liability claims; harm to our reputation;
  diversion of personnel and financial resources; less favorable insurance
  terms; other ancillary expenses; and, consequently, adversely affect our
  financial condition.

12

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be subject to environmental related
  liabilities due to our use of hazardous materials and solvents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | We mix ink
  used in some of our printers with solvents and other hazardous
  materials.  Those materials are
  subject to various governmental regulations relating to their transfer,
  handling, packaging, use and disposal.
  We store the ink at warehouses worldwide, including Europe, the United
  States, Mexico, Asia Pacific and South Africa, and shipping companies ship it
  at our direction.  We face potential
  responsibility for problems that may arise when we ship the ink to
  customers.  While we customarily
  obtain insurance coverage typical for this kind of risk, if we fail to comply
  with these laws or an accident involving our ink waste or solvents occurs,
  then our business and financial results could be harmed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | We may be subject to the risk of loss due
  to fire because the materials we use in the manufacturing process of our inks
  are flammable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | Scitex
  Vision uses flammable materials in the manufacturing processes of its inks
  and may therefore be subject to the risk of loss arising from fires. The risk
  of fire associated with these materials cannot be completely eliminated.
  Moreover, Scitex Vision has one main facility that manufactures these inks,
  which increases our exposure to such risk in case this facility is destroyed
  or materially damaged as a result of fire or otherwise. Scitex Vision
  maintains insurance policies to reduce losses caused by fire, including
  business interruption insurance. If this facility is damaged or otherwise
  ceases operations as a result of a fire, it would reduce manufacturing
  capacity and, consequently, may reduce revenues and adversely affect our
  business.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Our business is subject to risks from
  international operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | We conduct
  business globally.  Accordingly, our
  future results could be materially adversely affected by a variety of
  uncontrollable and changing factors including, among others, foreign currency
  exchange rates; regulatory, political, or economic requirements; business and
  government spending patterns; political and economic instability; and natural
  disasters. For example, Scitex Vision has recently entered into a strategic
  partnership agreement whereby it outsourced the manufacturing and assembly of
  certain products to a printing machinery manufacturer in China. If, among
  other things, regulatory, political, or economic requirements in China
  adversely affect such partnership, or if the quality of the products
  manufactured by that third party is not satisfactory, our business may be
  adversely affected. While we exert efforts to mitigate the risks associated
  with our international operations, such as by operating through local
  companies in foreign markets and certain hedging activities in respect of our
  currency exchange risks, our business will be materially adversely affected
  if we fail to overcome the challenges we encounter in such operations.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | We are exposed to potential liabilities in
  connection with the sale of the business of SDP to Kodak.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  | We have
  agreed to indemnify Kodak for certain breaches of our asset purchase
  agreement, including in the case of breaches of our representations and
  warranties, up to a cap of approximately $50 million. A claim against us
  could result in substantial cost, which would have a negative impact on our
  financial condition. In addition, we have generated
  a significant amount of gain
  from the SDP transaction. Based on our assessment, we believe that we are in
  compliance with all taxes due in relation with this transaction. The various
  tax authorities may not agree with our view. Any such disagreement or a
  subsequent tax dispute could result in tax liabilities in amounts which we
  currently cannot estimate. For more
  information, see under Item 10C. Material Contracts  Sale of SDP below.                                                                                                                                                                                                                                                                                                                                                                                              

13

---

---



|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     | Our results of operations may be harmed by
  currency fluctuations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      | Because we
  generate revenues and expenses in various currencies, including in U.S.
  dollars, Euros and certain other European currencies, the South African Rand
  and New Israeli Shekels, our financial results are subject to the effects of
  fluctuations of currency exchange rates.
  For example, we incur a significant portion of our expenses in New
  Israeli Shekels, or NIS.  As a result,
  we are exposed to risk to the extent that the dollar cost of our operations
  in Israel, as affected by the rate of inflation in Israel, exceeds the rate
  of devaluation of the NIS in relation to the dollar or if the timing of such
  devaluation lags behind the increase in the dollar cost of our operations in
  Israel.  If the dollar cost of our
  operations in Israel increases, then our dollar-measured results of
  operations will be adversely affected.
  Accordingly, we may enter into currency hedging transactions to
  decrease the risk of financial exposure from fluctuations in the exchange
  rate of the dollar against other currencies. However, we cannot predict
  whether and when exchange or price controls or other restrictions on the
  conversion of foreign currencies could impact our business.                                                                                                  
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | The loss of the services of our key personnel
  could seriously harm our business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      | Our future
  success depends to a large degree on the continued services of our senior
  management and key personnel.  In
  particular, we are dependent on the services of a small number of key
  executives.  The loss of their
  services, particularly to a competitor, could disrupt our operations and harm
  our business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | Our group companies may not be able to
  enforce covenants not to compete.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      | Some of our
  group companies currently have non-competition agreements with substantial
  numbers of their employees who are involved in research and development. In
  many cases, these employees are located primarily in Israel. These agreements
  prohibit the companys employees, if they cease working for the company, from
  directly competing with the company or working for its competitors. Israeli
  courts have required employers seeking to enforce non-compete undertakings of
  a former employee to demonstrate that the competitive activities of the
  former employee will harm one of a limited number of material interests of
  the employer which have been recognized by the courts, such as the secrecy of
  a companys confidential commercial information or its intellectual property.
  If any of our group companies cannot demonstrate that harm would be caused to
  it, the company may be unable to prevent its competitors from benefiting from
  the expertise of its former employees.                                                                                                                                                                                                                                                                                                                        
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Risks Related to Operations in Israel
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                     | Political, economic and military
  instability in Israel or the Middle East may adversely affect our results of
  operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      | Our
  corporate headquarters and the principal offices, research and development,
  engineering and manufacturing operations of Scitex Vision, the principal
  facilities of several of our group companies, and many of our and their
  suppliers are located in Israel.  In
  addition, such companies are heavily dependent upon components imported into
  Israel.  Accordingly, our operations and
  financial results could be adversely affected if political, economic or military
  events curtailed or interrupted trade between Israel and its present trading
  partners or if major hostilities involving Israel should occur in the Middle
  East.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                      | Since the
  establishment of the State of Israel in 1948, a number of armed conflicts have
  taken place between Israel and its Arab neighbors.  A state of hostility, varying in degree and intensity, has led
  to security and economic problems for Israel.  Since October 2000, there has been a high level of violence
  between Israel and the Palestinians which has strained Israels relationship
  with its Arab citizens, Arab countries and, to some extent, with other
  countries around the world.  Any armed
  conflicts or political instability in the region, including acts of terrorism
  or any other hostilities involving or threatening Israel, would likely
  negatively affect business conditions and harm our results of operations.
  Furthermore, several countries restrict business with Israel and Israeli
  companies and additional countries may restrict doing business with Israel
  and Israeli companies as a result of hostilities between Israel and the
  Palestinians. These restrictive policies have harmed and may continue to harm
  the expansion of our business.  No
  predictions can be made as to whether or when a final resolution of the
  areas problems will be achieved or the nature thereof and to what extent the
  situation will impact Israels economic development or our operations.
|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

14

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | In addition,
  due to significant economic measures implemented by the Israeli Government
  and other measures currently pending, there have been strikes and work
  stoppages in 2003 and 2004, affecting banks, airports and ports.  These strikes have had an adverse effect
  on the Israeli economy and on business, including our ability to deliver products
  that we manufacture in Israel to our customers overseas.  Following the passage by the Israeli
  Parliament of laws to implement such economic measures, the Israeli trade
  unions have threatened further strikes or work-stoppages, which may have a
  material adverse effect on the Israeli economy and, especially to the extent
  such strikes or work-stoppages affect Israeli ports, on us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Our results of operations may be negatively
  affected by the obligation of personnel to perform military service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  | Some of our
  and our group companies executive officers and employees in Israel are
  obligated to perform military reserve duty annually. They may also be further
  subject to being called to active duty at any time under emergency
  circumstances. Our operations could be disrupted by the absence for a
  significant period of one or more of our executive officers, key employees or
  a significant number of other employees due to military service, and any
  disruption in our operations would harm our business.  The full impact on our workforce or
  business if some of our executive officers and employees are called upon to
  perform military service, especially in times of national emergency, is
  difficult to predict.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The tax benefits that some of our group
  companies currently receive or may utilize in the future are subject to
  several conditions and may be terminated or reduced in the future, which
  could increase our or their taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  | Some of our
  Israeli group companies currently receive or may in the future receive tax
  benefits under Israeli law for capital investments that are designated as
  Approved Enterprises.  To maintain
  eligibility for these tax benefits, a participant must continue to meet
  conditions stipulated in applicable law and in the specific approvals,
  including making specified investments in fixed assets.  If our applicable Israeli group companies
  fail to comply with these conditions, in whole or in part, in the future,
  these companies may be required to pay additional taxes for the period
  in which they benefited from the tax exemption or reduced tax rates and would
  likely be denied these benefits in the future.  From time to time, some of our Israeli
  group companies may submit requests for expansion of their Approved
  Enterprise programs or for new programs to be designated as Approved
  Enterprises.  These requests might not
  be approved. The
  termination or reduction of these tax benefits could harm our financial
  condition and results of operations.                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | We may be required to pay stamp duty on agreements
  executed on or after June 1, 2003. This would increase our taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  | The Israeli
  Stamp Duty on Documents Law, 1961, or the Stamp Duty Law, provides that most
  documents signed by Israeli companies are subject to a stamp duty, generally
  at a rate of between 0.4% and 1% of the value of the subject matter of such
  document. De facto, it has been common practice in Israel not to pay such
  stamp duty unless a document is filed with a governmental authority or with
  the courts. As a result of an amendment to the Stamp Duty Law that came into
  effect on June 1, 2003, the Israeli tax authorities have approached many
  companies in Israel, including us, and requested the disclosure of all
  agreements signed by such companies after June 1, 2003 with the aim of collecting
  stamp duty on such agreements.  The
  legitimacy of the aforementioned amendment to the Stamp Duty Law and of said
  actions by the Israeli tax authorities is currently under review by the
  Israeli High Court of Justice. Although at this stage it is not yet possible
  to evaluate the effect, if any, on us of the amendment to the Stamp Duty Law,
  it could materially adversely affect our results of operations. In January
  2005, an order was signed under which the above-described requirement to pay
  stamp duty is cancelled with effect from January 1, 2008. Furthermore,
  pursuant to this order, as of January 1, 2005, stamp duty is no longer
  chargeable on, among others, loan agreements.

15

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because some of our group companies receive
  grants from the Israeli Office of the Chief Scientist, they are subject to
  ongoing restrictions, and such companies grant programs may be terminated or
  reduced in the future, which would increase our costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | Some of our group
  companies receive royalty-bearing grants from the Office
  of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor
  for research and development programs that meet specified criteria. To
  maintain eligibility for these grants, the grantee must continue to meet
  several conditions under the grant programs, including paying royalties with
  respect to the grants received. If our group companies fail to comply with any of the conditions
  imposed by the Chief Scientist, they may be required to refund any payments
  previously received, together with interest and penalties.  In addition, the terms of the Chief
  Scientist grants limit the ability of the grantee to manufacture products or
  transfer technologies, outside of Israel, if such products or technologies were
  developed using know-how developed with or based upon Chief Scientist
  grants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | As of
  December 31, 2004, our contingent liability to the Office of the Chief
  Scientist with respect to grants received was approximately $7.0 million.
  These programs may not continue in the future at their current levels or at
  any level.  From time to time, we and
  some of our group companies may submit requests for new grants from the Office of the
  Chief Scientist.  These requests might
  not be approved, particularly in light of the reduction in government spending
  in Israel.  The termination or
  reduction of these grants could harm our financial condition and results of
  operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Israeli banking laws may impose
  restrictions on the total debt that we may borrow from Israeli banks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | Pursuant to
  a directive published by the Israeli Supervisor of Banks, which became
  effective on March 31, 2004, we may be deemed part of a group of affiliated
  borrowers comprised of IDB Holding Corporation Ltd., the ultimate parent of
  Discount and Clal, our principal shareholders, and other companies which may
  be included in such group of borrowers pursuant to the directive. The
  directive generally provides that an entity will be subject to limitations on
  the amount of financing available to it from an Israeli bank if such entity
  is included within a group of borrowers to which the amount of debt financing
  that has been extended from such Israeli bank exceeds certain limits as
  specified in the directive. As we are part of the IDB affiliated group of
  companies which includes many companies that require, or may in the future
  require, extensive credit facilities from Israeli banks for the
  operation of their businesses, we cannot assure you that our banks will not
  exceed these limits (if applicable to us) in the future. Should our banks
  exceed these limits, they may limit our ability to draw funds and may require
  us to return some or all of our outstanding borrowings (which were $42
  million as of December 31, 2004), each of which may have a material adverse
  effect on our business, financial condition and results of operations. For additional information, see in Item 4B below
  under the caption Government Regulations.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | A litigant may have difficulty enforcing
  U.S. judgments against us, our officers and directors, our Israeli subsidiaries
  and affiliates or asserting U.S. securities law claims in Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | Service of
  process upon us, our Israeli subsidiaries and affiliates, and our directors
  and officers, substantially all of whom reside outside the United States, may
  be difficult to obtain within the United States.  Furthermore, because the majority of our assets and
  investments, and substantially all of our directors and officers are located
  outside the United States, any judgment obtained in the United States against
  us or any of them may not be collectible within the United States.  There is doubt as to the enforceability of
  civil liabilities under the Securities Act of 1933 and the Securities
  Exchange Act of 1934 in original actions instituted in Israel.  However, subject to specified time
  limitations, Israeli courts may enforce a U.S. final executory judgment in a
  civil matter, provided that:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

16

---

---



| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | adequate
  service of process has been effected and the defendant has had a reasonable
  opportunity to be heard;                                                 
| |  | the judgment
  and its enforcement are not contrary to the law, public policy, security or
  sovereignty of the State of Israel;                                  
| |  | the judgment
  was obtained after due process before a court of competent jurisdiction
  according to the rules of private international law prevailing in Israel;
| |  | the judgment
  was not obtained by fraudulent means and does not conflict with any other
  valid judgment in the same matter between the same parties;            
| |  | an action
  between the same parties in the same matter is not pending in any Israeli
  court at the time the lawsuit is instituted in the U.S. court; and        
| |  | the U.S.
  court is not prohibited from enforcing judgments of Israeli courts.                                                                                    

|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                   | Provisions of Israeli law may delay,
  prevent or make more difficult an acquisition of Scitex, which could depress
  our share price.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                    | The Israeli
  Companies Law generally requires that a merger be approved by the board of
  directors and a majority of the shares voting on the proposed merger.  For purposes of the shareholder vote,
  unless a court rules otherwise, the merger will not be deemed approved if
  shares, representing a majority of the voting power present at the
  shareholders meeting, and which are not held by the other party to the merger
  (or by any person who holds 25% or more of the shares or the right to appoint
  25% or more of the directors of the other party or its general manager) have
  voted against the merger. Upon the request of any creditor of a party to the
  proposed merger, a court may delay or prevent the merger if it concludes that
  there is a reasonable concern that, as a result of the merger, the surviving
  company will be unable to satisfy the obligations of the surviving company.
  Finally, a merger may generally not be completed unless at least (i) 50 days
  have passed since the filing of a merger proposal signed by both parties with
  the Israeli Registrar of Companies and (ii) 30 days have passed since the
  merger was approved by the shareholders of each of the parties to the merger.
  Also, in certain circumstances an acquisition of shares in a public company
  must be made by means of a tender offer.
  Lastly, Israeli tax law treats some acquisitions, such as
  stock-for-stock exchanges between an Israeli company and a foreign company,
  less favorably than U.S. tax laws. These provisions of Israeli corporate and
  tax law may have the effect of delaying, preventing or make more difficult an
  acquisition of or merger with us, which could depress our share price.
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Risks Related to the Market for Our Ordinary Shares
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                   | In the event we sell Scitex Vision, there
  may be uncertainty as to our future business model and we may not be
  successful in identifying and evaluating suitable business
  opportunities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                    | In January
  2004, we sold the business of SDP to Kodak and have invested a portion of the
  cash proceeds from the sale in short and long term investments. In March 2005, we
announced that we are engaged in
  preliminary negotiations for the possible sale of our holdings in Scitex
  Vision, our remaining principal operating subsidiary. The negotiations are
  continuing, and while there is no assurance if, when or on what terms such a
  transaction will take place, if we do consummate such a transaction, we will
  need to reevaluate our business model and industry focus and/or our
  investment policy. There can be no assurance as to when and what business
  model we will determine to follow and if so, that we will be successful in
  identifying and evaluating alternative suitable business opportunities,
  whether in the digital printing and related industries, or other industries.
  In addition, this possible uncertainty of our future business model, or if a
  perception in the market exists that there is such uncertainty, may harm our
  business or cause our share price to decline.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

17

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our U.S. shareholders may suffer adverse
  tax consequences if we are classified as a passive foreign investment
  company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  | As more
  fully described in Item 10  Additional Information  Taxation under the
  caption  Tax Consequences if we are a
  Passive Foreign Investment Company, we may be classified as a passive
  foreign investment company, or PFIC, for U.S. federal income tax purposes if
  for any taxable year our passive income or our assets that produce passive
  income exceed specified levels. Because we have elected to waive a certain
  benefit under the U.S.-Israel Income Tax Treaty, we do not believe we were a
  PFIC in 2004.  However, should we
  successfully complete negotiations and sell our holdings in Scitex Vision, it
  is probable that we will become a PFIC in 2005 or in subsequent years.
  Furthermore, even if we do not sell our interest in Scitex Vision, there can
  be no assurance that we will not nevertheless become a PFIC in 2005 or in
  subsequent years. If we are characterized as a PFIC, U.S. holders (as defined
  in Item 10) may suffer adverse tax consequences.  These consequences may include having gains realized on the
  sale of our ordinary shares treated as ordinary income, rather than capital
  gain income, and having potentially punitive interest charges apply to the
  proceeds of share sales.  U.S. holders
  should consult with their own U.S. tax advisors with respect to the U.S. tax
  consequences of investing in our ordinary shares.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Volatility of our share price could
  adversely affect us and our shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  | The market price
  for our ordinary shares has been and is likely to continue to be volatile and
  could be subject to wide fluctuations in response to numerous factors, such
  as:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | market
  conditions or trends in our industry;                                     
| |   |                                                                                    
| |  | political,
  economic and other developments in the State of Israel and world-wide;
| |   |                                                                                    
| |  | actual or
  anticipated variations in our quarterly operating results;             
| |   |                                                                                    
| |  | material
  corporate transactions; and                                             
| |   |                                                                                    
| |  | entry into
  strategic partnerships or joint ventures by us or our competitors.    

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | In addition,
  the stock market in general, and the market for Israeli and technology
  companies in particular, has been highly volatile in the past four
  years.  Many of these factors are
  beyond our control and may materially adversely affect the market price of
  our ordinary shares, regardless of our performance.  Shareholders may not be able to sell their ordinary shares
  following periods of volatility because of the markets adverse reaction to
  such volatility and we may not be able to raise capital through an offering
  of securities.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Two shareholders may be able to control us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  | Clal,
  through CEI, its wholly owned subsidiary, and Discount (directly and through
  DIC Loans Ltd., its wholly owned subsidiary) own an aggregate of
  approximately 49% of our outstanding ordinary shares. In addition, they are
  parties to a voting agreement entered into in 1980.  Accordingly, Clal and Discount may have sufficient voting
  power, subject to special approvals required by Israeli law for
  transactions involving controlling shareholders, to:                                                                                           

| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | elect all of our directors
  (subject to the provisions of the Companies Law with regard to outside
  directors);
| |   |                                                                                                                  
| |  | control our management;
  and                                                                                    
| |   |                                                                                                                  
| |  | approve or reject any
  merger, consolidation or sale of substantially all of our assets.                        

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | This
  concentration of ownership of our ordinary shares could delay or prevent
  proxy contests, mergers, tender offers, open-market purchase programs or
  other purchases of our ordinary shares that might otherwise give our shareholders
  the opportunity to realize a premium over the then-prevailing market price
  for our ordinary shares.  This
  concentration of ownership may also adversely affect our share price.  In addition, the market price of our
  ordinary shares may be adversely affected by events relating to Clal and
  Discount that are unrelated to us.

18

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ordinary shares are listed for trading in more than one market
  and this may result in price variations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  | Our ordinary
  shares are listed for trading on Nasdaq National Market, or Nasdaq, and the
  Tel Aviv Stock Exchange, or TASE. Trading in our ordinary shares on these
  markets is made in different currencies (U.S. dollars on Nasdaq and New
  Israeli Shekels on TASE), and at different times (resulting from different
  time zones, different trading days and different public holidays in the
  United States and Israel). The trading prices of our ordinary shares on these
  two markets often differ, resulting from the factors described above, as well
  as differences in exchange rates. Any decrease in the trading price of our
  ordinary shares on one of these markets could cause a decrease in the trading
  price of our ordinary shares on the other market.

|        |                                       
|------- | --------------------------------------
|ITEM 4. | INFORMATION ON THE COMPANY            
|        |                                       
|A.      | HISTORY AND DEVELOPMENT OF THE COMPANY

CORPORATE HISTORY & DETAILS

Our legal and commercial
name is Scitex Corporation Ltd. and our legal form is a company limited by
shares. We were incorporated under the laws of the State of Israel on November
2, 1971, succeeding a predecessor corporation, Scientific Technology Ltd. that
was founded on September 5, 1968. Our corporate headquarters and principal
executive offices are located at 3 Azrieli Center, Triangular Tower, 43rd
Floor, Tel Aviv, 67023, Israel. Our telephone number in Israel is (972) 3  6075855. Our website address
is www.scitex.com. Information
contained on our website does not constitute a part of this Annual Report.

We initially focused on
imaging competencies in systems for the textile design market. In 1979, we
launched the worlds first computerized color prepress system. In the 1990s we
identified the evolving digital printing market and focused on commercializing
innovative solutions for the graphic publishing industry in its transition from
analog to digital printing, and made several key acquisitions of digital
printing operations. In April 2000, we sold our digital preprint operations and
our print-on-demand systems business to Creo. We, through our subsidiaries, now
design, develop, manufacture, market and support primarily industrial inkjet
digital printing solutions.

MAJOR BUSINESS DEVELOPMENTS

We are currently focusing,
through Scitex Vision, on the wide format segment of the industrial inkjet
digital printing market. In January 2004, we ended our involvement in the
high-speed digital printing business through the sale of the business of SDP to
Kodak (see Item 10C below). In connection with that transaction, we approved a
plan to distribute approximately $118 million to our shareholders through a
repurchase of shares from our shareholders and a cash distribution:

|  |                                                                                                                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In May 2004, we commenced
  a self tender offer to purchase up to 5,643,739 of our shares for $5.67 per
  share (up to $32 million in the aggregate) in cash. In June 2004, we
  completed the tender offer and purchased 4,952,050 shares for an aggregate
  amount of approximately $28 million.
|  |                                                                                                                                                                                                                                                                                                   
| | In July 2004, we
  distributed $2.36 per ordinary share, or approximately $90 million in the
  aggregate, to our shareholders of record as of June 30, 2004.                                                                                                                                      

As we previously announced,
we have been pursuing various strategic alternatives, including a sale and an
IPO, of our holdings in Scitex Vision. In March 2005, we announced that we are
engaged in preliminary negotiations for the possible sale of our holdings in
Scitex Vision, of which we hold approximately 77.1% of the outstanding share
capital (70.6% on a fully diluted basis), for an enterprise value of Scitex
Vision in the range of $230250 million. The proposed transaction is subject to
a due diligence process and the negotiation and execution of definitive
agreements. There is no assurance whatsoever that any transaction will result
with respect to Scitex Vision or as to the terms, deal structure and the
purchase price for Scitex Vision if a sale occurs.

19

---

---



Since January 1, 2002,
except for the self tender offer and the cash distribution described above,
most of our principal capital expenditures and divestitures have been for the
acquisition or sale of interests in other companies, as follows:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We invested an aggregate
  of approximately $ 2.8 million in Objet Geometries Ltd. since January 1,
  2002, including $0.5 million and $ 0.3 million that were invested in  December 2003 and November 2004,
  respectively, in connection with Objets rights offerings, and thereafter
  held an approximate 22.9% interest of Objet. In May 2005, we agreed to sell
  all of our holdings in Objet to several shareholders of Objet for $3.0
  million in cash, payable in two installments. Additional contingent
  consideration will be paid to Scitex if Objet undergoes specified exit
  events prior to the end of 2007. The closing of the sale occurred in late
  June 2005. The book value of our investment in Objet was recorded at close to
  nil on our balance sheet as of March 31, 2005, and such investment is
  accounted for under the equity method;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Since January 1, 2002, we
  invested an aggregate of approximately $8.0 million in Jemtex InkJet Printing
  Ltd., partly in Jemtexs share capital and partly in consideration for
  convertible debentures of Jemtex. We now hold an approximate 74.3% interest
  (83.5% assuming conversions of the debentures) in Jemtex;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In the fourth quarter of
  2002, we signed an agreement to combine the operations of Scitex Vision and
  Scitex Vision International, our then wholly owned subsidiary, and in January
  2003 we completed this transaction, as a result of which Scitex Vision became
  a majority owned subsidiary of ours and the parent of Scitex Vision
  International. In July 2003 and May 2004, Scitex Vision concluded rights
  offerings in which we invested approximately $5.0 million and $4.2 million,
  respectively, in accordance with our pro rata share of such offering. See in
  Item 7B below under the captions Combination of Scitex Vision and Scitex
  Vision International and Rights Offerings by Scitex Vision, respectively.
  As previously reported, we were involved in several disputes with C.D.I.
  Technologies (1999) Ltd. (CDI) a minority shareholder of Scitex Vision,
  including claims against us, Scitex Vision and several other parties. In May
  2005, we and our two largest shareholders, Clal and Discount, purchased all
  of CDIs interest in Scitex Vision, constituting 1.89% of Scitex Visions
  issued share capital (1.35% on a fully diluted basis), for $1.6 million, plus
  additional contingent consideration to be paid if Scitex Vision undergoes an
  exit event within the next two years at a higher valuation than implied in
  the agreement. In the framework of the purchase agreement, CDI agreed to
  dismiss all of the claims asserted by it against us and the other parties.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In April 2002, Scitex
  Vision International acquired advanced digital printing technologies from
  Siantec SARL, or Siantec, by way of an asset purchase agreement for $2
  million and additional contingent payments of up to a maximum of $10 million.
  Furthermore, we issued guarantees in favor of Siantec to secure Scitex Vision
  Internationals obligations and payments under the agreement, and in favor of
  Bank Hapoalim, in the amount of $2 million, to secure a loan provided by the
  bank for the initial payment by Scitex Vision International. The $2 million
  loan was fully repaid to the bank by Scitex Vision. In February 2004, Siantec
  agreed to pay Scitex Vision International $1 million out of the escrow
  account established in the framework of the transaction and to waive its
  rights to the said contingent payments of up to $10 million in settlement of
  alleged breaches of representations and warranties made by Siantec in the
  asset purchase agreement;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | In April 2000, we sold our
  digital preprint operations and our print-on-demand systems business to Creo,
  in return for 13.25 million Creo shares, and became the largest shareholder
  in Creo, initially with approximately 28.7% of the outstanding Creo shares. As part of the transaction, we issued to Creo
  an unsecured, non-interest bearing note in the principal amount of $18.8 million,
  which was fully repaid in April 2003. In November 2001, we sold 7.0
  million shares of Creo for gross proceeds of approximately $78 million as
  part of a private placement to Canadian institutional investors. In June and
  August 2003, we sold 3.0 million shares of Creo for gross proceeds of
  approximately $24 million and 3.25 million shares of Creo for gross proceeds
  of approximately $31 million, respectively, as part of arranged sales to
  various financial institutions in Canada. We no longer hold any Creo shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

20

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In April 2002, we
  completed the sale of our shares in the Karat Digital Press joint venture, a
  developer of color digital offset press, to Koenig & Bauer A.G., or KBA,
  our joint venture partner, for approximately $14.4 million and for additional
  contingent future performance related payments. Other
  terms of this transaction, announced in early 2001, include, among other
  things, the assumption by KBA of full responsibility for manufacturing, sales
  and customer support operations of Karat Digital Press machines worldwide;                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In January 2004, we
  completed a transaction to sell the business of SDP, our indirect wholly
  owned subsidiary, to Kodak. This transaction is described under Item 10C.
  Material Contracts  Sale of SDP below; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In late April 2005, IDX
  Systems Corporation, or IDX, entered into a purchase agreement with
  RealTimeImage Ltd. (formerly RTimage Ltd.) (RTI), our 14.9% minority-owned
  affiliate, whereby it will acquire the assets of RTI for an estimated
  purchase price of $15.5 million. The closing of the acquisition, currently
  expected in summer of 2005, is subject to certain customary terms and
  conditions. Also, the distribution of funds to the shareholders of RTI is
  subject to certain time and other limitations and processes, including
  pursuant to the purchase agreement. The book value of our investment in RTI
  was recorded at $1.2 million on our balance sheet as of March 31, 2005, and
  such investment is accounted for under the cost method.

|B. | BUSINESS OVERVIEW
|-- | -----------------

OVERVIEW

We are leaders, through
Scitex Vision, in the wide and super-wide format segment of the industrial
inkjet digital printing market. Our current operations, carried out by our
operating subsidiaries, Scitex Vision and Jemtex, consist of the design,
development, manufacture, marketing and support of products for the industrial
inkjet digital printing market.

Until the second half of
2003, we also operated in the digital preprint business through our equity
interest in Creo, and, through the end of 2003, we operated in the high-speed
segment of the industrial inkjet digital printing market through SDP.

During 2004, we also
operated in the rapid prototyping market (through our equity interest in Objet)
and in the Internet-based imaging market (through our equity interest in RTI).
However, as described above, (1) in April 2005, RTI agreed to sell its business
to IDX, and (2) in May 2005, we agreed to sell all of our holdings in Objet.
The closing of these transactions is subject to certain conditions.

21

---

---



SCITEX VISION  WIDE FORMAT &
SUPER-WIDE FORMAT PRINTERS

General

Scitex Vision Ltd.
(formerly, Aprion Digital Ltd.), or Scitex Vision, is our majority owned
subsidiary (approximately 77.1% interest), based in Netanya, Israel. It is a
leading developer, manufacturer and distributor of wide-format and super-wide
format, color inkjet digital printing systems used for point-of-purchase
displays, banners and indoor and outdoor advertising posters. It is also
engaged in the design, development, manufacturing and marketing of advanced
digital printing presses and specialized water-based inks for the packaging and
textile markets based on its patented drop-on-demand inkjet technology. As of
December 31, 2004, Scitex Vision employed approximately 500 employees
(including employees of its sales, marketing and support subsidiaries and
part-time and temporary employees).

Scitex Vision was formed out
of several acquisitions and transactions. The following is a brief outline of
some of the key dates in Scitex Visions corporate history:

|      |                                                                                                                                                                                                                                                                                                  
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1994: | Idanit Technologies Ltd.
  was founded as an Israeli company.                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                  
|1998: | Scitex acquired the
  operations of Idanit in February 1998 and, in October 1998, expanded its
  operations with the purchase of the super-wide format product line from the
  Israeli Matan group of companies.                                                                                 
|      |                                                                                                                                                                                                                                                                                                  
|1999: | Idanits name was changed
  to Scitex Wide Format Printing Ltd. on February 24, 1999. In September 1999,
  Scitex formed Scitex Vision (under the name of Aprion Digital) out of its
  Advanced Printing Products division, together with several other investors,
  including Clal and Discount.
|      |                                                                                                                                                                                                                                                                                                  
|2000: | The name of Scitex Wide
  Format Printing Ltd. was changed to Scitex Vision Ltd. (currently, Scitex
  Vision International Ltd.) on August 21, 2000.                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                  
|2001: | Scitex Vision Ltd.
  (currently, Scitex Vision International Ltd.) acquired the ink manufacturing
  business of Techno Ink Manufacturing (PTY) Ltd., a company based in Capetown,
  South Africa.                                                                                                
|      |                                                                                                                                                                                                                                                                                                  
|2003: | In January 2003, the
  operations of Scitex Vision International (formerly, Scitex Vision Ltd.) were
  combined with those of Scitex Vision (formerly, Aprion Digital Ltd.), as a
  result of which Scitex Vision International became a wholly owned subsidiary
  of Scitex Vision.             
|      |                                                                                                                                                                                                                                                                                                  
|2004: | The name of Aprion Digital
  Ltd. was changed to its present name, Scitex Vision Ltd., on February 16,
  2004.                                                                                                                                                                                   

##### Product Overview

Scitex Vision
printers are dedicated to a wide array of applications including billboards,
fleet marking, banners, street advertising, point-of-purchase displays and floor
and window graphics, and applications for the packaging display market and,
through strategic partners, for the textile market. Its printing systems are
aimed at providing high-quality and cost-effective solutions to digital
printing houses worldwide. Scitex Vision operates principally in the following
fields: wide format systems, super-wide format systems, and flatbed printing
systems for graphic arts, graphic display and textile printing applications.

Wide Format Printing Systems.

Scitex
Visions wide format systems utilize piezoelectric drop-on-demand inkjet
technology and the companys proprietary multi-array technology. These wide
format systems are especially designed for short and medium print run
applications and a broad range of applications, such as point-of-purchase
displays, outdoor billboards, fleet marking, street advertising and bus
shelters. Scitex Vision wide format systems have become an industry standard
among paper billboard printers and fleet graphics printers in Europe and the
United States. Representative products in this category are:

|  |                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | TURBOjet.
  With printing speed of up to 400 square meters per hour and a high printing
  resolution (of up to 440 dpi (dots-per-inch)), the TURBOjet is designed to
  provide a high-quality, high-speed and low-cost industrial digital printing
  solution for the screen printing and offset industry.

22

---

---



|  |                                                                                                                                                                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Superjet.
  The Superjet is an industrial roll-to-roll printing system that prints with
  environmentally friendly water-based inks, at a high printing resolution (600
  dpi). It is designed to provide high image and text quality at high printing
  speeds for unique applications, such as point-of-purchase displays and
  banners.

Super-Wide Format Printing Systems.

Scitex
Visions super-wide format systems are especially designed for short print run
applications on formats of between two to five meters wide for a broad range of
applications, including billboards, point-of-purchase, truck-side curtains,
vehicle wraps, textile and carpet printing, floor and window graphics, wall
coverings, exhibition graphics and banners, and theater and television
backdrops. Representative products in this category include the Scitex Vision
Grandjet, and the Scitex Vision XLjet line of systems that print mainly on
formats of up to three and five meters wide, the only limitation on length of
the print being the size of the roll. If wider print widths are required,
systems create a print layout in sections that, when seamed and placed
together, create a continuous and seamless-looking image in super-wide formats
such as mega posters. These systems differ mainly in their image quality,
number of colors, throughput capability and price. Like Scitex Visions wide
format digital printing systems, the Scitex Vision Grandjet and Scitex Vision
XLjet systems utilize piezoelectric drop-on-demand inkjet technology. However,
unlike the TURBOjet and other previous wide format systems, which are
drum-based (except for the Superjet), they are based on a roll-to-roll
technology, using a print process in which the substrate is placed on two long
cylindrical shafts at the base of the printer. During 2003 and 2004, Scitex
Vision introduced several new additions and improvements to its product
offering in the super wide format range covering all ranges of systems from the
entry level Grandjet Classic to the high-end Xljet 5+.

Flatbed Printing Systems.

Following the
acquisition of flatbed and UV curable ink technologies in April 2002 from
Siantec SARL, Scitex Vision has developed, and in 2003 launched, the Scitex
Vision VEEjet, an advanced versatile flatbed wide format digital system
designed to print on a wide range of rigid and flexible substrates for the
graphic arts market using environmentally friendly UV curable inks. The UV
Flatbed system market has developed rapidly over the last two years and,
following a slow start in 2003, the sales of the Scitex Vision VEEjet have been
developing more rapidly since mid 2004. The main applications driven by the
Flatbed systems are point of purchase displays and interior design elements.
The UV systems are characterized by their ability to print on various
substrates including glass, ceramics and metals. Some applications in the
high-end productivity market of this field are handled by the Scitex Vision
CORJet described below.

Industrial Inkjet Presses.

Scitex Vision
designs, develops, manufactures and markets advanced digital printing presses
and specialized water-based inks for industrial applications based on its
patented drop-on-demand inkjet technology. This technology, initially developed
under Scitexs former Advanced Printing Products division, is based on piezo
inkjet heads with a patented multi-layer construction designed to provide high
printing speed, flexibility of media choice and high reliability. Applications
include packaging and displays, graphic arts and textile. The industrial inkjet
press system exists in roll-to-roll and sheet-fed versions. It is a
cost-effective, piezo-driven, drop-on-demand inkjet system with a traversing
print array. The press can handle short runs printed on materials up to 63
inches in width and is designed for industrial applications. Representative
products include:

|  |                                                                                                                                                                                                                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | CORJet. The CORJet is
  designed to provide a flexible, high-quality and high-printing speed product
  for short and medium run prints on corrugated displays and packaging
  applications. It is a fully automated system that prints with
  environment-friendly industrial digital inkjet press for cost-effective short
  runs.

23

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DreAM. The DreAM is an
  industrial digital printer for textile applications for short and medium
  fabric print runs for specialized clothing, home furnishings, automotive and
  other technical textiles, flags and banners, and emerging applications. It
  prints with printing speed of up to 150 square meters per hour and at a high
  printing resolution (600 dpi) directly on woven, knitted and non-woven
  fabrics. The DreAM was introduced in December 2002 by Reggiani Macchine
  S.p.A. of Italy, and combines Reggianis proprietary substrate-conveying system
  with Scitex Visions inkjet heads and uses novel printing inks, developed
  especially by Ciba Specialty Chemicals of Switzerland. Pursuant to Scitex
  Visions agreement with Reggiani and Ciba, Reggiani is responsible for the
  integration, marketing and service of the DreAM while the inks are developed
  and marketed by Ciba.

Consumables.

The inks used
with Scitex Visions printing systems are an important element of the printing
process. The quality of the prints depends in part on a number of factors relating
to the inks, including the compatibility of the inks with the printheads, the
color gamut achievable with the inks, the ink gloss and the color density. In
addition, outdoor applications require additional characteristics in the ink
such as durability and abrasion resistance to protect against the elements.
Scitex Vision sells inks that are specially formulated to work with its
systems. Most of the inks sold are solvent-based pigmented inks. In March 2001,
following the acquisition by Scitex Vision of Tech-Ink, one of the leading
state-of the-art ink manufacturers, located in Cape-Town, South Africa, the
inks are manufactured by Tech-Ink. In April 2001, Scitex Vision introduced the
innovative VisionInk program to the market, whereby customers are able to
select inks that have been specially developed for both their printing systems
and their applications.

Manufacturing

Scitex Vision
outsources the manufacturing of many of the components for its systems to its
own specifications and purchases off-the shelf components for its systems from
third party vendors. The most important third party vendors for its printing
systems are the suppliers of the printheads used in such systems, and the
subcontractors for assembly of its wide format systems.

Final integration
and quality control testing of Scitex Visions wide and super wide format
systems is conducted at its facilities in Netanya, Israel, where it also
assembles its wide and super-wide format systems and conducts full system
integration and quality assurance testing.

In February
2005, Scitex Vision entered into a strategic partnership agreement with Beiren
Group Corporation (Beiren), a leading printing machinery manufacturer in China.
The agreement initially covers the manufacturing and assembly at Beiren of
Scitex Visions entry-level super-wide format digital printing system, the
Scitex Vision Grandjet Classic. The partnership also paves the way for
potential joint product development and other manufacturing activities.

Most of the
parts, components and commodities used by Scitex Vision in the manufacture and
assembly of its products are available from several sources, although it
currently purchases a substantial number of items from single suppliers. In
some cases, there is only one source of supply for a component or commodity
used by it. In particular, Scitex Vision currently has only single sources for
the supply of the printheads for its wide format printers and for its
super-wide format printers. While Scitex Vision conducts a continuous process of
evaluation of the main printheads available in the market, if either of these
printhead suppliers were to discontinue the manufacture or supply of
printheads, Scitex Vision believes it would have difficulties in locating
alternative suppliers or manufacturing these products itself within a
reasonable time frame.

24

---

---



Scitex Vision
generally purchases certain major components and commodities used in its
products under annually renewable supply agreements with principal suppliers.
To date, it has managed to overcome any difficulties experienced in obtaining
timely deliveries. However, increased demand for these components and
commodities or future unavailability could result in production delays that
might adversely affect our business. Scitex Vision
also operates through original equipment manufacturers (OEMs) and cooperation
agreements in respect of its industrial inkjet press systems for the textile
market, whereby a family of print modules incorporating its unique printhead
technology for these systems is used by its business partners in a variety of
configurations and applications.

Sales & Marketing

Scitex Vision has a large
customer base with over 1,600 systems installed globally to date. It sells its
products through its direct sales force, indirect distribution channels and
third party joint sales arrangements:

|  |                                                                                                                                                                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Direct
  sales. Scitex Vision formed regional subsidiaries that operate as
  distribution units principally in North America and Europe, the Asia Pacific
  region and Central America, the Middle-East and Africa. These subsidiaries
  carry out direct sales and marketing as well as service and logistics for its
  products in their respective regions.
|  |                                                                                                                                                                                                                                                                                                                                                               
| | Distribution
  channels. Scitex Vision relies on third party distributors and dealers to
  conduct sales and marketing in Latin America and in certain countries in
  Europe, Asia Pacific, Africa and the Middle East.                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                               
| | Joint sales
  arrangements. Scitex Vision sells and distributes products also in
  conjunction with Regianni Macchine of Italy, through an OEM arrangement.                                                                                                                                                                                                   

Equipment
sales are typically made on terms requiring an advance payment, with the
balance of the purchase price payable in stages, generally on delivery and on
or shortly after installation.

Customer Support

Scitex Vision
believes that a high level of customer service, technical support and training
is important in achieving customer satisfaction and market acceptance of its
products. It has a dedicated customer service and support team, consisting of
over 100 engineers, technical and application specialists, and logistics and
management personnel. These personnel are located in the United States, Europe
and Asia as well as at the companys headquarters in Israel. The customer
support team is responsible for providing installation services, post-sales
support, and warranty services. Scitex Vision maintains a training facility at
its headquarters in Israel for its customer support team and customers. In
addition, its sales demonstration facilities in Brussels, Belgium and Atlanta,
U.S.A., are also used for training purposes.

Scitex Vision
offers an equipment warranty to its customers and distributors that, in most
cases, cover defects in the systems for a period of six to 12 months following
installation. At the end of the warranty period, the customer may enter into a
service agreement with Scitex Vision, which includes equipment and software
maintenance. If a customer does not enter into a service agreement, service is
provided and charged on a per-call basis.

In 2004,
Scitex Vision generated approximately $49.8 million of revenue from the supply of consumables (mainly
ink) and service operations, representing approximately 39% of its total revenues compared to approximately $42
million,
or 41% of its total revenues, in 2003.

Competition

The primary
competitive factors affecting sales of Scitex Visions products are price,
productivity, product features, application versatility, reliability, support,
print quality, durability and cost of inks and substrates. Other competitive
factors include the reputation of the manufacturer and access to product
financing.

25

---

---



We believe
that the Scitex TURBOjet wide format system, the Scitex Grandjet and Scitex
XLjet super-wide format systems, as well as the VEEjet flatbed system and
CORjet packaging and graphic display system, are generally competitive on price
and features and have certain advantages and disadvantages as compared to
competitors products. While certain of the Scitex Visions systems may be
slightly more expensive than the printing systems offered by Scitex Visions
competitors, we believe they are competitive based on other factors, such as
superior performance regarding quality of prints and speed of output and
certain other competitive criteria and unique solutions.

Scitex
Visions principal competition is as follows:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Super-wide
  format. Scitex Vision has three main competitors in the super-wide format
  market: Vutek, Inc. of the United States (recently acquired by
  Electronics For Imaging, Inc. (EFI)), Gandi Innovation of Canada and NUR
  Macroprinters Ltd. of Israel. In the last couple of years, several additional
  producers, mostly from China, have entered the super-wide format printing
  market with low cost products emulating Scitex Visions entry-level printing
  systems. Scitex Vision faces strong competition in this market, mainly in the
  Asia Pacific region.                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Wide format.
  Scitex Vision also competes in the wide format market with traditional,
  analog printing methods, particularly screen and offset printing, which
  continue to be the main methods used in wide format printing. The main
  competitors in this market are screen printing manufacturers, such as Thieme
  GMBH & Co. KG of Germany and M&R Sales and Service, Inc. of the U.S.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Flatbed. Scitex Vision has several competitors in the digital flatbed
  market, including Vutek with its PressVu flatbed versions; Nur Macroprinters
  with its Tempo line of products; Inca Digital Printers of the U.K. (recently
  acquired by Dainippon Screen Mfg. Co.
  Ltd.) with its Spyder, Eagle and Columbia printers; and Durst Phototechnik AG
  of Italy with its Rho 160 and Rho 205 printers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Industrial
  Inkjet Presses. Our main competitor in
  this market, mainly in the packaging and display segments, is Inca with its
  Columbia line of printers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The textile digital printing market. This market is in the early
  stages of development and we are currently not aware of any significant
  competitors or competitive patterns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Consumables.
  Certain ink manufacturers, including Sericol Limited of the U.K. (which was
  recently acquired by Fuji Photo Film Co. Ltd.), and Triangle Digital LLC of
  the U.S., are developing or have developed inks that are compatible with
  Scitex Visions systems. Scitex Vision is facing increased competition for
  the sale of inks for use with these systems, which could materially adversely
  affect future revenues from the sale of inks. Scitex Visions approach to
  this market is to compete based on its VisionInk concept, which allow
  customization of the inks which it supplies for use on its printing systems
  and the provision of a single source for most of a printers digital printing
  requirements, including after-sales service and consulting, inks and media.
  The Chinese market, to which Scitex Vision sells ink in insignificant
  amounts, is now dominated by local ink manufacturers.

JEMTEX
INK JET PRINTING LTD.  CONTINUOUS INKJET INDUSTRIAL
DIGITAL PRINTING

General

Jemtex, located in Lod,
Israel, was established in 1995. It employed, as of December 31, 2004,
approximately 30 people. We currently hold an approximate 74.3% interest in
Jemtex. Jemtex is a
developer and manufacturer of inkjet based digital systems, printheads and
engines for the industrial printing markets, primarily for the ceramic tiles
market. The printing application for ceramic tiles market is a newly developed
market and its development is slower than we expected.

26

---

---



Product Overview

Jemtexs
Continuous Ink Jet technology is designed to allow for customization, higher
flexibility in design, file changes during print runs, smaller production runs,
and faster turnaround time from print order to delivery of printed material.
Jemtex has developed solutions for nozzle design, drop assignment and image
processing algorithms for multi-nozzle alignment, calibration and on-line video
process control. The design of its printheads and modular implementation are
aimed to assure fast assembly and up time, as well as smooth operation with
higher viscosity inks and colorant concentrations. Jemtexs current strategy is
operating through strategic alliances.

Jemtex has
introduced a new digital printing decoration system for ceramics named Gema II
in 2004. The Gema II is designed to operate at productivity levels comparable
to conventional printing while providing the advantages of digital printing.
Due to the expected savings in color stocks, printing drums and set-up times
associated with analog printing, this system is expected to be cost effective
compared to current competing solutions. However, this system is still in its
initial stages and may require additional enhancements or improvements.

Manufacturing &
Sales

Jemtex
outsources the manufacturing of part of the components for its systems to its
own specifications and also purchases off-the shelf components for its systems
from third party vendors. Other components are built in Jemtexs premises and
final manufacturing, full system integration and quality assurance testing of
Jemtexs systems are conducted at its facilities in Lod, Israel.

Jemtex started the delivery
of first two Gema II systems and their installment at a customer site in
Spain in late 2004 in the framework of a distribution agreement with a third
party.

Competition

We believe that
the Gema II system is competitively positioned vis-à-vis the KERAjet
digital system (produced by Ferro Corporation), in terms of robustness,
productivity and decoration capabilities.

OTHER GROUP
COMPANIES

Below is a brief description
of our principal group companies.

Objet Geometries Ltd.

Objet, located in Rehovot,
Israel, was founded in 1998. It employed, as of December 31, 2004, nearly 70
people. We held an approximate 22.9% interest in Objet. As discussed above, in
late June 2005, we sold all of our holdings in Objet to several other
shareholders.

Objet is a developer and
manufacturer of three-dimensional (3D) inkjet printing systems and it operates
in the rapid prototyping market. Objets systems enable designers and
mechanical engineers to create 3D models directly from CAD (computer aided
design) files. Objet developed the Objet Studio software that interfaces
between the CAD files and the Objet 3-D printers. The Objets printers use
photopolymer-jet technology to produce the model out of digital files created
in the mechanical design process in a wide variety of industries that need to physically
verify, model or prototype their designs early in the product development
process.

Following the commercial
delivery of the Objet Quadra Tempo in 2002, Objet began commercial shipments of
the Eden 330 and the Eden 260 Rapid Prototyping systems using Objets newly
developed Single Head Replacement (SHR) technology. Objet has a large customer
base with over 300 systems installed globally to date.

27

---

---



RealTimeImage Ltd.

RTI was formed in 1996. It
is headquartered in San Bruno, California, with research and development
operations in Or-Yehuda, Israel, and employed, as of December 31, 2004, about
42 employees. We currently hold an approximate 14.9% interest in RTI. As
discussed above, in April 2005, RTI agreed to sell its healthcare business to
IDX.

RTI is
a leading innovator and developer of Internet-based imaging products and
services for healthcare professionals and, until May 2004, for the graphic arts
market. It provides high
quality, real time, Internet imaging platforms, allowing users to transform
image-based workflows into online workflows. RTI currently offers one principal
line of products:

|  |                                                                                                                                                                                                                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | iPACS is a family of digital imaging workflow
  solutions designed for use by healthcare professionals in hospitals and
  imaging centers. It is designed to allow a user to share medical images
  instantaneously and without loss in quality over any web connection. iPACS
  products are currently deployed at more than 500 hospitals and imaging
  centers around the world.

In May 2004, the
RealTimeProof business of RTI, a family of online proofing and collaboration
products designed for the graphic arts market was sold to Kodak Polychrome
Graphics (KPG).

XMPie Inc.

XMPie, which was formed in
2000, develops and markets software solutions for dynamic publishing in print
and electronic media. The XMPie software platform is designed to allow
organizations and marketing service providers, such as digital commercial
printers and direct marketing agencies, to efficiently create  plan, design
and produce  highly customized and personalized documents, which are becoming
essential for direct marketing communication and any other highly targeted
messaging discipline. XMPie is headquartered in New York, New York and, as of
December 31, 2004, employed approximately 35 people. We currently hold an
approximate 3.5% interest in XMPie.

CUSTOMERS &
SALES

The following table sets
forth the amounts and relative percentages of our revenues from continuing
operations by geographical markets, for the years indicated:

|                |  |                             |         |      |  |       |   |   |         |  |  |       |   |   |        |  |  |       |  
|--------------- |  | --------------------------- | ------- | ---- |  | ----- | - | - | ------- |  |  | ----- | - | - | ------ |  |  | ----- | -
|                |  | Year Ended
  December 31,*  |        
|                |  |                             |        
|                |  | 2004                        |         | 2003 |  | 2002  |  
|                |  |                             |         |      |  |       |  
|                |  | (US
  dollars in thousands) |        
|                |  |                             |        
|                |  |                             |         |      |  |       |   |   |         |  |  |       |   |   |        |  |  |       |  
|America         |  | $                           | 46,070  |      |  | 35.9  | % | $ | 34,828  |  |  | 33.9  | % | $ | 26,539 |  |  | 31.0  | %
|Europe          |  |                             | 52,344  |      |  | 40.8  | % |   | 36,893  |  |  | 35.8  | % |   | 37,504 |  |  | 43.8  | %
|Far East        |  |                             | 19,943  |      |  | 15.6  | % |   | 12,460  |  |  | 12.1  | % |   | 16,647 |  |  | 19.4  | %
|Other countries |  |                             | 9,828   |      |  | 7.7   | % |   | 18,699  |  |  | 18.2  | % |   | 4,971  |  |  | 5.8   | %
|                |  |                             |         |      |  |       |   |   |         |  |  |       |   |   |        |  |  |       |  
|Total           |  | $                           | 128,185 |      |  | 100.0 | % | $ | 102,880 |  |  | 100.0 | % | $ | 85,661 |  |  | 100.0 | %
|                |  |                             |         |      |  |       |   |   |         |  |  |       |   |   |        |  |  |       |  

* Please see Note 15c to our
consolidated financial statements included in this Annual Report. For revenues
from discontinued operations, see Note 1b.

In each of the
years 2004, 2003 and 2002, no end-user customer or distributor accounted for
more than 10% of our revenues.

28

---

---



The following table sets
forth our revenues from continuing operations for the years indicated
attributable to our principal sources of revenue/business activities:

|               |  |                             |         |      |  |       |   |   |         |  |  |       |   |   |        |  |  |       |  
|-------------- |  | --------------------------- | ------- | ---- |  | ----- | - | - | ------- |  |  | ----- | - | - | ------ |  |  | ----- | -
|               |  | Year Ended
  December 31,*  |        
|               |  |                             |        
|               |  | 2004                        |         | 2003 |  | 2002  |  
|               |  |                             |         |      |  |       |  
|               |  | (US
  dollars in thousands) |        
|               |  |                             |        
|Products       |  | $                           | 78,418  |      |  | 61.2  | % | $ | 60,653  |  |  | 59.0  | % | $ | 52,847 |  |  | 61.7  | %
|Services       |  |                             | 7,581   |      |  | 5.9   | % |   | 5,638   |  |  | 5.5   | % |   | 5,098  |  |  | 6.0   | %
|Supplies       |  |                             | 42,186  |      |  | 32.9  | % |   | 36,589  |  |  | 35.5  | % |   | 27,716 |  |  | 32.3  | %
|               |  |                             |         |      |  |       |   |   |         |  |  |       |   |   |        |  |  |       |  
|Total revenues |  | $                           | 128,185 |      |  | 100.0 | % | $ | 102,880 |  |  | 100.0 | % | $ | 85,661 |  |  | 100.0 | %
|               |  |                             |         |      |  |       |   |   |         |  |  |       |   |   |        |  |  |       |  

*  As a result
of the sale of the SDP business to Kodak in January 2004, our consolidated
financial statements for the periods ended December 31, 2001, 2002, and 2003,
were reclassified to discontinued operations. For revenues from discontinued
operations, see Note 1b to our consolidated financial statements included in
this Annual Report.

INTELLECTUAL
PROPERTY AND PROPRIETARY RIGHTS

The digital
printing industry is characterized to a great extent by its reliance on
proprietary technology. We believe that we own or have the license to use the
technologies used in our products. We currently rely on a combination of trade
secrets, licenses and patents, together with non-disclosure and confidentiality
agreements, to establish and protect our proprietary rights in our products.
However, no assurance can be given that our existing patents or any future
patents will not be challenged, invalidated, or circumvented, or that our
competitors will not independently develop or patent technologies that are
substantially equivalent or superior to our technology. There can be no
assurance that further patent protection will be obtained in Israel, the United
States, or elsewhere, for existing or new products or applications, or that
such further protection, if obtained, will be effective. Moreover, the laws of
some foreign countries in which we sell or may sell our products may not fully
protect, or may not protect at all, our proprietary rights in products. We take
precautionary measures to maintain our trade secrets such as requesting our
employees and selected parties, including key dealers, subcontractors and
distributors, to sign confidentiality agreements, non-competition agreements or
non-disclosure agreements, as applicable. However, no assurance can be given
that others will not acquire equivalent trade secrets or otherwise gain access
to or disclose our proprietary technology, or that we can meaningfully protect
our rights to such proprietary technology not subject to patent protection.

We are not
aware of any material claim that our products infringe upon the proprietary
rights of third parties. However, there can be no assurance that third parties
will not assert infringement claims against us in the future, and the cost of
responding to such assertions, regardless of their validity, could be
significant. In addition, such claims may be found to be valid and could result
in awards against us, which could have a material effect on our business.

GOVERNMENT
REGULATIONS

Trade &
Export. Israel has the benefit of a free trade agreement with the United States
which, generally, permits tariff-free access into the United States for
products produced in Israel by Scitexs Israeli subsidiaries, joint ventures
and group companies. In addition, as a result of an agreement entered into by
Israel with the European Union, or the EU, and countries remaining in the
European Free Trade Association, or EFTA, the EU and EFTA have abolished
customs duties on Israeli industrial products. However, there can be no
assurance that these agreements will not be terminated, changed, amended or
otherwise declared non-applicable to all or some of our Israeli subsidiaries,
joint ventures and group companies, thereby materially harming our and their
businesses.

29

---

---



Government
Grants & Benefits. Scitex Vision and some of our group companies receive
grants from the Office of the Chief Scientist of the Israeli Ministry of
Industry, Trade and Labor for research and development programs. Some of our
group companies also receive or may in the future utilize tax benefits under
Israeli law for capital investments that are designated as Approved
Enterprises. The participation in these programs is subject to compliance with
certain conditions and imposes certain restrictions upon these companies. For more information about the Office of the Chief
Scientist, tax benefits for Approved Enterprises and export controls, see Item
5B  Liquidity and Capital Resources  Grants from the Office of the Chief
Scientist and Item 10E  Taxation  Israeli Taxation  Tax Benefits under the
Law for the Encouragement of Capital Investments, 1959, respectively.

Banking Regulations.
Pursuant to a directive published by the Israeli Supervisor of Banks, which
became effective on March 31, 2004, we may be deemed part of a group of
affiliated borrowers comprised of IDB Holding Corporation Ltd., the ultimate
parent of Discount and Clal, our principal shareholders, and other companies
which may be included in such group of borrowers pursuant to the directive. The
directive generally provides that an entity will be subject to limitations on
the amount of financing available to it from an Israeli bank if such entity is
included within a group of borrowers to which the amount of debt financing that
has been extended from such Israeli bank amounts to 30% of such banks capital,
or is a member of one of the banks six largest borrowers or groups of
borrowers to which, collectively, the amount of debt financing that has been
extended from the bank amounts to 150% of such banks capital (gradually
reduced to 135% between April 2005 and June 2006). As we are part of the IDB
affiliated group of companies which includes many companies that require, or
may in the future require, extensive credit facilities from Israeli banks
for the operation of their businesses, we cannot assure you that our banks will
not exceed these limits (if applicable to us) in the future. Should our
banks exceed these limits, they may limit our ability to draw funds and may
require us to return some or all of our outstanding borrowings (which were $42
million as of December 31, 2004), each of which may have a material adverse
effect on our business, financial condition and results of operations. The
directive also provides that a bank may request that the Israeli Supervisor of
Banks exempt certain entities from the scope of the definition of a group of
borrowers. Since we currently do not believe that the directive will impact us,
we do not currently intend to request that our banks seek an exemption on our
behalf from the Israel Supervisor of Banks. Should we decide to make such a
request of our banks, there can be no assurance that our banks would agree to
request an exemption from the Israel Supervisor of Banks on our behalf or that
the Israel Supervisor of Banks would grant an exemption, if requested.

Other. We are also
governed by foreign and domestic federal, state and local laws of general
applicability, such as laws regulating working conditions. In addition, we are
subject, as are manufacturers generally, to various foreign and domestic
federal, state and local environmental protection laws and regulations,
including those governing the discharge of material into the environment.
Compliance with such environmental provisions is not expected to have a material
adverse effect on our operations in the foreseeable future.

|   |                         
|-- | ------------------------
|C. | ORGANIZATIONAL STRUCTURE

Scitex is part of a group of
which it is the parent company. The following table sets forth the name,
jurisdiction and ownership and voting interest of our principal operating
subsidiaries, as of the date hereof:

|                                   |  |              |  |                                 |  |  |  |  |      |       | 
|---------------------------------- |  | ------------ |  | ------------------------------- |  |  |  |  | ---- | ----- | 
|Name                               |  | Jurisdiction |  | Ownership
  and Voting Interest | 
|                                   |  |              |  |                                 | 
|Scitex
  Vision Ltd.               |  |              |  | Israel                          |  |  |  |  | 77.1 | % (1) | 
|Scitex Vision
  International Ltd. |  |              |  | Israel                          |  |  |  |  | 77.1 | % (1) | 
|Jemtex Ink Jet Ltd.                |  |              |  | Israel                          |  |  |  |  | 74.3 | %     | 

(1) In January 2003, Scitex Vision International
became a wholly owned subsidiary of Scitex Vision and an indirect majority
owned subsidiary of ours due to our interest in Scitex Vision.  See Item 6E  Share Ownership  Subsidiaries
Stock Option Plans with respect to options to acquire shares in these
companies.

30

---

---



We also have a number of
direct and indirect wholly owned subsidiaries, mainly regional, that carry out
ancillary operations for Scitex Vision and Scitex Vision International,
primarily sales, marketing and customer support. A full list of our significant
subsidiaries, including name and country of incorporation is appended as
Exhibit 8 to this Annual Report.

|   |                              
|-- | -----------------------------
|D. | PROPERTY, PLANT AND EQUIPMENT

In January 2004, we relocated
to new corporate administrative offices in Tel Aviv, Israel, consisting of
approximately 1,780 square feet of floor space pursuant to a Services Agreement
between us and Discount. For more information about the Services Agreement,
please see Item 7B. Related Party Transactions. That lease was terminated in
September 2004 and we lease the same premises from a successor unrelated
lessor.

Scitex Vision rents nearly
129,000 square feet in Netanya, Israel, for use as its principal
administrative, manufacturing and research and development facility. The term
of this lease is through 2015, with an option to terminate in 2010. In the
United States, Scitex Vision leases a facility of approximately 19,200 square
feet, used primarily for sales, marketing and customer support. Outside Israel
and the United States, Scitex Vision leases additional office space, primarily
in Brussels, Belgium; Hong Kong; Mexico City; Capetown, South Africa; and
various other European centers. These facilities currently comprise approximately
67,600 square feet of floor space.

Jemtex leases nearly 15,000
square feet in Lod, Israel, for use as its administrative, manufacturing and
research and development facility. The term of this lease is through 2005 with
an option to extend it until 2010. Jemtex is negotiating to amend certain terms
of the lease contract so that either party may terminate the lease
upon four months advance notice.

We believe that the
aforesaid offices and facilities are suitable and adequate for our operations
as currently conducted and as currently foreseen. In the event that additional
facilities are required, we believe that we could obtain such facilities at
commercially reasonable rates.

|        |                                             
|------- | --------------------------------------------
|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and
analysis of our financial condition and results of operations are based upon
our consolidated financial statements included elsewhere in this Annual Report,
which have been prepared in accordance with U.S. GAAP. The preparation of these
financial statements requires us to make estimates, judgments and assumptions,
which may affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities.
Accordingly, actual results may differ from these estimates or judgments under
different assumptions or conditions. In this respect, we urge you to read the
discussion under the caption Critical
Accounting Policies below.

The discussion
below contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth in Item 3Key InformationRisk Factors.

You should read the following discussion with
the consolidated financial statements and other financial information included
elsewhere in this Annual Report.

OVERVIEW

Scitex,
through Scitex Vision, is a leader in the wide format segment of the industrial
inkjet digital printing market. Our operations, carried out by our operating
subsidiaries, Scitex Vision and Jemtex, consist of the design, development,
manufacture, marketing and support of products for the industrial inkjet
digital printing market. Until the second half of 2003, we also operated in the
digital preprint business through our equity interest in Creo, and, through the
end of 2003, we operated in the high-speed segment of the industrial inkjet
digital printing market through our indirect wholly owned subsidiary, SDP.

Since the beginning of 2003
we underwent substantial changes and developments, including:

31

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the combination of the
  operations of Scitex Vision (formerly, Aprion Digital), a developer of
  drop-on demand inkjet technologies, in which we held 42.5% of the share
  capital, and Scitex Vision International (formerly, Scitex Vision), our
  wholly owned subsidiary until the consummation of such transaction in January
  2003, and subsequent investments by us in Scitex Vision in July 2003 and May
  2004;                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | the sale of the remainder
  of our shareholdings in Creo, a provider of solutions for the graphic arts
  industry;                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | key changes to the
  composition of our management team and of our board of directors;                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | the sale of the business
  of SDP to Kodak in January 2004;                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | the investment of more
  than $5.5 million in Jemtex, which increased our interest in Jemtex from
  49.8% to 74.3%;                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | in January 2004, we
  approved a plan to distribute approximately $118 million to our shareholders,
  which was effected through a $28 million repurchase of shares from our
  shareholders (a self tender offer that was completed in June 2004) and a $90
  million cash distribution in July 2004;                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In February 2005, we
  entered into an agreement with the U.S. Internal Revenue Service, or IRS, to
  resolve a U.S. federal income tax audit of our U.S. subsidiaries for the
  years 1992 through 1996;                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | in March 2005, we
  announced that we are engaged in preliminary negotiations for the possible
  sale of our holdings in Scitex Vision for an enterprise value of Scitex
  Vision in the range of $230-250 million. There is no assurance whatsoever
  that any transaction will result with respect to Scitex Vision or as to the
  terms, deal structure and the purchase price for Scitex Vision if a sale
  occurs;                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | in May 2005, we and our
  two largest shareholders, Clal and Discount, purchased all of CDIs interest
  in Scitex Vision for $1.6 million, plus additional contingent consideration
  to be paid if Scitex Vision undergoes an exit event within the next two
  years at a higher valuation than implied in the agreement. In the framework
  of the purchase agreement, CDI agreed to dismiss all of the claims asserted
  by it against us and other parties;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | in late April 2005, IDX
  entered into a purchase agreement with RTI, our minority-owned affiliate,
  whereby it will acquire the assets of RTI for an estimated purchase price of
  $15.5 million; and                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | in May 2005, we agreed to
  sell all of our holdings in Objet to several shareholders of Objet for $3.0 million
  in cash, payable in two installments, and additional contingent consideration
  if Objet undergoes specified exit events prior to the end of 2007.                                                                                                                                                                                            

HIGHLIGHTS

In 2001 and
2002, we recorded net losses in the respective amounts of approximately $253 million
and $32 million, respectively, primarily as a result of write-downs and losses
of $215.9 million (in 2001) and write-downs of $22.3 million (in 2002)
associated with our holdings in Creo.

In 2003, we
recorded net income of approximately $1.4 million, as a result of an
improvement in the general market for commercial printers equipment and
consumables and $8 million that was recognized as a tax benefit related to the
sale of the business of SDP to Kodak. The $1.4 million of net income resulted
from offsetting approximately $20 million of net income from discontinued
operation (namely, SDP) against a net loss of approximately $18.6 million from
continuing operations (mainly, Scitex Vision).

In 2004, we
recorded net income of approximately $47.3 million that included income from discontinued operation of
$51.6 million as a result of the sale of substantially all of the assets and
business of SDP to Kodak, and a loss of $4.4 million from continuing operation.

Our operating results may be
affected as a result of a number of factors, including:

32

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Global
  or regional economic conditions;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Our
  revenues are directly related to our ability to identify high potential
  products while they are still in development and to bring them to market
  quickly and effectively. Efficient and productive research and development is
  essential in this environment as we, like our competitors, seek to introduce
  cost-efficient printing solutions to the digital printing market. The need
  for increased resources in order to take advantage of the full range of new
  research and development technologies has been among the reasons for the
  consolidation which has taken place across the industry, and for the increase
  in collaborations between leading companies and niche players at the
  forefront of their particular technology areas. The growth, if any, in new
  technology, particularly of industrial inkjet digital printing technologies,
  is likely to have a fundamental impact on the digital printing industry as a
  whole, and upon our future development;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Exchange rate exposure
  also affects our results as we have both sales and costs in many currencies
  other than the U.S. dollar (mainly in Euro). In 2004, the European currencies
  increased in value relative to the U.S. dollar, with the Euro increasing in
  value relative to the dollar by 8%
  during the year. In Israel, the New Israel Shekel increased in value relative
  to the dollar by 1.6% during 2004. Our
  results have not been significantly affected by inflation. See Impact of Inflation and Exchange Risks
  below; and                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Our
  operating results may also be affected as a result of various other factors,
  such as general economic conditions; the capital spending patterns of our
  customers; the level of competition that we encounter; the size and timing of
  orders, including order deferrals, and subsequent shipments; software and
  hardware development problems; one-time charges; mergers or acquisitions; and
  other factors which are more fully described under Item 3Key
  InformationRisk Factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|   |                  
|-- | -----------------
|A. | OPERATING RESULTS

The following
table sets forth the percentage relationships of certain items from our
consolidated statements of operations, as a percentage of revenues from
continuing operations for the periods indicated:

|                                               |  |                           |      |      |  |       |   |  |       |   
|---------------------------------------------- |  | ------------------------- | ---- | ---- |  | ----- | - |  | ----- | --
|                                               |  | Year ended
  December 31, |     
|                                               |  |                           |     
|                                               |  | 2004                      |      | 2003 |  | 2002  |  
|                                               |  |                           |      |      |  |       |  
|Revenues                                       |  |                           | 100  | %    |  | 100.0 | % |  | 100.0 | % 
|Cost
  of revenues                             |  |                           | 55.4 |      |  | 61.4  |   |  | 59.3  |   
|                                               |  |                           |      |      |  |       |   |  |       |   
|Gross
  profit                                 |  |                           | 44.6 |      |  | 38.6  |   |  | 40.7  |   
|Selling
  and marketing expenses               |  |                           | 15.6 |      |  | 14.9  |   |  | 17.4  |   
|General
  and administrative expenses          |  |                           | 13.0 |      |  | 14.7  |   |  | 15.9  |   
|Research
  and development costs, net          |  |                           | 9.7  |      |  | 10.8  |   |  | 8.2   |   
|Restructuring
  charges                        |  |                           |     |      |  | 1.6   |   |  |      |   
|Amortization
  of other intangible assets      |  |                           | 4.8  |      |  | 5.7   |   |  | 3.5   |   
|Impairment
  of other intangible assets        |  |                           | 4.1  |      |  | 2.9   |   |  |      |   
|Total operating expenses                       |  |                           | 47.2 |      |  | 50.6  |   |  | 45.0  |   
|                                               |  |                           |      |      |  |       |   |  |       |   
|Operating
  income (loss)                      |  |                           | (2.6 | )    |  | (12.0 | ) |  | (4.3  | ) 
|Financial
  income (expense), net              |  |                           | (0.2 | )    |  | (2.6  | ) |  | (3.7  | ) 
|Other
  income (loss)  net                    |  |                           | 0.4  |      |  | 0.8   |   |  | (30.7 | ) 
|                                               |  |                           |      |      |  |       |   |  |       |   
|Loss
  before taxes on income                  |  |                           | (2.4 | )    |  | (13.8 | ) |  | (38.7 | ) 
|Taxes
  on income                              |  |                           | 0.01 |      |  | (2.3  | ) |  | 0.8   |   
|Share
  in losses of associated companies      |  |                           | (1.1 | )    |  | (5.5  | ) |  | (4.8  | ) 
|Minority
  interests in losses of a subsidiary |  |                           | 0.01 |      |  | 3.4   |   |  |      |   
|Net
  income from discontinued operations      |  |                           | 40.3 |      |  | 19.5  |   |  | 5.3   |   
|                                               |  |                           |      |      |  |       |   |  |       |   
|Net
  income (loss)                            |  |                           | 36.8 | %    |  | 1.3   | % |  | (37.4 | )%
|                                               |  |                           |      |      |  |       |   |  |       |   

33

---

---



EXPLANATORY
NOTES

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consolidation of Scitex Vision and Jemtex:
  As a result of the transaction to combine the operations of Scitex Vision and
  Scitex Vision International that was completed in January 2003, Scitex Vision
  became a majority owned subsidiary of ours and the parent of Scitex Vision
  International. Our financial results for the period ended December 31, 2002,
  included in this Annual Report, did not consolidate Scitex Visions financial
  statements (other than as an investment accounted for under the equity
  method, as applicable), whereas our financial results for the periods ended
  December 31, 2003 and 2004, included in this Annual Report, consolidate
  Scitex Visions financial statements. See
  Note 3a to our consolidated financial statements included in this Annual
  Report. Similarly, as a result of further investments in Jemtex,
  Jemtex became a majority owned subsidiary of ours and, commencing with the
  first quarter of 2004, we are consolidating the results of Jemtex with ours;
  our investment in Jemtex was previously treated by us as an investment
  accounted for under the equity method. See
  Note 4a to our consolidated financial statements included in this Annual
  Report.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Discontinued
  Operations (SDP): In January 2004, we completed the sale of substantially all
  of the assets and business of SDP to Kodak. As a result of the sale, the
  results of operations of SDP are reported as discontinued operations and the
  consolidated results from continuing operations no longer include revenues
  and expenses directly attributable to SDP. Similarly, assets and liabilities
  relating to SDP are presented in our balance sheet separately as assets and
  liabilities of discontinued operations. Our consolidated financial statements
  for prior periods have been reclassified to reflect these changes. See Note 1b to our consolidated financial
  statements included in this Annual Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Definition
  of Segments: Prior to the sale of SDPs business, we had been reporting in
  two segments: high speed digital printing (SDP) and wide format digital
  printing (Scitex Vision). In conjunction with the commencement of reporting
  the results of operations of SDP as a discontinued operation and
  consolidating the results of Jemtex, we have modified the definition of our
  business segments and our results of operations are now reported in two
  different segments  wide format digital printing (Scitex Vision) and
  continuous inkjet industrial digital printing (Jemtex). See Notes 1a, 15a and 15b to our consolidated
  financial statements included in this Annual Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

2004
FINANCIAL HIGHLIGHTS

In 2004, we
were able to record a significant increase in the level of our annual revenues
from continuing operations compared to 2003, reduce our operating loss to
approximately $3.3 million (compared to $12.3 million in 2003) and our net loss
from continuing operations to approximately $4.4 million (compared to $18.7
million in 2003), and increase total net income to approximately $47.3 million
(compared to $1.4 million in 2003). Some of the key aspects of our operating
results in 2004 are as follows:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Total
  revenues from continuing operations for the year 2004 were $128.2 million
  compared to $102.9 million in 2003, the increase being primarily due to an
  improvement
  of capital investments in the digital printing market in general, and
  higher demands for our wide and super-wide format products and consumables
  (especially an increase in ink sales);                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Net income
  (including from discontinued operations) was $47.3 million, comprised
  primarily of income of $51.6 million from the sale of substantially all of
  the assets and business of SDP to Kodak;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Net loss
  from continuing operations was reduced from $18.7 million in 2003 to $4.4
  million in 2004, mainly due to the growth in revenue and the improvement in
  our gross margins;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Significant
  improvement in our cash balance (comprised of cash, cash equivalents and
  short term investments) from approximately $83 million at December 31, 2003
  to approximately $161 million (including a restricted deposit of $18 million)
  at December 31, 2004 primarily due to the sale of SDP to Kodak in January
  2004 for an aggregate sum of approximately $262 million (including $12
  million retained in cash at SDP), which was partially offset by (1) the $118
  million distribution we effected in mid 2004, (2) approximately $22 million
  of expenses related to the sale of SDP and (3) approximately $17 million in
  payments of liabilities to banks and other parties; and

34

---

---



|  |                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | From a
  geographical standpoint, we achieved growth in most markets. See Notes 15c to our consolidated financial
  statements included in this Annual Report.

COMPARISON OF
2002, 2003 AND 2004 FINANCIAL RESULTS

Revenues

Revenues are derived
primarily from sales of our digital printing systems, inks, substrates and
services in connection with our printing systems. We generally recognize
product revenue when an arrangement exists, delivery has occurred and title
passed to the customer, the Companys price is fixed or determinable, and
collection of payment is reasonably assured. Revenues from services are
generally recognized ratably over the contractual period or as services are
performed. For additional details regarding the manner in which we recognize revenues,
see the discussion under the caption Critical
Accounting Policies  Revenue recognition and doubtful accounts allowance below.

The following table sets
forth our revenues from continuing operations (i.e., excluding revenues from
the operations of SDP) attributable to our principal sources of
revenue/business activities and showing the percentage increase (decrease) for
the periods indicated:

|                              |  |                         |       |      |   |       |  |                         |      |                      |  |      |   |  |      |  
|----------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | ----------------------- | ---- | -------------------- |  | ---- | - |  | ---- | -
|                              |  | Year ended December 31, |       |      |   |       | 
|                              |  |                         |       |      |   |       | 
|                              |  | 2004                    |       | 2003 |   | 2002  |  | %Change
  2004 vs. 2003 |      | %Change2003 vs. 2002 | 
|                              |  |                         |       |      |   |       | 
|(approximate
  $ in millions) | 
|                              |  |                         |       |      |   |       | 
|Products                      |  | $                       | 78.4  |      | $ | 60.7  |  | $                       | 52.8 |                      |  | 29.3 | % |  | 14.8 | %
|Services                      |  |                         | 7.6   |      |   | 5.6   |  |                         | 5.1  |                      |  | 34.5 |   |  | 10.6 |  
|Supplies                      |  |                         | 42.2  |      |   | 36.6  |  |                         | 27.7 |                      |  | 15.3 |   |  | 32.0 |  
|                              |  |                         |       |      |   |       |  |                         |      |                      |  |      |   |  |      |  
|Total revenues                |  | $                       | 128.2 |      | $ | 102.9 |  | $                       | 85.6 |                      |  | 24.6 | % |  | 20.1 | %
|                              |  |                         |       |      |   |       |  |                         |      |                      |  |      |   |  |      |  

The following table sets
forth our revenues from continuing operations (i.e., excluding revenues from
the operations of SDP) by geographical markets and showing the percentage
increase (decrease) for the periods indicated:

|                              |  |                         |       |      |   |       |  |                         |      |                      |  |       |   |  |       |   | 
|----------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | ----------------------- | ---- | -------------------- |  | ----- | - |  | ----- | - | 
|                              |  | Year ended December 31, |       |      |   |       | 
|                              |  |                         |       |      |   |       | 
|                              |  | 2004                    |       | 2003 |   | 2002  |  | %Change
  2004 vs. 2003 |      | %Change2003 vs. 2002 | 
|                              |  |                         |       |      |   |       |  |                         |      |                      |  |      
|(approximate
  $ in millions) | 
|                              |  |                         |       |      |   |       | 
|America                       |  | $                       | 46.1  |      | $ | 34.8  |  | $                       | 26.5 |                      |  | 32.3  | % |  | 31.2  | % | 
|Europe                        |  |                         | 52.3  |      |   | 36.9  |  |                         | 37.5 |                      |  | 41.9  |   |  | (1.6  | ) | 
|                              |  |                         |       |      |   |       |  |                         |      |                      |  |       |   |  |       |   | 
|Far
  East                    |  |                         | 20.0  |      |   | 12.5  |  |                         | 16.6 |                      |  | 60.0  |   |  | (25.2 | ) | 
|                              |  |                         |       |      |   |       |  |                         |      |                      |  |       |   |  |       |   | 
|Other
  countries             |  |                         | 9.8   |      |   | 18.7  |  |                         | 5.0  |                      |  | (47.4 | ) |  | 276   |   | 
|                              |  |                         |       |      |   |       |  |                         |      |                      |  |       |   |  |       |   | 
|Total Revenues                |  | $                       | 128.2 |      | $ | 102.9 |  | $                       | 85.6 |                      |  | 24.6  | % |  | 20.1  | % | 
|                              |  |                         |       |      |   |       |  |                         |      |                      |  |       |   |  |       |   | 

During 2004, growth was
recorded in most of the geographical areas. The improvement in Europe was due
to sales of high-end systems, such as Scitex Visions TURBOJet, and the
increased sale of inks was due to an increased installed base and higher ink
consumption. In the Far East, most of the growth was attributable to a
significant improvement in ink sales.

The increase of 20.1% in
total revenues from continuing operations in 2003 compared to 2002 was due
primarily to an improvement in capital investments in the
digital printing market in
general, and higher demands for our products in several countries, which until
2003 generated only a small portion of our revenues. Moreover, we believe that
the significant increase in revenues from supplies (mainly, ink sales) was due
primarily to higher demands for our compatible inks, which increased in part
because of a larger installed base of our systems.

35

---

---



Sales in
America (particularly in Mexico), Europe and the Far East rose significantly
due primarily to higher demand and improvements in our distribution and sales
channels. We believe that Europe and the Americas will continue to generate
most of our revenues for the foreseeable future. See also the chart regarding
our revenues divided by geographical regions in Item 4B  Customer & Sales above.

As noted above, as a result
of the SDP transaction, the results of operations of SDP are reported as
discontinued operations and the consolidated results from continuing operations
no longer include revenues and expenses directly attributable to SDP. See Note 1b to our consolidated financial statements
included in this Annual Report. Our consolidated results of
operations reflect the results of operations of SDP only in the line item of
net income from discontinued operations. For more information about revenues
and other line items attributable to SDP, you should refer to Note 1b to our
consolidated financial statements included in this Annual Report.

Jemtex did not recognize
revenues in 2004.

Cost of Revenues and
Gross Profit

|                 |  |                               |      |                               |   |      |  |      |      |      |  |      |   |  |      |   |  |      |  
|---------------- |  | ----------------------------- | ---- | ----------------------------- | - | ---- |  | ---- | ---- | ---- |  | ---- | - |  | ---- | - |  | ---- | -
|                 |  | Year ended December 31,       |     
|                 |  |                               |     
|                 |  | 2004                          |      | 2003                          |   | 2002 |  | 2004 |      | 2003 |  | 2002 |  
|                 |  |                               |      |                               |   |      |  |      |      |      |  |      |   |  |      |   |  |      |  
|                 |  | (approximate
  $ in millions) |      | (approximate
  $ in millions) |  
|Cost of revenues |  | $                             | 71.1 |                               | $ | 63.2 |  | $    | 50.8 |      |  | 55.4 | % |  | 61.4 | % |  | 59.3 | %
|                 |  |                               |      |                               |   |      |  |      |      |      |  |      |   |  |      |   |  |      |  
|Gross profit     |  | $                             | 57.1 |                               | $ | 39.7 |  | $    | 34.8 |      |  | 44.6 | % |  | 38.6 | % |  | 40.7 | %
|                 |  |                               |      |                               |   |      |  |      |      |      |  |      |   |  |      |   |  |      |  

Cost of revenues consists of
the cost of materials, salaries, depreciation, warranty costs and other direct
expenses related to the manufacture of our products and the installation and
support of the digital printing systems sold by us. Gross profit is determined
as a percentage, the numerator of which is our total revenues less the cost of
revenues, and the denominator of which is our total revenues. Our gross
profit is affected by several factors, including the introduction of new
products, price erosion due to increasing competition and product mix.
Generally, our gross profit is lower during the initial launch and
manufacturing ramp-up of a new product as a result of manufacturing
inefficiencies during that period. As the difficulties in manufacturing new
products are resolved and the volume of sales of such products increases, our
gross profit generally improves.

The gross margin in 2004
improved to 44.6% from 38.6% in 2003, primarily as a result of (1) changes in
the product offering mix, (2) the increase in sales of products with higher
margins, (3) the improvement in the margins of service operations, and (4) the
reduction in media sales. Gross margin in 2003 was lower compared to 2002
(40.7%) due primarily to price competition and increased costs and expenses
associated with the acquisition of Scitex Vision International.

Operating
Expenses

|                                     |  |                               |      |      |   |      |    |   |      |   
|------------------------------------ |  | ----------------------------- | ---- | ---- | - | ---- | -- | - | ---- | --
|                                     |  | Year ended December 31,*      |     
|                                     |  |                               |     
|                                     |  | 2004                          |      | 2003 |   | 2002 |   
|                                     |  |                               |      |      |   |      |    |   |      |   
|                                     |  | (approximate
  $ in millions) |     
|Research and development,
  gross    |  | $                             | 13.0 |      | $ | 11.5 |    | $ | 7.8  |   
|Less Royalty-bearing
  participation |  |                               | 0.6  |      |   | 0.4  |    |   | 0.7  |   
|                                     |  |                               |      |      |   |      |    |   |      |   
|Research and development, net        |  |                               | 12.4 |      |   | 11.1 |    |   | 7.1  |   
|                                     |  |                               |      |      |   |      |    |   |      |   
|Sales and marketing                  |  |                               | 20.0 |      |   | 15.3 |    |   | 14.9 |   
|General and administrative           |  |                               | 16.6 |      |   | 15.1 |    |   | 13.6 |   
|                                     |  |                               |      |      |   |      |    |   |      |   
|Total operating expenses             |  | $                             | 49   | **   | $ | 41.5 | ** | $ | 35.6 | **
|                                     |  |                               |      |      |   |      |    |   |      |   

* See Notes 14g and 14h to
our consolidated financial statements included in this Annual Report.

** Excluding impairment of
goodwill and other intangible assets, amortization of other intangible assets,
and restructuring charges in the aggregate amount of $2.9 million, $10.4
million and $11.4 million for 2002, 2003 and 2004, respectively (presented
separately below).

Operating
expenses. Operating expenses comprise costs and expenses associated with
research and development, sales, marketing, and general and administrative.

36

---

---



During 2003
and 2004, we also included impairment of goodwill and other intangible assets
(see the discussion under the caption Critical Accounting Policies below with
respect to FAS 142). In 2003, we also recorded restructuring charges as
described below.

In 2004, the
operating expenses of Scitex Vision, totaled at $48.1 million, compared to
$52.8 million in 2003. A portion of these expenses ($10.3 million and $11.1
million in 2004 and 2003, respectively) was related to research and development
expenses. The balance of the expenses ($12.9 million and $12.3 million in 2004
and 2003, respectively) were related to general and administrative expenses and
were mainly used for payment of salaries and related expenses.

In 2004, the
operating expenses of Jemtex totaled at $2.8 million, compared to $3.0 million
in 2003. The majority of these expenses ($2.2 million and $2.4 million in 2004
and 2003, respectively) were related to research and development expenses. The
balance of the expenses ($0.6 million in each of 2004 and 2003) were related to
general and administrative expenses and were mainly used for payment of
salaries and related expenses.

Research and development expenses.
 Research and development, or R&D, expenses consist primarily of costs
associated with the design, technology development, product development,
pre-manufacture and testing of our new products and enhancements of our
existing products, salaries and related personnel costs, patent prosecution and
maintenance costs, and other expenses related to our product development and
research programs. We expense all of our research and development costs as they
are incurred.

The R&D
expenses in 2004 increased to $12.4 million from $11.1 million in 2003,
primarily due to new R&D projects that were launched during 2004. The
R&D expenses in 2003 increased compared to 2002 primarily because, as of
2003, we consolidated the results of Scitex Vision, which, by comparison to
Scitex Vision International, invests more resources in the development of new
products. We expect to continue to invest significant resources in R&D
programs for new products and enhancements of existing products and that
R&D expenses will remain at the same levels in 2005.

Selling and marketing expenses. Selling and marketing expenses consist
primarily of salaries, travel, trade shows, promotional and public relations
activities and related costs of our sales and marketing personnel, costs and
expenses of our foreign sales and marketing subsidiaries and representative
offices, and commissions paid to independent sales agents.

Selling and marketing
expenses in 2004 increased to $20.0 million from $15.3 million in 2003
(compared to $14.9 million in 2002). The increase in 2004 is attributable,
mainly, to the increase in business activities, primarily the level of sales,
whereas the slight increase in 2003 compared to 2002 is attributable, mainly,
to the consolidation of Scitex Visions operations in our books and
increased sales and marketing activities.

General and administrative expenses. General and administrative expenses consist
primarily of salaries and related costs for our executive and administrative
staff, and insurance, legal and accounting expenses, both in Israel and abroad,
as well as provision for doubtful debts.

General and administrative, or G&A, expenses in 2004
increased to $16.6 million from $15.1 million in 2003, primarily due to the
increase in business activities, including the retention of additional
employees.

37

---

---



Impairment,
Amortization and Restructuring Charges

|                                                   |  |                               |     |      |   |      |  |   |     | 
|-------------------------------------------------- |  | ----------------------------- | --- | ---- | - | ---- |  | - | --- | 
|                                                   |  | Year ended December 31,       |    
|                                                   |  |                               |    
|                                                   |  | 2004                          |     | 2003 |   | 2002 | 
|                                                   |  |                               |     |      |   |      |  |   |     | 
|                                                   |  | (approximate
  $ in millions) |    
|Amortization of intangible assets                  |  | $                             | 6.1 |      | $ | 5.9  |  | $ | 2.9 | 
|                                                   |  |                               |     |      |   |      |  |   |     | 
|Impairment of goodwill and other intangible assets |  |                               | 5.2 |      |   | 3.0  |  |   |    | 
|                                                   |  |                               |     |      |   |      |  |   |     | 
|Restructuring charges*                             |  |                               |    |      | $ | 1.6  |  |   |    | 
|                                                   |  |                               |     |      |   |      |  |   |     | 

* See Note 14i to our
consolidated financial statements included in this Annual Report.

Amortization of intangible assets and impairment of goodwill
and other intangible assets. The amortization expenses in 2004 and 2003 remained at the same level.
The amortization expenses during 2004 and 2003 resulted primarily from the
periodic amortization charges associated with the combination of Scitex Vision
International with Scitex Vision and previous acquisitions that Scitex Vision
consummated, as well as amortization charges resulting from investments in
Jemtex. The increase in expenses for amortization of intangible assets in 2003
compared to 2002 was primarily due to amortization charges associated with the
combination of Scitex Vision International with Scitex Vision.

In 2004 and 2003, we
impaired technology in a subsidiary in the amounts of $5.6 million and $3.0
million, respectively. These impairments followed an evaluation performed by a
third party appraiser, based on discounted cash flows, triggered by a
significant decrease in the production of certain products based on the
above-mentioned technologies. Out of the amount of impairment of $5.6 million
in 2004, $2.6 million was recorded against the minority interests in a
subsidiary since this amount is the amortized technology held by minority
shareholders of Scitex Vision.The impairment
calculation was prepared in accordance with the provisions of FAS 144. See Note
3a and Note 8 to our consolidated financial statements included in this Annual
Report.

Restructuring charges. In 2003, we recorded $1.6 million of
restructuring costs primarily associated with the combination of the operations
of Scitex Vision and Scitex Vision International and implementation of a
restructuring plan at Scitex Vision in the form of reduction in work force,
abandonment of leased premises and development of new information technology
system.

Financial and Other Income and Expenses

Financial income (expenses),
net, consists primarily of interest earned on bank deposits and on marketable
bonds (especially U.S. government and U.S. agency bonds), interest incurred on
bank and other loans and exchange rate differences.

Net financial expenses
decreased from $2.7 million in 2003 to $0.3 million in 2004, due primarily to a
reduction in the exchange rate differences and the increase in interest income
resulting from the growth in our available funds. Net financial expenses
decreased from $3.1 million in 2002 to $2.7 million in 2003, due primarily
to interest gained on the funds received from the sale of the Creo shares
during the second half of 2003.

Other income in 2004 totaled
$0.5 million, compared to $0.8 million in 2003. In 2003, there were several
sales that resulted in capital gains. Other loss of $26.3 million in 2002 reflects primarily a loss of
approximately $22.3 million due
to an impairment of the carrying value of our shares in Creo that we recorded
during the fourth quarter of 2002.

Convertible loan to Scitex Vision. In 2000, Scitex Vision entered into a
collaboration agreement with a European supplier. Under the agreement, the
supplier is required to pay royalties to Scitex Vision on sales of ink for use
with Scitex Visions textile printing machines. As of December 31, 2004, an
amount of $25,000 was paid to Scitex Vision as royalties. Scitex Vision also
received from the supplier a long-term convertible loan of $5 million which
bears interest at an annual rate of 6%, unless certain milestones are met.
According to the original terms of the loan, the loan and the accumulated
interest was convertible by the supplier, at any time during the last three
months of the loan period, which ended on December 11, 2003, into ordinary
shares of Scitex Vision at a conversion price based on the fair value of such
shares, less 15%. According to the agreement, if the supplier chose to request
the repayment of the loan, the repayment was to be made by setting-off the loan
and any interest accrued thereon against royalties due to Scitex Vision in a
subsequent period. The remainder of the loan, if it exists, was to be repaid in
cash to the supplier. At the end of 2003, the parties agreed that the loan will
no longer bear any interest and will be payable in four annual installments
commencing December 2004, subject to set-off of royalties due to Scitex Vision
under the supply agreement, if any (in December 2004, Scitex Vision paid to the
supplier the first installment of $1.0 million). As a result, Scitex Vision
recorded the loan based on its present value using the interest rate which was
applicable as of the date of the change in terms. The difference between the
present value and the nominal value of the loan in the total amount of $0.4 million,
as well as all interest accrued through December 30, 2003 in the aggregate
amount of $0.9 million, were credited to financial expenses  net in the year
ended December 31, 2003. The amortization of this discount recorded as
financial expenses amounted to $0.2 million in 2004.

38

---

---



Taxes

Israeli companies are
generally subject to income tax at the corporate rate of 35% for the 2004 tax
year, 34% for the 2005 tax year, 32% for the 2006 tax year and 30% for the 2007
tax year and thereafter, and, for capital gains derived after January 1, 2003,
are subject to capital gains tax at a rate of 25% (other than with respect to gains deriving from the sale of listed
securities). See in Item 5B 
Corporate Tax Rate below for more information.

Tax benefit amounted to
approximately $0.1 million in 2004, compared with taxes on income (expenses) of
$2.4 million in 2003 and $0.6 million in 2002.

As of the end of 2004, our
deferred income tax assets were reduced from $185 million at December 31, 2003
to $163 million, mainly due to the sale of SDP and the utilization of
carry-forward losses. We have created a valuation allowance on almost all of
our deferred tax assets, since we believe that it is not more likely than not
that these deferred tax assets will be utilized.

A number of factors may
impact future taxable income, including those discussed under Risk Factors in
Item 3D, as well as any tax planning strategies. To the extent that estimates
of future taxable income are reduced or not realized, the amount of the deferred
tax asset considered realizable could be adversely affected.

Equity Investments

Our share in the losses of
associated companies was $1.4 million in 2004, compared with $5.6 million in
2003 and $4.1 million in 2002. The decrease is due to the fact that in
2004 Objet was the sole investment accounted for under the equity method, compared to 2003 in which Jemtex was also
accounted for under the equity method. We also wrote down our investment in Creo by approximately $22.3
million during the fourth quarter of 2002.

Commencing
January 2002, we were deemed to exercise significant influence over Objet.
Accordingly, as required by U.S. GAAP, in the first quarter of 2002 we
retroactively changed our method of accounting for the investment in Objet from
the cost method to the equity method. Consequently, the investment in Objet on
our books as of December 31, 2001 was restated and our equity share of the
results of Objet is being included in our results of operations starting with
the first quarter of 2002.

In
February 2004, we invested an additional amount of $1.5 million in Jemtex,
following which we held approximately 73% of Jemtexs voting power. As a result, commencing with the first
quarter of 2004, we are consolidating the results of Jemtex with ours.

IMPACT OF RELATED
PARTY TRANSACTIONS

We have
entered into a number of agreements with certain companies with whom our
principal shareholders, Clal and/or Discount, are affiliated.

39

---

---



In
December 2002, we entered into a Share Exchange Agreement with Scitex Vision,
in which Clal and Discount each held approximately 14% of the
share capital, and Scitex Vision International, pursuant to which we combined
the operations of these companies. Among other factors considered in deciding
to approve the transaction, our board of directors received a written opinion from its financial advisor
in connection with the transaction, as to the fairness, from a financial point
of view, of the consideration to be paid by us in connection with the
transaction. In addition, in July 2003 and May 2004 we, CEI and Discount
invested in Scitex Vision in the framework of rights offerings conducted by
Scitex Vision.

Please see
Item 7B  Related Party Transactions below for specific details as to certain
other related party transactions entered into by us.

We believe
that the terms of these related party transactions are not different in any
material respect than the terms we could receive from unaffiliated third
parties. The pricing and/or value of such transactions were arrived based on
arms-length negotiations between the parties and, in certain cases, based
upon, among other things, opinions of third party financial advisors. Our
management reviewed the pricing of such transactions and confirmed that they
were not materially different than could have been obtained from unaffiliated
third parties.

Under the
Companies Law and recently issued Nasdaq rules, certain transactions and
arrangements with interested parties require approval by our board of directors
and our audit committee and, in some cases, also require approval by our
shareholders. In this respect, see the discussion in Item 6C  Approval of
Specified Related Party Transactions under Israeli Law below.

IMPACT OF
INFLATION AND EXCHANGE RISKS

Substantially all of our revenues
are in non-Israeli currencies. Sales in the United States and other areas
outside of Western Europe and Japan are typically made in dollars, sales in
Europe are made primarily in Euro, dollars or pounds sterling, and sales in
Japan are made partly in Japanese yen. This gives rise to significant exposure
to market risks, mainly from changes in foreign exchange rates. For more
information about these risks and the methods we employ to mitigate these
risks, see also Item 11.
Quantitative and Qualitative Disclosures about Market Risk.

New Israeli Shekel. Historically, the New Israeli Shekel, the Israeli currency, has been
devalued in relation to the U.S. dollar and other major currencies principally
to reflect the extent to which inflation in Israel exceeds average inflation
rates in Western economies. Such devaluations in any particular fiscal period
are never completely synchronized with the rate of inflation and therefore may
lag behind or exceed the underlying inflation rate. The table below sets forth
the annual rate of inflation, the annual rate of devaluation (or revaluation)
of the NIS against the U.S. dollar and the gap between the two for the periods
indicated:

|                              |  |                           |      |      |  |      |    |      |      |      |  |      |    |  |      |   
|----------------------------- |  | ------------------------- | ---- | ---- |  | ---- | -- | ---- | ---- | ---- |  | ---- | -- |  | ---- | --
|                              |  | Year Ended
  December 31, |     
|                              |  |                           |     
|                              |  | 2004                      |      | 2003 |  | 2002 |    | 2001 |      | 2000 | 
|                              |  |                           |      |      |  |      |    |      |      |      |  |      |    |  |      |   
|Inflation
  (Deflation)       |  |                           | 1.2  | %    |  | (1.9 | )% |      | 6.5  | %    |  | 1.4  | %  |  | 0    | % 
|Devaluation
  (Revaluation)   |  |                           | (1.6 | )%   |  | (7.6 | )% |      | 7.3  | %    |  | 9.3  | %  |  | (2.7 | )%
|Inflation (devaluation)
  gap |  |                           | 2.8  | %    |  | 5.7  | %  |      | (0.8 | )%   |  | (7.9 | )% |  | 2.7  | % 

Although a material portion
of Scitexs costs relate to the operations of Scitex Vision in Israel, part of
these Israeli costs are in dollars or linked to the dollar. Costs not
denominated in, or linked to, dollars are translated to dollars, when recorded,
at prevailing exchange rates for the purposes of our financial statements. To
the extent such costs are linked to the Israeli Consumer Price Index, such
costs may increase if the rate of inflation in Israel exceeds the rate of
devaluation of the shekel against the dollar or if the timing of such devaluations
were to lag considerably behind inflation. Conversely, such costs may, in
dollar terms, decrease if the rate of inflation is lower than the rate of
devaluation of the shekel against the dollar. Accordingly, our Israeli
operations experienced an increase in dollar costs in 2000, 2003 and 2004, and
a decrease in 2001 and 2002. The representative dollar exchange rate for
converting the shekel to dollars, as reported by the Bank of Israel, was NIS
4.308 on December 31, 2004 (NIS 4.379 on December 31, 2003).

40

---

---



Other currencies. Until the Creo transaction in April 2000, we had substantial operations
outside the United States and Israel, and accordingly maintained substantial
non-dollar balances of assets, including substantial accounts receivable
balances related to sales made in non-dollar currencies, mostly European
currencies and Japanese yen. Our general policy was to hedge against the
exchange rate exposure arising from the existence of such non-dollar business
activities. Subsequent to the Creo transaction, SDP and Scitex Vision
established operations of their own outside the United States and Israel,
primarily in Europe, but the volume of activity in non-dollar currencies was
significantly reduced compared to previous years and, following the sale of SDPs
operations to Kodak in January 2004, was further reduced. The net impact of
currency exchange rate and remeasurement differences between the dollar and
other currencies accounted for a net loss of $1.1 million in 2004, compared to
net losses of $1.2 million in 2003 and $1.5 million in 2002.

See also Item 11. Quantitative and Qualitative Disclosures
about Market Risk.

CRITICAL
ACCOUNTING POLICIES

Our discussion and analysis
of our financial condition and results of operations included in this Item 5 and
elsewhere in this Annual Report are based upon our consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements often requires us to make estimates,
judgments and assumptions, which may affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures as of the date of the
financial statements and during the reported period. On a regular basis, we
evaluate and may revise our estimates. We base our estimates on historical
experience and various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent.
Some of those judgments can be complex, and consequently, actual results may
differ from those estimates. For any given individual estimate, judgment or
assumption made by our management, there may be alternative estimates,
judgments or assumptions, which are also reasonable. We believe that the
estimates, assumptions and judgments described below have the greatest
potential impact on our financial statements and consider these to be our
critical accounting policies:

Revenue recognition and doubtful accounts
allowance.Our
revenue recognition policy is significant because our revenue is a key
component of our results of operations. We follow very specific and detailed
guidelines, several of which are discussed below, in measuring revenue;
however, certain judgments, estimates and assumptions affect the application of
our revenue recognition:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenues
  from sales of products and supplies are recognized by us when an arrangement
  exists, delivery has occurred and title passed to the customer, the Companys
  price to the customer is fixed or determinable, and collection of payment is
  reasonably assured. With respect to products with installation requirements,
  revenue is recognized by us when all of the above criteria are met and
  installation is completed. When sales transactions include more then one deliverable (unit of
  accounting) sold, we separate the different units of accounting of sales with
  multiple deliverables (generally consists of machine and ink) based on the
  objective and reliable evidence of fair value of the different elements,
  which is estimated based on stand alone sale prices of the different elements
  and other reliable evidence that is readily obtainable in the market from
  competitors, distributors and others, in accordance with Emerging Issues Task
  Force (EITF) Issue 00-21, Revenue Arrangements with Multiple
  Deliverables. Sales contracts with distributors stipulate fixed prices and
  current payment terms and are not subject to the distributors resale or any
  other contingencies. Accordingly, when all the above criteria are met, sales
  of finished products to distributors are recognized by us as revenue upon
  delivery to distributors and after title and risk passes to the distributors.

41

---

---



|  |                                                                                                                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We do not grant rights of
  return or cancellation to our customers.                                                                                                                                          
|  |                                                                                                                                                                                                               
| | Service
  revenue is recognized ratably over the contractual period in general, or as
  services are performed in certain cases.                                                                              
|  |                                                                                                                                                                                                               
| | Warranty costs are
  provided for at the same time as the revenues are recognized. The annual provision
  for warranty costs is calculated based on expected cost of inputs, based on
  historical experience.

The
allowance for doubtful accounts is determined specifically for debts doubtful
of collection., the determination of which requires judgment and sometimes
estimates of the portion that will be collected in the future. In performing
this evaluation, significant judgments and estimates are involved, such as past
experience, credit quality of the customer, age of the receivable balance and
current economic conditions that may affect a customers ability to pay, all of
which can change rapidly and without advance warning.

Deferred tax valuation allowance.Deferred taxes are determined utilizing the
asset and liability method, based on the estimated future tax effect resulting
from differences between the amounts presented in our financial statements and
those taken into account for tax purposes, in accordance with the related tax
laws, and from tax losses carryforward. Valuation allowances are included in respect
of deferred tax assets when it is more likely than not that all or a portion of
such assets will not be realized. We have considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance. Due to the uncertainty as to utilization of the tax
losses carryforward, a valuation allowance was provided to reduce our deferred
tax assets, because we expect that for the foreseeable future it is not more
likely than not that all of the deferred tax assets will be realized.
Conversely, the carrying value of our net deferred tax assets assumes that we
will be able to generate sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions. A number of factors may
impact future taxable income, including those discussed under Risk Factors in
Item 3D, as well as any tax planning strategies. To the extent that estimates
of future taxable income are reduced or not realized, we could be required to
establish additional valuation allowances and the amount of the deferred tax
asset considered realizable could be adversely affected by a material amount.
If it were determined that we would be able to realize a deferred tax asset in
excess of its net recorded amount, an adjustment to deferred tax assets would
increase our income.

Treatment
of income tax. Our tax
returns as well as those of our subsidiaries are subject to examination by tax
authorities in various jurisdictions. In general, our management considers tax
provisions based on its reasonable estimate of the outcome of the examination.
Our management believes that the estimates reflected in the financial
statements reflect our tax liabilities. However, our actual tax liabilities may
ultimately differ from those estimates if taxing authorities successfully
challenge our tax treatment or if we were to prevail in matters for which
provisions have been established. Accordingly, our effective tax rate in a
given financial statement period may materially change.

Impairment of goodwill, intangible assets
and other long-lived assets.Under
current accounting standards, we make judgments about the useful lives and fair
value of goodwill, other intangible assets and other long-lived assets,
including assumptions about estimated future cash flows and other factors to
determine the fair value of the respective assets. On January 1, 2002, we
adopted FAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets and FAS 142, Goodwill and Other Intangible Assets. FAS 144 requires
that long-lived assets be reviewed for impairment and, if necessary, written
down to the estimated fair values, whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
undiscounted future cash flows. FAS 142 generally provides that goodwill and
intangible assets (1) with indefinite lives will no longer be amortized and (2)
deemed to have an indefinite life will be tested for impairment at least
annually. Prior to January 1, 2002, goodwill was amortized by us on a
straight-line basis over periods of 7 to 15 years. As a result of the
transitional impairment test that we conducted, we determined that no
impairment should be recorded in 2002 whereas we recorded an impairment of intangible
assets in an approximate amount of $3.0 million in 2003 and $5.2 million in
2004. Judgments and assumptions about future cash flows and remaining lives are
complex and often subjective and can be affected by a variety of external and
internal factors. If these estimates or related assumptions change in the
future, we may be required to record impairment charges related to these
assets.

42

---

---



RECENTLY ISSUED
ACCOUNTING STANDARDS

FAS 123 (Revised 2004) Share-based Payment.In
December 2004, the Financial Accounting Standards Board (FASB) issued the
revised Statement of Financial Accounting Standards (FAS) No. 123,
Share-Based Payment (FAS 123R), which addresses the accounting for
share-based payment transactions in which a company obtains employee services
in exchange for (a) equity instruments of the company or (b) liabilities that
are based on the fair value of the companys equity instruments or that may be
settled by the issuance of such equity instruments. This statement eliminates
the ability to account for employee share-based payment transactions using APB
Opinion No. 25 and requires instead that such transactions be accounted for
using the grant-date fair value based method. On April 15, 2005, the SEC
approved a new rule, under which FAS 123R is effective for public companies at
the beginning of their next fiscal year that begins after June 15, 2005 (first
quarter of 2006 for Scitex). Early adoption of FAS 123R is encouraged. This
statement applies to all awards granted or modified after the statements
effective date. In addition, compensation cost for the unvested portion of
previously granted awards that remain outstanding on the statements effective
date shall be recognized on or after the effective date, as the related
services are rendered, based on the awards grant-date fair value as previously
calculated for the pro-forma disclosure under FAS 123.

We estimate
that the cumulative effect of adopting FAS 123R as of its adoption date by us
and our subsidiaries, based on the awards outstanding as of December 31, 2004,
will be immaterial. This estimate does not include the impact of additional
awards which may be granted or forfeitures which may occur, subsequent to
December 31, 2004 and prior to the adoption of FAS 123R. We expect that
upon the adoption of FAS 123R, we will apply the modified prospective
application transition method, as permitted by the statement. Under such
transition method, upon the adoption of FAS 123R, our financial statements for
periods prior to the effective date of the statement will not be restated. The
impact of this statement on our financial statements or results of operations
in 2005 and beyond will depend upon various factors, among them our future
compensation strategy. Currently, we expect the effect of this statement on our
financial statements and results of operations in future periods to be
approximately $100,000 of additional expenses per quarter (based on the options
as outstanding at December 31, 2004).

FAS 151 Inventory Costs  an Amendment of ARB
43, Chapter 4.In November 2004, the FASB issued FAS
No. 151, Inventory Costs  an Amendment of ARB 43, Chapter 4 (FAS 151).
This statement amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material. This statement requires
that those items be recognized as current-period charges. In addition, this
statement requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
statement will be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005 (January 1, 2006 for Scitex). Earlier application
of FAS 151 is permitted. The provisions of this statement shall be applied
prospectively. We do not expect this statement to have a material effect on our
financial statements or results of operations.

43

---

---



FAS 153 Exchanges of Nonmonetary Assets  An
Amendment of APB Opinion No. 29.In December 2004, the
FASB issued FAS No. 153, Exchanges of Non-Monetary Assets  An Amendment of
APB Opinion No. 29 (FAS 153). FAS 153 amends APB Opinion No. 29,
Accounting for Non-Monetary Transactions (Opinion 29). The amendments made by
FAS 153 are based on the principle that exchanges of non-monetary assets should
be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the exception for non-monetary exchanges of similar
productive assets and replace it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. The provisions in
FAS 153 are effective for non-monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005 (July 1, 2005 for Scitex). Early
application of the FAS 153 is permitted. The provisions of this statement shall
be applied prospectively. We do not expect the adoption of FAS 153 to have
a material effect on our financial statements or results of operations.

EITF Issue 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.In
March 2004, the FASB issued EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
which provides new guidance for assessing impairment losses on debt and equity
investments. Additionally, EITF Issue No. 03-1 includes new disclosure
requirements for investments that are deemed to be temporarily impaired. In
September 2004, the FASB delayed the effectiveness of the accounting
provisions of EITF Issue No. 03-1. However, the disclosure requirements
remain effective and have been adopted by us in the financial statements
included elsewhere in this Annual Report. We will evaluate the effect, if any,
of EITF Issue No. 03-1 when final guidance is released.

EITF Issue 02-14, Whether an Investor
Should Apply the Equity Method of Accounting to Investments Other Than Common
Stock.In July 2004, the FASB issued EITF Issue
No. 02-14, Whether an Investor Should Apply the Equity Method of
Accounting to Investments Other Than Common Stock. EITF Issue No. 02-14
addresses whether the equity method of accounting applies when an investor does
not have an investment in voting common stock of an investee but exercises significant
influence through other means. EITF Issue No. 02-14 states that an
investor should only apply the equity method of accounting when it has
investments in either common stock or in-substance common stock of the
investee, provided that the investor has the ability to exercise significant
influence over the operating and financial policies of the investee. The
provisions in EITF Issue No. 02-14 are effective for reporting periods
beginning after September 15, 2004 (October 1, 2004 for Scitex). The adoption
of EITF 02-14 by Scitex did not have any effect on our financial statements or
results of operations.

|   |                              
|-- | -----------------------------
|B. | LIQUIDITY & CAPITAL RESOURCES

OVERVIEW

On December 31, 2004,
our working capital from continuing operations was $142.6 million,
compared to $30.4 million on December 31, 2003. The working capital increased
primarily as a result of an increase of $77.3 million, in the aggregate, in
cash, cash equivalents and short-term investments, as well as an increase of
$14.2 million in inventories and the reduction of $18.5 million in short term
bank credit.

We have
financed our operations through cash generated from operations, including the
proceeds from the sale of SDPs business in January 2004 which generated, in
the aggregate, approximately $262 million in cash. Cash, cash equivalents, short-term
investments and a restricted deposit at December 31, 2004 were
$160.6 million and short-term bank debt (including current maturities of
long-term loans) totaled $34.4 million compared to $83.3 million and
$51.9 million, respectively, at December 31, 2003. The increase in
cash, cash equivalents and short-term investments is attributable primarily to the
sale of SDPs business to Kodak, which was partially off-set by the $118
million used in the cash distribution and self tender offer. Bank debt due beyond one year totaled $8.8
million at the end of 2004, compared to $6.6 million in 2003 (see Item 5F
below).

44

---

---



Cash Flows

We had negative net cash
used in operations in 2004. The net cash flow used in operations in 2004 was
approximately $10.3 million, compared to approximately $6.2 million in
2003 (and $4.4 million of positive operating cash flow in 2002). The negative
cash flows from operations was due primarily to an increase in inventory
related to changes in market demand and changes in the inventory structure
(increase in demand for high-end systems).

Our investment
activities consist primarily of investments and redemptions of short-term bank
deposits and U.S. government securities. In 2004, $177.8 million was generated from investment
activities (excluding $4.7 million of reduction in restricted deposit) compared
to $47.5 million that was generated from investment activities (excluding $3.4
million of restricted deposit) in 2003 and $17.0 million used in investment activities
in 2002 (excluding $20.2 million of restricted deposit). The increase in cash
generated from investment activities in 2004 is related primarily to cash
generated from the sale of SDPs business and the follow-on investments
and redemptions of short-term bank deposits and U.S. government securities.
The increase in cash generated from investment activities in 2003 is related
primarily to $54 million generated from the sale of Creo shares in June and
August 2003. Major uses of cash for investing activities during 2004 included
investments in group companies and in fixed assets.

Net cash used
in financing activities in 2004 was approximately $133.7 million, consisting
mainly of $118 million used in the cash distribution and tender offer and a
further $16.6 million used for repayments of long and short term loans. Net
cash used in financing activities in 2003 was approximately $9.7 million,
consisting mainly of the repayment of $18.8 million note we issued to Creo,
which was offset by Scitex Visions borrowings under its credit facilities. Net
cash generated from financing activities in 2002 was approximately $4.5
million.

In sum, the
net cash flow (cash and cash equivalents) increase in 2004 amounted to $85.9
million.

The ability of our
subsidiaries to transfer funds to us in the form of cash dividends is generally
subject to restrictions imposed by the corporation laws of the respective
jurisdiction in which they are incorporated. For example, our Israeli
subsidiaries and group companies may not pay dividends unless they meet
specified criteria or, in certain cases, only with the approval of the court.
We do not believe that such restrictions or any other restrictions imposed by
law on our subsidiaries have had or are expected to have any material adverse
impact on our ability to meet our cash obligations.

Capital
Expenditures

Capital
expenditures in fixed assets in 2002, 2003, and 2004 were approximately $10.3
million, $3.3 million and $1.9 million, respectively. Our capital expenditures
by way of equity and convertible debt investments in our group companies (other
than our consolidated subsidiaries) in 2002, 2003 and 2004 were approximately
$3.5 million, $15.5 million and $0.6 million, respectively. There are
commitments for IT projects and upgrading the ERP system the in SV in total
amount of approximately $2.6 million in 2005.

Credit
Facilities

As of December 31, 2004,
Scitex Visions borrowings under its revolving lines of credit and long-term
loans for working capital and investments purposes from banks in Israel
amounted to $41.9 million, bearing interest ranging from LIBOR +1.0% to
LIBOR +2.25%, partially linked to the dollar and partially to the Euro. As of
June 20, 2005, the principal amount outstanding under these credit lines
amounted to $42.5 million. These credit lines are secured by a floating charge
on Scitex Visions assets and by approximately $13 million of restricted
deposits. Under these credit lines, Scitex Vision is required to adhere to
certain financial and other restrictive covenants such as equity level,
profitability and financial ratios and restriction on payment of dividends. In
the past, Scitex Vision failed to meet certain of these covenants but was able
to cure such default following negotiations with the banks and by raising
additional funds from us and other shareholders of Scitex Vision. However, we
cannot assure you that Scitex Vision will be successful in satisfying these
covenants in the future.

45

---

---



Most of the
short-term bank credit of Scitex Vision is also in dollars, generally at
variable rates linked to LIBOR. This includes a short-term bank loan
denominated in dollars and bearing interest at a rate of LIBOR + 1.0% to LIBOR
+ 2.25% per annum (as of December 31, 2004, 3.63% to 4.88%, respectively) in
the amount of approximately $16.4 million. Scitex Vision also has in place
other short-term banks loans denominated in Euros and bearing interest of one
month LIBOR + 1.75% to LIBOR + 2.0% per annum (as of December 31, 2004, 4.0% to
4.25%, respectively) in the aggregate amount of approximately 10.5 million
Euros (representing $14.4 million based on the exchange rate between the Euro
and the dollar as of December 31, 2004).

See Item 5F
below.

Tax Audits

In Israel, we have received,
or are considered to have received, final tax assessments through the 1999 tax
year.

In partial settlement of an
audit by the Internal Revenue Service (IRS) of our U.S. subsidiaries for the
years 1992 through 1996, we consented to a partial assessment by the IRS for
approximately $10.6 million of federal taxes on certain agreed upon issues. In
June 2002, we received a notice from the IRS assessing $29.6 million of
additional federal income taxes for the years 1992 through 1996. In August
2002, we appealed the proposed additional assessment and in February 2004
reached a settlement with the IRS, whereby we agreed to an assessment of $5.9
million of additional federal income taxes for these years (rather than $29.6
million as initially proposed by the IRS, excluding interest accrued thereon). We
had previously established balance sheet reserves on account of this audit
which turned out to be sufficient, and, as noted above, we had already made advance payments to the IRS
of $21.5 million on account of this audit until the end of 2003. Accordingly,
we paid as a final additional cash cost of the IRS audit (taking into
consideration the full federal tax assessment, state taxes and interest
thereon, and after application of the $21.5 million advance payment), an amount
of approximately $11.6 million. In December 2004, as a result of the conclusion
of the 19921996 IRS audit, we filed amended federal tax returns for the years
1994, 1995 and 1997, requesting a refund of $7.8 million of federal taxes. To
date, the IRS has not responded to our request. Due to the existing uncertainty
surrounding the outcome of this request, this amount is not included in our
consolidated financial statements included in this Annual Report.

In late 2002, we received a
demand from the Israeli Tax Authority (ITA) to make a tax payment of
approximately $2.6 million related to an assessment of an intracompany sale of
shares that was effected during 1996 reflecting a much higher valuation to the
transaction than the one established by us. In March 2004, we reached an
agreement with the ITA, pursuant to which we paid approximately $30,000 in full
settlement of this demand.

In
April 2003, Scitex Vision International, our indirect majority owned
subsidiary, received a notice from the ITA assessing approximately $6.5 million
(including interest and linkage to the Israeli Consumer Price Index) of Israeli
income taxes for the years 1995 through 2000. The dispute related primarily to
the interpretation of the benefits to which Scitex Vision is entitled under the
Law for the Encouragement of Capital Investments, 1959, and the deduction of
certain expenses. Scitex Vision International appealed the proposed assessment
and, in January 2004, reached a settlement with the ITA, whereby it agreed to
pay approximately $1.8 million in 24 monthly installments commencing April 2004
in full settlement of the ITA audit for these years as well as for 2001.

In mid-2001,
Scitex Vision International filed an application for an advance ruling by Hong
Kongs Inland Revenue Department (IRD). In general, this application sought the
IRDs agreement that Scitex Vision Internationals sales outside of Hong Kong
will be exempt from tax in Hong Kong and that sales within Hong Kong will be
subject to a lower tax rate. During 2003, the IRD declined the application. Thereafter, Scitex
Vision International sold the local subsidiary and ceased the
relevant activity in Hong Kong. Scitex Vision International
believes that due to current balance sheet reserves, it is not necessary at
this time to establish additional reserves relating to this matter in Hong
Kong.

46

---

---



In
addition, we are
undergoing a tax audit in Europe and the tax consequences in Israel of the Creo
transaction are still to be determined with the tax authorities. While we
believe that we established sufficient reserves for these matters, additional
payments may be required at the conclusion of these matters. It is not possible
to predict at this time whether and when any eventual payments will be made.

Outlook for 2005

In 2005, we expect our
majority owned subsidiary, Scitex Vision, to generate cash from its operations.
Our investment activities, which may include investments in group companies,
earnout payments for past acquisitions and investments in capital assets, are
expected to be higher than the amount of cash generated by our operating cash
flow. As described elsewhere in this Annual Report, in June 2004 we paid
approximately $28 million in consideration for the shares purchased by us in
the self tender offer and approximately $90 million was paid to our
shareholders in July 2004 as part of the cash distribution. As a result, our
shareholders equity and cash balance has decreased by the same amount. Our
management believes that existing cash and short-term investments together with
available credit lines and funds generated from operations of subsidiaries will
be sufficient to meet operating requirements in the year 2005. We may also
continue to invest in our subsidiaries and group companies, and in other new
companies.

EFFECTIVE
CORPORATE TAX RATE

Israeli
companies are generally subject to corporate tax on their taxable income at the rate of 35% for the 2004 tax year, 34% for
the 2005 tax year, 32% for the 2006 tax year and 30% for the 2007 tax year and
to capital gains tax at a rate of 25% for capital gains derived after January
1, 2003 (other than with respect to gains
deriving from the sale of listed securities). However, the manufacturing
facilities in Israel of some of our group companies have been granted Approved
Enterprise status under the Law for the Encouragement of Capital Investments,
1959. Consequently, these facilities are eligible for tax benefits. The tax
benefit is afforded for seven years from the year the relevant facility first
earns taxable income, but no later than 12 years from the first year of
operating or 14 years from the year in which the approval was granted. Subject
to compliance with applicable requirements, the income derived from these
Approved Enterprise facilities will be fully tax-exempt during the first two
years of the seven-year tax benefit, and will be subject to a reduced tax rate
of a maximum of 25% during the remaining five years, but in any event not later
than 2006 regarding Approved Enterprise facilities that are already approved
and effective. The actual tax rate will depend upon the percentage of
non-Israeli holders of the share capital of these companies.

In 2004, we do
not expect to have taxable income at Scitex, the parent company. See below
under Item 10E  Taxation and in Note 12 to our consolidated financial
statements for more information on our income taxes.
 The above benefits are
conditioned upon our fulfillment of conditions stipulated by the Law for the
Encouragement of Capital Investments, the regulations promulgated thereunder
and the instruments of approval for the specific investments in Approved
Enterprises. If we fail to comply with these conditions, our benefits may be
canceled and we may be required to refund the amount of the benefits received,
in whole or in part. See above under the caption Tax Audits regarding a
settlement of a dispute with the Israeli tax authority in this respect.

MARKET RISK

For
information on our market risk and the use of financial instruments for hedging
purposes, see below under Item 11  Quantitative and Qualitative Disclosures
About Market Risk.

47

---

---



GRANTS FROM THE
OFFICE OF THE CHIEF SCIENTIST

The Government of Israel
encourages research and development projects through the Office of Chief
Scientist of the Israeli Ministry of Industry, Trade and Labor, or the Office
of the Chief Scientist, pursuant to the Law for the Encouragement of Industrial
Research and Development, 1984, and the regulations promulgated thereunder,
commonly referred to as the R&D Law. Grants received under such programs
are repaid through a mandatory royalty based on revenues from products
incorporating know-how developed with the grants. This government support is
condition upon the participants ability to comply with certain applicable
requirements and conditions specified in the Office of the Chief Scientists
programs and with the provisions of the R&D Law.

Under the R&D Law,
research and development programs that meet specified criteria and are approved
by the research committee of the Office of the Chief Scientist are eligible for
grants of up to 50% of certain approved expenditures of such programs, as
determined by the research committee of the Chief Scientist. In exchange, the
recipient of such grants is required to pay the Office of the Chief Scientist
royalties from the revenues derived from products incorporating know-how
developed within the framework of each such program or derived from such
program (including ancillary services in connection with such program), usually
up to an aggregate of 100% of the dollar-linked value of the total grants
received in respect of such program, plus interest. The royalty rates
applicable to the programs maintained by our Israeli subsidiaries and group
companies range from 3% to 5%.

The R&D
Law generally requires that the product developed under a program be
manufactured in Israel. However, upon the approval of the Chief Scientist, some
of the manufacturing volume may be performed outside of Israel, provided that
the grant recipient pays royalties at an increased rate, which may be
substantial, and the aggregate repayment amount is increased up to 300% of the
grant, depending on the portion of the total manufacturing volume that is
performed outside of Israel. Effective April 1, 2003, the R&D Law also
allows for the approval of grants in cases in which the applicant declares that
part of the manufacturing will be performed outside of Israel or by non-Israeli
residents and the research committee is convinced that doing so is essential
for the execution of the program. This declaration will be a significant factor
in the determination of the Office of Chief Scientist whether to approve a
program and the amount and other terms of benefits to be granted. For example,
the increased royalty rate and repayment amount will be required in such cases.

The R&D
Law also provides that know-how developed under an approved research and
development program may not be transferred to third parties in Israel without
the approval of the research committee. Such approval is not required for the
sale or export of any products resulting from such research or development. The
R&D Law further provides that the know-how developed under an approved
research and development program may not be transferred to any third parties
outside Israel.

In March 2005,
an amendment to the R&D Law was approved by Israels Parliament, which
amendment is intended to make the R&D Law more compatible with the global
business environment by, among other things, relaxing restrictions on the
transfer of manufacturing rights outside Israel and on the transfer of
OCS-funded know-how outside of Israel. As described above, currently, the law
permits the Office of the Chief Scientist to approve the transfer of
manufacturing rights outside Israel, in exchange for payment of higher
royalties. The amendments further permits (1) the Office of the Chief
Scientist, among other things, to approve the transfer of manufacturing rights
outside Israel in exchange for an import of different manufacturing into Israel
as a substitute, in lieu of increased royalties, and (2) under certain
circumstances and subject to the Office of the Chief Scientists prior
approval, the transfer outside Israel of know-how that has been funded by
Office of the Chief Scientist, generally in the following cases: (a) the grant
recipient pays to the Office of the Chief Scientist a portion of the
consideration paid for such funded know-how (according to certain formulas), or
(b) the grant recipient receives know-how from a third party in exchange for
its funded know-how, or (c) such transfer of funded know-how arises in
connection with certain types of cooperation in research and development
activities. This amendment will come into effect on June 7, 2005. To our
knowledge, the Israeli government intends to amend the royalty regulations
promulgated under the R&D Law to reflect this amendment. This amendment to
the regulations may also include an update to the royalty rates.

48

---

---



The R&D
Law imposes reporting requirements with respect to certain changes in the
ownership of a grant recipient. The law requires the grant recipient and its
controlling shareholders and interested parties to notify the Office of the
Chief Scientist of any change in control of the recipient or a change in the
holdings of the means of control of the recipient that results in a non-Israeli
becoming an interested party directly in the recipient and requires the new
interested party to undertake to the Office of the Chief Scientist to comply
with the R&D Law. In addition, the rules of the Office of the Chief
Scientist may require prior approval of the Office of the Chief Scientist or
additional information or representations in respect of certain of such events.
For this purpose, control is defined as the ability to direct the activities
of a company other than any ability arising solely from serving as an officer
or director of the company. A person is presumed to have control if such person
holds 50% or more of the means of control of a company. Means of control
refers to voting rights or the right to appoint directors or the chief
executive officer. An interested party of a company includes a holder of 5%
or more of its outstanding share capital or voting rights, its chief executive
officer and directors, someone who has the right to appoint its chief executive
officer or at least one director, and a company with respect to which any of
the foregoing interested parties owns 25% or more of the outstanding share
capital or voting rights or has the right to appoint 25% or more of the
directors. Since Scitex currently participates in these programs solely
through its subsidiaries and some of its group companies, we do not believe
that any non-Israeli who becomes a holder of 5% or more of our outstanding
shares is required to comply with the aforesaid notification and undertaking
requirements.

The funds available for
Office of the Chief Scientist grants out of the annual budget of the State of
Israel were reduced in 1998, and the Israeli authorities have indicated in the
past that the government may further reduce or abolish Office of the Chief
Scientist grants in the future. Even if these grants are maintained, we cannot
presently predict what would be the amounts of future grants, if any, that we
(or our Israeli affiliated companies) might receive.

We recorded grant
participation from the Office of the Chief Scientist totaling approximately
$0.7 million in 2002, $0.5 million in 2003 and $0.6 million in 2004. Pursuant
to the terms of these grants, Scitex Vision and Jemtex are obligated to pay
royalties in the range of 3% to 5% of revenues derived from sales of products
funded with these grants.

However, a portion of the
grants to Scitex Vision are from the MAGNET program that does not bear any
royalties. As a member of the Digital Printing Consortium, some of the grants
that Scitex Vision received from the Office of the Chief Scientist were
pursuant to the MAGNET program  a program for research and development of
generic technologies within a consortium of commercial companies and academic
institutions. In this program, the effective rate of the grants is up to 66% of
the expenses and there is no obligation to pay any royalties. However, the
MAGNET program requires Scitex Vision to cross license certain technology
developed in connection with such program to the other members of the
consortium.

As of December 31, 2004, our
contingent liability to the Office of the Chief Scientist in respect of grants
received was approximately $7.0 million, compared to $4.2 million as of
December 31, 2003. The increase is due primarily to the consolidation of Jemtex
in our financial statements and, consequently, the inclusion of Jemtexs
contingent liability to the Office of the Chief Scientist.

|   |                                                     
|-- | ----------------------------------------------------
|C. | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

Scitexs research and
development efforts, through its subsidiaries, are focused on the development
of new products and technologies, as well as enhancing the quality and
performance relative to price of our existing products, reducing manufacturing
costs and upgrading and expanding our product line through the development of
additional features and improved functionality.

Our research and development
activities primarily consist of over 95 employees, most of them in Scitex
Visions operations in Israel. In addition, a high proportion of the employees
of our group companies are engaged in research and development.

49

---

---



We, through our
subsidiaries, have taken advantage of royalty-bearing grants in the form of
participations in industrial research provided by the Government of Israel. The
following table shows the amounts and relative percentages of total research
and development expenditures and the royalty-bearing participations therein,
for the years indicated:

|                                                                      |  |                           |        |      |  |      |      |   |        |  |  |      |      |   |       |  |  |     |     
|--------------------------------------------------------------------- |  | ------------------------- | ------ | ---- |  | ---- | ---- | - | ------ |  |  | ---- | ---- | - | ----- |  |  | --- | ----
|                                                                      |  | Year Ended
  December 31, |       
|                                                                      |  |                           |       
|                                                                      |  | 2004                      |        | 2003 |  | 2002 |     
|                                                                      |  |                           |        |      |  |      |     
|                                                                      |  | (Dollars
  in thousands)  |       
|                                                                      |  |                           |       
|Total expenditure incurred                                            |  | $                         | 13,043 |      |  | 10.2 | %(1) | $ | 11,537 |  |  | 11.2 | %(1) | $ | 7,761 |  |  | 9.1 | %(1)
|Less royalty-bearing participations, from the Government of
Israel(3) |  | $                         | 594    |      |  | 4.6  | %(2) | $ | 467    |  |  | 4.1  | %(2) | $ | 701   |  |  | 9.0 | %(2)
|                                                                      |  |                           |        |      |  |      |      |   |        |  |  |      |      |   |       |  |  |     |     
|Net expenditure                                                       |  | $                         | 12,449 |      |  | 9.7  | %(1) | $ | 11,070 |  |  | 10.8 | %(1) | $ | 7,060 |  |  | 8.2 | %(1)
|                                                                      |  |                           |        |      |  |      |      |   |        |  |  |      |      |   |       |  |  |     |     

|    |                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Percentage indicates the
  ratio of the relevant item to total revenues from continuing operations.                                                                                                                                                                                                                   
|(2) | Percentage indicates the
  ratio of the participations to total research and development expenditure
  incurred (as shown).                                                                                                                                                                                           
|(3) | See Note 14g to our
  consolidated financial statements included in this Annual Report. For further
  information regarding the Office of the Chief Scientist of the Israeli
  Ministry of Industry, Trade and Labor, see Item 5B  Liquidity and Capital
  ResourcesGrants from the Office of the Chief Scientist.

As of the end of 2004, we,
principally through Scitex Vision, own, license or otherwise have rights in
over 80 issued patents and 79 patent applications pending in the
United States and elsewhere. As part of the SDP transaction in January 2004, we
assigned to Kodak approximately 324 issued patents and 197 pending
patent applications relating to our high-speed digital printing business. In
addition, a number of issued patents and pending applications are held by our
other group companies. We also claim proprietary rights in various technology
and trade secrets relating to our products and operations. We also hold a
number of trademarks and service marks in the United States and elsewhere,
including for the name Scitex and the Scitex logo.

See also Item 4Business
OverviewIntellectual Property and Proprietary Rights.

|   |                  
|-- | -----------------
|D. | TREND INFORMATION

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | General. The deterioration of the global economy
  starting in the second half of 2001 has resulted in a decline of
  advertisement spending and consequently a slowdown of capital investments in
  the digital printing market in which we operate. Since 2003, we identified a
  moderate improvement in the general market for commercial printers equipment
  and, in the past year, specifically in certain countries in Latin America,
  Africa and Asia Pacific. However, we are unable to predict the duration of
  this trend or the extent of any impact that it may have on our results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Industry. The printing industry underwent
  substantial changes over the recent years. Analog, labor intensive processes,
  characterized by high setup costs and long production runs, are being
  replaced by digital processes in both the preparation of data for printing
  (preprint) and in the actual printing process (digital print). The printing
  industry, which historically has grown at GDP rates, experienced strong
  growth in revenue and profitability in the years up until the middle of 2001,
  fueled mainly by increased advertising spending. Since then, and particularly
  following the events of September 11, 2001, there was a substantial slowdown
  in activity in this industry, demonstrated by slower replacement of equipment
  and reduced capital equipment purchases, and there is no assurance that the
  strong capital spending experienced in the industry through the middle of
  2001 will return. However, since 2003, and specifically in 2004, we
  identified a moderate improvement in the general market for commercial
  printers equipment, including in the wide format printing systems segment in
  which we operate. However, we are unable to predict the duration of this
  trend or the extent of any impact that it may have on our results of
  operations.

50

---

---



| | Digital
printing growth is driven by the demand for shorter lead times for printed products,
variability and personalization of output, and the savings derived from elimination of
obsolescence and inventory related costs. We believe these trends will continue and even
strengthen as the market gets accustomed to new processes and cost-efficiency paradigms.
In general, most digital printing application areas have seen moderate growth rates over
the last few years partly due to digital processes replacing analog ones and partly due
to new print products and applications being developed such as wide and super wide format
printing on various types of substrates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recently,
we learned about several transactions, including the acquisition of Vutek Inc., one of
our main competitors in the super-wide format market, by Electronics For Imaging, Inc.
(EFI), and the acquisition of Inca Digital Printers, one of our competitors in the
digital flatbed market, by Dainippon Screen Mfg. Co. Ltd. We are not certain whether
these transactions indicate a trend of consolidation in the industry, noting that we
believe that the market is fragmented on the customer side and the system manufacturers side.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue outlook. We have seen revenues from our continuing
  operations increase in 2004 at a 25% rate reaching approximately $128.2
  million and, in 2003, at a 20% rate (reaching approximately $103 million). We
  believe that, subject to general market conditions over which we have no
  control, we should be able to maintain moderate growth in our revenues in
  2005.                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Composition of revenue. In 2004, we derived approximately 39% of
  our revenues from services and supplies, compared to 41% in 2003 and 38% in
  2002.  Our growing installed base is
  expected to contribute to the growth of our recurring revenues from services
  in 2005, a trend which may be offset by reduction in revenues from our
  supplies business, which is currently characterized by a very competitive
  arena with eroding prices. Due to these conflicting trends as well as numerous
  factors beyond our control, we cannot predict at this time the composition of
  revenue in 2005.                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Gross margins. Our gross margins, which depend primarily
  on product and revenue mix, improved in 2004 compared to 2003, from 38.6% to
  44.6% (40.7% in 2002).  Subject to
  unexpected market developments and competition, we believe that in 2005 we
  can maintain our gross margins comparable to 2004, primarily through sale of
  products that carry a higher margin than our current offerings, cost
  reduction programs and lower equipment manufacturing costs. We are
  proactively working on reducing the costs of production through cost
  engineering methods and outsourcing.                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Other.
  Consistent with past practice, we intend to continue to explore strategic
  alternatives relating to our holdings, including a possible initial public
  offering, and possible dispositions or acquisitions. There is no assurance
  that any of these alternatives will be pursued or, if one is pursued, the
  terms on which it would occur. As previously announced, we are engaged in
  preliminary negotiations for the possible sale of our holdings in Scitex
  Vision, our remaining principal operating subsidiary. There is no assurance
  if, when or on what terms such a transaction will take place.

|                                                                                                                                                                                                                                                                                                |                               
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------
|E.                                                                                                                                                                                                                                                                                              | OFF-BALANCE SHEET ARRANGEMENTS
|                                                                                                                                                                                                                                                                                                |                               
|We are not a
  party to any off-balance sheet arrangements that have or are reasonably
  likely to have a current or future material effect on our financial
  condition, changes therein, revenues or expenses, results of operations,
  liquidity, capital expenditures or capital resources.

51

---

---



|                                                                                                                                           |                                              
|------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------
|F.                                                                                                                                         | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|                                                                                                                                           |                                              
|The table
  below summarizes, as of December 31, 2004, our following contractual
  obligations to third parties for the periods indicated:

|                                             |  |                                          |        |                    |   |             |  |             |        |                   |   |       |  |   |       | 
|-------------------------------------------- |  | ---------------------------------------- | ------ | ------------------ | - | ----------- |  | ----------- | ------ | ----------------- | - | ----- |  | - | ----- | 
|                                             |  | Payments Due By Period (in
  $ millions) |       
|                                             |  |                                          |       
|Contractual Obligations                      |  | Total                                    |        | Less than 1
  Year |   | 1-3
  Years |  | 3-5
  Years |        | More than 5 Years |  
|                                             |  |                                          |        |                    |   |             |  |             |        |                   |  
|Long-term
  debt                             |  | $                                        | 14,899 |                    | $ | 3,557       |  | $           | 7,234  |                   | $ | 4,108 |  |   |      | 
|                                             |  |                                          |        |                    |   |             |  |             |        |                   |   |       |  |   |       | 
|Operating
  leases (facilities and vehicles) |  |                                          | 17,045 |                    |   | 2,452       |  |             | 3,983  |                   |   | 3,158 |  |   | 7,452 | 
|                                             |  |                                          |        |                    |   |             |  |             |        |                   |   |       |  |   |       | 
|                                             |  |                                          |        |                    |   |             |  |             |        |                   |   |       |  |   |       | 
|Total contractual cash obligations           |  | $                                        | 31,944 |                    | $ | 6,009       |  | $           | 11,217 |                   | $ | 7,266 |  | $ | 7,452 | 
|                                             |  |                                          |        |                    |   |             |  |             |        |                   |   |       |  |   |       | 

As to our
royalty obligations and outstanding guarantees as at December 31, 2004, see
Note 10 to our consolidated financial statements included in this Annual
Report.

52

---

---



|        |                                           
|------- | ------------------------------------------
|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|A.      | DIRECTORS AND SENIOR MANAGEMENT           

The following table sets forth
certain information with respect to our directors and senior management:

|                                |  |     |  |                |  |                                                       
|------------------------------- |  | --- |  | -------------- |  | ------------------------------------------------------
|Name                            |  | Age |  | Director Since |  | Position                                              
|                                |  |     |  |                |  |                                                       
|                                |  |     |  |                |  |                                                       
|Ami Erel(1) (2) (11)            |  | 57  |  | 2003(3)        |  | Chairman of
  the Board of Directors*                 
|                                |  |     |  |                |  |                                                       
|Raanan Cohen(2) (4) (5)         |  | 37  |  | 2002           |  | President
  and Chief Executive Officer; Director     
|                                |  |     |  |                |  |                                                       
|Yahel
  Shachar                 |  | 44  |  |               |  | Chief
  Financial Officer & Corporate Secretary       
|                                |  |     |  |                |  |                                                       
|Dov Ofer                        |  | 51  |  |               |  | President
  and Chief Executive Officer, Scitex Vision
|                                |  |     |  |                |  |                                                       
|Avraham Asheri(4) (6) (7)       |  | 67  |  | 2000           |  | Director;
  Chairman of the Audit Committee*          
|                                |  |     |  |                |  |                                                       
|Ophira Rosolio-Aharonson(4)(6)  |  | 55  |  | 2000           |  | Director*                                             
|                                |  |     |  |                |  |                                                       
|Ariella Zochovitsky (4) (6) (8) |  | 49  |  | 2002           |  | Director*                                             
|                                |  |     |  |                |  |                                                       
|Avraham Fischer (9)  (11)       |  | 48  |  | 2003           |  | Director*                                             
|                                |  |     |  |                |  |                                                       
|Shay Livnat (9)  (10)           |  | 46  |  | 2003           |  | Director*                                             
|                                |  |     |  |                |  |                                                       
|Shimon Alon                     |  | 55  |  | 2003           |  | Director*                                             
|                                |  |     |  |                |  |                                                       
|Gerald Dogon(6) (8) (11)        |  | 65  |  | 2003           |  | Director*                                             
|                                |  |     |  |                |  |                                                       
|Nachum
  Shamir                 |  | 51  |  | 2004           |  | Director                                              

|     |                                                                                                                                                                                                                                                                                                                                                                                     
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*    | Designated as independent
  director in accordance with Nasdaq Marketplace Rules.                                                                                                                                                                                                                                                                                                 
|(1)  | Member of the Remuneration
  Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                   
|(2)  | Nominee of Discount and
  its wholly owned subsidiary.                                                                                                                                                                                                                                                                                                                              
|(3)  | Also served as director of
  Scitex from January 2000 to December 2001.                                                                                                                                                                                                                                                                                                             
|(4)  | Member of the Financial Investments
  Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                          
|(5)  | Seconded to us by Discount
  pursuant to the Services Agreement described under Item 7B   Services Agreements below. Mr. Cohen is
  the son of Mr. Eliahu Cohen, a member of the board of directors of Clal,
  Discount and IDB Holding Corporation Ltd. (IDB Holding), and Chief
  Executive Officer and a director of IDB Development Corporation Ltd. (IDB
  Development).
|(6)  | Member of the Audit
  Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                          
|(7)  | Initially proposed for
  election as a director by Discount.                                                                                                                                                                                                                                                                                                                        
|(8)  | An Outside Director
  pursuant to the Companies Law.                                                                                                                                                                                                                                                                                                                              
|(9)  | Nominee of Clal through
  CEI, its wholly owned subsidiary.                                                                                                                                                                                                                                                                                                                         
|(10) | Mr. Livnat is the son of
  Avraham Livnat, an affiliate of IDB Holding and the brother of Zvi Livnat, a
  co-CEO of Clal and a director of several companies within the IDB group,
  including IDB Holding, IDB Development and Discount.                                                                                                                                           
|(11) | Member of the Nominating
  Committee of the Board of Directors.                                                                                                                                                                                                                                                                                                                     

Ami Erel was
appointed Chairman of our board of directors in June 2003.  He has served as President and Chief
Executive Officer of Discount since June 2001. From November 1999 to December
2001, he served as the Chairman and Chief Executive Officer of Elron Electronic
Industries Ltd. From 1997 to 1999, Mr. Erel served as President and Chief
Executive Officer of Bezeq, The Israel Telecommunications Corp. Ltd. and from
1997 to 1998 he was Chairman of the Board of Directors of PelePhone
Communications Ltd. He continues to serve as Chairman of Elron and currently serves
as chairman or a director of several companies in the DIC group, including
Property and Building Corporation Ltd. and Super-Sol Ltd. He holds a bachelor
of science degree in electronic engineering from the Technion, the Israel
Institute of Technology, Haifa, Israel.

53

---

---



Raanan Cohen was
appointed as Interim President and Chief Executive Officer of Scitex in January
2004. He has also served as Vice President of Discount since August 2001,
having previously served as Executive Assistant to the Chief Executive Officer
of Discount from 1999.  Prior to joining
Discount, he was an associate with McKinsey & Company, Inc. in London from
1997.  Mr. Cohen is a lawyer, admitted
to the Israeli Bar, and from 1994 to 1995 he served as an attorney with S.
Horowitz & Co., an Israeli law firm.
He is a director of a number of companies in the Discount group,
including Cellcom Israel Ltd. and Property & Building Corporation Ltd.  Mr. Cohen holds bachelors degrees in law and
in economics from Tel Aviv University and a masters degree in management from
J.L. Kellogg Graduate School of Management, Northwestern University, Evanston,
Illinois.

Yahel Shachar joined
Scitex in December 2001 and was appointed Chief Financial Officer and Corporate
Secretary in February 2002. Before he joined Scitex, Mr. Shachar served as
Chief Operating Officer at BVR Technologies Ltd. from 1998 to 2001. From 1995
to 1998, he was an attorney with Goldfarb, Levy, Eran & Co., an Israeli law
firm.  Mr. Shachar holds an LL.M. degree
from Georgetown University (specializing in corporate, tax and securities law)
in Washington, D.C., and an LL.B. degree from the Tel Aviv University, and is a
member of the Israeli and New York bar associations.

Dov Ofer was
appointed President and Chief Executive Officer of Scitex Vision in January
2002.  He served as Scitex Visions
Executive Vice President of Sales, Marketing and Business Development from 1999
to January 2002.  Prior to joining Scitex
Vision, Mr. Ofer served as the Managing Director of Matan Digital Printing, a
company whose super-wide format technology and operations were acquired by
Scitex Vision in 1998.  He holds a bachelors degree in economics from the Hebrew University of
Jerusalem, Israel, and an MBA degree from University of California  Berkeley.

Avraham Asheri is an
economics advisor. He served as President and Chief Executive Officer of Israel
Discount Bank Ltd. from 1991 until 1998, having previously held the position of
Executive Vice President and a member of the banks Management Committee from 1983.  Prior to joining Israel Discount Bank,
during a period of 23 years Mr. Asheri held various offices at the
Ministries of Industry and Finance, including Director General of the Ministry
of Industry and Trade, Managing Director of the Investment Center in Israel and
Trade Commissioner of Israel to the United States. He is a member of the boards
of directors of several companies, including Elron Electronic Industries Ltd.,
Kardan Real Estate Ltd., Elbit Systems Ltd., Africa  Israel Investment Ltd.,
Africa-Israel Investments Ltd. and Discount Mortgage Bank Ltd.  Mr. Asheri holds a bachelors degree in
economics and political science from the Hebrew University of Jerusalem,
Israel.

Ophira Rosolio-Aharonson is
an executive director at several private and publicly traded high-tech
companies, a strategic business consultant and a partner and advisor to several
venture capital firms in Israel and in the U.S. She was a co-founder of Seagull
Technology, Inc. and served as CEO of Terra Computers, Inc. in the U.S. from
1992 to 1999. Prior to that she served as a senior executive, holding various
managerial positions at Clal Computers & Technology.  She is a member of the board of directors of
Cimatron Ltd. and OptiSign Ltd.  Ms.
Rosolio-Aharonson has a bachelors degree in applied mathematics and physics and
completed courses required for a masters degree in bio-medical engineering from
the Technion  Israel Institute of Technology in Haifa, and is a graduate of
the executive business and management program of Tel Aviv University.

54

---

---



Ariella Zochovitzky
is the general manager and partner of C.I.G. Capital  Investments Group Ltd., a firm of management consultants, which
she has managed since July 2001. In addition, she was a partner in two venture
capital funds from July 2000 to early 2001 and a general manager and partner in
the firm of Zochovitzky & Weinstein, certified public accountants, from
1989 to June 2000. She was previously a partner with the certified public
accountants, Kost Forer & Gabbay (a member of Ernst and Young
International), which she joined in 1980 as a trainee accountant, subsequently
becoming a partner.  Ms. Zochovitzky
served as a director of several companies and currently serves as a director of
several companies, including Provident Funds Management  Israel Discount Bank
Ltd., Elco Holdings Ltd. and Inspire Investments Ltd. She holds a bachelors
degrees in economics and accounting from the University of Haifa, Israel, and a
masters degree in management from the Tel-Aviv University and Northwestern
University (J.L. Kellogg Graduate School of Management).  She is a registered CPA in Israel.

Avraham Fischer is
the Executive Vice President of IDB Holding, the deputy Chairman of IDB
Development and a co-Chief Executive Officer of Clal. In addition, he is a
partner of Fischer, Behar, Chen & Co., an Israeli law firm. Mr. Fischer is
the co-founder and co-Chairman of Ganden Tourism and Aviation Ltd., a company
holding investments in Israeli companies operating primarily in the field of
tourism and aviation, and is the co-founder and Vice-Chairman of Ganden
Holdings Ltd., a company holding investments in companies operating primarily
in the fields of real estate, communications and technologies. He serves as a
director of Clal, Discount, American Israeli Paper Mills Ltd., Elron Electronic
Industries Ltd., Vyyo Inc. and several other companies. Mr. Fischer is a co-
Chairman of Matan  Your Way to Give, a non-profit organization.  Mr.
Fischer holds an LL.B. degree from the Tel Aviv University, and is a member of
the Israeli bar association.

Shay Livnat is the
Chief Executive Officer of Zoe Holdings Ltd., a company he founded in 1988,
which is primarily engaged in investments in telecom and high-tech companies.
He is a co-Chairman of UPS Israel (United Parcel Service Israel) and UTI (Isuzu
GM trucks) Ltd. and serves as a director of Taavura Holdings Ltd., IDB
Development, Clal and other companies in the IDB group. From 1988 to 1998, Mr.
Livnat served as CEO of Tashtit Group. He holds a bachelor degree in electrical
engineering from Fairleigh Dickinson University, New Jersey, USA.

Shimon Alon is the
Chairman of the Board of Directors of Attunity Ltd. He served, until June 2003,
as Chief Executive Officer of Precise Software Solutions Ltd., a provider of
application performance management, having held such position since September
1997, and was also President of Precise from September 1997 until December
2000. He also served as a director of Precise from December 1998. Following the
acquisition of Precise by Veritas Software Corp. in June 2003, Mr. Alon served
as an executive advisor to Veritas until January 2004. From October 1982 to
August 1996, he worked at Scitex and its subsidiaries in various executive
management, sales, marketing and customer support capacities, including Senior
Executive Vice President of Scitex and President of its Graphic Art Group from
November 1995 to August 1996, President and Chief Executive Officer of Scitex
America Corp. from May 1995 to July 1996, and Managing Director of Scitex Europe
S.A. from February 1993 to May 1995. He holds a degree from the Executive
Management Program at the Harvard Business School in Cambridge, Massachusetts.

Gerald Dogon was
Chief Financial Officer of DSP Communications, Inc. from August 1994 through
October 1998, during which period he also served DSP as Executive Vice
President from July 1996 through October 1998 and as Senior Vice President from
August 1994 through July 1996. Mr. Dogon also served as a director of DSP from
November 1997 to January 1999. From December 1987 to August 1994, he held
various senior financial positions with several Israeli companies, including
Nilit Ltd., Mul-T-Lock Ltd., Israel General Bank Ltd. and Indigo Ltd. Prior
thereto, Mr. Dogon was employed for 16 years by Scitex, where he served as
Executive Vice President and Chief Financial Officer from October 1986 to
August 1987, Corporate Vice President  Finance from September 1971 to October
1986, and Corporate Secretary from December 1972 to May 1987. He is a director
of several private companies and served as a director of Nogatech, Inc. from
1999 to 2000, of Mul-T-Lock Ltd. from 1997 to 1999, and of Contahal Ltd. from
1993 to 1998, and acted as chairman of the audit committee at both Nogatech and
Contahal. Mr. Dogon holds a bachelors degree in economics and commerce from the
University of Cape Town, South Africa.

55

---

---



Nachum Shamir has
served as the President and Chief Executive Officer of Kodak Versamark, Inc. (whose operations were previously those of SDP) and
as Vice President of Eastman Kodak Company since January 2004. From June 2003
to January 2004, Mr. Shamir served as the President and Chief Executive
Officer of Scitex. From January 2001 to January 2004, he served as the President and Chief
Executive Officer of SDP, having previously served as its Chief Operating
Officer since July 2000. Prior thereto, Mr. Shamir was Managing Director
and General Manager of Scitex Digital Printing (Asia Pacific) Pte Ltd., from
the incorporation of this Singapore-based company in 1994. His prior position
was with the Hong Kong based Scitex Asia Pacific (H.K.) Ltd. (now Creo Asia
Pacific (H.K.) Ltd.) from 1993. Mr. Shamir holds a bachelors degree in
science from the Hebrew University of Jerusalem and a masters degree in
public administration from Harvard University.

Additional
Information

There are no
family relationships between any of the directors or members of senior
management named above.

See Item 7A. Major Shareholders   1980 Voting Agreement for details of an
agreement among major shareholders relating to the election of directors. See
Item 8A under the caption Legal Proceedings for additional information
regarding a lawsuit that concerns certain of our directors and executive
officers.

|   |             
|-- | ------------
|B. | COMPENSATION

General

The following
table sets forth with respect to all directors and senior management of Scitex
as a group all cash and cash-equivalent forms of remuneration paid by Scitex
during the fiscal year ended December 31, 2003 and 2004:

|                                                                                    |  |                                                         |   |                |  |  |   |       
|----------------------------------------------------------------------------------- |  | ------------------------------------------------------- | - | -------------- |  |  | - | ------
|                                                                                    |  | Salaries, fees, directors fees,commissions and bonuses |   | Other benefits
|                                                                                    |  |                                                         |   |               
|All directors and senior
  management as a group (consisting of 12 persons in 2003) |  |                                                         | $ | 848,405        |  |  | $ | 67,057
|                                                                                    |  |                                                         |   |                |  |  |   |       
|All directors and senior
  management as a group (consisting of 12 persons in 2004) |  |                                                         | $ | 807,787        |  |  | $ | 71,191

In accordance
with the approval of our shareholders on December 27, 2000, our outside
directors, Ms. Zochovitzky and Mr. Dogon, receive annual directors fees and
participation fees equivalent to the maximum fees that were generally permitted
for each outside director under regulations issued pursuant to the Companies
Law (which equate to approximately $10,200 per annum and a participation fee of
approximately $400 per board or committee meeting), although new regulations
were approved in 2003, which would, in certain circumstances, permit us to pay
higher fees. Directors fees and participation fees of a similar amount are
paid to all our other directors, other than directors who are office holders of
our principal shareholders. Except as aforesaid, we did not compensate any of
our other directors in 2003 (excluding compensation for directors who are also
our officers).

During 2004,
an aggregate sum of approximately $71,191 was set aside by us to provide
pension, retirement and severance benefits to members of our senior management,
compared to $56,000 during 2003.

As of
December 31, 2004, certain of our officers held options to purchase our
ordinary shares.  See Item 6E below.

56

---

---



There are no
arrangements or understandings between us and any of our directors for benefits
upon termination of service.

CEO Compensation

See the
description under DIC Services Agreement in Item 7B below.

|   |                
|-- | ---------------
|C. | BOARD PRACTICES

INTRODUCTION

According to
the Israeli Companies Law and our articles of association, the management of
our business is vested in our board of directors.  The board of directors may exercise all powers and may take all
actions that are not specifically granted to our shareholders. As part of its
powers, our board of directors may cause us to borrow or secure payment of any
sum or sums of money for our purposes, at times and upon terms and conditions
as it determines, including the grant of security interests in all or any part
of our property.

ELECTION OF DIRECTORS

Our directors
are elected at annual meetings of our shareholders.  Except for our outside directors (as described below), our
directors hold office until the next annual meeting of shareholders following
the annual meeting at which they were appointed, which is required to be held at
least once during every calendar year and not more than fifteen months after
the last preceding meeting.  Directors
may be removed earlier from office by resolution passed at a general meeting of
our shareholders.  Our board of
directors may temporarily fill vacancies in the board until the next annual
meeting of shareholders.

ALTERNATE DIRECTORS

Our articles
of association provide that a director may appoint another person to serve as
an alternate director. An outside director may not appoint an alternate
director, except in very limited circumstances. To qualify as an alternate director, a person must be qualified
to serve as a director but cannot be a director or the alternate director of
another director. An alternate director
shall have all the rights and obligations of the director who appointed him or
her.  The alternate director may not act
for such director at any meeting at which the director appointing him or her is
present.  Unless the time or scope of
any appointment is limited by the appointing director, the appointment is
effective for all purposes until the appointing director ceases to be a
director or terminates the appointment.
Notwithstanding the foregoing, a director may serve as an alternate
director on any committee of our board of directors of which he or she is not
already a member. At present, there are no appointments of alternate directors.

OUTSIDE DIRECTORS

Under the
Companies Law, Israeli companies whose shares are listed for trading on a stock
exchange or have been offered as securities to the public in or outside of
Israel are required to appoint at least two outside directors.  Our outside directors are Ariella
Zochovitzky and Gerald Dogon.

The Companies
Law provides that a person may not be appointed as an outside director of a
company if the person or the persons relative, partner, employer or any entity
under the persons control has, as of the date of the persons appointment to
serve as an outside director, or had, during the two years preceding that date
any affiliation with:

|  |                                                                     
|- | --------------------------------------------------------------------
| | the company;                                                        
|  |                                                                     
| | any entity
  controlling the company; or                            
|  |                                                                     
| | any entity
  controlled by the company or by its controlling entity.

57

---

---



The term
affiliation includes:

|  |                                                                                                                                                                                                                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | an
  employment relationship;                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                   
| | a business
  or professional relationship maintained on a regular basis;                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                   
| | control; and                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                   
| | service as
  an office holder, excluding service as an outside director of a company that
  is offering its shares to the public for the first time.  The Companies Law defines the term office
  holder of a company to include a director, the chief executive officer, the
  chief business manager, a vice president and any officer that reports
  directly to the chief executive officer.

No person can
serve as an outside director if the persons position or other business
creates, or may create a conflict of interests with the persons
responsibilities as an outside director or may otherwise interfere with the
persons ability to serve as an outside director. Until the lapse of two years
from termination of office, a company may not engage an outside director to
serve as an office holder and cannot employ or receive services from that
person, either directly or indirectly, including through a corporation
controlled by that person.

Outside
directors are to be elected by a majority vote at a shareholders meeting,
provided that either:

|  |                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | at least
  one-third of the shares of non-controlling shareholders voted at the meeting
  vote in favor of the election; or                                 
|  |                                                                                                                                                             
| | the total
  number of shares voted against the election of the outside director does not
  exceed one percent of the aggregate voting rights in the company.

The initial
term of an Outside director is three years and may be extended for an
additional three years.  The term of
office of Ms. Zochovitzky and Mr. Dogon commenced in December 2002 and December
2003, respectively.

Outside
directors may be removed from office only by the same percentage of
shareholders as is required for their election, or by a court, and then only if
the outside directors cease to meet the statutory qualifications for their
appointment or if they violate their duty of loyalty to the company.  Each committee of a companys board of directors
empowered with powers of the board of directors is
required to include at least one outside director except for the audit
committee, which is required to include all outside directors.

INDEPENDENT DIRECTORS

The Nasdaq
Marketplace Rules currently require us to have at least two independent
directors on our Board of Directors.
Under new Nasdaq Marketplace Rules promulgated pursuant to the
Sarbanes-Oxley Act of 2002, effective as of July 31, 2005, a majority of our
board of directors must qualify as independent directors within the meaning of
the Nasdaq Marketplace Rules and our Audit Committee must have at least three
members and be comprised only of independent directors each of whom satisfies
the respective independence requirements of the SEC and Nasdaq.

Of the ten
(10) members of our board of directors, our board of directors has determined
that (1) all, except for Mr. Cohen, our chief executive officer, and Mr.
Shamir, our former chief executive officer, qualify as independent directors
within the meaning of the Nasdaq Marketplace Rules and (2) that Mr. Asheri, Ms.
Zochovitzky, Mr. Dogon and Ms. Rosolio-Aharonson, being all of the members of
out Audit Committee (see below)  also
qualify as independent directors under SEC rules.

58

---

---



COMMITTEES OF THEBOARD

Subject to the
provisions of the Companies Law, our board of directors may delegate its powers
to committees consisting of board members.Our board of directors has
established the following committees:

Audit Committee.
Under the Companies Law, our board of directors is required to
appoint an audit committee, which must be comprised of at least three
directors, including all of the outside directors, but may not include:

|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
| | the chairman
  of the board,                                                                           
|  |                                                                                                        
| | a
  controlling shareholder or any relative thereof, or                                                
|  |                                                                                                        
| | any director
  who is employed by the company or provides services to the company on a
  regular basis.

Under the
Companies Law, the role of the audit committee is:

|  |                                                                                                                                                                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | to examine
  irregularities in the management of the companys business, including in
  consultation with the internal auditor and/or the companys independent
  accountants, and to recommend remedial measures to the board, and                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                
| | to review,
  and, where appropriate, approve certain related party transactions specified
  under the Companies Law, which it may not approve unless at the time of
  approval the two outside directors are serving as members of the audit
  committee and at least one of whom was present at the meeting in which an
  approval was granted, as more fully described below.

Since our
ordinary shares are listed on Nasdaq, we are also subject to Nasdaq rules which
currently provide that a listed company is required to have an audit committee
consisting of at least three independent directors, all of whom are financially
literate and one of whom has accounting or related financial management
expertise. In addition, pursuant to SEC rules, effective as of July 31, 2005,
the members of the Audit Committee are generally required to be independent
within the meaning of the SEC rules. Our Audit Committee comprises Mr. Asheri
(chairman of the Audit Committee), Ms. Zochovitzky and Mr. Dogon (our Outside
Directors) and Ms. Rosolio-Aharonson, all of whom are independent within the
meaning of applicable Nasdaq and SEC rules.
In addition, we have adopted a charter as required by the Nasdaq rules.

Our Audit Committee assists the board in fulfilling its responsibility
for oversight of the quality and integrity of our accounting, auditing and
financial reporting practices and financial statements and the independence
qualifications and performance of our outside auditors.  Our Audit Committee also has the authority
and responsibility to oversee our outside auditors, to recommend for
shareholder approval the appointment and, where appropriate, replacement of our
outside auditors and to pre-approve audit engagement fees and all permitted
non-audit services and fees.

In May 2004, our Board of Directors resolved to designate the Audit
Committee as our Qualified Legal Compliance Committee, or the QLCC.  In its capacity as the QLCC, the Audit
Committee is responsible for investigating reports made by attorneys appearing
and practicing before the SEC in representing us of perceived material
violations of U.S. federal or state securities laws, breaches of fiduciary duty
or similar violations by us or any of our agents.

Remuneration
Committee.
Our board of directors has also appointed a remuneration committee,
which currently comprises Ami Erel, Avraham Fischer and Gerald Dogon, all of
whom are independent within the meaning of applicable Nasdaq rules.  The role of the remuneration committee is to
review the salaries and incentive compensation of our executive officers and to
make recommendations on such matters for approval by the board of
directors.  The members of the
remuneration committee also administer our share incentive and stock option
plans, subject to additional board approval where required pursuant to the
Companies Law.

Financial
Investments Committee. Our board of directors has also appointed a financial investments
committee, which currently comprises Avraham Asheri, Raanan Cohen, Ophira
Rosolio-Aharonson and Ariela Zochovitzky.
The role of the financial investments committee is to review and manage
our financial investments and cash management in accordance with the principles
approved by the board of directors.

59

---

---



Nominating
Committee. In March 2005, our board of directors has appointed a nominating
committee, which currently comprises of Ami Erel, Avi Fischer and Gerald Dogon,
all of whom are independent within the meaning of applicable Nasdaq rules. The
role of the nominating committee is to recommend to our board nominees for
election as directors at the annual meetings of shareholders and to identify
candidates to fill any vacancies on the board.

INTERNAL AUDITOR

Under the
Companies Law, our board of directors is also required to appoint an internal
auditor proposed by the audit committee.
The role of the internal auditor is to examine, among other things,
whether our activities comply with the law and orderly business procedure. The
internal auditor may not be an interested party or officer holder, or a
relative of any interested party or office holder, and may not be a member of
our independent accounting firm.  The
Companies Law defines the term interested party to include a person who holds
5% or more of the companys outstanding share capital or voting rights, a
person who has the right to appoint one or more directors or the general
manager, or any person who serves as a director or as the general manager. Mr.
Joseph Ginossar of Fahn, Kanne & Co., an Israeli accounting firm, serves as
our internal auditor.

APPROVAL
OFSPECIFIEDRELATEDPARTYTRANSACTIONSUNDER
ISRAELILAW

Fiduciary Duties of
Office Holders.
The Companies Law imposes a duty of care and a duty of loyalty on all
office holders of a company.

The duty of
care requires an office holder to act with the level of care with which a
reasonable office holder in the same position would have acted under the same
circumstances.  The duty of care
includes a duty to use reasonable means to obtain:

|  |                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------
| | information
  on the advisability of a given action brought for his approval or performed
  by him by virtue of his position; and
|  |                                                                                                                                  
| | all other
  important information pertaining to these actions.                                                                   

The duty of
loyalty of an office holder includes a duty to:

|  |                                                                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | refrain from
  any conflict of interest between the performance of his duties in the company
  and the performance of his other duties or his personal affairs;         
|  |                                                                                                                                                                         
| | refrain from
  any activity that is competitive with the company;                                                                                                       
|  |                                                                                                                                                                         
| | refrain from
  exploiting any business opportunity of the company to receive a personal gain
  for himself or others; and                                               
|  |                                                                                                                                                                         
| | disclose to
  the company any information or documents relating to the companys affairs
  which the office holder has received due to his position as an office holder.

Disclosure of Personal Interests of an Office
Holder. The Companies Law requires that an office
holder disclose to the company any personal interest that he or she may have,
and all related material information known to him or her, in connection with
any existing or proposed transaction by the company.  The disclosure is required to be made promptly and in any event
no later than the board of directors meeting at which the transaction is first
discussed.  A personal interest of an
office holder includes an interest of a company in which the office holder is,
directly or indirectly, a 5% or greater shareholder, director or general
manager or in which he or she has the right to appoint at least one director or
the general manager.  In the case of an
extraordinary transaction, the office holders duty to disclose applies also to
a personal interest of a relative of the office holder.  An extraordinary transaction is a
transaction not in the ordinary course of business, not on market terms, or
likely to have a material impact on the companys profitability, assets or
liabilities.

60

---

---



Under the
Companies Law, once the office holder complies with the above disclosure
requirement, the board of directors is authorized to approve the transaction,
unless the articles of association provide otherwise.  Nevertheless, a transaction that is adverse to the companys
interest may not be approved.

If the
transaction is an extraordinary transaction, then it also must be approved by
the companys audit committee and board of directors, and, under certain
circumstances, by the shareholders of the company.  When an extraordinary transaction is considered by the audit
committee and board of directors, the interested director may not be present or
vote, unless a majority of the members of the board of directors or the audit
committee, as the case may be, has a personal interest in the matter.  If a majority of the members of the board of
directors have a personal interest therein, shareholder approval is also
required.

Under the
Companies Law, all arrangements as to compensation of directors in public companies
such as ours generally require the approvals of the audit committee, the board
of directors and the shareholders, in that order.

INSURANCE & INDEMNIFICATION OF DIRECTORS
AND SENIOR MANAGEMENT

Insurance.Under
the Companies Law, a company may, if its articles of association so provide and
subject to the provisions set forth in the law, enter into a contract to insure
the liability of an office holder for acts or omissions committed in his or her
capacity as an office holder of the company for:

|  |                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the breach
  of his or her duty of care to the company or to another person;                                                                                                                                     
|  |                                                                                                                                                                                                                  
| | the breach
  of his or her duty of loyalty to the company, provided that he or she acted
  in good faith and had reasonable cause to assume that such act would not
  prejudice the interests of the company; and
|  |                                                                                                                                                                                                                  
| | a financial
  obligation imposed upon him or her in favor of another person.                                                                                                                                     

Our articles
were amended in December 2000 to contain provisions in line with the aforesaid
provisions and, having obtained the approvals required under the Companies Law
and our articles, we have procured the permitted insurance for our office
holders.  In December 2003, the Companys shareholders set the maximum annual
premium for such insurance at $1,000,000.

Indemnification.Subject
to certain qualifications, the Companies Law
also permits us, provided that our articles of association allow us to do so,
to indemnify an office holder for acts or omissions committed in his or her
capacity as an office holder of the company, retroactively (after the liability
has been incurred) or in advance, for:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a financial
  liability imposed on him or her in favor of another person by any judgment,
  including a settlement or an arbitration award approved by a court; provided
  that our undertaking to indemnify is limited to events that our board of
  directors believes are foreseeable in light of our actual operations at the
  time of providing the undertaking and to a sum or criterion that our board of
  directors determines to be reasonable under the circumstances;                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | reasonable
  litigation expenses, including attorneys fees, incurred by the office holder
  as a result of an investigation or proceeding instituted against him by a
  competent authority, provided that such investigation or proceeding concluded
  without the filing of an indictment against him and either (A) concluded
  without the imposition of any financial liability in lieu of criminal
  proceedings or (B) concluded with the imposition of a financial liability in
  lieu of criminal proceedings but relates to a criminal offense that does not
  require proof of criminal intent; and
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | reasonable
  litigation expenses, including attorneys fees, incurred by the office holder
  or charged to him or her by a court, resulting from the following:
  proceedings we institute against him or her or instituted on our behalf or by
  another person; a criminal indictment from which he or she was acquitted; or
  a criminal indictment in which he or she was convicted for a criminal offense
  that does not require proof of intent                                                                                                                                                         

61

---

---



In addition,
our articles of association provide that:

|  |                                                                                                                                                                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | we may
  indemnify an office holder following a determination to this effect made by
  us after the occurrence of the event in respect of which the office holder
  will be indemnified; and                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                           
| | we may
  undertake in advance to indemnify an office holder, provided that the
  undertaking is limited to types of occurrences, which, in the opinion of our
  board of directors, are, at the time of giving the undertaking, foreseeable
  and to an amount the board of directors has determined is reasonable in the
  circumstances.

In April 2004,
the Companys audit committee, board of directors and shareholders, in that
order, also resolved to indemnify the Companys office holders, including any
future director or officer of the Company who may be considered a controlling
shareholder (as such term is defined under the Companies Law), by providing
them with a Letter of Indemnification to be substantially in the form approved
by the shareholders. (See Exhibit 4(c)(3) in
Item 19 for the form of the Letter of Indemnification to office holders.)

Limitations on Exculpation, Insurance and
Indemnification. The
Companies Law provides that a company may not exculpate or indemnify an office
holder, or enter into an insurance contract which would provide coverage for
any monetary liability incurred as a result of any of the following:

|  |                                                                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a breach by
  the office holder of his or her duty of loyalty unless, with respect to
  insurance coverage or indemnification, the office holder acted in good faith
  and had a reasonable basis to believe that the act would not prejudice the
  company;
|  |                                                                                                                                                                                                                                                             
| | a breach by
  the office holder of his or her duty of care if the breach was committed
  intentionally or recklessly. unless it was
  committed only negligently;                                                                                           
|  |                                                                                                                                                                                                                                                             
| | any act or
  omission committed with the intent to derive an illegal personal benefit; or                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                             
| | any fine
  imposed against the office holder.                                                                                                                                                                                                               

In addition,
under the Companies Law, exculpation of, an undertaking to indemnify or
indemnification of, and procurement of insurance coverage for, our office
holders must be approved by our audit committee and our board of directors and,
in specified circumstances, such as if the beneficiary is a director, by our
shareholders.

Our articles
also provide that, subject to the provisions of applicable law, we may procure
insurance for or indemnify any person who is not an office holder, including
without limitation, any of our employees, agents, consultants or contractors.

62

---

---



|   |          
|-- | ---------
|D. | EMPLOYEES

The following
table details certain data on the workforce (including temporary employees) of
Scitex and its consolidated subsidiaries for the periods indicated*:

|                                                           |  |                    |     |      |  |         |  |  |     | 
|---------------------------------------------------------- |  | ------------------ | --- | ---- |  | ------- |  |  | --- | 
|                                                           |  | As at December 31, |    
|                                                           |  |                    |    
|                                                           |  | 2004               |     | 2003 |  | 2002(1) | 
|                                                           |  |                    |     |      |  |         | 
|Approximate numbers of employees by geographic
  location  |  |                    |     |      |  |         |  |  |     | 
|United States                                              |  |                    | 54  |      |  | 67      |  |  | 45  | 
|Israel                                                     |  |                    | 299 |      |  | 246     |  |  | 193 | 
|Europe and elsewhere                                       |  |                    | 213 |      |  | 142     |  |  | 167 | 
|                                                           |  |                    |     |      |  |         |  |  |     | 
|Total workforce                                            |  |                    | 566 |      |  | 455     |  |  | 405 | 
|                                                           |  |                    |     |      |  |         |  |  |     | 
|Approximate numbers of employees by
  category of activity |  |                    |     |      |  |         |  |  |     | 
|Research and development                                   |  |                    | 111 |      |  | 102     |  |  | 68  | 
|Sales and marketing                                        |  |                    | 70  |      |  | 53      |  |  | 60  | 
|Customer support                                           |  |                    | 116 |      |  | 102     |  |  | 98  | 
|Operations and logistics                                   |  |                    | 169 |      |  | 111     |  |  | 99  | 
|General and administrative                                 |  |                    | 100 |      |  | 87      |  |  | 80  | 
|                                                           |  |                    |     |      |  |         |  |  |     | 
|Total workforce                                            |  |                    | 566 |      |  | 455     |  |  | 405 | 
|                                                           |  |                    |     |      |  |         |  |  |     | 

* Excludes the employees of
SDP for these years who were transferred to Kodak in connection with the sale
of SDPs business in January 2004.

(1) Includes 43 employees of
Creo Asia Pacific (H.K.) Ltd., an affiliate of Creo Inc., who were dedicated to
providing services to Scitex Vision and being paid by us. In January 1, 2003,
Scitex Vision terminated the services of Creo Asia Pacific, and the majority of
the above employees were transferred to Scitex Vision.

The increase in
the number of our employees from 2003 to 2004 resulted mainly due to the
increase in the business activities of Scitex Vision and the initial
consolidation of Jemtex in 2004, which accounted for additional employees.  The increase in the number of our employees
from 2002 to 2003 resulted mainly from the acquisition of Scitex Vision
International by Scitex Vision.  During
2004, we employed on average approximately 23 temporary employees (compared to
16 in 2003).

We consider
our relations with our employees to be good and we have never experienced a
strike or work stoppage.

Our employees
are not generally represented by labor unions.
Nevertheless, with respect to our employees in Israel, certain
provisions of the collective bargaining agreements between the Histadrut
(General Federation of Labor in Israel) and Israels Coordination Bureau of
Economic Organizations (including the Manufacturers Association) are
applicable to such employees by Israeli governmental order.  These provisions principally concern cost-of-living
wage increases, paid vacation and holidays, length of the workday, wage
tariffs, termination, severance payments and other conditions of
employment.  However, we generally
provide our employees with benefits and conditions beyond the required
minimums, including contributing to funds to provide severance.

63

---

---



|   |                
|-- | ---------------
|E. | SHARE OWNERSHIP

SECURITY
 OWNERSHIP OF OUR DIRECTORS AND EXECUTIVE OFFICERS

None of our
directors own any of our shares or hold any stock options for the purchase of
our shares. Although several of our directors are directors or officers of our
major shareholders or their affiliates, such individuals disclaim beneficial
ownership of any of the shares held by these major shareholders.

The following
table details as of the date of this Annual Report the number of our shares
owned (including the shares underlying options or warrants held by such person
that are exercisable within 60 days), and stock options held, by members of our
senior management.

|                    |  |  |                            |        |                                   |  |                                   |  |   |  |  |  |  |        |  |  | 
|------------------- |  |  | -------------------------- | ------ | --------------------------------- |  | --------------------------------- |  | - |  |  |  |  | ------ |  |  | 
|Name and Address    |  |  | Number of
  Shares
  Owned |        | Percent of
  Shares
  Outstanding |  | Number of stock
  options held(1) | 
|                    |  |  |                            |        |                                   |  |                                   | 
|Dov
  Ofer (2)      |  |  |                            | 15,000 |                                   |  |                                   |  | * |  |  |  |  |       |  | 
|Yahel
  Shachar (3) |  |  |                            | 40,000 |                                   |  |                                   |  | * |  |  |  |  | 80,000 |  | 

*
less than 1% of our outstanding ordinary shares.

|    |                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes options
  exercisable within 60 days. Each stock option is exercisable into one
  ordinary share.  All our shares have
  identical voting rights.                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                  
|(2) | Dov Ofer is the President
  and CEO of Scitex Vision. The 15,000 shares held by Mr. Ofer are in the form
  of stock options, which are exercisable within 60 days of the date of this
  Annual Report. The exercise price of the stock options is $11.1875 per share
  and they expire in December 2008.         
|    |                                                                                                                                                                                                                                                                                                                  
|(3) | Yahel Shachar is the CFO
  of Scitex. The 40,000 shares held by Mr. Shachar are in the form of stock
  options, which are exercisable within 60 days of the date of this Annual
  Report. The exercise price of all the stock options held by Mr. Shachar
  is $3.70 per share and they expire in September 2014.

STOCK OPTION PLANS

From time to
time, we grant our employees and directors options to purchase our shares
pursuant to our share option plans:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1991 Plans. In September 1991, our shareholders
  approved two plans, the Scitex Israel Key Employee Share Incentive Plan 1991,
  primarily designed for employees of Scitex and its subsidiaries located in
  Israel, and the Scitex International Key Employee Stock Option Plan 1991 (as
  amended, 1995), primarily designed for employees of Scitexs non-Israeli
  subsidiaries. Terms of the options granted under the plans, such as length of
  term, exercise price, vesting and exercisability, were determined by our
  board of directors.  These plans
  expired in September 2001, except with respect to outstanding options granted
  under such plans.  Accordingly, no
  further options can be granted under these plans. Outstanding options under
  the 1991 plans expire at various dates from 2006 through 2014.                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 2001 and 2003 Plans. In December 2001, our shareholders
  approved the adoption of the Scitex 2001 Stock Option Plan, primarily
  designed for key employees of Scitex and its subsidiaries.  The aggregate number of shares that were
  initially authorized and reserved for issuance under the 2001 plan was
  750,000 shares.  In December 2003, our
  shareholders approved the adoption of the Scitex 2003 Share Option Plan for
  our officers, directors and consultants who are Israeli residents.  When the shareholders adopted the 2003
  plan, they also adopted an amendment to the 2001 plan, as a result of which
  the number of shares reserved for issuance under the 2001 plan was increased
  from 750,000 to 1,900,000 with all such reserved shares being available for
  issuance under either the 2001 plan or the 2003 plan.  Terms of the options granted under the
  plans, such as length of term, exercise price, vesting and exercisability,
  are determined by our board of directors.

64

---

---



The following
table details certain information with respect to the foregoing plans:

|                                                       |  |                            |   |                                        |  |  |  |   |           |  | 
|------------------------------------------------------ |  | -------------------------- | - | -------------------------------------- |  |  |  | - | --------- |  | 
|                                                       |  | 1991 Share
  Option Plans* |   | 2001 and 2003
  Share Option
  Plans** | 
|                                                       |  |                            |   |                                        | 
|Number of shares available for future option awards    |  |                            |   | 0                                      |  |  |  |   | 1,732,000 |  | 
|Number of options exercised                            |  |                            |   | 860,295                                |  |  |  |   | 0         |  | 
|Number of options outstanding                          |  |                            |   | 311,671                                |  |  |  |   | 168,000   |  | 
|Weighted average exercise price of options
outstanding |  |                            | $ | 10.21                                  |  |  |  | $ | 3.70      |  | 

*   The data presented in this column are as of June 6, 2005. 
** The data presented in this column are as of the date of this Annual Report.

The foregoing
description is qualified in its entirety by reference to the Scitex Israel Key
Employee Share Incentive Plan 1991, the Scitex International Key Employee Stock
Option Plan 1991 (as amended, 1995), the Scitex 2001 Stock Option Plan (as
amended, 2003), and to the Scitex 2003 Share Option Plan which are filed as
exhibits in Item 19 of this Annual Report, all of which are hereby incorporated
by reference.

Subsidiaries Stock
Option Plans. Scitex Vision adopted a share option
plan, primarily designed for employees of Scitex Vision and its
subsidiaries.  The plan permits the
grant of options for the purchase of shares in Scitex Vision.  As of June 6, 2005, Scitex Vision granted
options under its plan to employees, directors and officers, exercisable, in
the aggregate, for approximately 9.7% of its share capital (on a fully-diluted
basis).  In this respect, see also inItem 7B. Related Party Transactions  Scitex Vision-Scitex Vision
International Combination below.

Jemtex adopted
a share option plan, primarily designed for employees of Jemtex.  The plan permits the grant of options for
the purchase of shares in Jemtex.  As of
June 6, 2005, Jemtex granted options under its plan to employees, directors and
officers, exercisable, in the aggregate, for approximately 1.3% of its share
capital (on a fully-diluted basis).

REPURCHASE
PROGRAM

In May 1998,
our board of directors approved a program for our repurchase of up to two
million of our ordinary shares, to be held for the benefit of employees within
the framework of our stock option plans.
These ordinary shares are held by a trustee for reissuance to employees
upon the exercise of existing stock options.
Under the approved program, we may not purchase ordinary shares from our
major shareholders. A balance of 448,975 ordinary shares are held by the trustee pursuant to the program,
purchased with funds provided by us. No ordinary shares have been repurchased
under this program since August 5, 1999.

|        |                                                
|------- | -----------------------------------------------
|ITEM 7. | MAJOR SHAREHOLDERS & RELATED PARTY TRANSACTIONS
|        |                                                
|A.      | MAJOR SHAREHOLDERS                             

Unless
otherwise stated, all data in this Item 7 is as of June 20, 2005, at which date
there were 38,066,363 of our ordinary shares outstanding, excluding:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the 448,975
  ordinary shares purchased by the trustee pursuant
  to the repurchase program described above; and                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | the
  4,952,050 ordinary shares purchased by us in the self tender offer described above which are deemed issued but
  considered treasury shares (or dormant shares as such term is defined under
  the Israeli Companies Law) that carry no rights, including voting rights and
  the right to receive dividends, while owned by us. These shares will be
  available for us to sell in the future without further shareholder action
  (except as required by applicable law).

65

---

---



In all
instances, the percentage of ownership is equal to the voting rights of our
ordinary shares and all ordinary shares have identical voting rights. In
particular, the ordinary shares held by our principal shareholders do not carry
different voting rights.

To our
knowledge, except as described below, we are not directly or indirectly owned
or controlled (i) by any corporation, (ii) by any foreign government or (iii)
by any other natural or legal person, nor are there any arrangements, the
operation of which may at a subsequent date result in a change in control of
Scitex.

The following
table sets forth the number of our ordinary shares owned by any person who is
known to us to own beneficially more than 5% of our ordinary shares or
otherwise affiliated with Discount and/or Clal:

|                                                       |  |  |                             |     |                                    |  |       |      |  | 
|------------------------------------------------------ |  |  | --------------------------- | --- | ---------------------------------- |  | ----- | ---- |  | 
|Name and
  Address                                     |  |  | Number of
  Shares
  Owned* |     | Percent of
  Shares
  Outstanding* | 
|                                                       |  |  |                             |     |                                    | 
|Clal Electronics
  Industries Ltd. (CEI) (1)         |  |  | 18,702,255                  | (2) |                                    |  | 49.13 | %(2) | 
|Discount Investment
  Corporation Ltd. (Discount)(3) |  |  | 18,702,255                  | (2) |                                    |  | 49.13 | %(2) | 
|Suny Electronics Ltd.
  (Suny)(4)                    |  |  | 4,156,074                   |     |                                    |  | 10.92 | %    | 
|Mivtach Shamir Holdings
  Ltd. (Mivtach Shamir) (5)  |  |  | 2,090,200                   |     |                                    |  | 5.49  | %    | 
|Ilanot Discount Ltd. (6)                               |  |  | 87,655                      |     |                                    |  | **    |      | 
|Clal Finance Batucha
  Investment management Ltd. (7)  |  |  | 14,372                      |     |                                    |  | **    |      | 

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | The number
  of shares owned by a shareholder or a group includes shares, if any, that
  such shareholder or group has the right to receive upon the exercise of
  options which are exercisable within 60 days as of June 6, 2005.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                    
| | **  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Less than
  1%.                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (1) | CEI is a wholly owned
  subsidiary of Clal. Clal
  may be deemed to share with its wholly owned subsidiary, CEI, an Israeli
  company, the power to vote and dispose of our outstanding ordinary shares
  held by CEI.                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (2) | Consists of 9,409,532
  ordinary shares owned by CEI and 9,292,723 ordinary shares owned by Discount,
  representing approximately 24.7% and 24.4% of our outstanding shares,
  respectively. Each of Clal and Discount may be deemed to share the power to
  vote the shares held by the other by virtue of the Voting Agreement between
  them, as described below.                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (3) | Of the 9,292,723 ordinary
  shares owned by Discount, 4,880,334 shares are held through DIC Loans Ltd.,
  an Israeli company wholly owned by Discount. Discount may be deemed to share
  with DIC Loans the power to vote and dispose of our outstanding ordinary
  shares held by DIC Loans.                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (4) | Based upon a
  Schedule 13D/A filed by Suny with the SEC on June 9, 2005. Ben Dov
  Holdings Ltd., a company wholly owned by Mr. Ilan Ben Dov, holds 66.04%
  of the shares of Suny. Accordingly, Ben Dov Holdings Ltd., and Mr. Ben
  Dov may be deemed to share with Suny the power to vote and dispose of the
  Scitex shares held by Suny.                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (5) | Based on Schedule 13G
  filed by Mivtach Shamir and Meir Shamir with the SEC on March 10, 2005.
  The 2,092,200 shares are held by a wholly owned subsidiary of Mivtach Shamir.
  Mr. Shamir, Chairman of Mivtach Shamir and owner of 39.95% of its
  shares, has entered into a shareholders agreement with Ashtrun Industries
  Ltd., which owns 16.97% of Mivtach Shamirs shares, and may be deemed to
  beneficially own the 2,092,200 Scitex shares held by Mivtach Shamir.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (6) | Based on a report received
  by Scitex on June 26, 2005. IDB Development and Discount together owned a 45%
  interest in Ilanot.                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (7) | Based on a report received
  by Scitex on June 16, 2005. Clal Insurance is a majority owned subsidiary of
  IDB Development.                                                                                                                                                                                                                                                                                                                                                     

Clal, CEI, Discount,
IDB Development and IDB Holding

Both Clal and CEI are Israeli companies, holding investments in Israeli
companies that operate primarily in the fields of high-tech and electronics.
Clal also operates in the fields of cement, textiles, paper and cartons,
biotechnology and management of venture capital funds. Discount
is an Israeli company holding investments, predominantly in companies located
in Israel or that are Israel-related that operate mainly in the fields of
communications, advanced technology, industry, real estate and commerce.

66

---

---



Clal and
Discount are both controlled by IDB Development Corporation Ltd. (IDB
Development), a majority owned subsidiary of IDB Holding Corporation Ltd.
(IDB Holding).  Both IDB Development
and IDB Holding are Israeli companies. IDB Development holds investments in
various entities, operating primarily in the fields of insurance, real estate,
high-tech and electronics. IDB Holding is a holding company that, through IDB
Development, holds investments in various entities, operating primarily in the
fields of insurance, real estate, high-tech and electronics.

Each of IDB
Developments, IDB Holdings, Discounts and Clals respective shares are
listed on the TASE.

Based upon
reports received by Scitex, as of June 16, 2005, IDB Holding is controlled by a
group comprised of:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ganden
  Investments I.D.B. Ltd. (Ganden), a private Israeli company controlled by
  Nochi Dankner (who is also the Chairman of IDB Holding, IDB Development, Clal
  and Discount and a director of Clal Insurance) and his sister Shelly Bergman
  (who is also a director of IDB Holding, IDB Development, Clal and Discount),
  that holds 31.02% of the equity and voting power of IDB Holding;                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Manor
  Investments  IDB Ltd. (Manor), a private Israeli company controlled by
  Ruth Manor (whose husband, Isaac Manor, and their son, Dori Manor, are
  directors of IDB Holding, IDB Development, Clal and Discount, and Isaac Manor
  is also a director of Clal Insurance), that holds 10.34% of the equity and
  voting power of IDB Holding; and                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Avraham
  Livnat Investments (2002) Ltd. (Livnat), a private Israeli company
  controlled by Avraham Livnat (one of whose sons, Zvi Livnat, is a director
  and executive vice president of IDB Holding, deputy Chairman of IDB
  Development, co-chief executive officer of Clal and a director of Discount,
  and another son, Shay Livnat, is one of our directors and a director of IDB
  Development, Clal and Clal Insurance), that holds 10.34% of the equity and
  voting power of IDB Holding.

Ganden,
Manor and Livnat, in respect of the above aggregate 51.7% of the equity and
voting power of IDB Holding owned by them, have entered into a shareholders
agreement relating to, among other things, their joint control of IDB Holding,
the term of which is until May 19, 2023. In addition, there are the following
holdings, as of June 20, 2005, which are not subject to the said
shareholders agreement: (a) Ganden Holdings Ltd., the parent company of Ganden,
holds 7.07% of the equity and voting power of IDB Holding; (b) Ganden
holds a further 0.19% of the equity and voting power of IDB Holding;
(c) Manor Holdings B.A. Ltd., the parent company of Manor, holds 0.03% of
the equity and voting power of IDB Holding; (d) Avraham Livnat Ltd., the parent
company of Livnat, holds 0.04% of the equity and voting power of IDB Holding;
and (e) Mrs. Bergman owns, through a private company which is wholly owned by
her, approximately 7.23% of the equity and voting power of IDB Holding.

Based on the
foregoing, IDB Holding and IDB Development (by reason of their control of Clal
and Discount), Ganden, Manor and Livnat (by reason of their control of IDB
Holding) and Nochi Dankner, Shelly Bergman, Ruth Manor, and Avraham Livnat (by
reason of their control of Ganden, Manor and Livnat, respectively) may be
deemed to share with CEI and Discount the power to vote and dispose of Scitexs
shares beneficially owned by CEI and Discount (including Discounts wholly
owned subsidiary) amounting, in the aggregate, as of June 20, 2005, to 49.13%
of such shares.

67

---

---



1980 Voting
Agreement

On December 1,
1980, Clal (whose holdings of our shares are held by CEI), Discount and PEC
Israel Economic Corporation, a company that is currently a wholly owned
subsidiary of Discount but not currently holding any of our shares, entered
into a Voting Agreement.  Under this
agreement, they agreed to vote our shares in concert with respect to the
election of our directors and with respect to any ordinary resolution submitted
to our shareholders. The agreement also grants rights of first refusal if one
of the parties wishes to sell its shares of Scitex to a third party. The
agreement was for an initial term of ten years, subject to renewal for
additional periods of ten years each unless and until prior notice was given by
one party of its intention not to renew.
The agreement was automatically renewed and is currently in effect until
November 30, 2010.

The foregoing description is qualified in its
entirety by reference to the Voting Agreement, dated December 1, 1980, by and
among Discount, PEC and Clal which is filed as Exhibit 10.h to our Registration
Statement on Form F-1 (filed May 26, 1983) and which is hereby incorporated by
reference.

Significant changes
in percentage ownership by major shareholders during last three years

In June 2004,
Clal and Discount tendered, in the aggregate, approximately 260,000 ordinary
shares in the self tender offer we commenced on May 14, 2004. We purchased from
Clal and Discount all of these shares. Following consummation of the tender
offer, Discount and Clal beneficially own, in the aggregate, 18,702,255
ordinary shares, representing 49.13% of our outstanding ordinary shares, compared
to 18,962,020 ordinary shares, representing 44.08% of our outstanding ordinary
shares, prior to the tender offer.

Based upon
public filings by Suny with the SEC, in July 2004, Suny became the beneficial
owner of 2,043,997 ordinary shares, representing 5.37% of our outstanding
ordinary shares at the time. Since July 2004, Suny purchased, from time to
time, additional ordinary shares in the open market, and, as of June 9, 2005,
beneficially owns 10.92% of our outstanding ordinary shares.

Record Holders

Based on a
review of the information provided to us by our transfer agent, as of June 20,
2005, we had 335 shareholders of record, of whom 294 were registered with
addresses in the United States, representing approximately 32.5% of our
outstanding ordinary shares. These numbers are not representative of the number
of beneficial holders of our shares nor are they representative of
where such beneficial holders reside since many of these ordinary shares were
held of record by brokers or other nominees (including one U.S. nominee
company, CEDE & Co., which held approximately 32.3% of our outstanding
ordinary shares as of said date).

Duties of
Shareholders

Disclosure by Controlling Shareholders.
 Under the Companies Law, the disclosure requirements that apply to an office
holder also apply to a controlling shareholder of a public company.  A controlling shareholder is a shareholder
who has the ability to direct the activities of a company, including a
shareholder that owns 25% or more of the voting rights if no other shareholder
owns more than 50% of the voting rights, but excluding a shareholder whose
power derives solely from his or her position on the board of directors or any
other position with the company.

Extraordinary
transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, and the engagement of a controlling
shareholder as an office holder or employee, generally require the approval of
the audit committee, the board of directors and the shareholders, in that
order.  The shareholder approval must
include at least one-third of the shares of non-interested shareholders voted
on the matter.  However, the transaction
can be approved by shareholders without this one-third approval if the total
shares of non-interested shareholders voted against the transaction do not
represent more than one percent of the voting rights in the company.

68

---

---



General Duties of Shareholders. In addition, under the Companies Law, each
shareholder has a duty to act in good faith towards the company and other
shareholders and to refrain from abusing his or her power in the company, such
as in shareholder votes.  In addition,
specified shareholders have a duty of fairness toward the company.  These shareholders include any controlling shareholder,
any shareholder who knows that it possesses the power to determine the outcome
of a shareholder vote and any shareholder who, pursuant to the provisions of
the articles of association, has the power to appoint an office holder or any
other power with respect to the company.
However, the Companies Law does not define the substance of this duty of
fairness.

|   |                           
|-- | --------------------------
|B. | RELATED PARTY TRANSACTIONS

Clal Insurance

We purchase
insurance policies in Israel from a number of insurance companies in respect of
some of which Clal Insurance Company Ltd., an affiliate of CEI and Discount,
acted as leader.  In certain instances,
we were a beneficiary of insurance policies purchased from Clal Insurance
Company by a subsidiary of Creo Inc., in which we no longer hold an equity
interest.  During 2004, we paid premiums
on such insurance in insignificant amounts.
The extent to which Clal Insurance Company, or other insurance companies
with whom it is affiliated, participated, varied from policy to policy.  All insurance was effected at normal
business rates.

Services Agreements

Clal Services Agreement.
 In November 2001, we entered into a Services Agreement with Clal in connection
with the transfer of our corporate offices to facilities leased to Clal at the
Azrieli Center, Tel Aviv and the seconding of personnel. Pursuant to the Clal
Services Agreement, Clal provided us with office space for our personnel,
together with other services, such as accounting, security, information
management services (MIS) and cleaning.
In addition, Clal seconded certain executives to serve in various
management positions with us.  In
addition, with effect from January 1, 2003, two other Scitex employees became
employees of Clal and were seconded back to us for 100% of their work
hours.  Pursuant to the Clal Services
Agreement, other employees of Clal and Scitex may be seconded to each other (on
a full time or part time basis) on an as-needed basis, as agreed from time to
time between the parties.

The Clal
Services Agreement provided that certain services may be provided by
subsidiaries of Clal or directly from third party suppliers, and Clal may
assign its rights and obligations under the Clal Services Agreement, in whole
or in part, to its affiliates. Generally, the services rendered (other than the
seconding of employees) were to be provided by Clal at the actual cost incurred
by Clal for the services and do not include any overhead expense, or general
and administrative cost.  However, if
the actual cost incurred by Clal may not be determined with respect to any
service, the cost to us will generally be calculated either (i) on the basis of
the proportion of office space occupied by us at Azrieli Center (including,
proportionally, by employees seconded to us by Clal and excluding, proportionally,
employees seconded to Clal by us), for rental of the facilities and common
parts, cleaning, security, local taxes, electricity and all other expenses
associated with facility maintenance; or (ii) on the basis of the number of our
employees located at Azrieli Center (including, proportionally, those seconded
to us by Clal and excluding, proportionally, those seconded to Clal by us) for
other, generally unspecified, services.
Certain services, such as accounting and MIS services, are at a fixed
rate.  During 2003, the aggregate cost
of the services (including rental), other than the seconding of employees, was
approximately $7,300 per month, compared to $7,700 per month in 2002.  In 2003, we paid Clal the sum of approximately
$430,000 in connection with the seconding of Clals employees to us.

The audit
committees of both Scitex and Clal agreed to periodically review and adjust the
services rendered and amounts paid pursuant to the Clal Services
Agreement.  However, the aggregate
changes in respect of (i) the amount payable for seconded employees may not
exceed an additional $300,000 per annum and (ii) the amount payable for other
services provided to us may not exceed an additional $20,000 per quarter, in
each case, in excess of the amount envisaged at the commencement of the Clal
Services Agreement.

69

---

---



In light of
the Discount Services Agreement (described below), which became effective in
January 2004, we and Clal have agreed to suspend substantially all the services
provided by Clal to us pursuant to the Clal Services Agreement, including the
termination of (1) the use by us of the office space provided by Clal,
including related ancillary services (such as cleaning, security and MIS),
which are now provided to us by Discount pursuant to the Discount Services
Agreement, and (2) the seconding of personnel by Clal to us, which is no
longer required. The other provisions of the Clal Services Agreement continue
in full force and effect, and Clal may continue to provide certain other
services to us pursuant to the Clal Services Agreement.

The Clal
Services Agreement was submitted to and approved by our audit committee, our
board of directors and our shareholders, in that order. Similarly, the
suspension of certain services under the Services Agreement was also submitted
to and approved by our audit committee, our board of directors and our
shareholders, in that order.

The foregoing description of the Clal
Services Agreement is only a summary and does not purport to be complete and is
qualified by reference to the full text of the Clal Services Agreement and the
amendment thereto filed by us as Exhibit 4(d)(1) in Item 19.

Discount Services Agreement.
 We entered into a Services Agreement with Discount in connection with the transfer of our corporate
offices to facilities leased by Discount at the Azrieli Center, Tel Aviv, and the seconding of one of Discounts senior
officers to serve as our President
and/or Chief Executive Officer. The Agreement became effective as of January
15, 2004.

Pursuant to the Discount Services Agreement, Discount provides us with office space at the Azrieli
Center for our personnel, together with ancillary services, such as cleaning,
security and MIS, similar to that previously provided by Clal pursuant to the Clal Services Agreement.  In addition, with effect
from
January 5, 2004, Discount
seconded Mr. Raanan Cohen, Vice President of Discount (or another senior officer of Discount if agreed upon by us and
Discount) to serve as Interim President and Chief
Executive Officer of Scitex, dedicating approximately 40% of his work hours to
us. We are required to provide to such person an indemnity letter in connection
with personal liabilities that may arise from serving in such capacity similar
to the letter provided by us to our other executive officers. Mr. Raanan
Cohen currently is also a director of Scitex.

Certain services may be provided by Discount through its subsidiaries or directly from third
party suppliers. Discount may assign
its rights and obligations under the Discount Services Agreement, in whole or
in part, to its affiliates. Generally, the services rendered will be provided
by Discount at the actual cost incurred by Discount for the services and will
not include any overhead expense, or general and administrative cost.  However, if the actual cost incurred by
Discount may not be determined with respect to any service, the cost to us will
generally be calculated either (i) on the basis of the proportion of the
office space occupied by us at Azrieli Center (including a relative part of
common areas) for cleaning, security, local taxes, electricity and all other
expenses associated with facility maintenance or (ii) on the basis of the
number of our employees located at Azrieli Center for other, generally
unspecified, services, according to the nature of the service. Certain
services, such as MIS, will be charged to us at a fixed rate.

Our audit committee will periodically review the services rendered and
amounts paid under the Discount Services Agreement. The specific approval of our
audit committees is required for any material increases in the amounts paid
under the Discount Services Agreement. However, in no event shall the aggregate
increase in the office space occupied by us at Azrieli Center exceed 175% of
the office space occupied by us at the commencement of the
agreement. Initially, the aggregate cost of
the services (including the leased office space, but excluding the seconding of
Mr. Cohen) was approximately $17,000 per fiscal quarter. However, since
September 2004, we no longer lease the office space from Discount. As for the
services of Mr. Cohen as our President and CEO, we are required to pay Discount the sum of NIS 493,000 (equivalent to
approximately $112,000 based on the current exchange rate) per annum.  This sum is based upon the actual
cost incurred by Discount with respect to the services of Mr. Cohen.  In the event of a change in the cost of such
services to Discount or, having regard to our needs, if the parties agree upon
a change in the percentage of the work hours to be dedicated to us by
Mr. Cohen (or such other senior officer of Discount who may serve as
President and/or Chief Executive Officer of Scitex), the consideration payable
for these services shall be increased or decreased accordingly, subject to the
approval of our Audit Committee, provided that in no event may the sum payable
in respect of such services exceed NIS 750,000 (equivalent to approximately $170,000 based on the current exchange rate)
per annum.

70

---

---



If either of the parties wish to cease to provide or receive any or all
of the services (including the office space), it may do so by giving prior
written notice of at least three months to the other party, unless otherwise
agreed by the parties.  In such
circumstances, Discount is
required to provide us reasonable cooperation and assistance in order to enable
us to implement such service by ourselves, but in no event will such assistance
be for more than 30 days from the date of termination.

The Discount
Services Agreement was submitted to and approved by our audit committee, our
board of directors and our shareholders, in that order.

The foregoing description of the Discount
Services Agreement is only a summary and does not purport to be complete and is
qualified by reference to the full text of the Discount Services Agreement
filed by us as Exhibit 4(d)(3) in Item 19.

Combination of
Scitex Vision and Scitex Vision International

In January
2003, we completed a transaction to combine the operations of Scitex Vision
International (our then wholly owned subsidiary) and Scitex Vision (in which we
held approximately 42.5% of the outstanding share capital) through a share
exchange.  Pursuant to the Share
Exchange Agreement, (1) we sold all of our shares in Scitex Vision
International to Scitex Vision (so that Scitex Vision International became a
wholly owned subsidiary of Scitex Vision), and (2) Scitex Vision issued to us
shares representing approximately 67% of Scitex Visions outstanding share
capital, and agreed to reserve up to approximately 5.9% of its share capital,
on a fully diluted and as converted basis, for the issuance of stock options to
Scitex Vision Internationals employees (collectively, the Consideration).
The Consideration is subject to adjustments in our favor, if, at any time prior
to the earlier to occur of (1) January 1, 2010 and (2) the closing of an
initial public offering of Scitex Visions equity securities (with minimum
requirements as to Scitex Visions valuation at, and the proceeds of, such
offering), any of a number of specified adverse events occur in respect of
Scitex Vision.  As required by the Share
Exchange Agreement, we transferred $15 million to Scitex Vision
International as an investment therein. Immediately following this transaction,
we held, in the aggregate, approximately 75.5% of Scitex Visions outstanding
share capital.

Each of Scitex
Vision International (for the benefit of Scitex Vision) and Scitex Vision (for
our benefit) made customary representations and warranties in the Share
Exchange Agreement with respect to each partys respective business
operations.  We also made limited
representations and warranties for the benefit of Scitex Vision.  The representations and warranties made by
the parties survived for a limited period of one year (until January 2004),
except for certain representations that survive until the earlier of the (i)
expiration date of the applicable statute of limitations and (ii) closing of an
initial public offering of Scitex Visions equity securities.  In the event of damages incurred as result
of breach of the representations and warranties made by us or Scitex Vision
International or failure to perform covenants or agreements, we are required to
indemnify Scitex Vision. Similarly, in the event of damages incurred as result
of breach of the representations and warranties made by Scitex Vision or
failure to perform covenants or agreements, Scitex Vision is required to
indemnify us.  The indemnification will
be paid out solely in shares of Scitex Vision and is capped, in the aggregate,
at $7 million (if we are required to indemnify Scitex Vision) or $6 million (if
Scitex Vision is required to indemnify us).

71

---

---



This
transaction was a related party transaction because CEI and Discount, who are
our principal shareholders, may have had a personal interest in the transaction
by virtue of their shareholdings in Scitex Vision (prior to the transaction,
each of CEI and Discount held approximately 14% of Scitex Visions share
capital).  Accordingly, as required by the Companies
Law, the transaction was approved by our audit committee, board of directors
and a special majority of our shareholders, in that order.  In addition, the financial advisor in
connection with the transaction delivered to our board of directors a written
opinion as to the fairness, from a financial point of view, of the
consideration to be paid by us in connection with the transaction.

The foregoing description of the Share
Exchange Agreement is only a summary and does not purport to be complete and is
qualified by reference to the full text of the agreement filed by us as Exhibit
4(d)(2) to Item 19.

Rights Offerings by
Scitex Vision

In July 2003
and May 2004, Scitex Vision concluded rights offerings to its shareholders in
which we invested approximately $5.0 million and $4.2 million, respectively, in
accordance with our pro rata share of such offering. Clal and Discount, our two
principal shareholders who are also shareholders of Scitex Vision, invested
their pro rata share of the rights offerings in an aggregate of approximately
$0.9 million each.

The
investments were made in the form of convertible loans, which have a five year
maturity and bear interest at the annual rate of the greater of (i) LIBOR + 1%
and (ii) the Israeli consumer price index. The principal amount of the loans,
including interest accrued thereon, may be converted into shares of Scitex
Vision at a specified conversion price (subject to adjustments for specified
events):

|  |                                                                                                                                                                                                                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  conversion price of the July 2003 loan reflects the valuation of the
  aforesaid combination of Scitex Vision and Scitex Vision International in
  January 2003 (i.e., valuation of $54 million for the combined entities).     
|  |                                                                                                                                                                                                                                       
| | The
  conversion price of the May 2004 loan reflects a valuation of $60 million for
  Scitex Vision, and is based upon, among other things, a written opinion of a
  financial advisor retained by Scitex Visions board of directors.

In addition,
we and the other lenders received warrants to purchase additional shares of
Scitex Vision with 25% coverage of the principal amount of the loans,
exercisable for a period of five years at an exercise price equal to the
conversion price of the loans, as applicable. Other key terms of the loans
include the subordination of the loans to senior bank loans and the grant of
registration rights with respect to the securities underlying the loans and
warrants.

Prior to the
July 2003 rights offering, Scitex Visions share capital was divided into
ordinary shares and several series of preferred shares. In conjunction with the
rights offering, Scitex Vision reclassified its share capital by way of
converting all preferred shares into ordinary shares and currently has only one
class of shares, the ordinary shares, outstanding.

Following our
investment in the rights offerings and the purchase from CDI of the majority of
its shares in Scitex Vision, we now hold an approximate 77.1% interest (70.6%
on a fully-diluted basis) in Scitex Vision whereas Clal and Discount each hold
an approximate 7.2% interest.

Other

During 2004,
we maintained business relationships and entered into various other
transactions in the ordinary course of business with a number of other
companies affiliated with our major shareholders, all on terms which management
believes were no less favorable to us than would be obtained in transactions
with unaffiliated third parties.

|   |                                 
|-- | --------------------------------
|C. | INTERESTS OF EXPERT AND COUNSEL.

| | Not
applicable.
| | ---------------

72

---

---



|        |                                                          
|------- | ---------------------------------------------------------
|ITEM 8. | FINANCIAL INFORMATION                                    
|        |                                                          
|A.      | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
  INFORMATION

FINANCIAL STATEMENTS

Our consolidated financial
statements are set forth in Item 18.

EXPORT SALES

During 2004, Scitex, through
its consolidated subsidiaries, had equipment export sales primarily from
Israel. Export sales from Israel were of products manufactured by Scitex Vision
and amounted to $77.8 million in 2004, compared to $59.3 million in 2003 and
approximately $51.5 million in 2002. Altogether, export sales (from Israel
only) in 2004 accounted for 60.1% of total net sales, compared to approximately
58% in 2003 and 60% in 2002.

LEGAL PROCEEDINGS

CDI, one of Scitex Visions
shareholders, asserted several claims against us and our affiliates, including
the following:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In October 2003, an NIS 14
  million (approximately $3.2 million) lawsuit was filed by CDI against us,
  Scitex Vision and others, mainly other shareholders of Scitex Vision (among
  them, our two largest shareholders, Clal and Discount) and the directors of
  Scitex Vision for the period relevant to the lawsuit (three of whom are our
  present or former office holders). The lawsuit generally alleged that the
  terms of the transaction to combine the operations of Scitex Vision and
  Scitex Vision International and the manner in which it was effected
  prejudiced the rights of CDI as a minority shareholder of Scitex Vision (see Item 7B above);
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In December 2003, a
  separate motion was filed by CDI against us, Scitex Vision, and two other
  shareholders of Scitex Vision in connection with Scitex Visions rights
  offering that was concluded in July 2003 (See
  Item 7B above). In particular, the motion alleged that the
  reorganization of Scitex Visions share capital that was effected in
  conjunction with the rights offering was invalid and prejudiced the rights of
  CDI; and                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In late May 2004, CDI
  filed another lawsuit against us, Scitex Vision, Clal and Discount in
  connection with Scitex Visions rights offering that was concluded in May
  2004 (See Item 7B above). The
  lawsuit generally alleged that the terms of the transaction and the manner in
  which it was effected prejudiced the rights of CDI as a minority shareholder
  of Scitex Vision.                                                                                                                                                                                                                                                                               

We and Scitex Vision as well
as the other defendants entered into mediation proceedings with CDI in an
attempt to reach an amicable solution of the claims. In early April 2005, we
and our two largest shareholders, Clal and Discount, entered into an agreement
with CDI whereby we agreed to purchase all of CDIs interest in Scitex Vision
for $1.6 million, plus additional contingent consideration. In the framework of the agreement, CDI agreed
to dismiss all of the lawsuits and claims asserted by it against us and the
other parties

In addition, see the
discussion in Item 5B under the captionTax
Audits.

73

---

---



We are from time to time
named as a defendant in certain routine litigation incidental to our business.
Except as described above, we are currently not party to any legal proceedings
which would reasonably be expected to have a material adverse effect on our
financial position. For a description of
other pending  legal proceedings, see
Note 10b to our consolidated financial statements included in this Annual
Report.

DIVIDEND POLICY

Except as
described below, we did not distribute any dividends (in cash or otherwise),
bonus shares or declared any split, recapitalization or make any rights
offerings to the holders of our shares since the third quarter of 1996. We
continually review our dividend policy and the payment, or non-payment, of a
dividend should not be considered indicative as to the payment of future
dividends. For general information on the
applicable tax rate on dividends, please see in Item10E. Tax below.

On June 22,
2004, we announced a distribution of $2.36 per ordinary share, or approximately
$90 million in the aggregate, payable on July 12, 2004 to our shareholders of
record as of June 30, 2004.

|   |                    
|-- | -------------------
|B. | SIGNIFICANT CHANGES

Except as otherwise
disclosed in this Annual Report, no significant change has occurred since
December 31, 2004. In particular, please see the description of the sale of our
SDP business to Kodak in January 2004, under Item 10C Additional
InformationMaterial Agreements.

|        |                            
|------- | ---------------------------
|ITEM 9. | THE OFFER AND LISTING      
|        |                            
|A.      | OFFER AND
  LISTING DETAILS

Our ordinary shares are
listed and traded on the Nasdaq National Market, or Nasdaq, and the Tel Aviv
Stock Exchange, or the TASE, both under the symbol SCIX. The shares commenced
trading on the TASE on January 7, 2001 and on Nasdaq on May 20, 1980.

All share prices on Nasdaq
are reported in U.S. dollars and all share prices on the TASE are reported in
NIS. As of December 31, 2004, the exchange rate was equal to NIS 4.308 per
$1.00 (NIS 4.379 on December 31, 2003).

The following table sets
forth, for the periods indicated, the high and low closing sales prices per
ordinary share on Nasdaq and on the TASE as reported in published financial
sources:

74

---

---



|                         |  |                          |   |                               |  |      |  |     |         |  |  |  |             |  |  |             | 
|------------------------ |  | ------------------------ | - | ----------------------------- |  | ---- |  | --- | ------- |  |  |  | ----------- |  |  | ----------- | 
|Annual High and Low      |  | Nasdaq
  National Market |   | The Tel
  Aviv Stock Exchange | 
|                         |  |                          |   |                               | 
|                         |  | High                     |   | Low                           |  | High |  | Low |        
|                         |  |                          |   |                               |  |      |  |     |        
|2000                     |  |                          | $ | 18.75                         |  |      |  | $   | 6.56    |  |  |  |            |  |  |            | 
|2001                     |  |                          | $ | 9.75                          |  |      |  | $   | 2.75    |  |  |  | NIS
  41.40 |  |  | NIS
  12.06 | 
|2002                     |  |                          | $ | 5.50                          |  |      |  | $   | 1.26    |  |  |  | NIS
  25.08 |  |  | NIS
  6.04  | 
|2003                     |  |                          | $ | 5.16                          |  |      |  | $   | 1.22    |  |  |  | NIS
  24.15 |  |  | NIS
  6.10  | 
|2004*                    |  |                          | $ | 6.21                          |  |      |  | $   | 3.87    |  |  |  | NIS
  28.00 |  |  | NIS
  17.32 | 
|Quarterly
  High and Low |  |                          |   |                               |  |      |  |     |         |  |  |  |             |  |  |             | 
|2003                     |  |                          |   |                               |  |      |  |     |         |  |  |  |             |  |  |             | 
|First Quarter            |  |                          | $ | 1.89                          |  |      |  | $   | 1.22    |  |  |  | NIS
  8.54  |  |  | NIS
  6.10  | 
|Second Quarter           |  |                          | $ | 2.59                          |  |      |  | $   | 1.63    |  |  |  | NIS
  11.30 |  |  | NIS
  7.92  | 
|Third Quarter            |  |                          | $ | 3.36                          |  |      |  | $   | 2.
  50 |  |  |  | NIS
  14.93 |  |  | NIS
  10.91 | 
|Fourth Quarter           |  |                          | $ | 5.16                          |  |      |  | $   | 3.20    |  |  |  | NIS
  24.15 |  |  | NIS
  14.42 | 
|2004                     |  |                          |   |                               |  |      |  |     |         |  |  |  |             |  |  |             | 
|First Quarter            |  |                          | $ | 5.67                          |  |      |  | $   | 5.08    |  |  |  | NIS
  26.38 |  |  | NIS
  23.05 | 
|Second Quarter           |  |                          | $ | 6.21                          |  |      |  | $   | 5.54    |  |  |  | NIS
  28.00 |  |  | NIS
  25.21 | 
|Third Quarter*           |  |                          | $ | 4.22                          |  |      |  | $   | 3.87    |  |  |  | NIS
  19.42 |  |  | NIS
  17.32 | 
|Fourth Quarter           |  |                          | $ | 5.21                          |  |      |  | $   | 3.91    |  |  |  | NIS
  22.32 |  |  | NIS
  17.55 | 
|2005                     |  |                          |   |                               |  |      |  |     |         |  |  |  |             |  |  |             | 
|First Quarter            |  |                          | $ | 7.06                          |  |      |  | $   | 5.10    |  |  |  | NIS
  30.51 |  |  | NIS
  22.23 | 
|Most
  Recent Six Months |  |                          |   |                               |  |      |  |     |         |  |  |  |             |  |  |             | 
|December 2004            |  |                          | $ | 5.21                          |  |      |  | $   | 4.52    |  |  |  | NIS
  22.32 |  |  | NIS
  19.83 | 
|January 2005             |  |                          | $ | 6.01                          |  |      |  | $   | 5.10    |  |  |  | NIS
  26.82 |  |  | NIS
  22.23 | 
|February 2005            |  |                          | $ | 7.06                          |  |      |  | $   | 5.95    |  |  |  | NIS
  29.91 |  |  | NIS
  25.88 | 
|March 2005               |  |                          | $ | 6.98                          |  |      |  | $   | 6.32    |  |  |  | NIS
  30.51 |  |  | NIS
  27.30 | 
|April 2005               |  |                          | $ | 6.96                          |  |      |  | $   | 6.40    |  |  |  | NIS
  29.82 |  |  | NIS
  27.93 | 
|May 2005                 |  |                          | $ | 6.95                          |  |      |  | $   | 6.66    |  |  |  | NIS
  29.97 |  |  | NIS
  28.85 | 

* On June 22, 2004, we
announced a distribution of $2.36 per ordinary shares and, effective July 1,
2004, the ordinary shares were traded ex-dividend, as a result of which
Nasdaq and the TASE adjusted (downwards) the opening price of our shares in the
respective markets.

On June 28, 2005, the
reported sale price of our ordinary shares on Nasdaq was $5.85 per share and on
TASE was NIS 26.64 per share.

|                                                                                                                                                   |                         
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------
|B.                                                                                                                                                 | PLAN OF
  DISTRIBUTION. 
|                                                                                                                                                   |                         
|Not
  Applicable.                                                                                                                                 
|                                                                                                                                                   |                         
|C.                                                                                                                                                 | MARKETS.                
|                                                                                                                                                   |                         
|Our ordinary shares trade
  on Nasdaq and, with effect from January 7, 2001, the TASE. The shares trade
  on both markets under the symbol SCIX.
|                                                                                                                                                   |                         
|D.                                                                                                                                                 | SELLING
  SHAREHOLDERS. 
|                                                                                                                                                   |                         
|Not
  Applicable.                                                                                                                                 
|                                                                                                                                                   |                         
|E.                                                                                                                                                 | DILUTION.               
|                                                                                                                                                   |                         
|Not
  Applicable.                                                                                                                                 
|                                                                                                                                                   |                         
|F.                                                                                                                                                 | EXPENSES
  OF THE ISSUE.
|                                                                                                                                                   |                         
|Not
  Applicable.                                                                                                                                 

75

---

---



|                  |                                         
|----------------- | ----------------------------------------
|ITEM 10.          | ADDITIONAL INFORMATION                  
|                  |                                         
|A.                | SHARE
  CAPITAL                         
|                  |                                         
|Not
  Applicable.
|                  |                                         
|B.                | MEMORANDUM
  AND ARTICLES OF ASSOCIATION

Set out below is a description of certain
provisions of our Memorandum of Association and Articles of Association, and of
the Israeli Companies Law related to such provisions. This description is only
a summary and does not purport to be complete and is qualified by reference to
the full text of the Memorandum and Articles which are incorporated by reference
as exhibits to this Annual Report and to Israeli law.

We were first registered
under Israeli law on November 2, 1971 as a private company, succeeding a
predecessor corporation, Scientific Technology Ltd., which was founded on
September 5, 1968. In May 1980 we became a public company. We are registered
with the Registrar of Companies in Israel under number 52-003180-0.

OBJECTS AND PURPOSES

Pursuant
to Section 2(I)(a) of our Memorandum of Association, the principal object for
which we are established is to engage in the activity or business of, inter alia, developing, manufacturing,
producing, vending, purchasing, licensing, leasing, importing, exporting, or
otherwise dealing in any products and moveable property of every kind and
description, and to engage in selling, promoting, leasing, licensing,
importing, exporting, or otherwise dealing in, any services. We may also
acquire, create, form, operate, encourage or otherwise promote or manage any
kind of enterprise.

DIRECTORS

The
Companies Law requires that transactions between a company and its office
holders (which term includes directors) or that benefit its office holders,
including arrangements as to the compensation of office holders, be approved as
provided for in the Companies Law and the companys articles of association. (For further information as to such approval
provisions, seeItem 6. Directors,
Senior Management and Employees  Board Practices  Approval of Specified
Related Party Transactions under Israeli Law.)

Under
our Articles, in general, the management of our business is vested in the Board
of Directors, which may exercise all such powers, including the power to borrow
or secure the payment of any sum or sums of money for the purposes of the
Company, in such manner, at such times and upon such terms and conditions in
all respects, as it thinks fit.

There
is no requirement under our Articles or Israeli law for directors to retire on
attaining a specific age. The Articles do not require directors to hold our ordinary shares to qualify for election.

SHARES

Our
registered capital is divided into 48,000,000 ordinary shares of nominal (par)
value NIS 0.12 each. There are no other classes of shares. All of our
outstanding shares are fully paid and non-assessable. The shares do not entitle
their holders to preemptive rights.

Subject
to the rights of holders of shares with special rights (which may be issued in
the future), holders of paid up ordinary shares are entitled to participate in
the payment of dividends and, in the event of our winding-up, in the
distribution of assets available for distribution, in proportion to the nominal
value of their respective holdings of the shares in respect of which such
dividend is being paid or such distribution is being made. Our Articles do not
specify any time limit after which dividend entitlement lapses.

76

---

---



Each
ordinary share is entitled to one vote on all matters to be voted on by
shareholders, including the election of directors. Our ordinary shares do not have cumulative voting
rights. As a result, the holders of our ordinary shares that represent a simple majority of the voting power
represented at a shareholders meeting and voting at the meeting have the power
to elect all of the directors put forward for election, subject to specific
requirements under the Companies Law with respect to the election of Outside Directors. (For
further information as to these requirements, seeItem 6C. Board Practices - Outside
Directors.)

The
Companies Law requires that extraordinary
transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, and the engagement of a controlling shareholder as an office holder or
employee, be approved as provided for in the Companies Law, which may
necessitate the approval of at
least one-third of the shares of non-interested shareholders voting on the
matter. (For further information as to such provisions,
seeItem 7A. Major Shareholders  Duties of Shareholders.)

VARIATION OF RIGHTS

Shares
with preferential rights relating, among other things, to dividends, voting and
repayment of share capital can be created by adoption of a special
resolution, which requires approval by at least 75% of the voting power
represented at the meeting in person or by proxy and voting thereon. In addition,
through a special resolution, we can subdivide issued and outstanding ordinary
shares. Modification or abrogation of the rights of any class of shares
requires the written consent of the holders of 75% of the issued shares of such
a class or adoption of a special resolution by affected shareholders voting
separately as a class.

GENERAL MEETINGS

Our
Articles provide that an annual general meeting must be held at least once in
every calendar year at such time within a period of not more than 15 months after
the holding of the last preceding annual general meeting, and at such place, as
may be determined by the Board of Directors. Our Board of Directors may, in its
discretion, convene additional shareholder meetings and, pursuant to the
Companies Law, must convene a meeting upon the demand of two directors or
one-quarter of the directors in office or upon the demand of the holder or
holders of five percent of our issued share capital and one percent of our
voting rights or upon the demand of the holder or holders of five percent of
our voting rights.

Under
the Companies Law, shareholder meetings generally require prior notice of not
less than 21 days. The function of the annual general meeting is to receive and
consider the directors report, profit and loss account and balance sheet, to
elect directors and appoint auditors and fix their fees, and to transact any
other business which under the Articles or by law are to be transacted at our
annual general meeting.

The
quorum required for either an ordinary (regular) or an extraordinary (special)
meeting of shareholders consists of at least two shareholders present in person
or by proxy and holding or representing between them at least one-third of our
voting power. If a meeting is convened at the request of shareholders and no
quorum is present, it shall be dissolved. If a meeting is otherwise called and
no quorum is present, the meeting is adjourned to the same day one week later
at the same time and place, or to such other day time and place as our Chairman
may determine with the consent of a majority of the voting power represented at
the meeting and voting on the question of an adjournment. Consistent with an
exemption we received from Nasdaq in respect of Nasdaq Marketplace Rule
4350(f), which requires that the quorum for meetings of shareholders consists
of at least one-third of our voting power, our Articles provide that, at
adjourned meetings, any two or more shareholders present in person or by proxy
shall constitute a quorum. We believe this provision in our Articles regarding
the quorum at adjourned meetings complies with Israeli law and practice.

Generally, under the Companies Law and our Articles, shareholder resolutions are deemed
adopted if approved by the holders of a simple majority of the voting rights
represented at a meeting unless a different majority is required by law or
pursuant to our Articles. The Companies Law provides that resolutions on
certain matters, such as amending a companys articles of association, assuming
the authority of the board of directors in certain circumstances, appointing
auditors, appointing external directors, approving certain transactions,
increasing or decreasing the registered share capital and approving a merger
with another company must be made by the shareholders at a general meeting. A
company may determine in its articles of association certain additional matters
in respect of which resolutions by the shareholders in a general meeting will
be required.

77

---

---



A
company such as Scitex, incorporated prior to February 1, 2000, is subject to
various rules with respect to the transition from being governed by the Israeli
Companies Ordinance [New
Version], 5743  1983, to being governed by the Companies Law. These rules provide,
among other things, that any amendment to the Memorandum or Articles will
generally require a resolution adopted by the holders of 75% or more of the
voting power represented and voting at a general meeting, and that the approval
of a merger will require a resolution adopted by the holders of 75% or more of
the voting power represented and voting at a general meeting, unless and until
we amend our Articles in such manner to provide for a different majority.

Subject
to the Companies Law, a resolution in writing signed by the holders of all of
our ordinary shares entitled to vote at a meeting of shareholders or to which
all such shareholders have given their written consent will be sufficient to
adopt the resolution in lieu of a meeting.

LIMITATION ON RIGHTS TO OWN SHARES

Our
Memorandum of Association, our Articles and Israeli law do not restrict in any
way the ownership or voting of ordinary shares by non-residents or persons who
are not citizens of Israel, except with respect to subjects of nations which
are in a state of war with Israel.Fully paid ordinary shares may be freely transferred pursuant to
our Articles unless the transfer is restricted or prohibited by another
instrument.

DIVIDEND AND
LIQUIDATION RIGHTS

Dividends
on our ordinary shares may be paid only out of profits and other surplus, as
defined in the Companies Law, as of the end of the most recent fiscal year or
as accrued over a period of two years, whichever is higher. Our board of
directors is authorized to declare dividends, provided that there is no
reasonable concern that payment of the dividend will prevent us from satisfying
our existing and foreseeable obligations as they become due. Notwithstanding
the foregoing, dividends may be paid with the approval of a court, provided
that there is no reasonable concern that payment of the dividend will prevent
us from satisfying our existing and foreseeable obligations as they become due.
In the event of our liquidation, after satisfaction of liabilities to
creditors, our assets will be distributed to the holders of ordinary shares in
proportion to their respective holdings. This liquidation right may be affected
by the grant of preferential dividends or distribution rights to the holders of
a class of shares with preferential rights that may be authorized in the
future.

CHANGE OF CONTROL

There are no specific
provisions of our Memorandum or Articles that would have an effect of delaying,
deferring or preventing a change in control of Scitex or that would operate
only with respect to a merger, acquisition or corporate restructuring involving
us (or any of our subsidiaries). However, certain provisions of the Companies
Law may have such effect.

The Companies Law includes
provisions that allow a merger transaction and requires that each company that
is a party to the merger have the transaction approved by its board of
directors and a vote of the majority of its shares. For purposes of the
shareholder vote of each party, unless a court rules otherwise, the merger will
not be deemed approved if shares representing a majority of the voting power
present at the shareholders meeting and which are not held by the other party
to the merger (or by any person who holds 25% or more of the voting power or
the right to appoint 25% or more of the directors of the other party) vote
against the merger. Upon the request of a creditor of either party to the
proposed merger, the court may delay or prevent the merger if it concludes that
there exists a reasonable concern that as a result of the merger the surviving
company will be unable to satisfy the obligations of any of the parties to the
merger. In addition, a merger may not be completed unless at least (i) 50 days
have passed from the time that the requisite proposals for approval of the
merger have been filed with the Israeli Registrar of Companies by each merging
company and (ii) 30 days have passed since the merger was approved by the
shareholders of each merging company.

78

---

---



The Companies Law also
provides that an acquisition of shares in a public company must be made by
means of a tender offer if as a result of the acquisition the purchaser would
become a 25% or greater shareholder of the company. This rule does not apply if
there is already another 25% or greater shareholder of the company. Similarly,
the Companies Law provides that an acquisition of shares in a public company
must be made by means of a tender offer if as a result of the acquisition the
purchaser would become a 45% or greater shareholder of the company, unless
there is already a 45% or greater shareholder of the company. These requirements
do not apply if, in general, the acquisition (1) was made in a private
placement that received shareholder approval, (2) was from a 25% or greater
shareholder of the company which resulted in the acquirer becoming a 25% or
greater shareholder of the company, or (3) was from a 45% or greater
shareholder of the company which resulted in the acquirer becoming a 45% or
greater shareholder of the company. The tender offer must be extended to all
shareholders, but the offeror is not required to purchase more than 5% of the
companys outstanding shares, regardless of how many shares are tendered by
shareholders. The tender offer may be consummated only if (i) at least 5% of
the companys outstanding shares will be acquired by the offeror and (ii) the
number of shares tendered in the offer exceeds the number of shares whose
holders objected to the offer.

If, as a
result of an acquisition of shares, the acquirer will hold more than 90% of a
companys outstanding shares, the acquisition must be made by means of a tender
offer for all of the outstanding shares. If less than 5% of the outstanding
shares are not tendered in the tender offer, all the shares that the acquirer
offered to purchase will be transferred to it. The Companies Law provides for
appraisal rights if any shareholder files a request in court within three
months following the consummation of a full tender offer. If more than 5% of
the outstanding shares are not tendered in the tender offer, then the acquiror
may not acquire shares in the tender offer that will cause his shareholding to
exceed 90% of the outstanding shares.

Lastly,
Israeli tax law treats some acquisitions, such as stock-for-stock exchanges
between an Israeli company and a foreign company, less favorably than U.S. tax
laws. For example, Israeli tax law may, under certain circumstances, subject a
shareholder who exchanges his ordinary shares for shares in another corporation
to taxation prior to the sale of the shares received in such stock-for-stock
swap.

NOTIFICATION OF SHAREHOLDING

There are no specific
provisions of our Memorandum or Articles governing the ownership threshold
above which shareholder ownership must be disclosed.

CHANGES IN CAPITAL

Our
Articles require that changes in capitalization must be adopted by special
resolution, approved by the holders of 75% or more of the voting power
represented and voting at a general meeting. Subject thereto, the conditions imposed by our Memorandum and
Articles governing changes in the capital, are no more stringent than is
required by Israeli law.

79

---

---



|   |                     
|-- | --------------------
|C. | MATERIAL
  CONTRACTS

SALE OF SDPS BUSINESS

On November
24, 2003, we entered into an Asset Purchase Agreement with Eastman Kodak
Company (Kodak), whereby Kodak agreed to acquire substantially all of the
assets and business of Scitex Digital Printing, Inc. (SDP), a wholly-owned US
subsidiary of Scitex, for $250 million in cash and to assume substantially all
of SDPs liabilities related to the ongoing business. In addition, as part of
the transaction, we retained $12 million of SDPs cash balance at closing,
producing total cash consideration for the transaction of $262 million.

We completed
the sale on January 5, 2004. At closing, $15 million of the proceeds of the
sale, which amount was released 20 business days after closing, was placed in a
custody account to cover unknown federal tax liens. Furthermore, $10 million of
the proceeds of the sale was placed in a custody account to cover possible
indemnification claims, $5 million of which was released to Scitexs account in
January 2005 and the remaining $5 million is to be held in the custody account
until January 5, 2006, subject to extension to allow any then existing
indemnification claims to be resolved. We made representations and
warranties in the purchase agreement for the benefit of Kodak, which generally
survive for a period of two years following the closing of the transaction or,
for certain matters, the expiration of the applicable statute of limitations.
We also agreed to a certain non-compete restriction on our operations. We
agreed to indemnify Kodak against damages or losses arising from any breach of
the representations and warranties, subject to certain limitations (including
customary deductibles, de minimis exceptions and caps) detailed in the purchase
agreement. We also agreed to indemnify Kodak against any damages or losses
arising from any breach of a covenant or agreement made by us in the purchase
agreement or from any liability of SDP that we retained under the terms of the
purchase agreement. We are obligated to satisfy these indemnification
obligations to the extent not satisfied out of amounts in the custody account
discussed above.

The foregoing description of the Asset Purchase Agreement is
only a summary and does not purport to be complete and is qualified by reference
to the full text of the agreement filed by us as Exhibit 4(a)(2) in Item 19.

COMBINATION OF SCITEX VISION
AND SCITEX VISION INTERNATIONAL

On December
22, 2002, we entered into a Share Exchange Agreement with Scitex Vision Ltd.
and Aprion Digital Ltd.For a discussion of
this agreement, see Item 7B  Related Party Transaction under the caption
Combination of Scitex Vision and Scitex Vision International.

SALE OF CREO SHARES

On
June 5, 2003, we entered into an agreement with Raymond James Ltd. and Dundee
Securities Corporation, whereby Dundee and Raymond James agreed to act as our
agents in a private sale of 3.0 million common shares of Creo Inc. held by us in consideration of a 1.75% commission out of the gross proceeds of such sale.
On June 12, 2003, we completed the sale, through the agents, of the entire 3.0
million shares to various financial institutions in Canada for approximately
$24 million, less approximately $0.45 million, representing commissions and
expenses paid to the agents. We made representations and warranties in the
Agreement for the benefit of the agents, which survive for a period of two
years following the closing of the transaction. In addition, we agreed to
indemnify the agents and their representatives against all damages arising from
our breach of the representations and warranties.

On
August 11, 2003, we entered into an Agreement with Raymond James and Dundee,
whereby Dundee and Raymond James agreed to act as our agents in a private sale
of the remainder of our Creo shares  3.25 million common shares of Creo held
by us  in consideration of a 1.75% commission out of the gross proceeds of
such sale. On August 11, 2003, we completed the sale, through the agents, of
the entire 3.25 million shares to various financial institutions in Canada for
approximately $31 million, less approximately $0.5 million, representing
commissions and expenses paid to the agents. We made representations and
warranties in the Agreement for the benefit of the agents, which survive for a
period of two years following the closing of the transaction. In addition, we
agreed to indemnify the agents and their representatives against all damages
arising from our breach of the representations and warranties.

80

---

---



The foregoing description of the June 2003 Agreement and the
August 2003 Agreement is only a summary and does not purport to be complete and
is qualified by reference to the full text of the agreements filed by us as
Exhibits 4(a)(3) and 4(a)(4), respectively, in Item 19.

|   |                    
|-- | -------------------
|D. | EXCHANGE
  CONTROLS

There are currently no
Israeli currency control restrictions on payments of dividends or other
distributions with respect to our ordinary shares or the proceeds from the sale
of the shares, except for the obligation of Israeli residents to file reports
with the Bank of Israel regarding certain transactions. However, legislation
remains in effect pursuant to which currency controls can be imposed by
administrative action at any time.

|   |         
|-- | --------
|E. | TAXATION

The following is a general summary only and should not be considered
as income tax advice or relied upon for tax planning purposes. Holders of our
ordinary shares should consult their own tax advisors as to the United States,
Israeli or other tax consequences of the purchase, ownership and disposition of
ordinary shares, including, in particular, the effect of any foreign, federal,
state or local taxes.

U.S. TAX CONSIDERATIONS

Subject to the
limitations described herein, the following discussion describes certain
material U.S. federal income tax considerations applicable to a U.S. holder (as
defined below) regarding the acquisition, ownership and disposition of our
ordinary shares. A U.S. holder means a holder of our ordinary shares who is:

|  |                                                                                                                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | an
  individual citizen or resident of the United States;                                                                                                                                                                          
|  |                                                                                                                                                                                                                                    
| | a corporation
  (or another entity taxable as a corporation for U.S. federal income tax
  purposes) created or organized in the United States or under the laws of the
  United States or any political subdivision thereof;       
|  |                                                                                                                                                                                                                                    
| | an estate,
  the income of which is subject to U.S. federal income tax regardless of its
  source; or                                                                                                                              
|  |                                                                                                                                                                                                                                    
| | in general,
  a trust, if a U.S. court is able to exercise primary supervision over the
  administration of the trust and one or more United States persons have the
  authority to control all substantial decisions of the trust.

Unless
otherwise specifically indicated, this discussion does not consider the United
States tax consequences to a person that is not a U.S. holder (a non-U.S.
holder) and considers only U.S. holders that will own our ordinary shares as
capital assets. This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, referred to as the Code, current and proposed
Treasury regulations promulgated under the Code, administrative pronouncements
and judicial decisions, all as in effect today and all of which are subject to
change, possibly with a retroactive effect, which change could materially
affect the U.S. federal income tax considerations described herein. This
discussion does not address all aspects of U.S. federal income taxation that
may be relevant to any particular U.S. holder based on the U.S. holders
individual circumstances. In particular, this discussion does not address the
potential application of the alternative minimum tax or the U.S. federal income
tax consequences to U.S. holders that are subject to special treatment,
including, without limitation, U.S. holders who:

|  |                                                    
|- | ---------------------------------------------------
| | are
  broker-dealers or insurance companies;       
|  |                                                    
| | are
  tax-exempt organizations or retirement plans;

81

---

---



|  |                                                                                                         
|- | --------------------------------------------------------------------------------------------------------
| | are
  financial institutions or financial services entities;                                            
|  |                                                                                                         
| | hold
  ordinary shares as part of a straddle, hedge or conversion transaction with
  other investments; 
|  |                                                                                                         
| | have
  acquired their shares upon the exercise of employee stock options or
  otherwise as compensation;
|  |                                                                                                         
| | hold their
  shares through partnerships or other pass-through entities;                                
|  |                                                                                                         
| | own
  directly, indirectly or by attribution at least 10% of our voting power; and                      
|  |                                                                                                         
| | have a
  functional currency that is not the U.S. dollar.                                               

In addition, this
discussion does not address any aspect of state, local or non-U.S. tax laws or
the possible application of United States federal gift or estate tax.

U.S. holders
should review the summary below under Israeli Taxation for a discussion of
Israeli tax consequences and certain other tax consequences pursuant to the
income tax treaty between the governments of Israel and the U.S., which may be
applicable to them.

U.S. holders should consult
their own tax advisors with respect to the specific U.S. federal, state and
local income tax consequences and any applicable non-U.S. tax consequences to
them of purchasing, holding or disposing of the ordinary shares. U.S. holders
are also urged to consult their own tax advisors concerning whether they will
be eligible for benefits under the income tax treaty between the governments of
Israel and the U.S.

U.S. HOLDERS OF ORDINARY SHARES

TAXATION OF DIVIDENDS  PAID ON ORDINARY SHARES

Subject to the
discussion below under Tax Consequences if We are a Passive Foreign Investment
Company, a U.S. holder generally will be required to include in gross income
as ordinary dividend income the amount of any distribution paid on our ordinary
shares, including the amount of any Israeli taxes withheld in respect of such
distribution, on the date the distribution is received, to the extent the
distribution is paid out of our current or accumulated earnings and profits, as
determined for U.S. federal income tax purposes. Distributions in excess of our
earnings and profits will be applied against and will reduce the U.S. holders
basis in our ordinary shares and, to the extent in excess of the basis, will be
treated as gain from the sale or exchange of our ordinary shares. Distributions
of our current or accumulated earnings and profits will not qualify for the
dividends-received deduction applicable in certain cases to U.S. corporations.

Distributions
of our current or accumulated earnings and profits paid in foreign currency to
a U.S. holder, and the amount of any Israeli withholding tax thereon, will be
included in the gross income of a U.S. holder in an amount equal to the U.S.
dollar value of such foreign currency calculated by reference to the exchange
rate in effect on the day the distribution is received by the U.S. holder,
regardless of whether such foreign currency is converted into U.S. dollars. If
a U.S. holder converts dividends paid in foreign currency into U.S. dollars on
the day such dividends are received, the U.S. holder generally should not be
required to recognize foreign currency gain or loss with respect to such
conversion. If the foreign currency received in the distribution is not
converted into U.S. dollars on the date of receipt, any foreign currency gain
or loss recognized upon a subsequent conversion or other disposition of such
foreign currency generally will be treated as U.S. source ordinary income or
loss.

82

---

---



Subject to
certain conditions and limitations, any Israeli withholding tax imposed with
respect to a distribution of our current or accumulated earnings and profits
generally will be eligible for credit against the recipient U.S. holders U.S.
federal income tax liability or, at the U.S. holders election, may be claimed
as a deduction against income in determining such tax liability. Distributions
of our current or accumulated earnings and profits to U.S. holders will be
treated as foreign source income and generally will be categorized as passive
income or, in the case of certain holders, financial services income for
purposes of computing the U.S. foreign tax credit allowable to U.S. holders.
U.S. holders are advised that any Israeli tax paid under circumstances in which
an exemption from such tax was available will not give rise to a deduction or
credit for foreign taxes paid for U.S. federal income tax purposes. The
calculation of allowable foreign tax credits and, in the case of a U.S. holder
that elects to deduct foreign taxes, the availability of deductions for foreign
taxes paid involve the application of complex rules that depend on a U.S. holders
particular circumstances. Accordingly, U.S. holders should consult their own
tax advisors regarding their eligibility for foreign tax credits or deductions.

TAXATION OF THE DISPOSITION OF ORDINARY SHARES

Subject to the
discussion below under Tax Consequences if We are a Passive Foreign Investment
Company, upon the sale, exchange or other disposition of our ordinary shares,
a U.S. holder generally will recognize capital gain or loss in an amount equal
to the difference between the U.S. dollar value of the amount realized on the
sale, exchange or other disposition and the U.S. holders adjusted tax basis,
determined in U.S. dollars, in the ordinary shares. Capital gain from the sale,
exchange or other disposition of ordinary shares held for one year or less will
be short-term capital gain or, if held for more than one year, long-term
capital gain. In the case of individual U.S. holders, long-term capital gains
generally are subject to U.S. federal income tax at preferential rates
(generally, a maximum rate of 15%) and short-term capital gains generally are
subject to tax at ordinary income rates.

Gain or loss
recognized by a U.S. holder on a sale, exchange or other disposition of our
ordinary shares generally will be treated as U.S. source income or loss for
U.S. foreign tax credit purposes. However, under certain circumstances and
subject to the limitations specified in the income tax treaty between the
governments of Israel and the U.S., such gain or loss recognized by a U.S.
holder who qualifies as a resident of the U.S. (within the meaning of such
treaty) and who is entitled to claim the benefits afforded to such resident
under such treaty may be treated as foreign-source for U.S. foreign tax credit
purposes. U.S. holders should consult their own tax advisors regarding the
application of the U.S. foreign tax credit limitations to gain or loss
recognized on the sale, exchange or other disposition of our ordinary shares.

The
deductibility of a capital loss recognized on the sale, exchange or other
disposition of ordinary shares is subject to significant limitations. U.S.
holders should consult their own tax advisors in this regard.

A U.S. holder
that receives foreign currency upon disposition of ordinary shares and converts
the foreign currency into U.S. dollars after the settlement date or trade date
(whichever date the U.S. holder is required to use to calculate the value of
the proceeds of sale) generally will have foreign exchange gain or loss based
on any appreciation or depreciation in the value of the foreign currency
against the U.S. dollar, which will generally be U.S. source ordinary income or
loss.

Tax Rates. The Jobs
and Growth Tax Relief Reconciliation Act of 2003 (effective for tax years after
December 31, 2002 through December 31, 2008), reduces the individual tax rates
on both capital gains and certain dividend income (qualified dividend
income). The top individual rate on adjusted capital gains is generally
reduced from 20% to 15% (5% for taxpayers in the lower brackets) and on
qualified dividend income from 38.6% to 15%. The reduced rates on long-term
capital gains and qualified dividend income apply to (i) sales and exchanges
(and payments received) on or after May 6, 2003 and (ii) qualified dividend
income received after December 31, 2002, respectively.

83

---

---



Qualified
dividend income generally includes dividends paid by non-U.S. corporations if,
among other things, certain minimum holding periods are met and either (i) the
shares with respect to which the dividend has been paid are readily tradable on
an established securities market in the U.S. or (ii) the non-U.S. corporation
paying such a dividend is eligible for the benefits of a comprehensive U.S.
income tax treaty (such as the income tax treaty between the governments of
Israel and the U.S.) which provides for the exchange of information. We
currently believe that if we were to pay any dividends with respect to our
ordinary shares, the dividends would constitute qualified dividend income for
U.S. federal income tax purposes; provided, however, that we are not treated as
a passive foreign investment company for U.S. federal income tax purposes
(see discussion below under Tax Consequences if We are a Passive Foreign
Investment Company). The top U.S. federal income tax rate applicable to income
received by U.S. holders who are corporations for U.S. federal income tax
purposes is 35%. U.S. holders should consult their own tax advisor regarding
the specific U.S. tax rates applicable to any distribution made by us with
respect to our ordinary shares or gain realized on the sale, exchange or other
disposition of our ordinary shares, based on their particular circumstances.

TAX CONSEQUENCES IF WE ARE A
 PASSIVE FOREIGN  INVESTMENT  COMPANY

We will be a
passive foreign investment company, or PFIC, if 75% or more of our gross income
in a taxable year, including the pro rata share of the gross income of any
company, U.S. or foreign, in which we are considered to own, directly or
indirectly, 25% or more of the shares by value, is passive income.
Alternatively, we will be considered to be a PFIC if at least 50% of our assets
in a taxable year, averaged over the year and ordinarily determined based on
fair market value and including the pro rata share of the assets of any company
in which we are considered to own, directly or indirectly, 25% or more of the
shares by value, are held for the production of, or produce, passive income.

If we were a
PFIC, and a U.S. holder did not make an election to treat us as a qualified
electing fund (a QEF) as described below, excess distributions by us to a
U.S. holder would be taxed in a special way. Excess distributions are amounts
received by a U.S. holder on shares in a PFIC in any taxable year that exceed
125% of the average distributions received by the U.S. holder from the PFIC in
the shorter of:

|  |                                                                                        
|- | ---------------------------------------------------------------------------------------
| | the three
  previous taxable years; or                                                 
|  |                                                                                        
| | the U.S.
  holders holding period for ordinary shares before the present taxable year.

Excess
distributions must be allocated ratably to each day that a U.S. holder has held
shares in a PFIC. A U.S. holder would then be required to include amounts
allocated to the current taxable year in its gross income as ordinary income
for that year. Further, a U.S. holder would be required to pay tax on amounts
allocated to each prior taxable year at the highest rate in effect for that
year on ordinary income and the tax would be subject to an interest charge at
the rate applicable to deficiencies for income tax.

The entire
amount of gain that is realized by a U.S. holder upon the sale or other
disposition of our ordinary shares will also be treated as an excess
distribution and will be subject to tax as described above.

A U.S.
holders tax basis in our ordinary shares that were inherited from a deceased
person who was a U.S. holder would not receive a step-up to fair market value
as of the date of the deceaseds death but would instead be equal to the
deceaseds basis, if lower.

The special
PFIC rules described above will not apply to a U.S. holder if the U.S. holder
makes an election to treat us as a QEF in the first taxable year in which the
U.S. holder owns ordinary shares or in which we are a PFIC, whichever is later,
and if we comply with specified reporting requirements. Instead, a shareholder
of a QEF is required for each taxable year in which we are a PFIC to include in
income a pro rata share of the ordinary earnings of the QEF as ordinary income
and a pro rata share of the net capital gain of the QEF as long-term capital
gain, subject to a separate election to defer payment of taxes. If deferred,
the taxes will be subject to an interest charge. We will supply U.S. holders
with the information needed to report income and gain under a QEF election if
we are classified as a PFIC. There can be no assurance, however, that we will
be able to make a determination of our PFIC status and inform our U.S. holders
of such determination until after the due date for the filing of such holders
tax returns has passed. U.S. holders should consult their tax advisors about
the availability and procedure for filing a retroactive QEF election or amended
return.

The QEF election is made on a
shareholder-by-shareholder basis. Once made, the election applies to all
subsequent taxable years of the U.S. holder in which it holds our ordinary
shares and for which we are a PFIC and can be revoked only with the consent of
the Internal Revenue Service, or IRS. A shareholder makes a QEF election by
attaching a completed IRS Form 8621, including the required election statement
and the PFIC annual information statement, to a timely filed U.S. federal
income tax return for the year of the election. The election statement also
must be filed with the IRS Service Center in Philadelphia, Pennsylvania. In
addition, an electing U.S. holder must act each year to maintain a QEF election
by attaching a Form 8621 to the U.S. holders timely filed tax return and
comply with any other requirements as specified by the IRS.

84

---

---



A U.S. holder
of PFIC shares which are publicly traded could elect to mark the stock to
market annually, recognizing as ordinary income or loss each year an amount
equal to the difference as of the close of the taxable year between the fair
market value of the PFIC shares and the U.S. holders adjusted tax basis in the
PFIC shares. Losses would be allowed only to the extent of net mark-to-market
gain previously included by the U.S. holder under the election for prior
taxable years. If the mark-to-market election were made, then the rules
presented above would not apply for periods covered by the election.

If a QEF
election or mark-to-market election is not made for the first taxable year in
which the U.S. holder holds our ordinary shares or in which we are a PFIC,
whichever is later, then special rules will apply and U.S. holders should
consult their tax advisors regarding the application of those rules.

We intend to waive a certain
benefit that we are entitled to under the U.S.-Israel income tax treaty that would
otherwise exempt us from the application of the U.S. accumulated earnings tax
(the AET). Under the AET, we will generally be subject to a 15% tax on
certain accumulated earnings if we accumulate earnings and profits beyond the
reasonable needs of the business (as defined in the Code). By electing to
exercise this waiver, we should be subject to special look-through rules under
the Code for determining our PFIC status. Although no assurance can be given
after applying these special look-through rules, we do not believe that we were
a PFIC in 2004, nor do we believe that we should have tax liability under the
AET in 2004.

Should we
successfully complete negotiations and sell our holdings in Scitex Vision, it
is probable that we will become a PFIC in 2005 or in subsequent years. However,
even in the event that we do not sell our interest in Scitex Vision, there can
be no assurance that we will not nevertheless become a PFIC in 2005 or in
subsequent years, since the tests for determining PFIC status are applied
annually and it is difficult to make accurate predictions of future income and
assets, which are relevant to this determination. U.S. holders who hold
ordinary shares during a period when we are a PFIC will be subject to these
rules, even if we cease to be a PFIC, subject to specified exceptions for U.S.
holders who made a QEF election.

U.S. holders are urged to consult their tax
advisors about the PFIC rules, including eligibility for and the manner and
advisability of making, the QEF elections or the mark-to-market election.

NON-U.S. HOLDERS OF ORDINARY SHARES

Except as
described in Information Reporting and Backup Withholding below, a non-U.S.
holder of ordinary shares generally will not be subject to U.S. federal income
or withholding tax on the payment of dividends on, and the proceeds from the
disposition of, ordinary shares, unless:

|  |                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the item is
  effectively connected with the conduct by the non-U.S. holder of a trade or
  business in the United States;                                                                                                           
|  |                                                                                                                                                                                                                                      
| | in the case
  of a resident of a country which has a treaty with the United States, the
  item is attributable to a permanent establishment;                                                                                         
|  |                                                                                                                                                                                                                                      
| | in the case
  of an individual, the item is attributable to a fixed place of business in
  the United States;                                                                                                                        
|  |                                                                                                                                                                                                                                      
| | the non-U.S.
  holder is an individual who holds the ordinary shares as a capital asset and
  is present in the United States for 183 days or more in the taxable year of
  the disposition and does not qualify for an exemption; or
|  |                                                                                                                                                                                                                                      
| | the non-U.S.
  holder is subject to tax under the provisions of U.S. tax law applicable to
  U.S. expatriates.                                                                                                                       

85

---

---



INFORMATION REPORTING AND BACKUP WITHHOLDING

Dividend
payments with respect to ordinary shares and proceeds from the sale or other
disposition of ordinary shares may be subject to information reporting to the
IRS and possible U.S. backup withholding at a current rate of 28%. Backup
withholding will not apply, however, to a holder who furnishes a correct
taxpayer identification number or certificate of foreign status and makes any
other required certification or who is otherwise exempt from backup
withholding. U.S. persons who are required to establish their exempt status
generally must provide IRS Form W-9 (Request for Taxpayer Identification Number
and Certification). Non-U.S. holders generally will not be subject to U.S.
information reporting or backup withholding. However, such holders may be
required to provide certification of non-U.S. status (generally on IRS Form
W-8BEN) in connection with payments received in the U.S. or through certain
U.S.-related financial intermediaries.

Backup withholding is not an additional tax. Amounts withheld as backup withholding
may be credited against a holders U.S. federal income tax liability, and a
holder may obtain a refund of any excess amounts withheld by filing the
appropriate claim for refund with the IRS and furnishing any required
information.

ISRAELI TAX CONSIDERATIONS

The following
summary describes the current tax structure applicable to companies
incorporated in Israel, with special reference to its effect on us. It also
discusses Israeli tax consequences material to persons purchasing our ordinary
shares. To the extent that the summary is based on new tax legislation yet to
be judicially or administratively interpreted, we cannot be sure that the views
expressed will accord with any future interpretation by the Israeli tax
authorities or courts. The summary is not intended, and should not be
construed, as legal or professional advice and does not exhaust all possible
tax considerations. Accordingly, you should consult your tax advisor as to the
particular tax consequences of an investment in our ordinary shares.

GENERAL CORPORATE TAX STRUCTURE

Generally,
Israeli companies are subject to corporate
tax on their taxable income at the rate of 35% for the 2004 tax year, 34% for
the 2005 tax year, 32% for the 2006 tax year and 30% for the 2007 tax year and
thereafter for undistributed earnings and are subject to capital gains tax at a rate of 25% for capital gains (other
than gains deriving from the sale of listed securities), derived after January 1, 2003. However,
the effective tax rate payable by a company that derives income from an
approved enterprise (as defined below) may be considerably less, as further
discussed below.

STAMP DUTY

The Israeli
Stamp Duty on Documents Law, 1961, or the Stamp Duty Law, provides that any
document (or part thereof) that is signed in Israel or that is signed outside
of Israel and refers to an asset or other thing in Israel or to an action that
is executed or will be executed in Israel is subject to a stamp duty, generally
at a rate of between 0.4% and 1% of the value of the subject matter of such
document. De facto, it has been common practice in Israel not to pay such stamp
duty unless a document is filed with a governmental authority. An amendment to
the Stamp Duty Law that came into effect on June 1, 2003, determines, among
other things, that stamp duty on most agreements shall be paid by the parties
that signed such agreement, jointly or severally, or by the party that undertook
under such agreement to pay the stamp duty. As a result of the aforementioned
amendment to the Stamp Duty Law, the Israeli tax authorities have approached
many companies in Israel, including us, and requested disclosure of all
agreements signed by such companies after June 1, 2003, with the aim of
collecting stamp duty on such agreements. The legitimacy of the aforementioned
amendment to the Stamp Duty Law and of these actions by the Israeli tax
authorities are currently under review by the Israeli High Court of Justice.

86

---

---



Based on our
assessment and advice from our Israeli counsel, we believe that we may only be
required to pay stamp duty on documents signed on or after August 2004.
However, we cannot assure you that the tax authorities or the courts will
accept this view. Although at this stage it is not yet possible to evaluate the
effect, if any, on us of the amendment to the Stamp Duty Law, the amendment
could materially adversely affect our results of operations.

In January
2005, an order was signed in accordance with which the above-described
requirement to pay stamp duty is cancelled with effect from January 1,
2008. Furthermore, pursuant to such order, as of January 1, 2005, stamp
duty is no longer chargeable on, among others, loan agreements.

TAX BENEFITS UNDER
THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959

The Law for
the Encouragement of Capital Investments, 1959, as amended, or the Investment
Law, provides that upon application to the Investment Center of the Israeli
Ministry of Industry, Trade and Labor, a proposed capital investment in
eligible facilities may be designated as an Approved Enterprise. See the
discussion below regarding a recent amendment to the Investments Law.

Each
certificate of approval for an Approved Enterprise relates to a specific
investment program delineated both by its financial scope, including its
capital sources, and by its physical characteristics, such as the equipment to
be purchased and utilized pursuant to the program. The tax benefits derived from
any such certificate of approval relate only to taxable income derived from the
specific Approved Enterprise. If a company has more than one approval or only a
portion of its capital investments are approved, its effective tax rate is the
result of a weighted combination of the applicable rates. The tax benefits
under the law are not generally available with respect to income derived from
products manufactured outside of Israel.

Taxable income
of a company derived from an Approved Enterprise, including income generated by
a company from the grant of a usage right with respect to know-how developed by
the Approved Enterprise, income generated from royalties and income derived
from a service which is auxiliary to such usage right or royalties, provided that
such income is generated within the Approved Enterprises ordinary course of
business, is subject to corporate tax at the maximum rate of 25%, rather than
the usual corporate tax rate, for the Benefit Period. The Benefit Period is
seven years (and under certain circumstances, as further detailed below, ten
years), commencing with the year in which the Approved Enterprise first
generates taxable income, and is limited to 12 years from commencement of
production or 14 years from the date of approval, whichever is earlier.

A company that
has an Approved Enterprise program is eligible for further tax benefits if it
qualifies as a foreign investors company. A foreign investors company is
a company that more than 25% of its shares of capital stock and combined share
and loan capital is owned by non-Israeli residents. A company that qualifies as
a foreign investors company and has an Approved Enterprise program is eligible
for tax benefits for a ten-year benefit period and to a reduced tax rate of 10%
to 25% depending on the level of foreign investment in each year.

A company
owning an Approved Enterprise may elect to forego certain government grants
extended to Approved Enterprises in return for an alternative package of
benefits. Under the alternative package, the companys undistributed income
derived from an Approved Enterprise will be exempt from tax for a period of
between two and ten years from the first year of taxable income, depending on
the geographic location of the Approved Enterprise within Israel, and the
company will be eligible for the tax benefits under the law for the remainder
of the Benefit Period.

The benefits
available to an Approved Enterprise are conditioned on compliance with the
conditions stipulated in the law and related regulations and the criteria set
forth in the specific certificate of approval. In the event that a company
violates these conditions, in whole or in part, it may be required to refund
the amount of tax benefits, in whole or in part, plus an amount linked to the Israeli
consumer price index and interest.

87

---

---



A major
portion of our group companies production facilities have been granted the
status of Approved Enterprises. Under the
Investments Law, income arising from our Approved Enterprises facilities is
tax-free under the alternative package of benefits described above for a period
of two years beginning with the first year in which the company generated
taxable income, and thereafter, entitled to reduced tax rates based on the
level of foreign ownership for specified periods. We have derived, and expect
to continue to derive, a substantial portion of our income from our Approved
Enterprises facilities. Subject to compliance with applicable requirements, the
benefits for most of our production facilities in Israel will continue until
termination in 2009. See above in Item 5B
under the caption Tax Audits regarding a dispute we had with the Israeli tax
authority in this respect.

All dividends
are considered to be attributable to the entire enterprise and their effective
tax rate is the result of a weighted combination of the applicable tax rates.
In the event that we do pay a cash dividend from income that is derived from
our Approved Enterprises pursuant to the alternative package of benefits, which
income would normally be tax-exempt, we would be required to pay tax on the
amount intended to be distributed as dividends at the rate which would have
been applicable had we not elected the alternative package of benefits, which
rate is ordinarily in the range of 10%25%, and to withhold at source on behalf
of the dividend recipient an additional 15% of the amount distributed as
dividends.

The law also
provides that an Approved Enterprise is entitled to accelerated depreciation on
its property and equipment that are included in an approved investment program.

Recent Amendment to the Investments Law

On April 1,
2005, an amendment to the Investments Law came into effect. Pursuant to the
amendment, a companys facility will be granted the status of Approved
Enterprise only if it is proven to be an industrial facility (as defined in
the Investments Law) that contributes to the economic independence of the
Israeli economy and is a competitive facility that contributes to the Israeli
gross domestic product. The amendment provides that the Israeli Tax Authority
and not the Investments Center will be responsible for an Approved Enterprise
under the alternative package of benefits, referred to as a Benefiting
Facility. A company wishing to receive the tax benefits afforded to a
Benefiting Facility is required to select the tax year from which the period of
benefits under the Investment Law are to commence by simply notifying the
Israeli Tax Authority within 12 months of the end of that year. In order to be
recognized as owning a Benefiting Facility, a company is required to meet a
number of conditions set forth in the amendment, including making a minimal investment in
manufacturing assets for the Benefiting Facility and having completed a
cooling-off period of no less than two to four years from the companys
previous year of commencement of benefits under the Investments Law.

Pursuant to
the amendment, a company with a Benefiting Facility is entitled, in each tax
year, to accelerated depreciation for the manufacturing assets used by the
Benefiting Facility and to certain tax benefits, provided that no more than 12
to 14 years have passed since the beginning of the year of commencement of
benefits under the Investments Law. The tax benefits granted to a Benefiting
Factory, as applicable to us, are determined according to one of the following
new tax routes:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Similar to
  the currently available alternative route, exemption from corporate tax on
  undistributed income for a period of two to ten years, depending on the
  geographic location of the Benefiting Facility within Israel, and a reduced
  corporate tax rate of 10 to 25% for the remainder of the benefits period,
  depending on the level of foreign investment in each year. Benefits may be
  granted for a term of from seven to ten years, depending on the level of
  foreign investment in the company. If the company pays a dividend out of
  income derived from the Benefiting Facility during the tax exemption period,
  such income will be subject to corporate tax at the applicable rate (10%25%).
  The company is required to withhold tax at the source at a rate of 15% from
  any dividends distributed from income derived from the Benefiting Facility.

88

---

---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A special
  tax route enabling companies owning facilities in certain geographic
  locations in developing areas in Israel to pay corporate tax at the rate of
  11.5% on income of the Benefiting Facility. The benefits period is ten years.
  Upon payment of dividends, the company is required to withhold tax at source
  at a rate of 15% for Israeli residents and at a rate of 4% for foreign
  residents.

Generally, a
company that is Abundant in Foreign Investment (as defined in the Investments
Law) is entitled to an extension of the benefits period by an additional five
years, depending on the rate of its income that is derived in foreign currency.

The amendment
changes the definition of foreign investment in the Investments Law so that
instead of an investment of foreign currency in the company, the definition now
requires a minimum investment of NIS 5 million by foreign investors.
Furthermore, such definition now also includes the purchase of shares of a
company from another shareholder, provided that the companys outstanding and
paid-up share capital exceeds NIS 5 million. Such changes to the aforementioned
definition will take effect retroactively from 2003.

The amendment
will apply to Approved Enterprise programs in which the year of commencement of
benefits under the Investments Law is 2004 or later, unless such programs
received approval from the Investment Center on or prior to December 31, 2004
in which case the provisions of the amendment will not apply.

TAX BENEFITS FOR
RESEARCH AND DEVELOPMENT

Israeli tax
law allows, under specified circumstances, a tax deduction for expenditures,
including capital expenditures, for the year in which they are incurred. These expenses must relate to scientific
research and development projects, and must be approved by the relevant Israeli
government ministry determined by the field
of research, and the research and development must be for the promotion
of the company and carried out by or on behalf of the company seeking such
deduction. However, the amount of such deductible expenses must be
reduced by the sum of any funds received through government grants for the finance
of such scientific research and development projects. Expenditures not
so approved are deductible over a three-year period.

TAX BENEFITS UNDER
THE LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969

According to
the Law for the Encouragement of Industry (Taxes), 1969, an Industrial
Company is a company located in Israel, at least 90% of the income of which,
in any tax year, exclusive of income from government loans, capital gains,
interest and dividends, is derived from an Industrial Enterprise owned by it.
An Industrial Enterprise is defined as an enterprise owned by an industrial
company whose major activity in a given tax year is industrial production
activity. Although Scitex Vision believes that it currently qualifies as an
Industrial Company within the definition of the Law for the Encouragement of
Industry (Taxes), 1969, it is currently in dispute with the Israeli tax
authority, as discussed in Item 5B under the caption Tax Audits.

Under the law,
Industrial Companies are entitled to preferred corporate tax benefits, among
others, such as:

|  |                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | deduction of
  purchases of know-how and patents over an eight-year period for tax purposes;                                                                                                                         
|  |                                                                                                                                                                                                                      
| | deduction
  over a three-year period of expenses involved with the issuance and listing
  of shares on the Tel Aviv Stock Exchange or, on or after January 1, 2003, on
  a recognized stock market outside of Israel;
|  |                                                                                                                                                                                                                      
| | the right to
  elect, under certain conditions, to file a consolidated tax return with
  related Israeli Industrial Companies that satisfy conditions set forth in the
  law; and                                    
|  |                                                                                                                                                                                                                      
| | accelerated
  depreciation rates on equipment and buildings.                                                                                                                                                         

Eligibility
for the benefits under the law is not subject to receipt of prior approval from
any governmental authority. However, the Israeli tax authorities may determine
that Scitex Vision does not qualify as an Industrial Company (see above in Item
5B under the caption Tax Audits). In addition, it might not continue to
qualify as an Industrial Company in the future. As a result of either of the
foregoing, the benefits described above might not be available to Scitex Vision
in the future.

89

---

---



SPECIAL PROVISIONS
RELATING TO TAXATION UNDER INFLATIONARY CONDITIONS

The Income Tax
Law (Inflationary Adjustments), 1985 represents an attempt to overcome the
problems presented to a traditional tax system by an economy undergoing
inflation. The features of the law that are material to us are summarized
below:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A special
  tax adjustment for the preservation of equity whereby certain corporate
  assets are classified broadly into fixed (inflation immune) assets and
  non-fixed (soft) assets. Where a companys equity, as defined in the law,
  exceeds the depreciated cost of its fixed assets, as defined in the law, the
  company may take a deduction from taxable income that reflects the effect of
  multiplication of the annual rate of inflation on such excess, up to a
  ceiling of 70% of taxable income in any single tax year, with the unused
  portion carried forward, linked to the increase in the consumer price index.
  If the depreciated cost of fixed assets exceeds a companys equity, then the
  excess multiplied by the annual rate of inflation is added to taxable income;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Subject to
  certain limitations set forth in the law, depreciation deductions on fixed
  assets and losses carried forward are adjusted for inflation based on the
  increase in the Israeli consumer price index; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Taxable
  gains on certain listed securities, which are taxed at a reduced tax rate
  with respect to individuals following the tax reform (and which were previously
  exempt from tax), are taxable at the companys tax rate in certain
  circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

However, the Minister of
Finance may, with the approval of the Knesset Finance Committee, determine by
order, during a certain fiscal year (or until February 28th of the following
year) in which the rate of increase of the price index would not exceed or
shall not have exceeded, as applicable, 3%, that all or some of the provisions
of this law shall not apply to such fiscal year, or, that the rate of increase
of the price index relating to such fiscal year shall be deemed to be 0%, and
to make the adjustments required to be made as a result of such determination.

CAPITAL GAINS TAX

Israeli law
generally imposes a capital gains tax on the sale of any capital assets by residents
of Israel, as defined for Israeli tax purposes, and on the sale of
assets in Israel, including shares in Israeli companies (and our ordinary
shares), by both residents and non-residents of Israel, unless a specific
exemption is available or unless a tax treaty between Israel and the
shareholders country of residence provides otherwise. The law distinguishes
between the inflationary surplus and the real gain. The inflationary surplus is
a portion of the total capital gain which is equivalent to the increase of the
relevant assets purchase price that is attributable to the increase in the
Israeli consumer price index or,
in certain circumstances, a foreign currency exchange rate, between the
date of purchase and the date of sale. The real gain is the excess of the total
capital gain over the inflationary surplus.

Generally, capital gains tax is imposed on Israeli residents at a rate
of 15% on real gains derived on or after January 1, 2003, from the sale of
shares in, among others, companies dually traded on both the TASE and
Nasdaq, such as Scitex, or on a recognized stock exchange or a regulated market
outside of Israel. This tax rate is
contingent upon the shareholder not claiming a deduction for financing
expenses, and does not apply to: (i) the sale of shares to a relative (as defined in
the Israeli Income Tax Ordinance); (ii) the sale of shares by dealers in securities; (iii) the sale of shares
by shareholders that report in accordance with the Inflationary Adjustment Law
(that will be taxed at Corporate Tax rates for corporations and at marginal tax
rates for individuals); or (iv) the sale of shares by shareholders who
acquired their shares prior to an initial public offering (that may be subject
to a different tax arrangement). The tax basis of shares acquired prior to
January 1, 2003 will be determined in accordance with the average closing share
price in the three trading days preceding January 1, 2003. However, a taxpayer
may elect the actual adjusted cost of the shares as the tax basis provided he
can provide sufficient proof of such adjusted cost.

90

---

---



Non-Israeli residents are generally exempt from Israeli capital gains
tax on any gains derived from the sale of shares publicly traded on the TASE, provided
such gains do not derive from a permanent establishment of such shareholders in
Israel, and are exempt from Israeli
capital gains tax on any gains derived from the sale of shares of Israeli
companies publicly traded on a recognized stock exchange outside of Israel,
provided, however, that such capital gains are not derived from a permanent
establishment in Israel, that such shareholders are not subject to the
Inflationary Adjustment Law and that such shareholders did not acquire their
shares prior to an initial public offering. In addition, non-Israeli companies
will not be entitled to such exemption if an Israeli resident (i) has a
controlling interest of 25% or more in such non-Israeli company, or (ii) is the
beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli
company, whether directly or indirectly.

In some instances, where our shareholders may be liable to Israeli tax
on the sale of our ordinary shares, the payment of the consideration may be
subject to the withholding of Israeli tax at the source.

U.S.-Israel Income Tax Treaty

Pursuant to
the income tax treaty between the governments of the United States and Israel,
referred to as the U.S.-Israel tax treaty, the sale of shares by a person who
qualifies as a resident of the United States within the meaning of the treaty
and who is entitled to claim the benefits afforded to a resident by the treaty
will not be subject to Israeli capital gains tax. This exemption does not apply
if (i) the person holds, directly or indirectly, shares representing 10% or more
of our voting power during any part of the 12-month period preceding the
applicable sale, or (ii) the capital gains from such sale can be allocated to a
permanent establishment of such shareholder in Israel. However, under the
circumstances and subject to the limitations specified in the U.S.-Israel tax
treaty, the person would be permitted to claim a credit for the capital gains
tax paid in Israel against the U.S. income tax imposed with respect to the
applicable sale, subject to the limitations in U.S. laws applicable to foreign
tax credits.

TAXATION OF
DIVIDENDS

Non-residents of Israel are
subject to income tax on income accrued or derived from sources in Israel.
These sources of income include passive income such as dividends, royalties and
interest, as well as non-passive income from services rendered in Israel. On
distributions of dividends other than bonus shares, or stock dividends, we
would be required to withhold income tax at the rate of 25%. If the income out
of which the dividend is being paid is attributable to an Approved Enterprise
under the Investments Law, the rate is 15%. A different rate may be provided in
a treaty between Israel and the shareholders country of residence. Under the
U.S.-Israel tax treaty, the maximum tax on dividends paid to a holder of
ordinary shares who is a U.S. resident will be 25%; provided, however, that
dividends generated by an Approved Enterprise are taxed at the rate of 15%.
Furthermore, dividends not generated by an Approved Enterprise paid to a U.S.
company holding at least 10% of our issued voting power during the part of the
tax year which precedes the date of payment of the dividend and during the
whole of its prior tax year, are generally taxed at a rate of 12.5%.

For information with respect to the applicability
of Israeli capital gains taxes on the sale of ordinary shares by United States
residents, see Capital Gains Tax above.



|   |                             
|-- | ----------------------------
|F. | DIVIDENDS AND PAYING AGENTS.

Not
Applicable.

91

---

---



|   |                      
|-- | ---------------------
|G. | STATEMENT BY EXPERTS.

Not
Applicable.

|   |                     
|-- | --------------------
|H. | DOCUMENTS ON DISPLAY

We are subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended, applicable to foreign private issuers and, in accordance therewith,
are obligated to file reports, including annual reports on Form 20-F, and other
information with the SEC relating to our business, financial condition and
other matters. You may examine such reports, exhibits and other information
filed by us with the SEC, without charge, at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.,
20549. You may also receive copies of these materials by mail from the SECs
Public Reference Branch at 450 Fifth Street, N.W., Washington, D.C., 20549, at
prescribed rates. For more information on the public reference rooms, call the
SEC at 1-800-SEC-0330. The SEC maintains an Internet website at
http://www.sec.gov that contains reports, proxy statements, information
statements and other material that are filed through the SECs Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. We began filing through the
EDGAR system on November 6, 2002.

As a foreign private issuer,
we are exempt from the rules under the Exchange Act prescribing the furnishing
and content of proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act. In addition, we are not
required under the Exchange Act to file periodic reports and financial
statements with the SEC as frequently or as promptly as United States companies
whose securities are registered under the Exchange Act.

Notwithstanding the
foregoing, we solicit proxies and furnish proxy statements for all meetings of
shareholders pursuant to Nasdaq Marketplace Rule 4350(g), a copy of which proxy
statement is filed promptly thereafter with the SEC under the cover of a
Current Report on Form 6-K. However, in accordance with Nasdaq Marketplace Rule
4350(a)(1) we have received an exemption from the requirement to distribute an
annual report to our shareholders prior to our annual meeting of shareholders.
The basis for the exemption is that the generally accepted business practice in
Israel, where we are incorporated, is not to distribute an annual report to
shareholders. We post our Annual Report on Form 20-F on our web site
(www.scitex.com) as soon as practicable following the filing of the Annual
Report on Form 20-F with the SEC.

|   |                         
|-- | ------------------------
|I. | SUBSIDIARY
  INFORMATION

Not
Applicable.

|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our
functional currency and that of most of our consolidated subsidiaries is the
U.S. dollar. Accordingly, we have balance sheet exposure deriving from the gap
between assets and liabilities in each currency other than the dollar. This exposure
is limited, mainly for balances in European currencies and New Israeli Shekels,
or NIS. We hedge certain assets or liabilities denominated in currencies other
than the dollar by balancing debt with receivables in the same currency.

92

---

---



We
do not actively hedge interest rate exposure or engage in other transactions
intended to manage risks relating to interest rate fluctuations. The interest income on our cash equivalents and
short-term investments is sensitive to changes in the general level of market
interest rates. We mitigate the impact of fluctuations in interest rates
primarily through diversification and by limiting the average duration of our
interest-bearing investment portfolio. The interest rate for the credit lines
we use varies according to changes in the dollar LIBOR rate as well as the Euro
LIBOR rate.

PRESENTATION OF
EXCHANGE RATE AND INTEREST RATE RISK

The
table below details the balance sheet exposure, by currency, as of the periods
indicated below (at fair value). All data in the table has been translated for
convenience into the dollar equivalent (in millions). Explanatory notes are
provided below the table.

| |                         |  |                                      |    |      |   |                    |  |    |      |   |  | 
| | ----------------------- |  | ------------------------------------ | -- | ---- | - | ------------------ |  | -- | ---- | - |  | 
| |                         |  | Balance
  sheet exposure by currency |   
| |                         |  |                                      |   
| |                         |  | European
  Currencies                |    | NIS  |   | Other
  Currencies | 
| |                         |  |                                      |    |      |   |                    | 
| | as of December 31, 2003 |  |                                      | $  | 16.8 |   |                    |  | ($ | 7.2  | ) |  | 
| | as of December 31, 2004 |  |                                      | ($ | 4.5  | ) |                    |  | ($ | 11.4 | ) |  | 

|  |                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
  amounts shown in the table represent monetary assets less liabilities.                                                                                                                                              
|  |                                                                                                                                                                                                                           
| | The
  table does not include data with respect to balance sheet exposure for
  certain equity investments in which the functional currency was the local
  currency, since those balances do not create any such exposure.
|  |                                                                                                                                                                                                                           
| | European
  Currencies include all
  European currency exposure.                                                                                                                                                         

(See Item 5. Operating And Financial Review And Prospects 
Impact of Inflation and Exchange Rates and Note 13 to our consolidated
financial statements included in this Annual Report.)

For
information about forward-exchange contracts please see Note 13a to our
Consolidated Financial Statement included in this Annual Report.

|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

|         |                                                
|-------- | -----------------------------------------------
|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

|         |                                                                               
|-------- | ------------------------------------------------------------------------------
|ITEM 14. | MATERIAL MODIFICATIONS IN THE RIGHTS OF SECURITY HOLDERS AND USE OF
  PROCEEDS

In April 2004, our
shareholders approved amendments to our Articles of Association, as follows:

|  |                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Article 53 was amended,
  with respect to the source of funds available for payment of dividends, and                                                     
|  |                                                                                                                                                           
| | Articles 7, 52, 56 and 57
  were amended, with respect to the corporate approvals required for reduction
  of share capital and distribution of dividends,

all as
described in Items 2 and 4 of our Notice and Proxy Statement for the
Extraordinary General Meeting of our shareholders held on April 25, 2005,
included in our report on Form 6-K, filed with the SEC on April 1, 2004, which
is incorporated herein by reference.

93

---

---



|         |                        
|-------- | -----------------------
|ITEM 15. | CONTROLS AND PROCEDURES

Disclosure controls and procedures. Our
chief executive officer, or CEO, and chief financial officer, or CFO, are
responsible for establishing and maintaining our disclosure controls and
procedures. These controls and procedures were designed to ensure that
information required to be disclosed in the reports that we file under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
SEC. We evaluated these disclosure controls and procedures under the
supervision of our CEO and CFO as of December 31, 2004. Based on this evaluation, our CEO and CFO
concluded that our disclosure controls and procedures are effective in timely
alerting them to information required to be disclosed in our periodic reports
to the SEC.

You should note that in the designing and evaluating the
disclosure controls and procedures, we recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. For example, we have investments in certain
unconsolidated entities, on which we exercise only limited control, if at all,
on management and operational aspects.
Accordingly, our disclosure controls and procedures with respect to such
entities are necessarily limited compared to those we maintain with respect to
our consolidated subsidiaries.

Internal control over financial reporting.
There were no changes in the Companys internal control over financial
reporting that occurred during the year ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

All internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those systems
determined to be effective may not prevent or detect misstatements and can
provide only reasonable assurance with respect to financial statement preparation
and presentation. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

|          |                                   
|--------- | ----------------------------------
|ITEM 16A. | AUDIT
  COMMITTEE FINANCIAL EXPERT

Our board of
directors has determined that three of the four members of the audit committee
are audit committee financial experts as defined in Item 16A of Form
20-F. Our audit committee financial
experts are Mr.
Asheri, Ms. Zochovitzky and Mr. Dogon.

|          |                 
|--------- | ----------------
|ITEM 16B. | CODE OF
  ETHICS

We have adopted a Code of
Ethics and Business Conduct, which applies to all of our directors, executive
officers and employees. A copy of our
Code of Ethics and Business Conduct has been posted on our Internet website,
http://www.scitex.com.

|          |                                         
|--------- | ----------------------------------------
|ITEM 16C. | PRINCIPAL
  ACCOUNTANT FEES AND SERVICES

In the annual general meeting held in December 2004, our shareholders
re-appointed Kesselman &
Kesselman, a member of PricewaterhouseCoopers International Ltd. (PwC), to serve as our independent auditors until the next annual
meeting.

PwC, including Kesselman & Kesselman, billed the following fees to us for professional
services in each of the last two fiscal years:

94

---

---



|                       |  |                               |      |      |   |      | 
|---------------------- |  | ----------------------------- | ---- | ---- | - | ---- | 
|                       |  | Year ended
  December 31,     |     
|                       |  |                               |     
|                       |  | (approximate
  $ in millions) |     
|                       |  |                               |     
|                       |  | 2003*                         |      | 2004 |  
|                       |  |                               |      |      |  
|Audit Fees (1)         |  | $                             | 0.60 |      | $ | 0.39 | 
|Audit-Related Fees (2) |  |                               |     |      |   |     | 
|Tax
  Fees(3)          |  |                               | 0.33 |      |   | 0.18 | 
|All
  Other Fees (4)   |  |                               | 0.03 |      |   |     | 
|                       |  |                               |      |      |   |      | 
|Total
  Fees           |  | $                             | 0.96 |      | $ | 0.57 | 
|                       |  |                               |      |      |   |      | 

| |                                                                                                     |                                                                                                                                                                                                                                                                          
| | --------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *
  Includes fees related to services rendered in respect of discontinued operations (namely, SDP).
| |                                                                                                    
| | (1)                                                                                                 | Audit
  Fees are the aggregate fees billed for the audit of our annual financial
  statements, reviews of interim financial statements and attestation services
  that are normally provided in connection with statutory and regulatory
  filings or engagements.     
| |                                                                                                     |                                                                                                                                                                                                                                                                          
| | (2)                                                                                                 | Audit-Related
  Fees are the aggregate fees billed for assurance and related services that
  are reasonably related to the performance of the audit or review of our
  financial statements and are not reported under Audit Fees.                                     
| |                                                                                                     |                                                                                                                                                                                                                                                                          
| | (3)                                                                                                 | Tax
  Fees are the aggregate fees billed for professional services rendered for
  tax compliance, tax advice on actual or contemplated transactions and tax
  planning. Kesselman & Kesselman
  provided us with tax services such as PFIC evaluation and tax planning.
| |                                                                                                     |                                                                                                                                                                                                                                                                          
| | (4)                                                                                                 | All
  Other Fees are the aggregate fees billed for professional services that are
  not reported under the captions Audit Fees,  Audit-Related Fees or Tax Fees.                                                                                                 

Our Audit
Committee oversees our independent auditors.
See also the description under the heading Board Practices in Item 6.
Directors, Senior Management and Employees.

Our
Audit Committee approves each audit and non-audit service to be performed by
our independent accountant before the accountant is engaged.

|                |                                                                          
|--------------- | -------------------------------------------------------------------------
|ITEM 16D.       | EXEMPTIONS
  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.            
|                |                                                                          
|Not applicable.
|                |                                                                          
|ITEM 16E.       | PURCHASES
  OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

|                                       |  |                                                   |  |                                          |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|-------------------------------------- |  | ------------------------------------------------- |  | ---------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- | ---- | - |  |  | -------------------------- |  |  |  | ---- | - | 
|Issuer
  Purchase of Equity Securities | 
|                                       | 
|Period                                 |  | Total Number of 
  Shares (or Units) 
  Purchased |  | Average Price Paid
  per Share (or Unit) |  | Total Number of
  Shares (or Units)
  Purchased as Part of 
  Publicly Announced
  Plans or Programs |  | Maximum Number
  (or Approximate
  Dollar Value) of
  Shares (or Units)
  that May Yet Be
  Purchased Under
  the Plans or
  Programs |     
|                                       |  |                                                   |  |                                          |  |                                                                                                      |  |                                                                                                                                       |     
|January 2004                           |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|February 2004                          |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|March 2004                             |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|April 2004                             |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|May 2004                               |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|June 2004                              |  |                                                   |  | 4,952,050 ordinary shares*               |  |                                                                                                      |  | $                                                                                                                                     | 5.67 | * |  |  | 4,952,050 ordinary shares* |  |  |  | None | * | 
|July 2004                              |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|August 2004                            |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|September 2004                         |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|October 2004                           |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|November 2004                          |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|December 2004                          |  |                                                   |  | N/A                                      |  |                                                                                                      |  |                                                                                                                                       |      |   |  |  |                            |  |  |  |      |   | 
|Total                                  |  |                                                   |  | 4,952,050 ordinary shares                |  |                                                                                                      |  | $                                                                                                                                     | 5.67 |   |  |  |                            |  |  |  |      |   | 

* On May 14, 2004, we commenced a self tender offer to purchase up to
5,643,739 of our shares for $5.67 per share (up to $32 million in the
aggregate) in cash. On June 18, 2004, we completed the tender offer and
purchased 4,952,050 shares for an aggregate amount of approximately $28
million.

95

---

---



PART III

|                                                     |                     
|---------------------------------------------------- | --------------------
|ITEM 17.                                             | FINANCIAL STATEMENTS
|                                                     |                     
|We have
  responded to Item 18 in lieu of this item.
|                                                     |                     
|ITEM 18.                                             | FINANCIAL STATEMENTS

Scitex is
filing as part of this Annual Report:

|  |                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------
| | consolidated
  audited financial statements (and related Schedule II) of Scitex for the year
  ended December 31, 2004; and
|  |                                                                                                                            
| | consolidated
  audited financial statements of Objet for the year ended December 31, 2004.                                 

|                                                                                                                                                           |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|                                                                                                                                                           | Page  
|                                                                                                                                                           |       
|Index to
  the Financial Statements of the Registrant:                                                                                                     |       
|Report of Independent
  Registered Public Acounting Firm relating to Scitex                                                                                | F2    
|Consolidated Balance
  Sheets at December 31, 2004 and 2003                                                                                                | F3F4 
|Consolidated Statements of
  Operations for the Three Years ended December 31, 2004                                                                        | F5    
|Consolidated Statements of
  Changes in Shareholders Equity for the Three Years ended December 31, 2004                                                   | F6    
|Consolidated Statements of
  Cash Flows for the Three Years ended December 31, 2004                                                                        | F7F8 
|Notes to Consolidated
  Financial Statements                                                                                                               | F9F47
|Index to
  the Financial Statements Schedules of the Registrant                                                                                            |       
|Report of Independent
  Registered Public Acounting Firm relating to Financial Statement Schedule                                                          | S1   
|Schedule II  Valuation
  and Qualifying Accounts                                                                                                          | S2   
|Associated
  Companies                                                                                                                                     |       
|Report of Independent
  Registered Public Acounting Firm relating to Jemtex for the year ended December 31, 2004                                           | J1    
|Report of Independent
  Registered Public Acounting Firm relating to and consolidated financial statements of Objet for the year ended
  December 31, 2004 | O1O20

96

---

---



|         |         
|-------- | --------
|ITEM 19. | EXHIBITS

|         |                                                                                                                                                                          
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1      | Memorandum of Association
  of the Registrant. (1)                                                                                                                       
|         |                                                                                                                                                                          
|1.2      | Amended and Restated
  Articles of Association of the Registrant. (2)                                                                                                    
|         |                                                                                                                                                                          
|3        | Voting Agreement, dated
  December 1, 1980, by and among Discount Investment Corporation Ltd., PEC
  Israel Economic Corporation and Clal Electronics Industries Ltd. (3)
|         |                                                                                                                                                                          
|4(a)(1)  | Agreement dated November
  20, 2001 between Dundee Securities Corporation and the Registrant. (4)                                                                        
|         |                                                                                                                                                                          
|4(a)(2)  | Asset Purchase Agreement,
  dated November 24, 2003, between Eastman Kodak Company, the Registrant,
  Scitex Digital Printing, Inc. and Scitex Development Corp. (5)     
|         |                                                                                                                                                                          
|4(a)(3)  | Agreement, dated June 5,
  2003, by and among Dundee Securities Corporation, Raymond James Ltd. and the
  Registrant. (6)                                                
|         |                                                                                                                                                                          
|4(a)(4)  | Agreement, dated August
  11, 2003, by and among Dundee Securities Corporation, Raymond James Ltd. and
  the Registrant. (7)                                             
|         |                                                                                                                                                                          
|4(c)(1)  | The Scitex Israel Key
  Employee Share Incentive Plan 1991. (1)                                                                                                          
|         |                                                                                                                                                                          
|4(c)(2)  | The Scitex International
  Key Employee Stock Option Plan 1991 (as amended, 1995). (1)                                                                                   
|         |                                                                                                                                                                          
|4(c)(3)  | Form of the Letter of
  Indemnification provided to office holders. (8)                                                                                                  
|         |                                                                                                                                                                          
|4(c)(4)  | The Scitex 2001 Stock
  Option Plan (as amended, 2003). (9)                                                                                                              
|         |                                                                                                                                                                          
|4(c)(5)  | The Scitex 2003 Share
  Option Plan. (10)                                                                                                                                
|         |                                                                                                                                                                          
|4(d)(1)  | Services Agreement dated
  November 1, 2001, between Clal and the Registrant (as amended, 2004). (11)                                                                    
|         |                                                                                                                                                                          
|4(d)(2)  | Share Exchange Agreement,
  dated December 22, 2002, by and among the Registrant, Scitex Vision Ltd. and
  Aprion Digital Ltd. (12)                                      
|         |                                                                                                                                                                          
|4(d)(3)  | Services Agreement, dated
  March 1, 2004, between Discount Investment Corporation Ltd. and the
  Registrant. (13)                                                       
|         |                                                                                                                                                                          
|8        | List of Subsidiaries of
  the Registrant.                                                                                                                                
|         |                                                                                                                                                                          
|12.1     | Certification
  of CEO of the Registrant pursuant to Rule 13a-14(a) as adopted pursuant to
  Section 302 of the Sarbanes-Oxley Act of 2002.                              
|         |                                                                                                                                                                          
|12.2     | Certification
  of CFO of the Registrant pursuant to Rule 13a-14(a) as adopted pursuant to
  Section 302 of the Sarbanes-Oxley Act of 2002.                              
|         |                                                                                                                                                                          
|13.1     | Certification
  of CEO of the Registrant pursuant to Rule 13a-14(b), as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002.                             
|         |                                                                                                                                                                          
|13.2     | Certification
  of CFO of the Registrant pursuant to Rule 13a-14(b), as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002.                             
|         |                                                                                                                                                                          
|14(a)(1) | Consent of
  Independent Registered Public Acounting Firm relating to
  Registrant.                                                                                      
|         |                                                                                                                                                                          
|14(a)(2) | Consent of
  Independent
  Registered Public Acounting Firm relating to Jemtex InkJet Printing Ltd.                                                                      
|         |                                                                                                                                                                          
|14(a)(3) | Consent of Independent
  Registered Public Acounting Firm relating to Objet Geometries Ltd.                                                                              



---

|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to
  Exhibit 1.1 to our Annual Report on Form 20-F for the fiscal year ended
  December 31, 2000, filed June 29, 2001.    
|(2) | Incorporated by reference
  to Exhibit 1.2 to our Annual Report on Form 20-F for the fiscal year ended
  December 31, 2003, filed June 30, 2004.    
|(3) | Incorporated by reference
  to Exhibit 10.h to our Registration Statement on Form F-1 filed May 26, 1983
  (File No. 2-82743).                      
|(4) | Incorporated by reference
  to Exhibit 4(a)(4) to our Annual Report on Form 20-F for the fiscal year
  ended December 31, 2001, filed July 1, 2002. 
|(5) | Incorporated by reference
  to Exhibit 4(a)(2) to our Annual Report on Form 20-F for the fiscal year
  ended December 31, 2003, filed June 30, 2004.

97

---

---



|     |                                                                                                                                                     
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(6)  | Incorporated by reference
  to Exhibit 4(a)(3) to our Annual Report on Form 20-F for the fiscal year
  ended December 31, 2003, filed June 30, 2004.
|(7)  | Incorporated by reference
  to Exhibit 4(a)(4) to our Annual Report on Form 20-F for the fiscal year
  ended December 31, 2003, filed June 30, 2004.
|(8)  | Incorporated by reference
  to Appendix B to our Proxy Statement filed under the cover of a Current
  Report on Form 6-K filed April 1, 2004.       
|(9)  | Incorporated by reference
  to Exhibit (d)(4) to our Tender Offer Statement on Schedule TO filed May 14,
  2004.                                    
|(10) | Incorporated by reference
  to Appendix B to our Proxy Statement filed under the cover of a Current
  Report on Form 6-K filed December 3, 2003.    
|(11) | Incorporated by reference
  to Exhibit 4(d)(1) to our Annual Report on Form 20-F for the fiscal year
  ended December 31, 2003, filed June 30, 2004.
|(12) | Incorporated by reference
  to Exhibit 4(d)(2) to our Annual Report on Form 20-F for the fiscal year
  ended December 31, 2002, filed June 19, 2003.
|(13) | Incorporated by reference
  to Exhibit 4(d)(3) to our Annual Report on Form 20-F for the fiscal year
  ended December 31, 2003, filed June 30, 2004.

98

---

---



# SCITEX CORPORATION LTD.

2004 CONSOLIDATED
FINANCIAL STATEMENTS



---

---



# SCITEX CORPORATION LTD.

2004 CONSOLIDATED FINANCIAL
STATEMENTS

TABLE OF CONTENTS

|                                                          | Page      
|--------------------------------------------------------- | ----------
|
|
|
|
|                                                          |           
|REPORT OF INDEPENDENT REGISTERED PUBLIC   ACCOUNTING FIRM | F-2       
|CONSOLIDATED FINANCIAL STATEMENTS:                       
|Balance sheets                                            | F-3 - F-4 
|Statements of operations                                  | F-5       
|Statements of shareholders' equity                        | F-6       
|Statements of cash flows                                  | F-7 - F-8 
|Notes to financial statements                             | F-9 - F-52

The
amounts are stated in U.S. dollars ($).



---

---



---

| |                                    
| | -----------------------------------
|
|
|
|
| | Kesselman & Kesselman              
| | Certified Public Accountants (Isr.)
| | Trade Tower, 25 Hamered Street     
| | Tel Aviv 68125 Israel              
| | P.O Box 452 Tel Aviv 61003         
| | Telephone +972-3-7954555           
| | Facsimile +972-3-7954556           

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of SCITEX
CORPORATION LTD.

We have audited the consolidated balance
sheets of Scitex Corporation Ltd. (the Company) and its subsidiaries as of
December 31, 2004 and 2003 and the related consolidated statements of operations,
changes in shareholders equity and cash flows for each of the three years in the
period ended December 31, 2004. 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.

We did not audit the financial
statements of certain subsidiaries, which statements reflect total assets of $18,550,000
at December 31, 2004, and total revenues of $31,277,000 for the year then ended. We
did not audit the financial statements of certain associated companies, the Companys
investment in which, as reflected in the balance sheets as of December 31, 2004 and 2003
is $124,000 and $3,328,000, respectively, and the Companys share in losses of which
is $1,418,000, $5,637,000 and $4,106,000 in 2004, 2003 and 2002, respectively. Those
financial statements were audited by other independent registered public accounting firms
whose reports thereon have been furnished to us, and our opinion expressed herein, insofar
as it relates to the amounts included for these companies, is based solely on the reports
of the other independent registered public accounting firms.

We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States of America)
and with auditing standards generally accepted in Israel, including those prescribed by
the Israeli Auditors (Mode of Performance) Regulations, 1973. 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 registered public accounting firms provide a reasonable basis for
our opinion.

In our opinion, based on our audits
and the reports of the other independent registered public accounting firms, the
consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company and its subsidiaries as of
December 31, 2004 and 2003 and the consolidated results of operations, changes in
shareholders equity and cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted in the
United States of America.

|                                                                        |                                               
|----------------------------------------------------------------------- | ----------------------------------------------
|
|
|
|
|Tel-Aviv, Israel                                                        | /s/ Kesselman & KesselmanKesselman & Kesselman
|May 2, 2005, except for Note 16d, as to which the date is June 28, 2005 | Certified Public Accountants (Isr.)           

F - 2

---

---



SCITEX CORPORATION LTD.CONSOLIDATED BALANCE SHEETS

|                                                                  | December 31
|----------------------------------------------------------------- | -----------
|
|
|
|
|A s s e t s                                                       |            
|CURRENT ASSETS:                                                   |            
|Cash and cash equivalents                                         |            
|Short-term investments                                            |            
|Restricted deposit                                                |            
|Trade receivables                                                 |            
|Other receivables                                                 |            
|Deferred income taxes                                             |            
|Inventories                                                       |            
|Current assets of discontinued operation                          |            
|                                                                  |            
|T o t a l  current assets                                         |            
|                                                                  |            
|INVESTMENTS AND OTHER NON-CURRENT                                 |            
|ASSETS:                                                           |            
|Associated companies                                              |            
|Restricted deposit                                                |            
|Other investments and prepaid expenses                            |            
|Funds in respect of employee rights upon retirement               |            
|                                                                  |            
|                                                                  |            
|                                                                  |            
|PROPERTY, PLANT AND EQUIPMENT, net of                             |            
|accumulated depreciation and amortization (note 6)                |            
|GOODWILL (note 7)                                                 |            
|OTHER INTANGIBLE ASSETS, net of accumulated amortization (note 8) |            
|NON-CURRENT ASSETS OF DISCONTINUED OPERATION                      |            
|                                                                  |            
|                                                                  |            
|                                                                  |            
|                                                                  |            

| |              |  | )                                            
| | ------------ |  | ---------------------------------------------
| | Ami Erel     |  | ) Chairman
  of the Board of Directors       
| |              |  |                                              
| |              |  |                                              
| |              |  | )                                            
| | Raanan Cohen |  | ) Interim President & Chief Executive Officer

F - 3

---

---



|                                                        | December 31
|------------------------------------------------------- | -----------
|
|
|
|
|Liabilities and shareholders' equity                    |            
|CURRENT LIABILITIES:                                    |            
|Short-term bank credit                                  |            
|Current maturities of long-term loans                   |            
|Trade payables                                          |            
|Income taxes payable                                    |            
|Accrued and other liabilities                           |            
|Current liabilities related to discontinued operation   |            
|                                                        |            
|T o t a l  current liabilities                          |            
|                                                        |            
|LONG-TERM LIABILITIES:                                  |            
|Loans, net of current maturities:                       |            
|Banks                                                   |            
|Other                                                   |            
|Liability for employee rights upon retirement (note 9)  |            
|Long-term liabilities related to discontinued operation |            
|                                                        |            
|T o t a l   long-term liabilities                       |            
|                                                        |            
|                                                        |            
|LONG-TERM LOANS FROM RELATED PARTIES                    |            
|CONVERTIBLE INTO SHARES OF A SUBSIDIARY                 |            
|COMMITMENTS AND CONTINGENT LIABILITIES (note 10)        |            
|T o t a l   liabilities                                 |            
|                                                        |            
|MINORITY INTEREST                                       |            
|                                                        |            
|SHAREHOLDERS' EQUITY (note 11):                         |            
|Share capital - ordinary shares of NIS 0.12 par value   |            
|(authorized: December 31, 2004 and 2003 -               |            
|48,000,000 shares; issued and outstanding:              |            
|December 31, 2004 and 2003 - 43,467,388 shares)         |            
|Capital surplus                                         |            
|Accumulated other comprehensive loss                    |            
|Deferred stock compensation                             |            
|Accumulated deficit                                     |            
|Treasury shares, at cost (December 31, 2004 and 2003 -  |            
|5,401,025 shares and 448,975 shares respectively)       |            
|                                                        |            
|T o t a l  shareholders' equity                         |            
|                                                        |            
|                                                        |            
|                                                        |            

The
accompanying notes are an integral part of the financial statements.

F - 4

---

---



SCITEX CORPORATION LTD.CONSOLIDATED STATEMENTS
OF OPERATIONS

|                                                      | Year ended December 31
|----------------------------------------------------- | ----------------------
|
|
|
|REVENUES:                                             |                       
|Products                                              |                       
|Supplies                                              |                       
|Services                                              |                       
|                                                      |                       
|T o t a l  revenues                                   |                       
|                                                      |                       
|COST OF REVENUES:                                     |                       
|Cost of products                                      |                       
|Cost of supplies                                      |                       
|Cost of services                                      |                       
|                                                      |                       
|T o t a l  cost of revenues                           |                       
|                                                      |                       
|GROSS PROFIT                                          |                       
|RESEARCH AND DEVELOPMENT COSTS, net                   |                       
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES          |                       
|AMORTIZATION OF INTANGIBLE ASSETS                     |                       
|IMPAIRMENT OF OTHER INTANGIBLE ASSETS                 |                       
|RESTRUCTURING CHARGES                                 |                       
|                                                      |                       
|OPERATING LOSS                                        |                       
|FINANCIAL EXPENSES, net                               |                       
|OTHER INCOME (LOSS), net                              |                       
|                                                      |                       
|LOSS BEFORE TAXES ON INCOME                           |                       
|TAXES ON INCOME (note 12)                             |                       
|SHARE IN LOSSES OF ASSOCIATED COMPANIES               |                       
|MINORITY INTERESTS IN A SUBSIDIARY                    |                       
|                                                      |                       
|NET  LOSS FROM CONTINUING OPERATIONS                  |                       
|NET INCOME FROM DISCONTINUED OPERATION                |                       
|                                                      |                       
|NET INCOME (LOSS)                                     |                       
|                                                      |                       
|EARNING (LOSS) PER SHARE ("EPS") - BASIC AND DILUTED: |                       
|Continuing operations                                 |                       
|Discontinued operation                                |                       
|                                                      |                       
|                                                      |                       
|                                                      |                       
|WEIGHTED AVERAGE NUMBER OF SHARES                     |                       
|USED IN COMPUTATION OF EPS (in thousands):            |                       
|Basic                                                 |                       
|                                                      |                       
|Diluted                                               |                       
|                                                      |                       

The accompanying notes are an integral part of the financial statements.

F - 5

---

---



SCITEX CORPORATION LTD.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

|                                                                                    | Share
capital | Capital
surplus | Accumulated
other
comprehensive
Income (loss) | Accumulated
deficit | Deferred Stock
Compensation | Treasury
shares | Total
shareholders'
equity
|----------------------------------------------------------------------------------- | ------------- | --------------- | --------------------------------------------- | ------------------- | --------------------------- | --------------- | --------------------------
|
|
|
|
|BALANCE AT JANUARY 1, 2002                                                          |               |                 |                                               | 6,205               |                             |                 | 364,619                   
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2002:                                    |               |                
|Net loss                                                                            |               |                 |                                               |                     |                             |                 |                           
|Other comprehensive income (loss), net, in respect of:                              |               |                
|Currency translation adjustments                                                    |               |                 |                                               |                     |                             |                 |                           
|Available-for-sale securities                                                       |               |                 |                                               |                     |                             |                 |                           
|Derivative instruments designated for cash flow hedge                               |               |                 |                                               |                     |                             |                 |                           
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|Total comprehensive loss                                                            |               |                 |                                               |                     |                             |                 |                           
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|BALANCE AT DECEMBER 31, 2002                                                        |               |                 |                                               | 6,205               |                             |                 | 364,619                   
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2003:                                    |               |                
|Net Income                                                                          |               |                 |                                               |                     |                             |                 |                           
|Other comprehensive loss, in respect of currency translation       adjustments      |               |                 |                                               |                     |                             |                 |                           
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|Total comprehensive income                                                          |               |                 |                                               |                     |                             |                 |                           
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|Share in beneficial conversion feature relating to convertible                      |               |                
|preferred shares issued by Scitex Vision (see note 3b)                              |               |                 |                                               |                     |                             |                 | 3,485                     
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|BALANCE AT DECEMBER 31, 2003                                                        |               |                 |                                               | 6,205               |                             |                 | 368,104                   
|CHANGES DURING THE YEAR ENDED DECEMBER 31, 2004:                                    |               |                
|Net income                                                                          |               |                 |                                               |                     |                             |                 |                           
|Other comprehensive income, in respect of:                                          |               |                
|Available-for-sale securities                                                       |               |                 |                                               |                     |                             |                 |                           
|Realization of currency translation adjustments                                     |               |                 |                                               |                     |                             |                 |                           
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|Total comprehensive income                                                          |               |                 |                                               |                     |                             |                 |                           
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|Cash distribution                                                                   |               |                 |                                               |                     |                             |                 | (89,837                   
|Deferred stock compensation related to options granted to       employees           |               |                 |                                               |                     |                             |                 | 545                       
|Amortization of deferred stock compensation from options granted       to employees |               |                 |                                               |                     |                             |                 |                           
|Treasury shares                                                                     |               |                 |                                               |                     |                             |                 |                           
|                                                                                    |               |                 |                                               |                     |                             |                 |                           
|BALANCE AT DECEMBER 31, 2004                                                        |               |                 |                                               | 6,205               |                             |                 | 278,812                   
|                                                                                    |               |                 |                                               |                     |                             |                 |                           

The accompanying notes are an integral part of the financial statements.

F - 6

---

---



(Continued  1)

SCITEX CORPORATION LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                      | Year ended December 31
|--------------------------------------------------------------------- | ----------------------
|
|
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                 |                       
|Net income (loss)                                                     |                       
|Net income from discontinued operation                                |                       
|                                                                      |                       
|Net loss from continuing operations                                   |                       
|Adjustments to reconcile net loss from continuing operations          |                       
|to net cash provided by (used in) operating activities:               |                       
|Income and expenses not involving cash flows:                         |                       
|Minority interests in a subsidiary                                    |                       
|Provision for doubtful accounts                                       |                       
|Share in losses of associated companies , net                         |                       
|Depreciation and amortization                                         |                       
|Impairment of goodwill and other intangible assets                    |                       
|Restructuring charges                                                 |                       
|Loss (gain) on disposal of fixed assets                               |                       
|Gain from sale of interest in a subsidiary                            |                       
|Share in beneficial conversion feature of convertible                 |                       
|preferred shares issued by a subsidiary                               |                       
|Amortization of deferred stock compensation                           |                       
|Settlement in respect of acquired technology                          |                       
|Gain from issuance of shares by an associated company                 |                       
|Long-term prepaid expenses                                            |                       
|Write-off and write-down of investments in                            |                       
|investee companies and available-for-sale securities                  |                       
|Gain from waiver of loan                                              |                       
|Interest on long-term loans                                           |                       
|Revaluation of long-term loan                                         |                       
|Deferred income taxes, net                                            |                       
|Loss (gain) from sale of available-for-sale securities                |                       
|Changes in operating asset and liability items:                       |                       
|Decrease (Increase) in trade and other receivables                    |                       
|Decrease (increase) in inventories                                    |                       
|Decrease in accounts payable and accruals                             |                       
|Other items, net                                                      |                       
|                                                                      |                       
|Net cash used in continuing operations                                |                       
|Net cash provided by (used in) discontinued operation                 |                       
|                                                                      |                       
|Net cash provided by (used in) operating activities                   |                       
|                                                                      |                       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                 |                       
|Acquisition of assets and operations consolidated for the first time* |                       
|Acquisition of available for sale marketable securities               |                       
|Proceeds from sale of marketable securities                           |                       
|Purchase of fixed assets                                              |                       
|Proceeds from sale of fixed assets                                    |                       
|Proceeds from settlement in respect of acquired Technology            |                       
|Proceeds from sale of investment in discontinued operations           |                       
|Proceeds from sale of other investment                                |                       
|Purchase of goodwill and intangible assets                            |                       
|Restricted deposits                                                   |                       
|Investment in associated companies and other investments              |                       
|                                                                      |                       
|Net cash provided by (used in) investing activities                   |                       
|                                                                      |                       

F - 7

---

---



(Concluded  2)

SCITEX CORPORATION LTD.CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                                                        | Year ended December 31
|----------------------------------------------------------------------- | ----------------------
|
|
|
|
|Subtotal - brought forward                                              |                       
|                                                                        |                       
|                                                                        |                       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                   |                       
|Receipt of long-term loans                                              |                       
|Purchase of treasury shares                                             |                       
|Cash distribution                                                       |                       
|Issuance of Convertible long-term loans and warrants to related parties |                       
|Repayment of long-term loans and other liabilities                      |                       
|Increase (decrease) in short-term bank credit , net                     |                       
|                                                                        |                       
|Net cash provided by (used in) financing activities                     |                       
|                                                                        |                       
|NET INCREASE (DECREASE) IN CASH AND CASH                                |                       
|EQUIVALENTS                                                             |                       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          |                       
|                                                                        |                       
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                |                       
|                                                                        |                       
|                                                                        |                       
|* Acquisition of assets and operations consolidated                     |                       
|for the first time:                                                     |                       
|Assets and liabilities at the date of acquisition:                      |                       
|Deficiency in working capital (excluding cash                           |                       
|and cash equivalents)                                                   |                       
|Fixed assets, net                                                       |                       
|Goodwill arising from acquisition                                       |                       
|Investment in associated company                                        |                       
|Intangible assets arising from acquisition                              |                       
|Long-term loans and other liabilities                                   |                       
|Minority interests in subsidiary at date of                             |                       
|acquisition                                                             |                       
|                                                                        |                       
|Cash received (paid)                                                    |                       
|                                                                        |                       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW                                    |                       
|INFORMATION:                                                            |                       
|Interest paid                                                           |                       
|                                                                        |                       
|Income taxes paid                                                       |                       
|                                                                        |                       

The
accompanying notes are an integral part of the financial statements.

F - 8

---

---



SCITEX CORPORATION LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|NOTE 1 |  | GENERAL:
|------ | - | --------

| | a. | Nature
of operations
| | -- | --------------------

| | Scitex
Corporation Ltd. (the Company) is an Israeli corporation, which through its
subsidiaries operates in two segments:
| | ---------------------------------------------------------------------------------------------------------------------------

| | 1) | Wide
Format digital printing  develop, manufacture and market industrial
          digital inkjet printing solutions mainly to the graphic arts, packaging
and           textile markets as well as related services and consumable products.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Continuous
inkjet industrial digital printing  develop, manufacture and           market of
continuous inkjet based digital printers for the industrial printing           ceramic
tiles and textile markets.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, the Company holds minority interest in other companies that develop digital
printing solution to industrial applications and Internet related imaging products.
Amounts provided in these notes to the consolidated financial statements pertain to
continuing operations  unless otherwise indicated.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Sale
of the High-Speed Digital Printing segment
| | -- | -----------------------------------------------

| | On
November 25, 2003, the Company entered into an agreement according to which it would sell
substantially all of the assets, liabilities and operations of its indirect wholly-owned
subsidiary Scitex Digital Printing Inc. (SDP) related to its High-Speed
Digital Printing Business, including most of the distribution channels that served SDP,
to Eastman Kodak Company (Kodak), for $ 250 million in cash (in addition $12
million were retained at SDP following the transaction). Pursuant to the agreement, a $25
million was held in escrow. $15 million out of the above escrow amount was released in
February 2004 to SDPs parent company (SDC  wholly owned
subsidiary) account, and the remaining $10 million would be held in escrow for up to two
years and will be used for indemnification liabilities under the agreement. $5 million
out of the above remaining $10 million escrow, amount was released in January 2005 to SDPs
account The remaining $5M is scheduled to be released in the beginning of 2006, in
accordance with the applicable terms associated thereto. These amounts are presented as
restricted deposit (long and short-term, in equal shares) in the companys balance
sheet as of December 31, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
assets, net of liabilities sold are distinguishable as a component of the Company and
classified as Assets or Liabilities of discontinued operation in accordance
with Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting
for the Impairment on Disposal of Long-Lived Assets of the Financial Accounting
Standards Board of the United States (FASB).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
closing of the transaction took place on January 5, 2004. As a result of the transaction,
the Company recorded a net gain of approximately $60 million, approximately $52 million
which are included in the statement of operations in 2004, and approximately $8 million
of which were recognized in the fourth quarter of 2003 as a tax benefit related to
expected utilization of carryforward tax losses including capital losses and is recorded
under income from discontinued operation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 1 |  | GENERAL(continued):
|------ | - | -------------------

| | Operating
results of SDP have been reported in these financial statements as discontinued
operations in accordance with SFAS 144 and the Company has reclassified its results of
operations, and the related assets and liabilities for the prior period in accordance
with provisions of SFAS 144.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1) | The
assets and liabilities of SDP classified as discontinued operation in the
               Consolidated Balance Sheets, are as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------

|                                                         | December 31
|-------------------------------------------------------- | -----------
|
|
|
|
|A s s e t s                                              |            
|Current assets:                                          |            
|Cash and Short-term investments                          |            
|Trade and other receivables                              |            
|Inventories                                              |            
|Deferred income taxes                                    |            
|                                                         |            
|T o t a l  current assets                                |            
|                                                         |            
|                                                         |            
|Investment and other non-current assets                  |            
|Property, plant and equipment, net of accumulated        |            
|depreciation and amortization                            |            
|Goodwill                                                 |            
|Other intangible assets, net of accumulated amortization |            
|                                                         |            
|T o t a l  non-current assets                            |            
|                                                         |            
|T o t a l  assets                                        |            
|                                                         |            
|Liabilities                                              |            
|Current liabilities                                      |            
|Long-term liabilities:                                   |            
|Deferred income taxes                                    |            
|Other                                                    |            
|                                                         |            
|T o t a l  Long-term liabilities                         |            
|                                                         |            
|T o t a l  liabilities                                   |            
|                                                         |            

F - 10

---

---



SCITEX CORPORATION LTD.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 1 |  | GENERAL(continued):
|------ | - | -------------------

| | 2) | Revenues
and net income from the discontinued operations of SDP are as follow:
| | -- | ------------------------------------------------------------------------------

|                              | Year ended December 31
|----------------------------- | ----------------------
|
|
|
|
|Revenues                      |                       
|Cost of revenues              |                       
|                              |                       
|Gross profit                  |                       
|Other operation expenses      |                       
|                              |                       
|Operating income              |                       
|Financial income , net        |                       
|Other expenses , net          |                       
|                              |                       
|Income before taxes on income |                       
|Taxes on income               |                       
|                              |                       
|Net income for the year       |                       
|                              |                       
|                              |                       

| | In
2004 the company recognized a gain of $51,646,000 on the said sale of SDP, see paragraph
b above.
| | ----------------------------------------------------------------------------------------------------

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES:
|------ | - | --------------------------------

| | a. | General:
| | -- | --------

| | 1) | Risk
factors and concentration
| | -- | ------------------------------

| | The
Company and its subsidiaries are subject to various risks, including but not limited to:
(i) business and industry risks like product and technology development; market
acceptance of new products and continuing demand for its products; the impact of
competitive products and pricing; diversification of the business; intellectual property
protection; environmental related liabilities, changes in domestic and foreign economic
and market conditions; and timely development and release of new products by strategic
suppliers; (ii) financial risks such as currency fluctuations, credit risks, obtaining
future financing for affiliated companies, and decreases in the value of our financial
investments; and (iii) risks related to operations in Israel like political, economic and
military instability in Israel or the Middle East; and terms and conditions of tax
benefits and governmental grants. See also note 13 for financial instruments and other
risks.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES:
|------ | - | --------------------------------

| | 2) | Functional
currency
| | -- | -------------------

| | The
U.S. dollar is the functional currency for the Company and its subsidiaries. The majority
of the sales of the Company are made in US dollars. Since the U.S. dollar is the primary
currency in the economic environment in which the foreign subsidiaries operate, monetary
accounts maintained in currencies other than the U.S. dollar (principally cash and
liabilities) are remeasured using the representative foreign exchange rate at the balance
sheet date. Operational accounts and non monetary balance sheet accounts are measured and
recorded at the rate in effect at the date of the transaction. The effects of foreign
currency remeasurement are reported in current operations and have not been material to
date.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
financial statements of a former subsidiary  classified as discontinued operation
 whose functional currency is its local currency, were translated into US dollars
in accordance with the principles set forth in Statement of Financial Accounting
Standards (FAS) No. 52 Foreign Currency Translation. The
resulting aggregate translation adjustments were presented in shareholders equity,
under accumulated other comprehensive income (loss)".
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | 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 and 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4) | Accounting
principles
| | -- | ---------------------

| | The
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Principles
of consolidation
| | -- | ---------------------------

| | The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Intercompany balances and transactions have been eliminated in
consolidation. Unrealized profits from intercompany sales have also been eliminated.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | c. | Cash
equivalents
| | -- | ----------------

| | The
Company and its subsidiaries consider all highly liquid investments, with an original
maturity of three months or less at time of investment, that are not restricted as to
withdrawal or use, to be cash equivalents.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Investments
in marketable securities
| | -- | ------------------------------------

| | The
company classifies its existing marketable equity and debt securities, in accordance with
the provisions of FAS 115 as available-for-sale. Investments in debt securities
classified as available-for-sale are reported at fair value with unrealized gains and
losses, net of related tax, recorded as a separate component of comprehensive income in
shareholders ́ equity until realized. Interest and amortization of premiums and
discounts for debt securities and gains and losses on securities sold are included in
financial income. For all investment securities, unrealized losses that are other than
temporary are recognized in net income. The company does not hold these securities for
speculative or trading purposes..
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | Other
non-marketable investments
| | -- | --------------------------------

| | These
investments are carried at cost, net of write-down for decrease in value, which is not of
a temporary nature.
| | -------------------------------------------------------------------------------------------------------------------

| | f. | Inventories
| | -- | -----------

| | Inventories
are valued at the lower of cost or market. Cost is determined as follows:
| | -------------------------------------------------------------------------------------

| | Raw-materials
 on the moving average basis.
| | --------------------------------------------

| | Finished
products and products in process  on basis of production costs:     Raw materials on
the moving average basis.     Labor and overhead component  standard manufacturing
costs.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventory
valuation provision is based on specific analysis of inventory items, their aging,
obsolescence, and estimated future demand.
| | ---------------------------------------------------------------------------------------------------------------------------------------

| | g. | Investments
in associated companies
| | -- | -----------------------------------

| | Associated
companies are companies over which significant influence is exercised, but which are not
consolidated subsidiaries, and are accounted for by the equity method, net of write-down
for decrease in value, which is not of a temporary nature. The excess of cost of
investment in associated companies over the Companys share in their net assets at
date of acquisition (excess of cost of investment) represents amounts
attributed to know-how and technology. The excess of cost of investment is amortized over
a period of 5 years, commencing in the year of acquisition.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | h. | Property,
plant and equipment
| | -- | -----------------------------

| | Property,
plant and equipment are carried at cost and are depreciated by the straight-line method
over their estimated useful life. Annual rates of depreciation are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | %        
|------------------------------ | ---------
|
|
|
|
|Machinery and equipment        | Mainly 20
|Building                       | 2.5      
|Office furniture and equipment | Mainly 6 
|Computers                      | 33       
|                               |          

| | Leasehold
improvements are amortized by the straight-line method over the term of the lease or the
estimated useful life of the improvements, whichever is shorter.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | i. | Goodwill
| | -- | --------

| | According
to the provision of FAS No. 142 Goodwill and Other Intangible Assets,
goodwill is no longer being amortized but tested for impairment at least annually.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has completed its annual goodwill impairment test during the forth quarter of
2004. No impairment of goodwill resulted from the annual review performed in 2004, 2003
and 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | j. | Other
intangible assets
| | -- | -----------------------

| | Other
intangible assets which consist mainly of technology are presented at cost and are
amortized by the straight-line method over a period of 5-6 years. These intangible assets
are presented net of impairment in value, see also note 8.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k. | Impairment
of long-lived assets
| | -- | -------------------------------

| | FAS
144 Accounting for the Impairment or Disposal of Long-Lived Assets (FAS
144), requires that long-lived assets including certain intangible assets, to be
held and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable.
Under FAS 144, if the sum of the expected future cash flows (undiscounted and
without interest charges) of the long-lived assets is less than the carrying amount of
such assets, an impairment loss would be recognized, and the assets would be written down
to their estimated fair values. As to impairment of intangible assets, see note 8.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | l. | Deferred
income taxes
| | -- | ---------------------

| | Deferred
taxes are determined utilizing the asset and liability method based on the estimated
future tax effects of differences between the financial accounting and tax bases of
assets and liabilities under the applicable tax laws. Deferred income tax provisions and
benefits are based on the changes in the deferred tax asset or tax liability from period
to period. Valuation allowances are provided for deferred tax assets when it is more
likely than not that all or a portion of the deferred tax assets will not be realized.
The Company may incur an additional tax liability in the event of an intercompany
dividend distribution by non-Israeli subsidiaries. No additional tax liability has been
provided, since the Company does not intend to distribute, in the foreseeable future,
dividends which would result in an additional tax liability.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Taxes
that would apply in the event of disposal of investments in non-Israeli subsidiaries have
not been taken into account in computing the deferred taxes, as it is the current Companys
intention to hold these investments and not to realize them.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
stated in note 12a(1)(a), upon distribution of dividends from tax-exempt income of approved
enterprises, the amount distributed will be subject to tax at the rate that would
have been applicable had the Company not been exempted from payment thereof. The amount
of the related tax is charged as an expense in the income statements. The Company intends
to permanently reinvest the amounts of tax-exempt income and does not intend to cause
dividend distribution from such income. Therefore, no deferred taxes have been provided
in respect of such tax-exempt income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | m. | Comprehensive
income (loss)
| | -- | ---------------------------

| | In
addition to net income (loss), other comprehensive income (loss) includes unrealized
gains and losses on available-for-sale securities, currency translation adjustments of
non-dollar currency financial statements of a subsidiary and gains and losses on certain
derivative instruments designated for cash-flow hedge and unrealized losses on marketable
securities which are classified as available-for-sale under FAS 115.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n. | Treasury
shares
| | -- | ---------------

| | Companys
shares held by the Company, are presented as a reduction of shareholders equity, at
their cost to the Company.
| | -------------------------------------------------------------------------------------------------------------------------

F - 15

---

---



SCITEX CORPORATION LTD.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | o. | Revenue
recognition
| | -- | -------------------

| | Revenues
from sales of products and supplies are recognized when an arrangement exists, delivery
has occurred and title passed to the customer, the Companys price to the customer
is fixed or determinable and collectability is reasonably assured. With respect to
products with installation requirements, revenue is recognized when all of the above
criteria are met and installation is completed. When sales transactions include more then
one deliverable (unit of accounting) sold, the Company separates the different units of
accounting of sales with multiple deliverables (generally consists of machine and ink)
based on the objective and reliable evidence of fair value of the different elements,
which is estimated based on stand alone sale prices of the different elements and other
reliable evidence that is readily obtainable in the market from competitors, distributors
and others, in accordance with Emerging Issues Task Force (EITF) Issue 00-21,
Revenue Arrangements with Multiple Deliverables.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sales
contracts with distributors stipulate fixed prices and current payment terms and are not
subject to the distributors resale or any other contingencies. Accordingly when all
criteria above are met, sales of finished products to distributors are recognized as
revenue upon delivery and after title and risk pass to the distributors.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company does not grant any rights of return or cancellation to any of its clients.
Service revenue is recognized ratably over the contractual period or as services are
performed. Warranty costs are provided for at the same time as the revenues are
recognized. The annual provision for warranty costs is calculated based on expected cost
of inputs, based on historical experience.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | p. | Shipping
and handling fees and costs
| | -- | ------------------------------------

| | Amounts
billed to customers for shipping and handling costs are included in revenues in the
statements of operations. Shipping and handling costs are classified as a component of
cost of revenues.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | q. | Research
and development costs, net
| | -- | -----------------------------------

| | Research
and development costs are charged to income as incurred. Royalty-bearing grants received
from governments for approved projects are recognized as a reduction of expenses as the
related costs are incurred.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | r. | Advertising
costs
| | -- | -----------------

| | These
costs are charged to income as incurred.
| | ----------------------------------------------

| | s. | Allowance
for doubtful accounts
| | -- | -------------------------------

| | The
allowance for doubtful accounts is determined specifically for debts doubtful of
collection.
| | ------------------------------------------------------------------------------------------------

| | t. | Stock
based compensation
| | -- | ------------------------

| | The
Company and its subsidiaries account for employee stock based compensation in accordance
with Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees (APB 25) and related interpretations. Under APB 25
compensation cost for employee stock option plans is measured using the intrinsic value
based method of accounting, and is amortized by the straight-line method against income,
over the expected service period.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
123 Accounting for Stock-Based Compensation, establishes a fair value based
method accounting for employee stock options or similar equity instruments, and
encouraged adoption of such method for stock compensation plans. However, it also allows
companies to continue to account for those plans the accounting treatment prescribed by
APB 25.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Proforma
information regarding net income (loss), required under FAS 123, has been determined as
if the Company and its subsidiaries had accounted for its stock options under the fair
value method of FAS 123. The fair value for their stock options was estimated at the date
of each option grant using the Black-Scholes option pricing model with the following
assumptions: in 2004 for the Company: risk-free interest rate of 3.1%; dividend yields of
zero; expected life of the options of approximately 3 years; and expected volatility of
52%. For a subsidiary for 2004 and 2003: risk-free interest rate of 3.23% to 2.3% and
2.2% respectively; dividend yields of zero in 2004 and 2003; expected life of the options
of approximately 3 years in 2004 and 2003; and expected volatility of 50% to 57% and 48%,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | The
following table illustrates the effect on net income (loss) and earning (loss) per share
assuming the Company and its subsidiaries had applied the fair value recognition
provisions of FAS 123 to its stock-based employee compensation:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          | Year ended December 31
|--------------------------------------------------------- | ----------------------
|
|
|
|
|Net loss from continuing operations - as reported         |                       
|Add: stock based employee compensation expenses,          |                       
|included in reported net loss from continuing             |                       
|Operations (net of minority interest)                     |                       
|Deduct: stock based employee compensation                 |                       
|expenses determined under fair value method               |                       
|(net of minority interest)                                |                       
|                                                          |                       
|Pro-forma net loss from continuing operations             |                       
|                                                          |                       
|Net income from discontinued operations - as reported     |                       
|Add: stock based employee compensation expenses,          |                       
|included in reported net income from discontinued         |                       
|operations                                                |                       
|Deduct: stock based employee compensation                 |                       
|expenses determined under fair value method               |                       
|(net of minority interest)                                |                       
|                                                          |                       
|Pro-forma net income from discontinued operations         |                       
|                                                          |                       
|Pro-forma net income (loss)                               |                       
|                                                          |                       
|Basic and diluted earning (loss) per share - as reported: |                       
|Continuing operations                                     |                       
|Discontinued operations                                   |                       
|                                                          |                       
|Net income (loss)                                         |                       
|                                                          |                       
|Pro-forma earning (loss) per share :                      |                       
|Continuing operations                                     |                       
|Discontinued operations                                   |                       
|                                                          |                       
|Net income (loss)                                         |                       
|                                                          |                       

F - 18

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | u. | Earning
(loss) per share (EPS)
| | -- | --------------------------------

| | Basic
EPS are computed based on the weighted average number of shares outstanding during each
year excluding the treasury shares held by the Company. Diluted EPS reflects the increase
in the weighted average number of shares outstanding that would result from the assumed
exercise of options, calculated using the treasury-stock-method (in 2004, 2003 and 2002
such effect was not included since it would have been anti-dilutive). In addition,
diluted EPS does not reflect options and warrants granted by subsidiaries to be exercised
to the subsidiaries shares and convertible loans, since their effect would have been
immaterial or anti-dilutive. Options exercisable to the Companys ordinary shares
not included in the EPS calculation since their effect is anti-dilutive include options
granted to employees only, see note 11.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | v. | Derivatives
and hedging activities
| | -- | ----------------------------------

| | FAS
133 Accounting for derivative instruments and hedging activities as amended,
establishes accounting and reporting standards for derivatives and for hedging
activities. Under FAS 133, all derivatives are recognized on balance sheet date at their
fair value. On the date that the Company enters into a derivative contract, it designates
the derivative, for accounting purposes, as: (1) an hedging instrument, or (2) a
non-hedging instrument. Changes in the fair value of derivatives that do not qualify for
hedge accounting are recognized in earnings. For the years ended December 31, 2004 and
2003, all derivatives used by the Company did not qualify for hedge accounting and gains
and losses thereon are recorded in financial expenses, net on the Companys
statements of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | w. | Reclassifications
| | -- | -----------------

| | Certain
comparative figures have been reclassified to conform to the current year presentation.
| | -----------------------------------------------------------------------------------------------

| | x. | Recently
issued accounting pronouncements:
| | -- | ------------------------------------------

| | FAS 123 (Revised
2004) Share-based Payment
In
December 2004, the Financial Accounting Standards Board (FASB) issued the
revised Statement of Financial Accounting Standards (FAS) No. 123, Share-Based
Payment (FAS 123R), which addresses the accounting for share-based
payment transactions in which the Company obtains employee services in exchange for (a)
equity instruments of the Company or (b) liabilities that are based on the fair value of
the Companys equity instruments or that may be settled by the issuance of such
equity instruments. This statement eliminates the ability to account for employee
share-based payment transactions using APB Opinion No. 25 and requires instead that such
transactions be accounted for using the grant-date fair value based method. This
statement will be effective as of the beginning of the first annual reporting period that
begins after June 15, 2005 for the company and its subsidiaries. Early adoption of
FAS 123R is encouraged. This Statement applies to all awards granted or modified after
the statements effective date. In addition, compensation cost for the unvested
portion of previously granted awards that remain outstanding on the statements
effective date shall be recognized on or after the effective date, as the related
services are rendered, based on the awards grant-date fair value as previously
calculated for the pro-forma disclosure under FAS 123.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | The
Company estimates that the cumulative effect of adopting FAS 123R as of its adoption date
by the Company and its subsidiaries (July 1, 2005), based on the awards outstanding as of
December 31, 2004, will be immaterial. This estimate does not include the impact of
additional awards, which may be granted, or forfeitures, which may occur subsequent to
December 31, 2004 and prior to the adoption of FAS 123R. The Company expects that
upon the adoption of FAS 123R, the Company will apply the modified prospective
application transition method, as permitted by the statement. Under such transition
method, upon the adoption of FAS 123R, the Companys financial statements for
periods prior to the effective date of the statement will not be restated. The impact of
this statement on the Companys financial statements or its results of operations in
2005 and beyond will depend upon various factors, among them the Companys future
compensation strategy. Currently, The Company expects the effect of the Statement the
Companys financial statements and its results of operations in future periods to be
approximately $100,000 additional expenses per quarter (based on the options as existed
at December 31, 2004).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS 151 Inventory
Costs  an amendment of ARB 43, Chapter 4
In
November 2004, the FASB issued FAS No. 151, Inventory Costs  an Amendment of
ARB 43, Chapter 4 (FAS 151). This statement amends the guidance in ARB
No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material. This
statement requires that those items be recognized as current-period charges. In addition,
this Statement requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This statement
will be effective for inventory costs incurred during fiscal years beginning after June
15, 2005 (January 1, 2006 for the Company). Earlier application of FAS 151 is permitted.
The provisions of this statement shall be applied prospectively. The Company does not
expect this statement to have a material effect on the Companys financial
statements or its results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FAS
153 Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29In December
2004, the FASB issued FAS No. 153, Exchanges of Non-Monetary Assets An
Amendment of APB Opinion No. 29 (FAS 153).  FAS 153 amends APB
Opinion No. 29, Accounting for Non-Monetary Transactions (Opinion 29).
The amendments made by FAS 153 are based on the principle that exchanges of non-monetary
assets should be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the exception for non-monetary exchanges of similar productive
assets and replace it with a general exception for exchanges of non-monetary assets that
do not have commercial substance. The provisions in FAS 153 are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005
(July 1, 2005 for the Company).  Early application of the FAS 153 is permitted. The
provisions of this Statement shall be applied prospectively. The Company does not
expect the adoption of FAS 153 to have a material effect on the Companys financial
statements or its results of operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 20

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 2 |  | SIGNIFICANT ACCOUNTING POLICIES(continued):
|------ | - | -------------------------------------------

| | EITF Issue 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application toCertain Investments
In
March 2004, the FASB issued EITF Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments which
provides new guidance for assessing impairment losses on debt and equity investments.
Additionally, EITF Issue No. 03-1 includes new disclosure requirements for
investments that are deemed to be temporarily impaired. In September 2004, the FASB
delayed the accounting provisions of EITF Issue No. 03-1; however, the disclosure
requirements remain effective and have been adopted by the Company in these financial
statements. The Company will evaluate the effect, if any, of EITF Issue No. 03-1
when final guidance is released.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | EITF
Issue 02-14, Whether an Investor Should Apply the Equity Method of Accounting to Investments Other
Than Common Stock
In
July 2004, the FASB issued EITF Issue No. 02-14, Whether an Investor
Should Apply the Equity Method of Accounting to Investments Other Than Common Stock.EITF
Issue No. 02-14 addresses whether the equity method of accounting applies when an
investor does not have an investment in voting common stock of an investee but exercises
significant influence through other means. EITF Issue No. 02-14 states that an
investor should only apply the equity method of accounting when it has investments in
either common stock or in-substance common stock of the investee, provided that the
investor has the ability to exercise significant influence over the operating and
financial policies of the investee. The provisions in EITF Issue No. 02-14 are
effective for reporting periods beginning after September 15, 2004 (October 1, 2004 for
the Company). The adoption of EITF 02-14 by the Company did not have any effect on the
Companys financial statements or its results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 3 |  | ACQUISITIONS OF BUSINESSES:
|------ | - | ---------------------------

| | a. | Scitex
Vision International Ltd.
| | -- | --------------------------------

| | On
January 1, 2003, the Company sold all of its shares in its then wholly owned subsidiary -
Scitex Vision International Ltd. (then known as Scitex Vision Ltd.) (hereafter  SV
international), to Scitex Vision Ltd. (then known as Aprion Digital Ltd.), the
Companys then affiliated company, in exchange for additional preferred shares in
Scitex Vision. Subsequent to the transaction, the Company holds approximately 75% of
Scitex Visions outstanding shares. The transaction was accounted for, by the
Company, as a sale of 25% in SV international and as acquisition of additional shares in
Scitex Vision. The fair value of the transaction was approximately $9 million. As a
result, the Company recognized a net capital gain of $289,000 under Other income
(loss), net ($3,774,000 capital gain resulting from the sale of a portion in SV
international, net of $3,485,000 of dilution loss relating to Scitex Visions
preferred shares anti-dilution mechanism triggered by the transaction). In addition, the
Company recognized a capital surplus of $3,485,000 under Beneficial conversion
feature relating to convertible preferred shares issued by Scitex Visionin its
shareholders equity.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 3 |  | ACQUISITIONS OF BUSINESSES(continued):
|------ | - | --------------------------------------

| | This
acquisition was accounted for under the purchase method. As a result of the transaction
the Company recorded technology and goodwill of approximately $14.8 million and
approximately $2 million, respectively, of which approximately $3.8 million was credited
to minority interest. The technology is being amortized over 6 years (as to impairment of
such technology, see note 8)
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Commencing
on January 2003 Scitex Visions financial statements are consolidated with those of
the Company.
| | -----------------------------------------------------------------------------------------------------------

| | As
to lawsuits filed in connection with this transaction see note 10b(1).
| | -------------------------------------------------------------------------

| | b. | Siantec
SARL
| | -- | ------------

| | In
April 2002, SV International acquired some of the assets and operations from Siantec SARL
(Siantec) and its shareholders for a consideration of $2,470,000 (including
transaction expenses), of which $1,860,000 was allocated to technology and $610,000 to a
non-compete covenant. The amount allocated to technology was written down during 2003. In
February 2004, as part of settlement of alleged breaches of representations and
warranties made by Siantec in the asset purchase agreement, Siantec agreed to pay SV
International $1 million out of an escrow account and to waive its rights to existing
contingent payments of up to $10 million. The payment was allocated: $610,000 as a
reversal of the non-compete covenant intangible asset and $390,000 as deduction of
impairment of intangible assets in 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Techno
Ink Manufacturing (PTY) Ltd.
| | -- | -----------------------------------

| | In
March 2001, SV International acquired the ink technology, other assets and operations
from the Techno Ink Manufacturing (PTY) Ltd. (Techno Ink), for an aggregate
consideration of $2,860,000. The technology is amortized over 6 years. The agreement
provides for additional payments to Techno Ink of up to a maximum of approximately
$5,500,000, based on the achievement of specified financial targets, during the period
from 2001 to 2006 (Earn-Out). As of December 31, 2004, an additional amount
of $3,937,000 has been paid for the Earn-Out and recorded as goodwill ($1,497,000 and
$1,258,000 in the years ended December 31, 2004 and 2003, respectively).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 4 |  | INVESTMENTS IN ASSOCIATED COMPANIES (including associated Company consolidated for
the first time in 2004):
|------ | - | -----------------------------------------------------------------------------------------------------------

| | a. | Jemtex
ink jet printing Ltd.
| | -- | ----------------------------

| | In
December 2002, the Company signed a share purchase agreement with Jemtex ink jet printing
Ltd (Jemtex), according to which, the Company invested additional $2,400,000
in three equal quarterly installments of $800,000 each. The first installment and an
advance of $250,000 on the last payment were made in December 2002. The additional
$1,350,000 was transferred in February and May 2003. The excess of cost of investment
over the Companys share in Jemtex net assets at the date of transaction in
the amount of $1,371,000 was attributed to technology to be amortized over five years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, Jemtex granted to the Company for no additional consideration, warrants to
purchase (1) 3,181 preferred shares of Jemtex at an exercise price of $ 251.467 per
share, exercisable until January 2, 2004, and (2) 3,181 preferred shares of Jemtex at an
exercise price of $251.467 per share exercisable until March 31, 2005. An amount of
$51,000 was allocated to the said warrants out of the total above-mentioned investment of
$2,400,000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2003, the Company invested in Jemtex an amount of $799,917 by way of convertible
loan, bearing interest at the rate of LIBOR+0.75%. The loan is due on August 31, 2007,
and is convertible at the option of the holder, at any time during the term of the note
and the accrued interest, into preferred shares, at a price a price per share of
$2.51467, and subject to certain adjustments. According to the investment agreement and
upon is execution, the second warrant to purchase 3,181 preferred shares of Jemtex was
cancelled.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the beginning of 2004, the Company concluded a $1.5 million investment in Jemtex in
consideration for convertible loans, out of which $0.45 million were provided to Jemtex
in late 2003 and $1.05 million were provided to Jemtex in early 2004. In addition, during
2004, the Company invested an additional amount of $1.9 million by way of convertible
loans. Convertible loans and accrued interest thereon may be converted by Scitex into
preferred shares of Jemtex at any time during a 5-year period at an exercise price
reflecting the estimated fair value of the Companys shares at the date of grant of
the loans. The loans bear interest equivalent to of approximately LIBOR plus 0.75%-1%. In
the beginning of 2005, the Company invested an additional amount of $0.35 million,
substantially under the same terms and conditions of previous convertible loans.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2004, the Company effectively holds approximately 84% of Jemtexs
issued share capital on an as-converted basis. Jemtex has a capital deficit
and as the Company is currently the sole financier of Jemtex, it has taken full share
(100%) in Jemtex losses commencing on the third quarter of 2003 and onward.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Since
January 2004, Jemtex financial statements are consolidated with those of the Company,
since the Company effectively has the right to appoint 4 out of 6 directors and holds
majority of the shareholders voting rights.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Share
in losses of associated companies in 2004 includes $294,000 share in losses of Jemtex
prior to its consolidation.
| | -----------------------------------------------------------------------------------------------------------------------

F - 23

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 4 |  | INVESTMENTS IN ASSOCIATED COMPANIES (including associated Company consolidated for
the first time in 2004)(continued):
|------ | - | ----------------------------------------------------------------------------------------------------------------------

| | b. | Objet
Geometries Ltd.
| | -- | ---------------------

| | The
investment in Objet Geometries Ltd. (Objet) is accounted for under the equity
method. The balance of this investment as of December 31, 2004 is approximately $124,000,
following an additional investment of approximately $ 344,000 made in 2004 as part of a
financing round. As a result of the financing round in 2004 the company interest in Objet
was diluted to 22.9%.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Summarized
data from Objets financial statements for the years ended December 31, 2004 and
2003, is as follows:
| | ----------------------------------------------------------------------------------------------------------------

|                        | December 31,
|----------------------- | ------------
|
|
|
|
|Current assets          |             
|                        |             
|Non-current assets      |             
|                        |             
|Current liabilities     |             
|                        |             
|Non-current liabilities |             
|                        |             

|                        | Year ended December 31,
|----------------------- | -----------------------
|
|
|
|
|
|Revenues                |                        
|                        |                        
|Gross profit            |                        
|                        |                        
|Operating income (loss) |                        
|                        |                        
|Net income (loss)       |                        
|                        |                        
|                        |                        

| | Subsequent
to December 31, 2004 the Company sold all of its holdings in Objet, see also
note 16d.
| | -------------------------------------------------------------------------------------------------

|NOTE 5 |  | OTHER INVESTMENTS AND PREPAID EXPENSES:
|------ | - | ---------------------------------------

| | Other
investments represent investments in non-marketable securities in companies operating in
the digital printing and digital imaging industry, in which the Company does not exercise
significant influence, and which are stated at cost, net of a write-down for decrease in
value which is not of a temporary nature. The carrying amounts of these investments as of
December 31, 2004 and 2003 are $1,414,000 and $1,301,000, respectively. The company
evaluated these carrying values for impairment as of those dates. In 2004, there was no
impairment in value. In 2003, due to an extended decline in fair value of other than
temporary nature, the Company recorded an accumulated loss in the amount of $2,493,000
that was charged to other income (loss), net in the statement of operations.
In addition, other investments include as of December 31, 2004, $324,000 of
long-term prepaid expenses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 24

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 6 |  | PROPERTY, PLANT AND EQUIPMENT
|------ | - | -----------------------------

| | Grouped
by major classifications, the assets are composed as follows:
| | ---------------------------------------------------------------------

|                                | December 31
|------------------------------- | -----------
|
|
|
|
|Machinery and equipment         |            
|Building                        |            
|Leasehold improvements          |            
|Office furniture and equipment  |            
|Motor vehicles                  |            
|                                |            
|                                |            
|Less - accumulated depreciation |            
|and amortization                |            
|                                |            
|                                |            
|                                |            
|                                |            

| | Depreciation
and amortization of property, plant and equipment from continuing operations totaled
$2,927,000, $3,558,000 and $2,250,000 in 2004, 2003 and 2002, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 7 |  | GOODWILL
|------ | - | --------

| | The
changes in the carrying amount of goodwill in respect of the continuing operations for
the years ended December 31, 2003 and 2004, are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | U.S. dollars
in thousands
|------------------------------- | -------------------------
|
|
|
|
|Balance as of January 1, 2003   |                          
|Goodwill acquired               |                          
|                                |                          
|Balance as of December 31, 2003 |                          
|Goodwill acquired, see note 3c  |                          
|                                |                          
|Balance as of December 31, 2004 |                          
|                                |                          

F - 25

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 8 |  | OTHER INTANGIBLE ASSETS:
|------ | - | ------------------------

| | Grouped
by major classifications, the acquired technology and other intangible assets are
composed as follows:
| | --------------------------------------------------------------------------------------------------------------

|                                       | December 31
|-------------------------------------- | -----------
|
|
|
|
|Gross carrying amount:                 |            
|Acquired technology                    |            
|Other intangible assets                |            
|                                       |            
|                                       |            
|                                       |            
|L e s s - accumulated amortization and |            
|impairment charges:                    |            
|Acquired technology                    |            
|Other intangible assets                |            
|                                       |            
|                                       |            
|                                       |            
|                                       |            
|                                       |            

| | Amortization
expenses totaled $6,137,000, $5,871,000, and $2,944,000 in 2004, 2003 and 2002,
respectively.
| | ----------------------------------------------------------------------------------------------------------

| | As
to the main additions to intangible assets, see notes 3 and 4.
| | -----------------------------------------------------------------

| | Estimated
amortization expense for the following years, subsequent to December 31, 2004:
| | ----------------------------------------------------------------------------------------

|                         | U.S. dollars
in thousands
|------------------------ | -------------------------
|
|
|
|
|Year ending December 31: |                          
|2005                     |                          
|2006                     |                          
|2007                     |                          
|2008                     |                          
|2009                     |                          
|2010                     |                          
|                         |                          
|                         |                          
|                         |                          

| | In
2004 and 2003 the financial statements include an impairment charge with respect to
technology and know-how in a subsidiary, in the amounts of $5,625,000 and $2,967,000,
respectively. These impairments followed an evaluation performed by a third party
appraiser, based on discounted cash flow, triggered by the significant decrease in the
production of certain products based on the above-mentioned technologies. The impairment
calculation in 2004 and 2003 was prepared in accordance with the provisions of FAS 144.
Out of the amount of impairment in 2004, $2.6 million was recorded against the minority
interests in a subsidiary since this amount is the amortized technology held by
minority shareholders of Scitex Vision, see note 3a.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 26

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 9 |  | EMPLOYEE RIGHTS UPON RETIREMENT:
|------ | - | --------------------------------

| | a. | Israeli
labor laws and agreements require the payment of severance pay upon
               dismissal of an employee or upon termination of employment in certain
other                circumstances. The liability is based upon the length of service and
the latest                monthly salary (one months salary for each year worked),
and is mainly                funded with severance pay and pension funds and with
insurance companies                (principally with an affiliate of the two major
shareholders of the Company),                for which the Company and its Israeli
subsidiaries make monthly payments.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company records the long-term obligation as if it was payable at each balance sheet date
on an undiscounted basis.
| | ----------------------------------------------------------------------------------------------------------------------

| | b. | The
U.S. subsidiaries offer 401(k) matching plans to all eligible employees.
| | -- | ----------------------------------------------------------------------------

| | c. | Substantially
all of the European subsidiaries make contributions to pension                plans
administered by insurance companies.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------

| | d. | Severance
pay and defined contribution plan expenses totaled $760,000,                $1,523,000
and $563,000 in 2004, 2003 and 2002, respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | The
Company expects to pay the following future benefits to its Israeli
               employees upon their retirement at normal retirement age:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------

|                         | U.S. dollars
in thousands
|------------------------ | -------------------------
|
|
|
|
|Year ending December 31: |                          
|2005                     |                          
|2006                     |                          
|2007                     |                          
|2010                     |                          
|2013                     |                          

| | The
above amounts were determined based on recent salary rates and do not include amounts
that might be paid to employees that will cease working with the company, before their
normal retirement age or amounts to be paid to employees that their normal retirement age
extends beyond the year 2014.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 10 |  | COMMITMENTS AND CONTINGENT LIABILITIES:
|------- | - | ---------------------------------------

| | a. | Commitments:
| | -- | ------------

| | 1) | The
Company and its subsidiaries is committed to pay royalties of 3%-5% to the
          Government of Israel on sales of products in the research and development of
          which the Government participates by way of grants, up to the amount of the
          grants received (dollar linked), plus annual interest based on the Libor,
          accruing from January 1, 1999. At the time the funding was received, successful
          development of the related projects was not assured. In the case of failure of
a           project that was partly financed by royalty-bearing grants, the Company is
not           obligated to pay any such royalties to the Israeli Government.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2004, the maximum contingent royalty payable is approximately $3.8 million.
Royalty expenses totaled $245,000, $128,000 and $167,000 in 2004, 2003 and 2002,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | The
Company is obligated to pay royalties to certain parties, based on           agreements
that allow it to use technologies developed by these parties. Such           royalties
are based on the revenues from sales of products, which incorporate           these
technologies or on quantities of such products sold. Royalty expenses           totaled
$1,316,000, $984,000 and $0 in 2004, 2003 and 2002, respectively.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Operating
leases
| | -- | ----------------

| | Most
of the premises occupied by the Company and its subsidiaries are rented under various
operating lease agreements. Part of the premises in Israel were leased from an affiliate
of the two major shareholders of the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Minimum
lease payments of the Company and its subsidiaries under the above leases, at rates in
effect on December 31, 2004, are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------

|                         | U.S. dollars
in thousands
|------------------------ | -------------------------
|
|
|
|
|Year ending December 31: |                          
|2005                     |                          
|2006                     |                          
|2007                     |                          
|2008                     |                          
|2009                     |                          
|2010 and thereafter      |                          

| | Most
of the rental payments for the Israeli premises are payable in Israeli currency,
partially linked to the Israeli CPI, to the dollar or both to the dollar and the U.S.
CPI. Rental expense relating to continuing operations totaled $2,425,000, $2,449,000 and
$1,158,000 in 2004, 2003 and 2002, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 28

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 10 |  | COMMITMENTS AND CONTINGENT LIABILITIES(continued):
|------- | - | --------------------------------------------------

| | 4) | Commencing
November 1, 2001 and until January 2004, the Companys           headquarters
are located on the premises of one of its major shareholders. The           Company
obtained the services of certain executives and other staff as well as           certain
services from the major shareholder, for which the Company pays amounts           based
on formulas determined in the agreement between the Company and the
          shareholder. During the first two quarters of 2004, the Companys
          headquarters are located on the premises of other major shareholder. The
Company           obtains the services of an executive as well as certain ancillary
services from           the shareholder, for which the Company pays amounts based on
formulas determined           in the agreement between the Company and the shareholder.
Expenses due to the           said agreements totaled $227,000, $518,000 and $445,000 in
2004, 2003 and 2002,           respectively. Beginning of the third quarter of 2004 the
Company has a lease           agreement with an unrelated third party.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Contingent
liabilities:
| | -- | -----------------------

| | 1) | In
October 2003, a NIS 14 million (approximately $3.2 million) lawsuit was           filed
by a minority shareholder of a subsidiarys shareholders, against the
          Company, a subsidiary and others, mainly other shareholders of the subsidiary
          (among them, the Companys two largest shareholders, Clal and Discount)
and           the directors of the subsidiary in the period relevant for the lawsuit
(three of           whom are our present or former office holders). The lawsuit generally
alleges           that the terms of the transaction to combine the operations of the
subsidiary           and the subsidiary International and the manner in which it was
effected           prejudiced the rights of the minority shareholder as a minority
shareholder of           the subsidiary.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2003, the minority shareholder also sent a demand letter to the subsidiary, as a
preliminary step for a derivative action, whereby the minority shareholder demanded that
the subsidiary initiate a lawsuit against the Company, a company wholly-owned by the
Subsidiary (Subsidiary International) and the subsidiarys directors in
the period relevant for the claim for an alleged breach of fiduciary duties of the
directors and misrepresentations in connection with an undertaking by Scitex to transfer
$15 million to Subsidiary International as part of the aforesaid transaction.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, a separate motion was filed by the minority shareholder against the
Company, the subsidiary, and the two shareholders mentioned above, in connection with the
subsidiarys rights offering that was concluded in July 2003. In particular, the
motion alleges that the reorganization of the subsidiarys share capital that was
effected in conjunction with the rights offering was invalid and prejudiced the rights of
the minority shareholder. In light of its allegations, the minority shareholder requested
that the court order the defendants to provide information and documents with respect to
this matter.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 10 |  | COMMITMENTS AND CONTINGENT LIABILITIES(continued):
|------- | - | --------------------------------------------------

| | In
May 2004, the minority shareholder filed another lawsuit against the Company, the
subsidiary, and the two shareholders mentioned above in connection with the subsidiarys
rights offering that was concluded in May 2004. The lawsuit generally alleges that the
terms of the transaction and the manner in which it was effected prejudiced the rights of
the minority shareholder as a minority shareholder of the subsidiary. The minority
shareholder requested the court to order that the resolutions of the subsidiarys
audit committee, board of directors and general meeting of shareholders authorizing the
transaction be annulled, and that the transaction is void.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
parties to the legal proceedings described above agreed to try to settle all of the
disputes between them by mediation and the mediation proceedings are in advance stages.
Therefore, all court proceedings were postponed. No provision was recorded for this
matter in these financial statements. (See Note 16b  subsequent Events  for
further update in this matter).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | In
January 2003 SV International has received a letter from the legal advisors           of
a service provider claiming compensation in the amount of approximately
          4,000,000 New Israeli Shekel (NIS) (approximately $928,000) arising
          from SV Internationals decision to cease using the service providers
          services. The letter of demand alleges that SV International has a contractual
          relationship with this service provider. The Company is unable to assess the
          outcome of this matter, and SV International intends to mount a vigorous
          defense. No provision was recorded in respect of this matter in these financial
          statements.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | In
July 2000 a monetary claim in the amount of approximately $413,000 against           the
Company was filed with the district court in Jerusalem. In this lawsuit it           was
claimed that a machine the Company sold to the plaintiff did not function as
          promised by the Company. In April 2000, the Company sold substantially all of
          the assets, liabilities and operations related to its Digital PrePrint business
          to Creo. Therefore, defense is being handled by Creo. In the opinion of the
          Companys management, since this lawsuit is in the framework of an
          indemnification agreement with Creo, it will have minimal effect on the
Company,           if any. Therefore no provision was recorded for this matter.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 10 |  | COMMITMENTS AND CONTINGENT LIABILITIES(continued):
|------- | - | --------------------------------------------------

| | 4) | In
December 2003, three minority shareholders of Objet, a company in which
          the Company has a 22.91% interest, filed an approximate 7.8 million New
          Israeli Shekels (NIS)  (approximately $1.75 million)
          lawsuit against Objet, certain of its shareholders, including the Company, and
          certain of Objets directors. The lawsuit alleges that the defendants
acted           in a manner that prejudiced the rights of the minority shareholders, and
          breached Objets obligations to such shareholders. Among the remedies
being           sought by the said minority shareholders are compensation, restitution
(with           linkage and interest) of the investment amount, or repurchase of the
          plaintiffs shares in Objet, and a demand for changes to the terms of
          certain convertible loans made to Objet by certain of the defendants including
          the Company. Objet has asked for a dismissal of the case relating to one of the
          parties suing. At this time the Companys attorneys are still evaluating
          the claim, and neither Objet nor the Company is able to give any realistic
          assessment as to the outcome of this matter, therefore no provision was
          recorded. (See Note 16d  subsequent Events  for further update in
          this matter).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5) | Claims
have been filed against the Company and its subsidiaries in the ordinary           course
of business. The Company and its subsidiaries intend to defend themselves
          vigorously against those claims. Management does not expect that the Company
          will incur substantial expenses in respect thereof; therefore, no provision has
          been made for the claims.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6) | As
to tax assessments of two of the Companys subsidiaries, see note 12h.
| | -- | -------------------------------------------------------------------------

|NOTE 11 |  | SHAREHOLDERS EQUITY:
|------- | - | ---------------------

| | a. | Share
capital:
| | -- | --------------

| | 1) | The
Companys shares are traded on NASDAQ, under the symbol SCIX, and on           The
Tel Aviv Stock Exchange (TASE).
| | -- | ------------------------------------------------------------------------------------------------------------------------

| | On
December 31, 2004, the Companys share closed on NASDAQ and TASE at $5.21 and
approximately $5.14, respectively.
| | -------------------------------------------------------------------------------------------------------------------

| | 2) | The
number of shares stated as issued and outstanding  43,467,388 shares           at
December 31, 2004 and 2003  includes, at December 31, 2004           and
December 31, 2003, 5,401,025 shares and 448,975 shares, respectively,
          repurchased by the Company and held by the Company or by a trustee. These
shares           bear no voting rights or rights to cash dividends.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 31

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 11 |  | SHAREHOLDERSEQUITY(continued):
|------- | - | -------------------------------

| | b. | Cash
distribution and treasury stock
| | -- | ------------------------------------

| | In
2004, approximately $118 million were transferred by the Company to its shareholders
through a repurchase of shares from the shareholders and a cash distribution:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1) | In
June 2004, the Company completed a self tender offer and purchased 4,952,050
          shares for an aggregate amount of approximately $28.1 million that represent
          $5.67 per share.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | In
July 2004, the Company distributed in cash $2.36 per ordinary share, or
          approximately $89.8 million in the aggregate, to its shareholders.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Retained
earnings
| | -- | -----------------

| | Dividends
are declared and paid in dollars (except to shareholders of record with an address in
Israel, with respect to whom payment is made in Israeli currency (NIS)).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Share
incentive and stock option plans
| | -- | --------------------------------------

| | 2001
and 2003 Plans
| | -------------------

| | In
December 2001, the Companys shareholders approved the adoption of the Scitex 2001
Stock Option Plan (2001 Plan), designed primarily for employees and directors
of the Company and its subsidiaries. In December 2003, the Companys shareholders
approved the adoption of the Scitex 2003 Share Option Plan (2003 Plan),
designed for employees, directors and consultants of the Company who are Israeli
residents, and also approved an increase in the aggregate number of shares reserved for
issuance under the 2001 Plan from an initial 750,000 shares to 1,900,000 shares, with all
such reserved shares being available for issuance under either the 2001 Plan or the 2003
Plan. Option awards may be granted under the 2001 Plan until November 5, 2011 and
under the 2003 Plan until November 23, 2013. Terms of the options granted under the
plans, such as length of term, exercise price, vesting and exercisability, are determined
by our board of directors. The maximum term of an option may not exceed ten years. Each
option can be exercised to purchase one share having the same rights as other ordinary
shares of the Company.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
2003 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 will be
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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the years ended December 31, 2003 and 2002, no options had been granted under either the
2001 plan or 2003 plan.
| | -------------------------------------------------------------------------------------------------------------------

F - 32

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 11 |  | SHAREHOLDERSEQUITY(continued):
|------- | - | -------------------------------

| | On
September 20, 2004, the board of directors resolved to grant two senior employees of the
Company options under the 2003 Plan to purchase an aggregate of 168,000 shares of the
Company at an exercised price of $3.70 per share. The fair value of one share at the day
of grant was $4.11. The options vest ratably over three years and are exercisable for ten
years until September 20, 2014. Any options not exercised by then will expire. In
the year 2004, the Company recorded $69,000 of deferred stock compensation for the excess
of the fair value of shares over the exercise price at the date of grant related to these
options. The deferred stock compensation is amortized over the vesting period using the
straight-line method. The compensation costs of $7,000 have been classified under general
and administrative expenses in 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
options granted under the Companys plans are exercisable for the purchase of shares
as follows:
| | ----------------------------------------------------------------------------------------------------

|                                  | December 31
|--------------------------------- | -----------
|
|
|
|
|At balance sheet date             |            
|During the first year thereafter  |            
|During the second year thereafter |            
|                                  |            
|                                  |            
|                                  |            
|                                  |            

| | A
summary of the status of the Companys plans at December 31, 2004, 2003 and
2002, and changes during the years ended on those dates, is presented below:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Year ended December 31
|----------------------------------- | ----------------------
|
|
|
|
|Options outstanding at              |                       
|beginning of year                   |                       
|Changes during the year:            |                       
|Granted                             |                       
|Forfeited and canceled              |                       
|                                    |                       
|Options outstanding at end of year  |                       
|                                    |                       
|Options exercisable at end of year  |                       
|                                    |                       
|Options available for future awards |                       
|                                    |                       

| | The
weighted average fair value of options granted during 2004 is $1.69.
| | ------------------------------------------------------------------------

| | The
fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: risk-free interest
rate of 3.1%; dividend yields of zero; expected life of the options of approximately
three years; and expected volatility of 52%.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 33

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 11 |  | SHAREHOLDERSEQUITY(continued):
|------- | - | -------------------------------

| | The
following table summarizes information about options under the Companys plans
outstanding at December 31, 2004:
| | --------------------------------------------------------------------------------------------------------------------

|Options outstanding | Options exercisable
|------------------- | -------------------
|
|
|
|
|3.70                |                    
|9.00 to    9.99     |                    
|10.00 to 10.99      |                    
|11.00 to 11.99      |                    
|12.00 to 12.99      |                    
|                    |                    
|                    |                    
|                    |                    

| | An
award in 1999, whereby 50 % of 300,000 options awarded in earlier years to a related
party, with an exercise price of $14.75 per option, were re-priced to an exercise price
of $11.69 per option (the then market price per share), accompanied by a waiver of the
remaining 50%. Such options were exercisable from 1999 until canceled in June 2004. The
fair value of each option granted was $3.21. In accordance with FIN 44, the re-priced
options are accounted for under variable plan accounting. Under this method of
accounting, increases in the fair market value of the underlying shares result in
stock-based compensation charges to the statement of operations. In June 2004, and on
December 31, 2003, the market price of the underlying shares was below $11.69 (the
exercise price of the options), thus, no compensation cost has been charged with respect
to these options.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Option
plan in a subsidiary
| | ---------------------------

| | In
September 2003, the board of directors of an Israeli subsidiary approved an employee
stock option plan (the subsidiary plan), whereunder options to purchase up to
12,985,630 ordinary shares of the subsidiary are to be granted to employees, directors
and consultants of the subsidiary without consideration. Each option can be exercised to
purchase one ordinary share of NIS 0.01 par value of the subsidiary. Immediately upon
exercise, the ordinary shares purchased in exercise of the options will have the same
rights as of the subsidiarys other ordinary shares. Any option not exercised within
10 years from allotment date will expire, unless extended by the board of directors of
the subsidiary.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 20, 2004, the subsidiarys board of directors decided to increase the
number of shares reserved under the subsidiary plan with additional options to purchase
up to 5,068,570 ordinary shares.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2004 and December 31, 2003, there were approximately 17,732,000 and
12,531,000 options, respectively, outstanding subject to the subsidiary plan, of which
8,320,000 and 6,079,265, respectively, were exercisable.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 34

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 11 |  | SHAREHOLDERSEQUITY(continued):
|------- | - | -------------------------------

| | Except
for 193,874 options granted at an exercise price of $4.00 per share, all options were
granted at an exercise price of $0.4052. For all grants, management determined that the
exercise price per share is not less than the estimated fair value of an ordinary share
at the date of grant, except for 4,351,360 options granted in late 2004 whereby
management estimated the fair value of one share to be $0.55. In the year 2004 the
subsidiary recorded $476,000 of deferred stock compensation for the excess of the fair
value of ordinary shares of the subsidiary over the exercise price at the date of grant
related to these options (net of minority interests). The deferred stock compensation is
amortized over the vesting period using the straight-line method. The compensation costs
of $21,000 have been classified to the income statements, under general and
administrative expenses in the year 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted fair value of options granted by the subsidiary during 2004 and 2003 was $0.24
and $0.14, respectively and estimated at the date of each option grant using the
Black-Scholes option pricing model with the following assumptions: risk-free interest
rate of 3.23% to 2.3% and 2.2% respectively; dividend yields of zero in 2004 and 2003;
expected life of the options of approximately three years in both 2004 and 2003; and
expected volatility of 50% to 57% and 48%, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2004 and 2003, no options were exercised.
| | ------------------------------------------------

|NOTE 12 |  | TAXES ON INCOME:
|------- | - | ----------------

| | a. | The
Company and its Israeli subsidiary:
| | -- | ---------------------------------------

| | 1) | Tax
benefits under the Israeli Law for the Encouragement of Capital           Investments,
1959 (hereafter- the law)
| | -- | --------------------------------------------------------------------------------------------------------------------

| | The
entitlement to these benefits is conditional upon the subsidiary fulfilling the
conditions stipulated by the law, regulations published thereunder 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 subsidiary may be
required to refund the amount of the benefits, in whole or in part, with the addition of
CPI linkage increments and interest. Currently, the subsidiary is in discussions with the
relevant authorities on the rights and entitlement to the below benefits, and the
entitlement of these benefits is conditioned upon the results of these discussions.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 35

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 12 |  | TAXES ON INCOME:(continued)
|------- | - | ---------------------------

| | Tax
benefits for approved enterprises include:
| | ----------------------------------------------

| | a) | Reduced
tax rates
| | -- | -----------------

| | The
tax benefit period is seven years from the year in which such an enterprise first earns
taxable income, but not later than 2009. Income derived from the approved enterprise is
tax exempt during the first two years of the seven years tax benefit period and is
subject to a reduced tax rate of 25% during the remaining five benefit years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the event of distribution of cash dividends from income that was tax exempt as above, the
Company would have to pay the 25% tax in respect of the amount distributed.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company intends to reinvest the amounts of tax exempt income in the foreseeable future,
and not to cause distribution of such dividends.
| | --------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Accelerated
depreciation
| | -- | ------------------------

| | The
subsidiary is entitled to claim accelerated depreciation for five tax years, commencing
in the first year of operation of each asset, in respect of machinery and equipment used
by the approved enterprise.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Measurement
of results for tax purposes under the Income Tax (Inflationary           Adjustments)
Law, 1985 (hereafter  the Inflationary Adjustments Law)
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
this law, results for tax purposes are measured in real terms, in accordance with the
changes in the Israeli CPI, or in the exchange rate of the dollar for a foreign
investors company. The Company and its Israeli subsidiaries elected to
measure their results on the basis of the changes in the Israeli CPI.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | Tax
rates
| | -- | ---------

| | The
income of the company and its Israeli subsidiaries (other than income from approved
enterprises, see b. below) is taxed at the regular rate. Through to December 31,
2004, the corporate tax was 36%. In July 2004, an amendment to the Income Tax Ordinance
was enacted. One of the provisions of this amendment is that the corporate tax rate is to
be gradually reduced from 36% to 30%, in the following manner: the rate for 2004 will be
35%, in 2005  34%, in 2006  32%, and in 2007 and thereafter  30%. The
effect of the change in the tax rates in the coming years, on the deferred tax balances
of the amendment to the law, is included in paragraph f below. Capital gains are taxed of
25%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Non-Israeli
subsidiaries
| | -- | ------------------------

| | The
non-Israeli subsidiaries are taxed under the laws of their countries of residence.
| | --------------------------------------------------------------------------------------

F - 36

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 12 |  | TAXES ON INCOME:(continued)
|------- | - | ---------------------------

| | c. | Carryforward
tax losses and deductions
| | -- | --------------------------------------

| | Carryforward
tax losses and deductions of the Company and its subsidiaries, including capital losses
and losses from realization of marketable securities approximated $466 million at December 31,
2004. Most of the carryforward amounts are available indefinitely with no expiration date.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Deferred
income taxes:
| | -- | ----------------------

|                                          | December 31
|----------------------------------------- | -----------
|
|
|
|
|Computed in respect of the following:     |            
|Allowance for doubtful accounts and       |            
|other provisions                          |            
|Carryforward tax losses and credits       |            
|Inventories                               |            
|Investments                               |            
|Marketable Securities                     |            
|Accrued liabilities and deferred income   |            
|Property, plant and equipment             |            
|Intangible assets                         |            
|                                          |            
|                                          |            
|L e s s - valuation allowance (attributed |            
|mainly to loss carryforwards and expenses |            
|deductible upon payment)                  |            
|                                          |            
|                                          |            
|                                          |            
|Deferred income taxes are included in the |            
|balance sheets in current assets:         |            
|                                          |            

| | e. | Income
(loss) before taxes on income from continuing operation:
| | -- | ---------------------------------------------------------------

|                                         | Year ended December 31
|---------------------------------------- | ----------------------
|
|
|
|
|The Company and its Israeli subsidiaries |                       
|Non-Israeli subsidiaries                 |                       
|                                         |                       
|                                         |                       
|                                         |                       

F - 37

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 12 |  | TAXES ON INCOME:(continued)
|------- | - | ---------------------------

| | f. | Taxes
on income included in the statements of operations  from           continuing
operation:
| | -- | -----------------------------------------------------------------------------------------------

| | 1) | As
follows:
| | -- | -----------

|                        | Year ended December 31
|----------------------- | ----------------------
|
|
|
|
|Current:                |                       
|Israeli                 |                       
|Non-Israeli             |                       
|                        |                       
|                        |                       
|                        |                       
|Deferred, see e. above: |                       
|Israeli                 |                       
|Non-Israeli             |                       
|                        |                       
|                        |                       
|                        |                       
|                        |                       
|                        |                       

| | 2) | Following
is a reconciliation of the theoretical tax expense, assuming all           income is
taxed at the regular tax rate applicable to Israeli corporations (see           a(3)
above) and the actual tax expense:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | Year ended December 31
|-------------------------------------------- | ----------------------
|
|
|
|
|
|Income (loss) before taxes on income         |                       
|                                             |                       
|Theoretical tax expense (tax benefit) on     |                       
|the above amount                             |                       
|Effect of lower tax rate for                 |                       
|"approved enterprises"                       |                       
|                                             |                       
|                                             |                       
|Increase (decrease) in taxes resulting from  |                       
|different tax rates - net                    |                       
|Increase in taxes resulting from             |                       
|permanent differences                        |                       
|Change in valuation allowance                |                       
|Changes in deferred taxes resulting from     |                       
|carryforward tax losses                      |                       
|Increase in taxes resulting from prior years |                       
|Increase (decrease) in taxes arising         |                       
|from differences between non-dollar          |                       
|currencies income and dollar                 |                       
|income , net, and other*                     |                       
|                                             |                       
|Taxes on income in the consolidated          |                       
|statements of operations                     |                       
|                                             |                       
|                                             |                       

| | * | Resulting
mainly from the difference between the changes in the Israeli CPI (the basis for
computation of taxable income of the Company and its Israeli subsidiaries, see a(2)
above) and the changes in the exchange rate of Israeli currency relative to the dollar.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 12 |  | TAXES ON INCOME:(continued)
|------- | - | ---------------------------

| | g. | Tax
assessments:
| | -- | ----------------

| | 1) | The
Company has received, or is considered to have receive, final tax           assessments
through the 1999 tax year.
| | -- | ----------------------------------------------------------------------------------------------------------------------

| | 2) | Following
the filing of tax returns of the Companys U.S. subsidiaries for                the
years 1992 through 1996 (and receive certain refunds in respect thereof),
               the Internal Revenue Service (IRS) commenced an audit on those years. By
the end                of 2001, the Company had already made advance payments of $21.5
million on                account of this audit. In partial settlement of said audit the
Company consented                to a partial assessment by the IRS for
approximately $10.6 million                of federal taxes on certain agreed upon issues
in June 2002. In the same month,                the Company received a notice from the
IRS proposing to assess $29.6 million of                additional federal income taxes
for the years 1992 through 1996. In August 2002,                the Company appealed the
proposed additional assessment. In February 2004,                following negotiations
with the IRS, the Company finalized the settlement with                the IRS, and the
during the remainder of 2004, the Company concluded paying                according to
the settlement with the IRS in an amount of $5.9 million to the                IRS, and
also paid $5.7 million as state taxes derived from that IRS audit.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3) | In
December 2004, as a result of the conclusion of the 1992-1996 IRS audit, the
               Company filed federal tax amendments for the years 1994, 1995 and 1997,
claiming                a refund of $7.8 million of federal taxes. As of the date of
these financial                statements, the IRS has not responded to our refund
request. Due to the existing                uncertainty surrounding the outcome of this
refund request, the said amount is                not included in the financial
statements.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 13 |  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
|------- | - | ------------------------------------------

| | a. | Foreign
exchange risk management
| | -- | --------------------------------

| | The
Company and its subsidiaries operate internationally, which gives rise to significant
exposure to market risks, mainly from changes in foreign exchange rates. Derivative
financial instruments (hereafter  derivatives) were utilized by a subsidiary to
reduce these risks. The Company did not hold or issue derivative financial instruments
for trading purposes.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Commencing
2003, a subsidiary purchases forward-exchange contracts as hedges of certain anticipated
sales and related costs denominated in foreign currencies. The subsidiary enters into
these contracts to protect itself against the risk that the eventual dollar-net-cash
inflows resulting from direct-foreign-export sales and related costs will be affected by
changes in exchange rates. These contracts do not qualify for hedge accounting under FAS
133. Accordingly gains and losses for these forward-exchange contracts are recognized in
earnings. As of December 31, 2004 and 2003, the liability for losses deriving from
forward-exchange contracts amounted to approximately $412,000 and $556,000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 39

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 13 |  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
|------- | - | ------------------------------------------

| | b. | Concentrations
of credit risks
| | -- | ------------------------------

| | At
December 31, 2004 and 2003, the Company and its subsidiaries held cash and cash
equivalents, most of which were deposited with major Israeli, European and U.S. banks.
Substantially, all of the marketable securities held by the Company are debt securities
of the U.S. Treasury and highly rated corporations. The Company considers the inherent
credit risks to be remote.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Most
of the subsidiaries sales are made in the United States, Latin America, Europe and
in the Far East, to a large number of customers. Consequently, the exposure to
concentrations of credit risks relating to individual customer receivables is limited.
The subsidiary performs ongoing credit evaluations of its customers and generally does
not require collateral; however, with respect of certain sales to customers in emerging
economies, the subsidiary requires letters of credit.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Cash
Management and Fair value of financial instruments
| | -- | -------------------------------------------------------

| | The
financial instruments of the Company and its subsidiaries consist mainly of cash and cash
equivalents, marketable securities, short-term investments, long-term investments,
current and long-term liabilities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
view of their nature, the fair value of the financial instruments included in working
capital is usually identical or close to their carrying amount. The fair value of
long-term liabilities also approximates their carrying value, since they bear interest at
rates close to the prevailing market rates.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 40

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:
|------- | - | ----------------------------------------------

| | Balance
sheets:
| | ---------------

| | a. | Short-Term
Investments:
| | -- | -----------------------

| | 1) | The
fair value and the amortized cost of available-for-sale securities and cash
          equivalents are as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------

|                                        | December 31, 2004
|--------------------------------------- | -----------------
|
|
|
|
|United States government and government |                  
|agencies debentures                     |                  
|Corporate debt securities               |                  
|Mortgage backed securities              |                  
|                                        |                  
|                                        |                  
|                                        |                  
|                                        |                  

| | (*) | Such
unrealized holding losses are the result of an increase in market interest rates during
fiscal 2004 and are not the result of credit or principal risk. Based on the nature of the
investments, management concluded that such unrealized losses were not other than
temporary as of December 31, 2004. Amounts reclassified out of accumulated comprehensive
income into earning are determined by specific identification.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Maturities
of the above securities are as follows:
| | --------------------------------------------------

|                     | Estimated fair
market value
|-------------------- | ---------------------------
|
|
|
|
|2005                 |                            
|2006                 |                            
|2007                 |                            
|2008                 |                            
|2009 and there after |                            
|                     |                            
|                     |                            
|                     |                            
|                     |                            

| | As
of December 31, 2004, the Company held investments in available for sale with unrealized
holding losses totaling $327,000, all of which are less then one year. Realized losses in
2004 were approximately $70,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 41

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued)
|------- | - | ---------------------------------------------------------

| | 2) | Creo
| | -- | ----

| | In
June and August 2003, the Company sold all of its remaining holdings in Creo Inc.
(hereafter  Creo) shares for a net total consideration of $54,000,000
and recorded a gain of approximately $3,000,000. The investment in Creo shares was
accounted for as shares available for sale, and following the sale of the shares, the
Company recorded approximately $750,000 gain in its shareholders equity. This gain
was realized and released to earnings in 2003. In 2002, due to extended decline in fair
market value, it was determined that the impairment in value of the investment was other
than temporary. Consequently, the accumulated unrealized loss of $22,283,000 was charged
to other income (loss), net in the statement of operation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | December 31
|------------------------------------------------ | -----------
|
|
|
|
|b.  Allowance for doubtful accounts (as included |            
|in trade receivables) - the change in allowance  |            
|for doubtful is composed as follows:             |            
|Balance at beginning of year                     |            
|Addition to allowance                            |            
|Write-off of bad debts                           |            
|                                                 |            
|                                                 |            
|                                                 |            
|c.  Other receivables:                           |            
|Value added taxes receivable                     |            
|Employees                                        |            
|Other                                            |            
|                                                 |            
|                                                 |            
|                                                 |            
|d.  Inventories                                  |            
|Components of systems and materials              |            
|Work in process                                  |            
|Consumables                                      |            
|Finished products                                |            
|                                                 |            
|                                                 |            
|                                                 |            

F - 42

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued)
|------- | - | --------------------------------------------------------

| | e. | Accrued
and other liabilities:
| | -- | ------------------------------

|                                        | December 31
|--------------------------------------- | -----------
|
|
|
|
|Payroll and related expenses            |            
|Accrued royalties and sales commissions |            
|Deferred revenue                        |            
|Provision for warranty*                 |            
|Advances from customers                 |            
|Other                                   |            
|                                        |            
|                                        |            
|                                        |            

|                                               | 2004 | 2003 | 2002
|---------------------------------------------- | ---- | ---- | ----
|
|
|
|
|*  The changes in the balance during the year: |      |      |     
|Balance at beginning of the year               |      |      |     
|Payments made under the warranty               |      |      |     
|Product warranties issued for new sales        |      |      |     
|                                               |      |      |     
|Balance at end of year                         |      |      |     
|                                               |      |      |     

| | f. | Short-term
credit and long-term loans:
| | -- | --------------------------------------

| | 1) | Short-term
credit and loans
| | -- | ---------------------------

| | The
balance as of December 31, 2004 represents: $16,397,000 short-term bank loans denominated
in dollars and bearing interest of three months Libor + 1% to Libor + 2.25% per annum (as
of December 31, 2004 and 2003  3.63% to 4.88% and 2.3%-3.5%, respectively);
$14,358,000 short-term bank loans denominated in Euro and bearing interest of Libor +
1.75% to 2% per annum (as of December 31, 2004 and 2003 respectively, 4%- 4.25% and
3.8%-4.4%), current maturities of long term loans from banks in the amount of $2,347,000
and current maturities of other long term loan in the amount of $1,210,000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 43

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued)
|------- | - | --------------------------------------------------------

| | 2) | Current
maturities of long-term loans (represent loans of Scitex Vision):
| | -- | -------------------------------------------------------------------------

|      | December 31
|----- | -----------
|
|
|
|
|Banks |            
|Other |            
|      |            
|      |            
|      |            
|      |            

| | 3) | Long-term
loans:
| | -- | ----------------

| | a) | The
long-term loans from banks mature in the following years:
| | -- | -------------------------------------------------------------

|                          | December 31
|------------------------- | -----------
|
|
|
|
|Current maturities        |            
|                          |            
|Second year               |            
|Third year                |            
|Fourth year               |            
|Fifth year and thereafter |            
|                          |            
|                          |            
|                          |            
|                          |            
|                          |            
|                          |            

| | As
to the maturity dates of another loan see c below.
| | -----------------------------------------------------

| | b) | The
long-term loans from banks are dollar denominated and bear interest of           three
month Libor + 1.75 % to Libor + 2.25 % per annum (as of December 31, 2004           and
2003  4.38% to 4.88 % and 2.9% to 3.4% respectively).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | In
2000, Scitex Vision entered into a collaboration agreement (the           Collaboration
Agreement) with a leading European supplier (the           supplier) to
the textile, paper and plastics printing industry, for           developing inks for
printing on textile. Pursuant to the Collaboration           Agreement, the Supplier is
to pay Scitex Vision certain royalties on sales of           ink for use with the Scitex
Visions textile printing machines. Following           the Collaboration Agreement,
the Company received from the supplier a long-term           convertible loan of $5
million. The loan was received on December 27, 2000, and           bore 6% annual
interest. However, if the milestones described in the           Collaboration Agreement
were met, the loan was to be interest free.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 44

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued)
|------- | - | --------------------------------------------------------

| | According
to the original terms of the loan, the loan and the accumulated interest may be converted
by the supplier, at any time during the last three months of the loan period, which ends
on December 11, 2003, into ordinary shares of Scitex Vision at a conversion price based
on the fair value of such shares, less 15%. According to the Collaboration Agreement if
the Supplier chooses to request the repayment of the loan, the repayment shall be made by
setting-off the loan and any interest accrued thereon against royalties due to Scitex
Vision in a subsequent period. The remainder of the loan, if any, shall be repaid in cash
to the Supplier. Pursuant to the conversion terms, whereby the Supplier was granted
beneficial conversion features, the Company recorded an original discount of $882,353,
which represents the difference between the loan amount and the value of the ordinary
shares. This amount was fully amortized to interest expense over 33 months, which is the
period from the grant date to the beginning of the period during which the supplier was
entitled to convert the loan into ordinary shares.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 30, 2003 an addendum to the agreement was signed, according to which, the
original terms of the loan were changed such that the principal of the loan ($5 million)
is interest free and payable in four annual installments in the following years
subsequent to December 31, 2003. The first payment of $1 million was paid in December
2004 and the remaining amount is payable as follows (the amounts are presented in their
net present values):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   | December 31,
2004
|------------------ | -----------------
|
|
|
|
|Current maturities |                  
|                   |                  
|Second year        |                  
|Third year         |                  
|                   |                  
|                   |                  
|                   |                  
|                   |                  
|                   |                  
|                   |                  

| | Scitex
Vision has the right to offset royalties due to Scitex Vision against the amount due on
the next agreed installment. As a result of the above-mentioned change in terms, Scitex
Vision has recorded the loan based on its present value using 3.3% interest rate, which
is applicable to such loans as of the date of the change in terms. The difference between
the present value and the nominal value of the loan, in the total amount of $408,000 (Discount),
as well as all interest accrued at December 30, 2003, in the total amount of $904,000,
have been credited to financial expenses, net in the year ended December 31,
2003. The amortization of the Discount recorded as financial expenses, amounted to
$158,000 in 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 45

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued)
|------- | - | --------------------------------------------------------

| | d) | Long-term
loans convertible into subsidiarys shares
| | -- | ----------------------------------------------------

| | In
July 2003 and May 2004, two of the Companys shareholders granted Scitex Vision
convertible loans in the total amount of $933,000 and $805,000, respectively, bearing
interest equal to the greater of Libor + 1% (as of December 31, 2004 and 2003 -3.63% and
2.1%, respectively) or the NIS equivalent of the principal amount linked to the rate of
change of the Israeli CPI over the period of the loans. The loans and interest are
payable in one installment at the end of a five year period if no conversion occurs
before the end of the repayment period. The loans may be converted by the lenders to
4,234,316 ordinary shares of the Scitex Vision at any time at an exercise price of
$0.4052 per share, which equals the estimated fair value of Scitex Visions ordinary
shares at the date of grant of the loans. According to the loans agreements, an automatic
conversion shall occur upon the occurrence of certain events. In addition, all lenders
were granted warrants representing 25% of the total loan amount, to purchase 1,058,578
ordinary shares of Scitex Vision at an exercise price of $0.4052 per share. $98,500 and
$54,500 were allocated to the said warrants out of the total above-mentioned loans in
2004 and 2003, respectively. These amounts are amortized to interest expenses over the
maximum term of the loans, which is 5 years.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pursuant
to the conversion terms, whereby the lenders were granted beneficial conversion features (BCF),
the Company recorded an original discount of $98,500 and $54,500 in 2004 and 2003,
respectively, which represents the difference between the loan allocated amount and the
amount payable. These amounts are amortized to interest expenses over the maximum term of
the loans, which is 5 years. The warrants expire after 5 years from grant as well.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
the years 2004 and 2003 the Company recorded interest expenses of $99,000 and $20,000,
respectively, in connection with the said warrants, amortization of the BCF amount and
interest expenses.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e) | Long-term
loans  other
| | -- | -----------------------

| | In
July 2004, Jemtex received a waiver of all rights regarding a long-term loan at the
amount of $581,000. The waiver of the loan is presented in the financial statements under
other income (loss)".
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 46

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued)
|------- | - | --------------------------------------------------------

| | Statements
of operations:
| | -------------------------

|                                          | Year ended December 31
|----------------------------------------- | ----------------------
|
|
|
|
|g.  Research and development costs , net: |                       
|Expenses incurred                         |                       
|L e s s  -  royalty-bearing               |                       
|participations from the                   |                       
|Government of Israel                      |                       
|                                          |                       
|                                          |                       
|                                          |                       
|h.  Selling, general and administrative   |                       
|expenses:                                 |                       
|Selling*                                  |                       
|General and administrative**              |                       
|                                          |                       
|                                          |                       
|                                          |                       
|*  Including:                             |                       
|Advertising costs                         |                       
|                                          |                       
|** Including:                             |                       
|Related parties                           |                       
|                                          |                       
|Net change in allowance for               |                       
|doubtful accounts and direct              |                       
|write-off of bad debts                    |                       
|                                          |                       
|                                          |                       

| | i. | Restructuring
charges
| | -- | ---------------------

| | During
2003, a subsidiary implemented a restructuring plan in the form of reduction in work
force, abandonment of leased premises and development of new combined information
technology system, and accrued expenses accordingly. The expenses included mainly
severance pay and other benefits to approximately 42 employees retiring from their employ
in the amount of approximately $130,000, costs related to the disposal of certain
activities in the amount of approximately $390,000, and costs related to the development
of new combined information technology system in the amount of approximately $500,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 47

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 14 |  | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION(continued)
|------- | - | --------------------------------------------------------

|                                                  | Year ended December 31
|------------------------------------------------- | ----------------------
|
|
|
|
|j.   Financial expenses,net:                      |                       
|Interest income                                   |                       
|Gain (loss) on trading marketable securities, net |                       
|Interest expense on long-term loans               |                       
|from banks                                        |                       
|from others                                       |                       
|Convertible loan -BCF and warrant                 |                       
|amortization and interests                        |                       
|Bank charges                                      |                       
|Revaluation of long-term loan                     |                       
|Other (including foreign exchange                 |                       
|transaction losses , net)                         |                       
|                                                  |                       
|                                                  |                       
|                                                  |                       
|k.   Other income (loss),net:                     |                       
|Write-down of available-for-sale securities       |                       
|Gain from sale of a portion in a subsidiary       |                       
|Share in beneficial conversion feature of         |                       
|convertible preferred shares issued by a          |                       
|subsidiary                                        |                       
|Write-off and write-down of investments           |                       
|in investee companies                             |                       
|Gain from sale of investments in                  |                       
|associated and investee companies                 |                       
|Gain from waiver of a loan                        |                       
|Other                                             |                       
|                                                  |                       
|                                                  |                       
|                                                  |                       

|NOTE 15 |  | SEGMENTS INFORMATION:
|------- | - | ---------------------

| | a. | General:
| | -- | --------

| | Following
the transaction and as a result of the consolidation of Jemtex for the first time in 2004
the Company operates in the following two segments:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1) | Wide
Format digital printing  development, manufacturing and market
               industrial digital inkjet printing solutions mainly to the graphic
               arts, packaging and textile markets as well as related services and
               consumable products.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Continuous
inkjet industrial digital printing  develop, manufacture and                market
of continuous inkjet based digital printers for the industrial printing
               ceramic tiles and textile markets.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 48

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 15 |  | SEGMENTS INFORMATION(continued)
|------- | - | -------------------------------

| | b. | Information
on segment loss and assets of the reportable operating segments:
| | -- | ----------------------------------------------------------------------------

| | 1) | Measurement
of segment loss and assets:
| | -- | ---------------------------------------

| | The
measurement of losses and assets of the reportable segments is based on the same
accounting principles applied in these consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | Financial
data relating to the reportable operating segments:
| | -- | -------------------------------------------------------------

|                                                             | Year ended December 31,
2004
|------------------------------------------------------------ | ----------------------------
|
|
|
|
|Consolidated revenues from the                               |                             
|Wide Format digital printing                                 |                             
|                                                             |                             
|Operating loss from continuing operations:                   |                             
|Wide Format digital printing                                 |                             
|Continuous inkjet industrial digital printing                |                             
|                                                             |                             
|Total consolidated operating loss from continuing operations |                             
|                                                             |                             
|Interest income (expenses), net:                             |                             
|Wide Format digital printing                                 |                             
|Continuous inkjet industrial digital printing                |                             
|                                                             |                             
|Total consolidation interest expenses, net                   |                             
|                                                             |                             
|Other income (loss), net:                                    |                             
|Wide Format digital printing                                 |                             
|Continuous inkjet industrial digital printing                |                             
|                                                             |                             
|Total consolidation other income (loss), net                 |                             
|                                                             |                             
|Loss before taxes on income:                                 |                             
|Wide Format digital printing                                 |                             
|Continuous inkjet industrial digital printing                |                             
|                                                             |                             
|Total consolidation loss before taxes on income              |                             
|                                                             |                             

F - 49

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 15 |  | SEGMENTS INFORMATION(continued)
|------- | - | -------------------------------

|                                                            | December 31,
2004
|----------------------------------------------------------- | -----------------
|
|
|
|
|Assets:                                                     |                  
|Wide Format digital printing:                               |                  
|Intangible assets                                           |                  
|Other assets                                                |                  
|Goodwill                                                    |                  
|Continuous inkjet industrial digital printing               |                  
|                                                            |                  
|                                                            |                  
|                                                            |                  
|Consolidation adjustment                                    |                  
|                                                            |                  
|                                                            |                  
|                                                            |                  
|Expenditures for long-lived assets:                         |                  
|Wide Format digital printing:                               |                  
|Intangible assets                                           |                  
|Fixed assets                                                |                  
|Goodwill                                                    |                  
|Continuous inkjet industrial digital printing, other assets |                  
|                                                            |                  
|                                                            |                  
|                                                            |                  
|                                                            |                  
|Depreciation and amortization expenses:                     |                  
|Wide Format digital printing:                               |                  
|Intangible assets                                           |                  
|Other assets                                                |                  
|Continuous inkjet industrial digital printing, other assets |                  
|                                                            |                  
|                                                            |                  
|                                                            |                  
|                                                            |                  

| | c. | Geographical
information:
| | -- | -------------------------

| | 1) | Following
are data regarding revenues from external customers in respect of           continuing
operations, classified by geographical area based on the location of           the
customers (Wide Format digital printing segment only):
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                | Year ended December 31
|--------------- | ----------------------
|
|
|
|
|America         |                       
|Europe          |                       
|Far East        |                       
|Other countries |                       
|                |                       
|                |                       
|                |                       
|                |                       

F - 50

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 15 |  | SEGMENTS INFORMATION(continued)
|------- | - | -------------------------------

| | 2) | Following
are data relating to property, plant and equipment, net, relating to           continuing
operations, by geographical area in which the assets are located:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|             | December 31
|------------ | -----------
|
|
|
|
|Israel       |            
|America      |            
|Europe       |            
|South Africa |            
|Asia         |            
|             |            
|             |            
|             |            
|             |            

|NOTE 16 |  | SUBSEQUENT EVENTS:
|------- | - | ------------------

| | a. | Possible
Sale of Scitex Vision
| | -- | ------------------------------

| | On
March 21, 2005, the Company announced that it is engaged in preliminary negotiations
for the possible sale of its holdings in Scitex Vision, in which it holds 75.5% of the
issued share capital (69.5% on a fully diluted basis) for an enterprise value of Scitex
Vision in the range of $230-250 million. The proposed transaction is subject to a due
diligence process, negotiation and execution of definitive agreements. The Company added
that there is no assurance whatsoever that any transaction would result with respect to
Scitex Vision or as to the terms, deal structure and the purchase price for Scitex Vision
if a sale occurs.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Contingent
Liabilities Settlement
| | -- | ---------------------------------

| | In
reference to contingent liabilities set forth in Note 10 b1 above, on April 6, 2005, the
Company and the Companys two largest shareholders, Clal and Discount (the Purchasers)
came to an agreement with the minority shareholder, whereby they agreed to purchase all
of the minority shareholders shares in Scitex Vision, constituting 1.89% of Scitex
Visions issued share capital (1.35% on a fully diluted basis) in consideration for
$1.6 million, plus additional contingent consideration to be paid if Scitex Vision
undergoes an exit event within the next 2 years at a higher valuation as
detailed in the agreement. In the framework of the agreement, the minority shareholder
shall dismiss all suits and other legal proceedings it had initiated or had threatened to
initiate against the Company, the Purchasers and other various parties. In addition, the
minority shareholder, on one hand, and the Company, the Purchasers and other various
parties on the other hand are waiving all other claims and disputes in connection with
Scitex Vision they may have vis-à-vis the other party to the agreement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Sale
of Assets of RealTimeImage Ltd.
| | -- | ------------------------------------

| | On
April 28, 2005 IDX Systems Corporation (NASDAQ:IDXC) announced that it had signed an
agreement to acquire the assets of RealTimeImage, Ltd., (RTI) in which the Company holds
approximately 14.9% of the issued share capital (RTI was recorded on the Companys
balance sheet at $1.2 million as of December 31, 2004, and accounted under the cost
method). IDX will purchase the assets of RTI at an estimated purchase price of $15.5
million. The closing of the acquisition is subject to certain terms and conditions. Also,
the distribution of funds to the shareholders of RTI is subject to certain time and other
limitations and processes, including under the above agreement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 51

---

---



SCITEX CORPORATION LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

|NOTE 16 |  | SUBSEQUENT EVENTS(continued)
|------- | - | ----------------------------

| | d. | Sale
of Objet Geometries Ltd.
| | -- | -----------------------------

| | In
June 2005, the Company sold all of its holdings in Objet to several shareholders
of Objet for $3 million in cash, payable in two installments. Additional contingent
consideration will be paid to the company if Objet undergoes specified exit events prior
to the end of 2007. The book value of the investment in Objet was recorded on the Companys balance
sheet at $124,000 as of December 31, 2004, and accounted under the equity method.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 52

---

---



# Report of Independent
Registered Public Accounting Firm on Financial Statement Schedules

To the Board of Directors
ofScitex Corporation Limited.

Our audits of the consolidated
financial statements referred to in our report dated May 2, 2005, except for note 16d, as
to which the date is June 28, 2005, appearing in this Form 20-F of Scitex Corporation Ltd.
also included an audit of the Financial Statement Schedule II  Valuation and
Qualifying Accounts listed in item 18 of this Form 20-F. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements.

|                 |                                    
|---------------- | -----------------------------------
|Tel-Aviv, Israel | /s/ Kesselman & Kesselman          
|May 2, 2005      | Certified Public Accountants (Isr.)
|                 | A member of PricewaterhouseCoopers 
|                 | International Limited              



---

---



SCITEX CORPORATION LTD.SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Three years ended December 31, 2004
(U.S. $ in thousands)

|Column A                         | Column B | Column C | Column D | Column E
|-------------------------------- | -------- | -------- | -------- | --------
|
|Allowance for doubtful accounts: |          |          |          |         
|Year ended December 31, 2004     |          |          |          | 4,190   
|                                 |          |          |          |         
|Year ended December 31, 2003     |          |          |          | 2,957   
|                                 |          |          |          |         
|Year ended December 31, 2002     |          |          |          | 1,620   
|                                 |          |          |          |         
|Valuation allowance for deferred |          |         
|tax assets:                      |          |         
|Year ended December 31, 2004     |          |          |          | 184,984 
|                                 |          |          |          |         
|Year ended December 31, 2003     |          |          |          | 123,253 
|                                 |          |          |          |         
|Year ended December 31, 2002     |          |          |          | 94,877  
|                                 |          |          |          |         
|Inventory valuation provision:   |          |         
|Year ended December 31, 2004     |          |          |          | 4,340   
|                                 |          |          |          |         
|Year ended December 31, 2003     |          |          |          | 1,225   
|                                 |          |          |          |         
|Year ended December 31, 2002     |          |          |          | 750     
|                                 |          |          |          |         



---

---

[ZIV HAFT LETTERHEAD]

# REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

# To the shareholders
of

# JEMTEX INK JET PRINTING
LTD.

We have audited the accompanying
balance sheets of Jemtex Ink Jet Printing Ltd. (the Company) as of
December 31, 2004 and 2003 and the related statements of operations, changes in
shareholders deficiency and cash flows for each of the two years in the period ended
December 31, 2004. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance
with 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 provide a reasonable basis for our opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2004 and 2003 and the results of its operation
and its cash flows for each of the two years in the period ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1B, to the financial statements, the Company has suffered recurring
losses from operations and as of December 31, 2004 has a shareholders deficiency of
approximately $ 4.2 million. These factors described in Note 1B raise substantial doubt
about the Companys ability to continue as a going concern. Managements plans
in regard to these matters are also described in Note 1B. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

|Tel-Aviv, Israel 
February 28, 2005 | /s/ ZIV HAFT
ZIV HAFT
Certified Public Accountants (Isr.)
BDO member firm
|----------------------------------- | -------------------------------------------------------------------------



---

---



# Objet Geometries Ltd.

# Consolidated Financial
Statements As of December 31, 2004



---

---



|Objet Geometries Ltd.                              
|---------------------------------------------------
|Consolidated Financial Statements December 31, 2004
|                                                   

|Contents                                      |           
|--------------------------------------------- | ----------
|
|
|
|
|Report of Independent Public Accountants      | O-2       
|Financial Statements:                        
|Consolidated Balance Sheets                   | O-3 - O-4 
|Consolidated Statements of Operations         | O-5       
|Statements of Changes in Shareholders' Equity | O-6       
|Consolidated Statements of Cash Flows         | O-7       
|Notes to the Financial Statements             | O-8 - O-20

O - 1

---

---



|Chaikin, Cohen, Rubin & Gilboa.                                                                                                          
|-----------------------------------------------------------------------------------------------------------------------------------------
|Atidim Technology Park, Bldg. 4,
P.O.B. 58143 Tel-Aviv 61580, IsraelTel: 972-3-6489858 Fax: 972-3-6489946
E-mail: accounting@ccrcpa.co.il
|                                                                                                                                         
|                                                                                                                                         

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

# To The Shareholders ofObjet Geometries Ltd.

We have audited the accompanying
consolidated balance sheets of Objet Geometries Ltd., (the Company) and its
subsidiaries as of December 31, 2004 and 2003 and the related consolidated statements of
operations, changes in shareholders equity and cash flows for each of the three
years in the period ended December 31, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements based on our audit.

We conducted our audits in accordance
with auditing standards generally accepted in Israel, including those prescribed under the
Auditors Regulations (Auditors Mode of Performance), 1973 and with the
standards of the Public Company 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 misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statements presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as of December 31,
2004 and 2003 and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States.

Without qualifying our opinion, we
wish to draw your attention that the Company is defendant in certain lawsuits as described
in note 8A.

/s/ Chaikin, Cohen, Rubin
& GilboaChaikin, Cohen, Rubin
& Gilboa Certified Public
Accountants (Isr.)

Tel-Aviv, March 2, 2005

O - 2

---

---



|Objet Geometries Ltd.      
|---------------------------
|Consolidated Balance Sheets
|                           
|In thousands of US Dollars 

|                                       |  | December 31,
|-------------------------------------- |  | ------------
|
|
|
|
|ASSETS                                 |  |             
|                                       |  |             
|Current assets                         |  |             
|                                       |  |             
|Cash and cash equivalents              |  |             
|Restricted cash                        |  |             
|Trade receivables                      |  |             
|Other receivables and prepaid expenses |  |             
|Inventories                            |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             
|Property, plant and equipment          |  |             
|                                       |  |             
|                                       |  |             
|Other assets                           |  |             
|Severance pay funds                    |  |             
|Other                                  |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             
|                                       |  |             

|
Elan Jaglom Chairman of the Board of Directors | 
Adina ShorrChief Executive Officer
|------------------------------------------------------------- | -------------------------------------------------

The
accompanying notes are an integral part of the financial statements

O - 3

---

---



|Objet Geometries Ltd.      
|---------------------------
|Consolidated Balance Sheets
|                           
|In thousands of US Dollars 

|                                                              |  | December 31,
|------------------------------------------------------------- |  | ------------
|
|
|LIABILITIES AND CAPITAL DEFICIENCY                            |  |             
|                                                              |  |             
|Current liabilities                                           |  |             
|                                                              |  |             
|Short term loans                                              |  |             
|Trade payables                                                |  |             
|Deferred revenues                                             |  |             
|Accrued liabilities and other liabilities                     |  |             
|                                                              |  |             
|                                                              |  |             
|                                                              |  |             
|                                                              |  |             
|Long-term liabilities                                         |  |             
|                                                              |  |             
|Accrued severance pay                                         |  |             
|                                                              |  |             
|                                                              |  |             
|Contingencies and commitments                                 |  |             
|                                                              |  |             
|Capital deficiency                                            |  |             
|                                                              |  |             
|Ordinary shares of NIS 0.01 par value:                        |  |             
|Authorized: 100,000,000 at December 31, 2004 and 2003; issued |  |             
|and outstanding: 3,669,900 at December 31, 2004 and 2003      |  |             
|Preferred shares of NIS 0.01 par value:                       |  |             
|Authorized: 400,000,000 at December 31, 2004 and 2003; issued |  |             
|and outstanding: 102,110,637 and 93,842,996 at December 31,   |  |             
|2004 and 2003, respectively                                   |  |             
|Additional paid in capital                                    |  |             
|Accumulated deficit                                           |  |             
|                                                              |  |             
|                                                              |  |             
|                                                              |  |             
|                                                              |  |             
|                                                              |  |             
|                                                              |  |             
|                                                              |  |             

The accompanying
notes are an integral part of the financial statements

O - 4

---

---



|Objet Geometries Ltd.                
|-------------------------------------
|Consolidated Statements of Operations
|                                     
|In thousands of US Dollars           

|                                     |  | Year ended December 31,
|------------------------------------ |  | -----------------------
|
|
|
|
|Revenues                             |  |                        
|                                     |  |                        
|Cost of revenues                     |  |                        
|                                     |  |                        
|                                     |  |                        
|Gross profit                         |  |                        
|                                     |  |                        
|                                     |  |                        
|Operating expenses:                  |  |                        
|                                     |  |                        
|Research and development, net        |  |                        
|                                     |  |                        
|Marketing and selling                |  |                        
|                                     |  |                        
|General and administrative           |  |                        
|                                     |  |                        
|Special legal expenses and provision |  |                        
|                                     |  |                        
|Amortization of intangible assets    |  |                        
|                                     |  |                        
|                                     |  |                        
|Total operating expenses             |  |                        
|                                     |  |                        
|                                     |  |                        
|Operating loss                       |  |                        
|                                     |  |                        
|Financial expenses, net              |  |                        
|                                     |  |                        
|                                     |  |                        
|Net loss                             |  |                        
|                                     |  |                        

The
accompanying notes are an integral part of the financial statements

O - 5

---

---



|Objet Geometries Ltd.                      
|-------------------------------------------
|Statements of Changes in Capital Deficiency
|                                           
|In thousands of US Dollars                 

|                                | Number of Shares | Share Capital |  |           | Total
|------------------------------- | ---------------- | ------------- |  | --------- | -----
|
|
|
|
|Balance at January 1, 2002      |                  |               |  | 3,669,900 |      
|                                |                  |              
|Net loss for the year           |                  |               |  | -         |      
|                                |                  |               |  |           |      
|                                |                  |              
|Balance at December 31, 2002    |                  |               |  | 3,669,900 |      
|                                |                  |              
|Conversion of convertible loans |                  |               |  | -         |      
|                                |                  |              
|Issuance of preferred shares    |                  |               |  | -         |      
|                                |                  |              
|Net loss for the year           |                  |               |  | -         |      
|                                |                  |               |  |           |      
|                                |                  |              
|Balance at December 31, 2003    |                  |               |  | 3,669,900 |      
|                                |                  |              
|Issuance of preferred shares    |                  |               |  |           |      
|                                |                  |              
|Net loss for the year           |                  |               |  |           |      
|                                |                  |              
|Balance at December 31, 2004    |                  |               |  | 3,669,900 |      
|                                |                  |               |  |           |      

The accompanying
notes are an integral part of the financial statements

O - 6

---

---



|Objet Geometries Ltd.                
|-------------------------------------
|Consolidated Statements of Cash Flows
|                                     
|In thousands of US Dollars           

|                                                            | Year ended December 31,
|----------------------------------------------------------- | -----------------------
|
|
|
|
|Cash flows from operating activities                        |                        
|Net loss for the year                                       |                        
|Adjustments to reconcile net loss to net cash flows used in |                        
|operating activities:                                       |                        
|Depreciation and amortization                               |                        
|Provision for severance pay, net                            |                        
|Other                                                       |                        
|Changes in operating assets and liabilities                 |                        
|Increase in trade receivables                               |                        
|Decrease (increase) in other receivables and prepaid        |                        
|expenses                                                    |                        
|Decrease (increase) in inventories                          |                        
|Increase (decrease) in trade payables                       |                        
|Increase (decrease) in deferred revenues                    |                        
|Increase (decrease) in customer advance                     |                        
|Increase in accruals and other current liabilities          |                        
|                                                            |                        
|                                                            |                        
|Net cash used in operating activities                       |                        
|                                                            |                        
|                                                            |                        
|Cash flows from investing activities                        |                        
|Purchase of fixed assets                                    |                        
|Restricted cash                                             |                        
|                                                            |                        
|                                                            |                        
|Net cash used in investing activities                       |                        
|                                                            |                        
|                                                            |                        
|Cash flows from financing activities                        |                        
|Short term loan received                                    |                        
|Receipts on account of shares                               |                        
|Issuance of shares                                          |                        
|Convertible loans received                                  |                        
|                                                            |                        
|                                                            |                        
|Non cash provided by financing activities                   |                        
|                                                            |                        
|                                                            |                        
|Increase (decrease) of cash and cash equivalents            |                        
|                                                            |                        
|Cash and cash equivalents at beginning of year              |                        
|                                                            |                        
|                                                            |                        
|Cash and cash equivalents at end of year                    |                        
|                                                            |                        

# Supplemental non cash
investing and financing activities:

On December 1, 2003 convertible loan
of $505,000 was converted to 1,990,173 preferred shares.

On March 4, 2003 77,663,122 preferred
shares were issued on account of the conversion of $8,965,436 loans, the receipt of
$2,500,000 on account of shares received in 2002 and shares issued in accordance with anti
dilution protection as stated in the articles.

The
accompanying notes are an integral part of the financial statements

O - 7

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

# NOTE 1  GENERAL

| | A. | Objet
Geometries Ltd. (the Company) was founded and commenced its operations on
                    March 8, 1998. The Company develops, manufactures and markets 3D
printers for                     the rapid prototyping market.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is an Israeli  corporation and it has a fully owned subsidiary:  Objet Geometries
                  Inc. - located in the United States.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | The
Company faces a number of business risks, including uncertainties regarding
                    demand and market acceptance of the Companys products, the
effects of                     technological changes, uncertainties concerning government
regulation,                     competition, dependence on proprietary technology and the
development of new                     products. Additionally, other risk factors such as
the loss of key personnel                     could affect the future results of the
Company.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 2 
SIGNIFICANT ACCOUNTING POLICIES

| | The
significant accounting policies followed in the preparation of the financial statements,
applied on a consistent basis, are:
| | --------------------------------------------------------------------------------------------------------------------------------

| | A. | Use
of Estimates
| | -- | ----------------

| | The
preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ
from those estimates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Reporting
currency
| | -- | ------------------

| | Most
of the Companys revenues are generated in U.S. dollars (dollar). In
addition, most of the Companys costs and expenses are incurred in dollars. The
Companys management believes that the dollar is the primary currency of the
economic environment in which the Company operates. Thus, the financial and reporting
currency of the Company is the dollar.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly
transactions and balances originally denominated in dollars are presented in their
original amounts. Transactions and balances in other currencies are remeasured into
dollars in accordance with the principles set forth in Statement No. 52 of the Financial
Accounting Standards Board of the United States (FASB).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Exchange
gains and losses from the aforementioned remeasurement are reflected in the statement of
operations as financial income or expenses. The representative rate of exchange at
December 31, 2004 was $1 = 4.308 New Israeli Shekels (NIS) (At December 31,
2003 $ 1 = 4.379 NIS).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

O - 8

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 2       SIGNIFICANT ACCOUNTING POLICIES(Continued)

| | C. | Principles
of consolidation
| | -- | ---------------------------

| | The
consolidated financial statements include the accounts of the Company and its fully owned
subsidiary. Significant intercompany transactions and balances have been eliminated upon
consolidation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | Cash
equivalents
| | -- | ----------------

| | All
highly liquid investments with an original maturity of three months or less are
considered cash equivalents.
| | ----------------------------------------------------------------------------------------------------------------

| | E. | Restricted
cash
| | -- | ---------------

| | Restricted
cash is primarily invested in highly liquid deposits, which are used as security for the
Companys facilities lease commitment.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | F. | Inventories
| | -- | -----------

| | Inventories
are valued of the lower of cost or market. Cost is determined as follows:
| | -------------------------------------------------------------------------------------

| | Raw
materials and consumables  on a moving average basis.
| | ----------------------------------------------------------

| | Finished
products and products in process  on basis of production costs:
| | -------------------------------------------------------------------------

| | Raw
materials  on the moving average basis.
| | --------------------------------------------

| | Labor
and overhead  on the basis of actual manufacturing costs.
| | ----------------------------------------------------------------

| | G. | Property,
plant and equipment
| | -- | -----------------------------

| | These
assets are stated at cost, net of accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Annual
rates of depreciation are as follows:
| | --------------------------------------------

|                               | %    
|------------------------------ | -----
|
|
|
|
|Computers and software         | 33   
|Office furniture and equipment | 6-33 
|Machinery and equipment        | 10-33

| | Equipment
produced by the Company and used for research and development purposes is depreciated on
a straight-line basis over two years. Leasehold improvements are amortized on a straight-
line basis over the shorter of the term of the lease or the estimated useful life of the
improvement.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | H. | Technology
and other intangible assets
| | -- | --------------------------------------

| | Acquired
technology is amortized by the straight-line method over a period of 2.5 years.
| | ----------------------------------------------------------------------------------------

O - 9

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

| | I. | Impairment
of long-lived assets and intangibles
| | -- | -----------------------------------------------

| | The
Companys long-lived assets and certain identifiable intangibles are reviewed for
impairment in accordance with Statement of Financial Accounting Standard No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144),
whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash flows
expected to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. As of December 31, 2004, no impairment
losses have been identified.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | J. | Revenue
recognition
| | -- | -------------------

| | Revenues
from sales of products and consumables are recognized when an arrangement exists (usually
in the form of a purchase order), delivery has occurred and title passed to the customer,
the Companys price to the customer is fixed or determinable, collectability is
reasonably, assured future obligations of the Company are considered insignificant and
the cost of such obligations can be reliably estimated. With respect to products with
installation requirements, revenue is recognized when all of the above criteria are met
and installation is completed.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sales
contracts with distributors stipulate fixed prices and current payment terms and are not
subject to the distributors resale or any other contingencies. Accordingly when all
criteria above are met, sales of finished products to distributors are recognized as
revenue upon delivery and after title and risk pass to distributors.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Service
revenue is recognized ratably over the contractual period or as services are performed.
| | -----------------------------------------------------------------------------------------------

| | Warranty
costs are provided for at the same time as the revenues are recognized. The annual
provision for warranty costs is calculated based on expected cost of inputs, based on
historical experience.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Emerging
Issues Task Force (EITF) Issue 00-21, Revenue Arrangements with
Multiple Deliverables, addresses the accounting, by a vendor, for contractual
arrangements in which multiple revenue-generating activities will be performed by the
vendor. It is effective prospectively for all arrangements entered into in fiscal periods
beginning after June 15, 2003. EITF Issue 00-21 addresses when and, if so, how an
arrangement involving multiple deliverables should be divided into separate units of
accounting. In accordance with EITF Issue 00-21 the Company separates the different units
of accounting of sales with multiple deliverables (generally consists of machine and
Resin) based on the objective and reliable evidence of fair value of the different
elements, which is estimated based on stand alone sales of the different elements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Customers
deposits and other payments received prior to sales recognition are included in advances
from customers and deferred revenues in the balance sheets.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

O - 10

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 2       SIGNIFICANT ACCOUNTING POLICIES (Continued)

| | K. | Deferred
income taxes
| | -- | ---------------------

| | Deferred
taxes are determined utilizing the asset and liability method based on the estimated
future tax effects of differences between the financial accounting and tax bases of
assets and liabilities under the applicable tax laws. Deferred income tax provisions and
benefits are based on the changes in the deferred tax asset or tax liability from period
to period. Valuation allowances are provided for deferred tax assets when it is more
likely than not that all or a portion of the deferred tax assets will not be realized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | L. | Concentration
of credit risk
| | -- | ----------------------------

| | Financial
instruments that are potentially subject to concentrations of credit risk consist
principally of cash and cash equivalents and trade receivables. The majority of the
Companys cash and cash equivalents are invested in dollar and Euro instruments with
major banks in Israel. Management believes that the financial institutions that hold the
Companys investments are financially sound and accordingly, minimal credit risk
exists with respect to these investments.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys trade receivables are derived from sales to large and solid organizations
located mainly in the United States, Europe and the Far East. The Company performs
ongoing credit evaluations of its customers and to date has not experiences any material
losses. An allowance for doubtful accounts is determined with respect to those amounts
that the Company has determined to be doubtful of collection. In certain circumstances,
the Company may require letters of credit, other collateral or additional guarantees.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | M. | Severance
Pay
| | -- | -------------

| | The
Companys liability for severance pay is calculated pursuant to the severance pay
law based on the most recent salary of the employees multiplied by the number of years of
employment, as of the balance sheet date. Employees are entitled to one months
salary for each year of employment or a portion thereof. The Companys liability for
all of its employees is fully provided by monthly deposits with insurance policies,
pension funds and by an accrual.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
value of these policies and pensions funds is recorded as assets in the Companys
balance sheet.
| | ----------------------------------------------------------------------------------------------------

| | The
deposited funds include profits accumulated up to the balance sheet date. The deposited
funds may be withdrawn only upon the fulfillment of the obligation pursuant to the
severance pay law or labor agreements. The value of the deposited funds is based on the
cash surrendered value of these policies, and includes immaterial profits.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Severance
expenses for the years ended December 31, 2002, 2003 and 2004 amounted to approximately
($50,000) $26,000 and ($28,000), respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------

O - 11

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES(Continued)

| | N. | Research
and development, net
| | -- | -----------------------------

| | The
Company expenses research and development costs, as incurred.
| | -----------------------------------------------------------------

| | Royalty
bearing participation from the Government of Israel via the Office of the Chief Scientist
(OCS) for the development of approved projects is recognized as a reduction of expenses
as the related costs are incurred.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | O. | Stock
based compensation
| | -- | ------------------------

| | The
Company grants restricted shares and stock options for a fixed number of shares to
employees, consultants and others. The Company accounts for stock options grants to
employees in accordance with APB Opinion No.25, Accounting for Stock Issued to
Employees and for stock options granted to consultants and others, in accordance
with FAS Statement No. 123 Accounting for Stock-based compensation using the
minimum value method. Under APB 25, compensation cost for employee stock option plans is
measured using the intrinsic value based method of accounting and is amortized by the
straight-line method against income, over the expected service period. FAS 123, Accounting
for Stock-Based Compensation, establishes a fair value based method of accounting
for employee stock options or similar equity instruments, and encourages adoption of such
method for stock compensation plans. However, it also allows companies to continue to
account for those plans using the accounting treatment prescribed by APB 25. The impact
of the measurement requirements of the FAS Statement No. 123 for stock options grants to
employees on the financial statements, using the minimum value method, was immaterial.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | P. | Comprehensive
income
| | -- | --------------------

| | The
Company has no comprehensive income (loss) components other than net income (loss).
| | ---------------------------------------------------------------------------------------

| | Q. | Reclassifications
| | -- | -----------------

| | Certain
comparative figures have been reclassified to conform to the current year presentation.
| | -----------------------------------------------------------------------------------------------

O - 12

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES(Continued)

| | R. | Recently
issued accounting pronouncements
| | -- | -----------------------------------------

| | 1. | In
December 2004, the Financial Accounting Standards Board (FASB)
               issued the revised Statement of Financial Accounting Standards (FAS)
               No. 123, Share-Based Payment (FAS 123R),
which                addresses the accounting for share-based payment transactions in
which the                Company obtains employee services in exchange for (a) equity
instruments of the                Company or (b) liabilities that are based on the fair
value of the                Companys equity instruments or that may be settled by
the issuance of such                equity instruments. This statement eliminates the
ability to account for                employee share-based payment transactions using APB
Opinion No. 25 or using the                minimum value method and requires instead that
such transactions be accounted                for using the grant-date fair value based
method. This statement will be                effective as of the beginning of the first
interim or annual reporting period                that begins after June 15, 2005
for public companies and the beginning of                the annual reporting period that
starts after December 15, 2005 for non                public companies. Early
adoption of FAS 123R is encouraged. This Statement                applies to all awards
granted or modified after the statements effective                date. In
addition, compensation cost for the unvested portion of previously                granted
awards that remains outstanding on the statements effective date
               shall be recognized on or after the effective date, as the related
services are                rendered, based on the awards grant-date fair value as
previously                calculated for the pro-forma disclosure under FAS 123.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company estimates that the cumulative effect of adopting FAS 123R as of its adoption date
by the Company , based on the options outstanding as of December 31, 2004 will be
immaterial. This estimate does not include the impact of additional awards, (including
the 2004 Plan) which may be granted, or forfeitures, which may occur subsequent to
December 31, 2004 and prior to the adoption of FAS 123R. The Company expects that
upon the adoption of FAS 123R, the Company will apply the modified prospective
application transition method, as permitted by the statement. Under such transition
method, upon the adoption of FAS 123R, the Companys financial statements for
periods prior to the effective date of the statement will not be restated. The impact of
this statement on the Companys financial statements or its results of operations in
2006 and beyond will depend upon various factors, among them the Companys future
compensation strategy.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

O - 13

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES(Continued)

| | Recently
issued accounting pronouncements(cont.)
| | ------------------------------------------------

| | 2. | In
November 2004, the FASB issued FAS No. 151, Inventory Costs  an
               Amendment of ARB 43, Chapter 4" (FAS 151). This statement
               amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to
               clarify the accounting for abnormal amounts of idle facility expense,
freight,                handling costs, and wasted material. This statement requires that
those items be                recognized as current-period charges. In addition, this
Statement requires that                allocation of fixed production overheads to the
costs of conversion be based on                the normal capacity of the production
facilities. This statement will be                effective for inventory costs incurred
during fiscal years beginning after June                15, 2005 (January 1, 2006 for the
Company). Earlier application of FAS 151 is                permitted. The provisions of
this statement shall be applied prospectively. The                Company does not expect
this statement to have a material effect on the                Companys financial
statements or its results of operations.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | In
December 2004, the FASB issued FAS No. 153, Exchanges of Non-Monetary
               Assets  An Amendment of APB Opinion No. 29 (FAS
               153).  FAS 153 amends APB Opinion No. 29, Accounting
for                Non-Monetary Transactions (Opinion 29). The amendments made by
FAS 153 are                based on the principle that exchanges of non-monetary assets
should be measured                based on the fair value of the assets exchanged.
Further, the amendments                eliminate the exception for non-monetary exchanges
of similar productive assets                and replace it with a general exception for
exchanges of non-monetary assets                that do not have commercial substance.
The provisions in FAS 153 are effective                for non-monetary asset exchanges
occurring in fiscal periods beginning after                June 15, 2005 (July 1, 2005
for the Company).  Early application of the FAS                153 is permitted. The
provisions of this Statement shall be applied                prospectively. The
Company does not expect the adoption of FAS 153 to have                a material effect
on the Companys financial statements or its results of                operations.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 3 
RECEIVABLES AND PREPAID EXPENSES

|                                           | December 31,
|------------------------------------------ | ------------
|
|
|
|
|VAT refunds                                |             
|Prepaid expenses                           |             
|Research and development grant receivables |             
|Other receivables                          |             
|                                           |             
|                                           |             
|                                           |             
|                                           |             

O - 14

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 4       INVENTORIES

|                         | December 31,
|------------------------ | ------------
|
|
|
|
|Components and materials |             
|Consumables              |             
|Work in process          |             
|Finished products        |             
|                         |             
|                         |             
|                         |             
|                         |             

NOTE 5      - PROPERTY, PLANT AND EQUIPMENT

|                               | December 31,
|------------------------------ | ------------
|
|
|
|
|
|Cost                           |             
|Computers and software         |             
|Office furniture and equipment |             
|Leasehold improvement          |             
|Machinery and equipment        |             
|                               |             
|                               |             
|                               |             
|                               |             
|                               |             
|Accumulated depreciation       |             
|Computers and software         |             
|Office furniture and equipment |             
|Leasehold improvement          |             
|Machinery and equipment        |             
|                               |             
|                               |             
|                               |             
|                               |             
|                               |             

| | Depreciation
expenses totaled $300,000, $336,000 and $531,000, in the years ended December 31, 2004,
2003 and 2002, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------

# NOTE 6  SHORT-TERM
LOANS

| | The
balance as of December 31, 2004 represents short-term bank loans denominated in dollars
and bearing interest of 5.37% per annum. The maturity date is within 30-45 days.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 7  ACCRUED
LIABILITIES AND OTHER LIABILITIES

|                               | December 31,
|------------------------------ | ------------
|
|
|
|
|Employees and related expenses |             
|Accrued expenses               |             
|Warranty provision             |             
|Advances from customers        |             
|Other                          |             
|                               |             
|                               |             
|                               |             
|                               |             

O - 15

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

# NOTE 8 
CONTINGENCIES AND COMMITMENTS

| | A. | Contingencies
| | -- | -------------

| | 1. | On
December 16, 2003, certain minority shareholders of the company filed a
               lawsuit claiming approximately NIS 7.8 million (approximately $1.75
million)                against the company, certain of its shareholders, and certain of
its directors.                The lawsuit alleges that the defendants acted in a manner,
which prejudiced the                rights of the minority shareholders, and were in
breach of the Companys                obligations to such shareholders. Among the
relief being claimed by the said                minority shareholders are claims for
compensation, claims that the Company will                return to them (with linkage
and interest) the amount of their investment in the                Company, or that the
defendants will purchase their shares in the Company, and a                demand for
changes to the terms of certain convertible loans made to the Company                by
certain of the defendants. The Company has asked for a dismissal of the case
               relating to one of the parties suing. The Company and its attorneys are
not able                to give any realistic assessment as to the outcome of this
matter, therefore no                provision was recorded.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | On
October 26, 2004, a competitive company filed a lawsuit against the company
               and its North America distributor in which the plaintiff accused the
company and                its distributor of infringing six US patents based on sales in
the US of the                Companys three  dimensional modeling equipment.
The plaintiff has                requested damages in an unspecified amount, as well as
triple damages and                attorneys fees for alleged willful infringement. The
plaintiff also seeks an                injunction to prevent further infringement of its
patents.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January 21, 2005 the Company filed a lawsuit against the competitive company claiming
infringement of three of the Companys US patents.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | Because
the case was recently filed the Company and its attorneys are still in the process of
evaluating the case. As such, the Company and its attorneys are not in a position, at
this time, to comment on the likelihood of an unfavorable outcome of the litigation or on
the amount or range of potential loss.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, at this time the Company and its attorneys are not in a position to provide an
estimate on the cost of litigation if the case, were to proceed through trial.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company assesses the litigation costs for the year 2005 to be approximately $500,000,
which together with other expenses incurred in 2004 were recorded in the statement of
operations as special legal expenses and provision.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | A
former employee of the Company is suing the Company and one of its directors
               for a sum of NIS 315,000. The cause of action is an alleged breach of
certain                undertakings made by the Company to the plaintiff, including,
inter alia, an                undertaking to grant the plaintiff an option to purchase
1.75% of the                Companys shares. Additionally the plaintiff is claming
that the Company                allegedly failed to pay his salary and certain social
benefits. A statement of                defense by the Company has been filed.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
does not expect that the Company will incur substantial expenses in respect thereof;
therefore, no provision has been made for this lawsuit.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

O - 16

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 8 - CONTINGENCIES AND COMMITMENTS(cont.)

| | B. | Commitments
| | -- | -----------

| | 1. | The
Company is committed to pay royalties of 3%-3.5% to the Government of Israel
               on sales of products in which the government participated in supporting
the                research and development expenses by way of grants, up to the amount
of the                grants received (dollar linked), plus annual interest based on the
LIBOR,                accruing from the date of grant. At the time the funding was
approved,                successful development of the project was not assured. In the
case of failure of                a project that was partly financed by royalty-bearing
Government participations,                the Company is not obligated to pay any
royalties to the Israeli Government.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2004, the maximum contingent liability in respect of these royalties
amounts to approximately 1.5 million dollars.
| | -------------------------------------------------------------------------------------------------------------------------------------

| | 2. | The
Companys facilities in Israel are rented under a lease agreement for 5
               years which end on December 31, 2006. The Company has two options to
extend the                agreement either by three additional years or by two additional
years following                the three for a total of 5 years. The rental payment under
this agreement is                $520,000 per annum. If the company doesnt exercise
the options mentioned                above the lessor will charge the Company for part of
the leasehold improvements                made by him up to maximum amount of about
$400,000.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Since
May 2002, the Company                leases part of the premises to third parties. The
annual rental revenue under                those agreements is $120,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | The
Company is committed to pay royalties of 6-7% on sales of consumables to one
               of its suppliers as defined in the agreement between the parties.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

O - 17

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

# NOTE 9  SHARE
CAPITAL

| | A. | Balance
as of December 31, 2004 and 2003 
| | -- | ------------------------------------------

|                                       | December 31,
|-------------------------------------- | ------------
|
|
|
|
|Authorized :                           |             
|Ordinary shares of NIS 0.01 par value  |             
|Preferred shares of NIS 0.01 par value |             
|Issued and fully paid up               |             
|Ordinary shares of NIS 0.01 par value  |             
|Preferred shares of NIS 0.01 par value |             

| | B. | On
September 20, 2004 the Company completed a capital raising round, under which
          8,267,641 preferred shares were issued in consideration of $2,099,980. In
          addition, the Company granted to the investors 4,133,822 warrants to purchase
          preferred shares in consideration of an exercise price of $0.254 per share.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | On
August 31, 2003, the Company received a convertible loan in the amount of
          $500,000 from one of its shareholders. The loan bore an interest of LIBOR + 4%
          per annum.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 1, 2003, the loan was converted into 1,990,173 preferred shares. In addition, on
that date the company issued 4,075,501 preferred shares in consideration of $1,035,000
and granted 3,032,839 warrants to purchase preferred shares in consideration of an
exercise price of $0.254 per share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | On
March 4, 2003 the authorized shares capital was increase by 93,500,000           ordinary
shares and by 386,500,000 preferred shares.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------

| | On
that date, the company issued 77,663,122 preferred shares as follows:
| | ------------------------------------------------------------------------

| |  | 9,842,520
preferred shares in consideration of $2,500,000, which have been received in 2002.
| | - | --------------------------------------------------------------------------------------------

| |  | 22,480,621
 preferred  shares  pursuant to the Article of  Association of the company as anti
dilution                      agreements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| |  | 45,339,981
 preferred  shares  as a  result  of  conversion  of  convertible  loans at the  amount
 of                      $8,965,436.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------

| | E. | The
Company has decided to grant up to 2,500,000 stock options to key employees,
          consultants and directors as an incentive to attract and retain qualified
          personnel. Each option can be converted into one ordinary share at an exercise
          price to be determined. The total number of options granted are:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | Exercise price
|-------------------------------------- | --------------
|
|
|
|
|Balance as of December 31, 2003        |               
|Options forfeited                      |               
|                                       |               
|Balance of options  outstanding  as of |               
|December 31, 2004                      |               
|                                       |               
|Options  exercisable  as  of  December |               
|31, 2004                               |               
|                                       |               

O - 18

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

NOTE 9 - SHARE CAPITAL(cont.)

| | F. | In
2004, the Companys board of directors approved an Omnibus Incentive           Stock
Option and Restricted stock Plan (hereafter  the 2004 plan) under           which
up to 14,000,000 shares to be granted to key employees, consultants and
          directors. As of December 31, 2004 no options or shares were granted under the
          2004 plan.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 10  INCOME
TAXES

| | A. | On
October 14, 2001 the Company was granted Approved Enterprise                    status
under the law for the Encouragement of Capital Investment, 1959
                    (hereafter: the law) in the path of Alternative Benefits Program.
                    The program includes an investment of $ 2,050,000 in computers,
equipment, and                     leasehold improvements. Pursuant to the law, the
Company is entitled for                     exemption from taxes on income derived
therefrom for a period of 2 years,                     starting in the year in which the
Company first generated taxable income and                     reduced tax rate of 10-25%
for an additional period of 5-8 years.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the event of distribution of cash divided out of tax-exempt income, the Company will be
liable to corporate tax of 10-25% in respect of the amount distributed.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
period of tax benefits is subject to limits of the earlier of 12 years from the
commencement of production or 14 years from October 2001 (date of approval).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
entitlement to the above benefits is conditional upon the Company fulfilling the
conditions stipulated by the law, regulations published thereunder and the approval
letter.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | The
Company is subject to the Income Tax Law (Inflationary Adjustments), 1985,
                    measuring income on the basis of changes in the Israeli Consumer
Price Index.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | Until
December 31, 2003, the regular tax rate applicable to income of companies
                    (which are not entitled to benefits due to approved enterprise,
as                     described above) was 36%. In June 2004, an amendment to the Income
Tax Ordinance                     (No. 140 and Temporary Provision), 2004 was passed by
the Knesset                    (Israeli parliament), which determined, among
other things, that the corporate                     tax rate is to be gradually reduced
to the following tax rates: 2004  35%,                     2005  34%, 2006
 32% and 2007 and thereafter  30%.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | The
Company has a carry forward loss of approximately $33 millions for tax
                    purposes as of December 31, 2004. Since it is more likely than not
that the                     differed tax regarding the loss carry forwards will not be
utilized in the                     foreseeable future, no income tax benefits have been
recorded in respect                     thereof.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | The
subsidiary is taxed under the laws of its country of residence.
| | -- | -------------------------------------------------------------------

| | F. | The
Company and its subsidiary have not yet been assessed for income tax
                    purposes since their incorporation.
| | -- | --------------------------------------------------------------------------------------------------------------------------------

O - 19

---

---



|Objet Geometries Ltd.                         
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|                                              
|In thousands of US Dollars                    

# NOTE 11  OTHER
OPERATING INFORMATION

| | A. | Research
and development expenses, net:
| | -- | ---------------------------------------

|                                            | Year ended December 31,
|------------------------------------------- | -----------------------
|
|
|
|
|Expenses incurred                           |                        
|Less - grants from the government of Israel |                        
|                                            |                        
|                                            |                        
|                                            |                        
|                                            |                        

| | B. | Following
is data regarding major suppliers:
| | -- | --------------------------------------------

| | Certain
components used in our systems are only available from single or limited sources.
| | -----------------------------------------------------------------------------------------

O - 20

---

---

SIGNATURES

The Registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this Annual Report
on its behalf.

|                    |                             | 
|------------------- | --------------------------- | 
|                    | SCITEX
  CORPORATION LTD.  
|                    | (Registrant)               
|                    |                            
|                    | By:  /s/ Raanan Cohen      
|                    |                            
|                    | Raanan Cohen               
|                    | President of the Company   
|                    | & Chief Executive
  Officer
|                    |                             | 
|Date: June 30, 2005 |                            



---

---