Annual Report (Form 10-K), fiscal year 1994

Item 1. BUSINESS ------------------
PEC Israel Economic Corporation ("PEC" or the "Company") organizes, acquires interests in, finances and participates in the management of companies which are located in the State of Israel or are Israel-related. PEC is often involved in the early development of a company and has participated in the organization of over 100 Israeli enterprises since its incorporation in 1926. The Company participates actively in management and is involved in a broad cross-section of Israeli companies engaged in various fields of business, including high technology and communications, manufacturing, building and construction, shipping and consumer products.
Among PEC's holdings are significant interests in a company that is a world leader in color electronic prepress and digital video editing systems (Scitex Corporation Ltd.), one of Israel's leading diversified high technology holding companies (Elron Electronic Industries Ltd.), Israel's newest cellular telephone company (CellCom Israel Ltd.), the cable television company that serves the Tel-Aviv-Givataim metropolitan area and two other areas in Israel (Tevel Israel International Communications Ltd.), Israel's largest paint producer (Tambour Ltd.), Israel's largest manufacturer of cans and metal packaging material (Caniel-Israel Can Company Ltd.), one of Israel's most active real estate construction and development companies (Property and Building Corporation Ltd.), one of Israel's largest shipping companies (El-Yam Ships Ltd.) and one of the largest supermarket chains in Israel (Super-Sol Ltd.). PEC is also involved in several venture capital funds and early stage development companies.
PEC acquires interests in companies which have attractive long-term growth potential. PEC generally seeks to acquire and maintain a sufficient equity interest in a company to permit PEC, in conjunction with other companies controlled by IDB Holding Corporation Ltd. ("IDB Holding" and, together with the companies controlled by it, the "IDB Group"), to have a significant influence in the management and operation of that company. PEC emphasizes the potential for long-term capital appreciation over the ability or intention of an enterprise to provide a cash return in the near future. Among the other factors PEC considers in determining whether to acquire an interest in a specific enterprise are quality of management, global or domestic market share, export sales potential and ability to take advantage of the growth of the domestic Israeli economy.
IDB Holding, through its majority owned subsidiary, IDB Development Corporation Ltd. ("IDB Development"), owns
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beneficially approximately 70% of the outstanding Common Stock of PEC. IDB Holding is controlled by Mr. Raphael Recanati, Chairman of the Board of PEC, and members of his family.
IDB Holding is one of the largest business enterprises operating in the private sector of the Israeli economy, with consolidated assets exceeding $2.0 billion at December 31, 1994. Discount Investment Corporation Ltd. ("Discount Investment"), another indirect subsidiary of IDB Holding, owns shares of many Israeli companies in which PEC has holdings and, through a subsidiary, has an agreement with PEC that each will offer the other equal participation in business opportunities that become available to either of them in Israel for a fee of 2.5% of the equity invested by the paying party in business opportunities initiated or initially presented by the other. PEC participates directly and through a contractual arrangement with Discount Investment in the management of the companies in which PEC holds equity interests. PEC and Discount Investment have agreed to cooperate on matters concerning the advancement and development of companies located in Israel in which each of them owns voting interests, including the use of their voting power as shareholders on a mutually agreed basis. PEC also has entered into voting agreements with other members of the IDB Group with respect to voting of the stock of certain of such companies.
PEC believes that its agreements with Discount Investment and PEC's relationship with the IDB Group afford PEC an important source of new business opportunities in Israel, significant influence in the management and operations of companies in which PEC holds shares and savings in PEC's cost of conducting its business.
PEC has received an Order from the United States Securities and Exchange Commission determining that it is not an investment company within the meaning of the Investment Company Act of 1940. In light of the Order, PEC has determined that its business holdings should continue to be concentrated in Israel-related companies that it, IDB Holding and other members of the IDB Group control or in which they exercise a significant influence.
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The Affiliates
The following chart lists by industry group the companies in Israel or related to Israel in which PEC holds voting equity interests (the "Affiliates"), the principal business of each such company and, with respect to each such company, the percentage of equity owned directly by each of PEC, Discount Investment and the IDB Group in the aggregate. For additional information with respect to the Affiliates, including information with respect to carrying values, see Note 3 of Notes to Consolidated Financial Statements of PEC and Subsidiaries.
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PEC also owns nonvoting preferred stock of Israel Discount Bank of New York representing approximately 8.2% of Israel Discount Bank of New York's total outstanding equity as of December 31, 1994.
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High Technology and Communications
Scitex Corporation Ltd. ("Scitex"). Scitex is a world leader in digital visual information communication for the graphic design, printing, publishing and video markets. Scitex and its subsidiaries develop, manufacture and market a broad range of digital prepress, digital printing and digital video products.
The products of Scitex are used to automate the prepress production of high resolution color printed media such as magazines, trade journals, newspapers, catalogs, annual reports and advertising. The color prepress process includes the capture, manipulating, editing, assembly and integration of color images (photographs and artwork) and text, and production of color films and plates for high quality, high volume printing. The products of Scitex allow users to work throughout the color prepress process in a digital workflow, significantly reducing production time, material waste and labor requirements, while improving image and color quality and facilitating design creativity.
Scitex provides customers with a broad range of connectivity (the ability to connect to many types of systems and protocols), including a wide selection of integrated solutions in PostScript, a popular page description language, for the desktop publishing, graphic arts and high-end prepress markets. Its communications products streamline multinational news publishing.
Scitex pioneered the development of color electronic prepress systems with the introduction in 1979 of the first digital workstation for page layout and the editing and assembly of color images. Since that time, Scitex has introduced a full range of color electronic prepress products. Scitex has designed its products to operate on a stand-alone basis or to be combined in systems and networks that meet the unique application requirements and production environments of its customers. Scitex is the global market leader in its industry and has more than 7,000 installations of its products worldwide. Customers include Time, Fortune, Sports Illustrated, The New York Times, National Geographic, USA Today, Rizzoli, A. Mondadori, Bauer Druck, Gutenberghus, Tappan Group, Dai Nippon Printing, Asahi Shimbun, Sara Lee and Pepsico.
Scitex, through its wholly owned subsidiary Leaf Systems, Inc. ("Leaf"), designs, develops, manufactures and markets products for scanning, transmitting and handling color and black-and-white photographic images, particularly for newspaper, magazine, photojournalism and desktop publishing applications. Leaf has developed innovative digital cameras and camera backs
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for capturing color images directly into the computer, bypassing the film and scanning stages.
Iris Graphics, Inc. ("Iris"), a subsidiary of Scitex, is one of the world's leading developers and manufacturers of high quality color inkjet printers. The printers produce high-resolution prints and proofs on various types of paper and other material. Iris has adapted an automatic inkjet printer for medical imaging, reducing the cost of duplicate films without compromising the quality of the images. In addition to the Iris products, Scitex also markets a very large format inkjet printer that prints color billboards.
Scitex markets and sells its products primarily through wholly owned subsidiaries in North America, Europe, and Hong Kong, and through a joint venture in Japan. In these markets, Scitex and its Japanese joint venture sell primarily through their direct sales force personnel. Virtually all of Scitex's sales are outside of Israel.
Scitex develops, manufactures and markets very high speed black and white inkjet printers, used primarily for promotional and mail applications, including personalization, and is a leader in the high-speed, variable data, digital printing market.
In 1994, Scitex acquired ImMIX, Inc., a leading vendor of non-linear video editing systems which has over 1,000 of its Video Cube systems in use worldwide. This acquisition adds digital video to the activities of Scitex and, together with the acquisition of Leaf, signals the company's expansion into the wider area of visual information communication.
In addition, in 1994 Scitex acquired 25% of P.INK Ltd. of Germany, obtaining exclusive rights (except for German speaking countries) to worldwide distribution of software solutions developed by P.INK for newspaper editorial and advertising departments.
The ordinary shares of Scitex are listed for quotation on the National Association of Securities Dealers Automatic Quotation System/National Market System ('NASDAQ/NMS') (symbol "SCIXF"). PEC, Discount Investment, Clal Electronics Industries Limited ("Clal"), another member of the IDB Group, and International Paper Company are parties to a shareholders' agreement with respect to their ordinary shares of Scitex that, among other things, (i) provides that Scitex shall have a board of directors of 13 members, consisting of the current chief executive officer of Scitex (for as long as he holds that office) and four nominees designated by each of PEC and Discount Investment as a group, International Paper Company and Clal, (ii) provides that the Chairman of the Board of Scitex and of its
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executive committee be selected from the directors designated by PEC, Discount Investment and Clal and (iii) restricts the acquisition and disposition by such shareholders of ordinary shares of Scitex.
Elron Electronic Industries Ltd. ("Elron"). Elron conducts its business principally through high technology operating companies in which it holds controlling or other significant equity interests. Elron's various affiliates design, develop, manufacture, market and service state- of-the-art electronic systems and products for medical diagnostic imaging, defense electronics, information technologies, communications and networking, automated optical inspection, manufacturing automation and quality control applications. Its affiliates also produce software and expert systems designed to enhance productivity and systems which provide rapid prototyping and low-volume production of application specific integrated circuits. Elron has organized, invested in and developed companies with promising new technologies believed to have global marketing potential that could benefit from ties with Israel. Elron has developed and expanded by identifying focused entrepreneurial teams and providing them with significant strategic, financial and managerial assistance to refine and exploit their technologies.
In 1994, Elron established elroNet, which operates a wide-band electronic communication network providing international value-added networking services. The services offered by elroNet are designed to enable companies located in Israel and outside of Israel to work together electronically, and include internet connectivity, electronic mail, database access, remote access to distant computers and data transfer facilities.
Elron's affiliates include publicly-traded and privately-held companies. Its principal publicly-traded affiliates are Elbit Ltd. (37.6% owned - advanced electronic systems and products for defense, medical, industrial and commercial applications - NASDAQ/NMS symbol "ELBTF"); Elscint Ltd., a 55% owned subsidiary of Elbit Ltd. (diagnostic medical imaging systems and products - New York Stock Exchange, Inc. symbol "ELT"); Orbotech Ltd. (18.5% owned - systems for visual testing and computer-aided design for the integrated circuit industry and optical inspection systems used in the production processes of flat screens - NASDAQ/NMS symbol "ORBKF"); PC Etcetera, Inc. (31% owned - desktop productivity solutions, live classroom training, custom courseware development and computer-based training products - over-the-counter stock symbol "PCEZ"); and NetManage Inc. (3.6% owned - integrated set of connectivity applications and development tools for the MicroSoft
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Windows operating environment - NASDAQ/NMS symbol "NETM"). Among Elron's privately-held affiliates are Chip Express Corp. (48% owned - rapid prototyping and low-volume cost effective production of application specific integrated circuits); Zoran Corporation (28% owned - integrated circuits for digital signal image processing compression and enhancement); ServiceSoft Corporation (21% owned - software systems for automation of field service and maintenance of complex systems and products); and RDC- Rafael Development Corporation Ltd. (17% owned (PEC and Discount Investment each also own a 17% equity interest) - commercialization of technologies developed by RDC-Rafael Armament Development Authority, a division of Israel's Ministry of Defense). Elbit Ltd., together with Elbit's 55% subsidiary, Elscint Limited, is Elron's largest holding and accounts for the major part of Elron's revenues and earnings.
Elron's ordinary shares are listed for quotation on the NASDAQ/NMS in the United States (Symbol "ELRNF") and on the Tel Aviv Stock Exchange ("TASE").
CellCom Israel Ltd. ("CellCom"). In June 1994, the Israeli government awarded a license to establish and operate Israel's second cellular telephone system to CellCom, a new company owned by BellSouth Enterprises Inc., companies controlled by Joseph and Moise Safra of Brazil, Discount Investment and Israel Aircraft Industries Ltd. PEC purchased a 9.5% equity interest in CellCom from Discount Investment and, subject to the approval of Israel's Minister of Communications, will acquire an additional 2% equity interest in CellCom.
CellCom began operations at the end of December 1994 serving the Tel Aviv metropolitan area. In February 1995, the Jerusalem area was added to the system, and in March 1995 the Haifa area was added. CellCom expects to serve all of Israel by September 1995. By March 27, 1995 over 60,000 customers were utilizing CellCom's cellular telephones. CellCom intends to invest approximately $300 million through 1997 in the development and operation of the new cellular telephone system.
CellCom uses TDMA (time division multiple access) digital technology, the most advanced technology for cellular communication. According to CellCom's license, during CellCom's first year of operation, the most CellCom may charge users of its cellular service is 2.8 cents per minute, rising to 5.3 cents per minute during the second year and 10 cents per minute during the third through fifth years. CellCom may increase these charges whenever the Israeli consumer price index increases by more than 8.5%. In addition, CellCom charges an interconnect fee and during the third through fifth years of operation CellCom may charge customers a monthly fee of $5.34. CellCom's charges are far lower than the charges of the operator of Israel's first cellular network, which are 22.3 cents per minute during peak hours and 11.3 cents per minute during off peak hours. I-10
Tevel Israel International Communications Ltd. ("Tevel"). PEC owns, through its interest in DIC and PEC Cable TV Ltd., 23.7% of Tevel, which was established in 1988 to develop, construct and operate cable television systems in Israel. PEC's partners in Tevel are Discount Investment and United International Holding Inc., a publicly traded American corporation that provides multi-channel television services outside the United States. Tevel has exclusive franchises for the whole of the Tel Aviv-Givataim metropolitan area, the southern region of Ashdod-Ashkelon and the Nazareth- Jezreel Valley. These franchises include approximately 315,000 households - over 20% of the homes in Israel. Tevel has completed the construction of approximately 95% of the cable network in its franchise areas. As of February 1, 1995, Tevel had approximately 204,000 subscribers, constituting approximately 67% of the households in the area in which network construction has been completed.
At present, Tevel offers customers a uniform, basic package of 40 channels for a fixed monthly fee. The basic package includes local, national and regional broadcasting channels, satellite delivered channels from Europe and Asia and five channels, subtitled in Hebrew - a movie channel, a sports channel, a family entertainment channel, a science, nature and cultural channel and a children's entertainment channel. Tevel has installed advanced scrambling and addressable two-way equipment that protects the service from theft, and enables Tevel to offer additional programming for which it may charge separately. In May 1994, Tevel started to offer customers four channels of movies on a pay per view basis.
Tel-Ad Jerusalem Studios Ltd. ("Tel-Ad"). Tel-Ad is a major producer of television programs in Israel, producing prerecorded and live studio productions as well as productions on location.
In July 1993, Tel-Ad was selected as one of three companies to operate Israel's second television station (the "Second Channel"), the only privately operated commercial television station. Broadcasts on the second television station began in November 1993. Tel-Ad is responsible for the entire programming for two days every week and for every Saturday in a four month period every year. In 1994, Tel-Ad's programs were broadcast on Mondays and Thursdays and on Saturdays between March and June.
In 1994, the Second Channel became the most-watched station in Israel. The popularity of the channel provided the impetus for advertisers and advertising agencies alike to take advantage of the opportunities that the new medium offered. In the Second Channel's first year of operation, 20% of all Israeli advertising budgets were allocated for television.
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Tel-Ad broadcasts a varied program schedule, with approximately 40% of the programs produced in Israel and 60% of the programs acquired from outside of Israel. The programs span a wide range of genres and formats, including entertainment, humor and satire, game shows, talk shows and current affairs. Tel-Ad programs that achieved particular success with the viewing audience included "The Comedy Store," and "Laila Gov" hosted by Gidi Gov in the light entertainment genre, game shows "Yoter Mazal MiSechel", "Lingo" and "Mat'im Li", talk show "Rubi", and the investigative reporting magazine "Uvdah", hosted by Ilana Dayan.
In conjunction with starting to broadcast on the Second Channel, Tel- Ad completed construction and upgrading of its technical facilities, investing approximately $4 million in several projects, including the conversion of its existing studio to the first fully digital television studio in Israel, the construction of a second television studio, the installation of fully equipped computerized editing and animation suites, the completion of a new floor of offices in the Jerusalem theater, as well as opening a branch office in Tel-Aviv which serves as Tel-Ad's marketing headquarters.
Gilat Satellite Networks Ltd. ("Gilat Satellite"). Gilat Satellite designs, develops, manufactures, markets and supports very small aperture terminal ("VSAT") satellite networks for voice and data communications. VSAT networks provide satellite-based communication between a central location (a "hub") and a large number of geographically-dispersed locations. Gilat Satellite markets principally three product lines:
o TwoWay VSAT - an interactive network for transaction oriented data communications. It may be used for credit card authorization, inventory control, drug prescription verification, reservation processing, on-line lotteries and automatic teller machine (ATM) transactions.
o OneWay VSAT - a data broadcast network used for the distribution of real-time financial information, newswire broadcasts, paging signals to remote transmitters, point-to-multipoint facsimile transmissions and compact disc quality FM music. Value added services available on OneWay VSAT include business news television, background music and electronic advertising.
o FaraWay VSAT - a rural telephony network that delivers telephone services, facsimile transmissions and data communications to remote and undeveloped areas that lack adequate telecommunications infrastructure.
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Gilat Satellite has established strategic relationships for product development and marketing with GE Spacenet Corporation, Comsat Technology Services and GTECH Corporation in the United States and with ANI Bosch in Germany and Alcatel SESA in Spain.
Gilat Satellite's stock is traded on the NASDAQ/NMS under the trading symbol "GILTF".
Gilat Communication Engineering 1990 Ltd. ("Gilat Communication"). Gilat Communication offers engineering services, specializing in the design and erection of communications systems, including broadband cable systems, fiber optic communications, microwave systems and satellite communications systems.
Through ISRASAT International Communication Corp., a company in which it has a 33.3% interest and whose other shareholders are Sign-On Computer Communications Services Ltd. and Elbit Ltd., Gilat Communication provides point to point international satellite data communication services to corporate clients in Israel. A wholly-owned subsidiary of Gilat Communication provides satellite data communication within Israel using one-way and two-way data networks by means of very small aperture terminals (VSATs).
Gilat Communication is also working with the Open University of Israel to develop a fully-interactive long-distance education system. The system will begin at 15 sites throughout the country. Gilat Communication has also formed a joint venture with a software company to provide communication services to the healthcare industry including the transmission of records, administration and insurance documentation (including credit-card billing) and routing instructions for doctors. The joint venture plans to offer satellite communication for use in remote diagnosis of medical conditions. Gilat Communication owns 25% of Spacecom Satellite Communications Services Ltd., which holds exclusive Middle Eastern market rights for the AMOS satellite.
Electronics Line (E.L.) Ltd. ("Electronics Line"). Elec- tronics Line is engaged in the design, development, production, international marketing and servicing of advanced electronic home and business security systems, including passive infrared motion detectors, alarms and radio or telephone operated devices for communication with central monitoring stations. Electronics Line has been innovative in the application of radio communication and infrared and microwave technologies to several devices. Electronics Line generates more than 90% of its revenues from sales outside of Israel. Electronics Line's stock is traded on the TASE.
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RDC-Rafael Development Corporation Ltd.("RDC"). RDC was established in July 1993 to conduct the commercialization of non-military applications of technologies developed by Rafael Armament Development Authority, a division of the Israel Ministry of Defense ("Rafael"). Rafael is one of Israel's largest industrial enterprises and Israel's largest research and development organization, employing over 3,000 individuals who hold a doctorate degree or an advanced engineering degree.
The two shareholders of RDC are DEP Technology Holdings Ltd., a company owned equally by PEC, Discount Investment and Elron, all members of the IDB Holding Group, and Galram Technology Industries Ltd., the Israeli governmental entity in charge of the commercialization in non-military markets of Rafael's technologies.
RDC, through its interests in the following companies, is working on several projects, including the development of the products and processes set forth below:
o PowerSpectrum Technology Ltd., which is developing a wireless telecommunications network that provides full duplex service, utilizing frequency hopping-multiple access technology.
o Carcom Carry Communications Ltd., which manufactures the BIPSAPHONE, a portable satellite communication terminal for global voice and data communication, and the BIPSAT, a briefcase portable satellite communication terminal for global communication.
o Oramir Semiconductor Equipment Company Ltd., which is developing the L-Stripper, a new process that allows the removal of photoresist in the manufacturing process of silicon wafers used in the semiconductor industry.
o Semiconductor Engineering Laboratories Ltd., which manufactures the MC 100, a semiautomatic system for the preparation of cross-sectional samples of semiconductor wafers for examination by a scanning electron microscope.
o A newly formed software company, which plans to develop software, image and signal processing and video on demand.
RDC also manages the SYBOS Project, a spent yeast biomass system for the removal of heavy toxic materials from water and wastewater; the TPP Project, a new technological approach to the blood-pump module of heart- lung machines; and advanced communication and wireless communication projects in research and development stages.
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Lipman Electronic Engineering Ltd. ("Lipman"). Lipman develops, manufactures and markets a variety of sophisticated electronic and computerized systems primarily for communication applications. Lipman's products include test and enhancement systems for public telephone exchanges, telephone lines and wireless terminals for electronic fund transfers, systems that combine electronic cash registers with the verification and implementation of credit card/debit transactions at points of sale, motion monitors and home betting terminals that can also be used for specific information services. Lipman's stock is traded on the TASE.
Nice Systems Ltd. ("Nice"). Nice is engaged in the development and manufacture of high technology communications systems, including electronic defense systems. Nice concentrates in the area of voice storage and retrieval systems, including systems that integrate telephony with computers in telecommunications systems for a variety of enterprises, such as financial institutions, insurance companies and telemarketing companies. Nice also supplies voice logging equipment to banks and other financial institutions, aviation authorities and merchant navies.
In the defense area, Nice focuses primarily on communications intelligence, such as direction finding and monitoring systems, and command and control systems. Nice has a strategic alliance with TRW. Nice's stock is traded on the TASE.
Gemini Israel Fund L.P. ("Gemini") and Advent Israel Limited Partnership ("Advent Israel"). In 1993, PEC, Discount Investment, Advent International Corporation, an American company that initiates and manages venture capital funds, and Yozma Venture Capital Ltd., a corporation formed by the Israeli government to encourage Israeli private industrial enterprises ("Yozma"), established a $36 million investment program with two components, Gemini and Advent Israel.
Gemini is a venture capital limited partnership that invests in high technology companies located in Israel, especially those that are export oriented and are in the early stages of their development. Advent Israel is a venture capital limited partnership managed by Advent International that acquires interests in high technology companies that are either located in Israel or whose businesses are related to Israel. Advent Israel is a limited partner in Gemini.
Advent Israel and a parallel limited partnership have received capital commitments from their partners of $20 million, of which Advent Israel and such limited partnership have agreed
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to invest $10.75 million in Gemini and to invest $9.25 million in portfolio companies. Gemini has received capital commitments of approximately $26.75 million from its partners. Combined, Gemini and Advent Israel constitute a substantial venture capital program whose purpose is to invest in companies located in Israel or related to Israel.
PEC has made a $3 million capital commitment to Gemini of which approximately $2 million had been contributed as of March 24, 1995. PEC's partners in Gemini are Discount Investment, Scitex and Elron (two of PEC's affiliated companies), Advent Israel and Yozma. Gemini may offer PEC and the other partners the opportunity to purchase interests in entities in which Gemini is acquiring an interest.
At the end of 1994, Gemini had invested an aggregate of approximately $5.2 million in the following eight companies:
o LOGAL Educational Software and Systems Ltd., a corporation that develops, designs and publishes educational software. PEC also has a direct interest in LOGAL.
o Holo-Or Ltd., a designer and manufacturer of products based on proprietary diffractive optics technology, including a line of "through- the-lens" multifocal contact lenses and intraocular lenses.
o Precise Software Solutions Ltd. (formerly named GeneSoft Ltd.), a corporation that develops application performance tuning tools for mainframe and client/server software systems.
o ORNET Data Communication Technologies Ltd., a designer and developer of subsystems and complete hardware/software systems for boosting the performance of local area networks (LANs), with specialization in high- speed internetwork switches.
o Aisys Ltd., a designer and developer of software for automatic programming of silicon microcontrollers to operate peripherals.
o Orisol Original Solutions Ltd., a corporation that designs, manufactures and sells vision-based computerized shoe sewing machines.
o Myriad Ultrasound Systems Ltd., a manufacturer of ultrasound equipment for the diagnosis and monitoring of osteoporosis.
o Sizary Materials Purification Ltd., a developer of unique and proprietary equipment for the purification of silicon wafers. I-16
PEC is also a limited partner in Advent Israel and has made a $500,000 capital commitment to Advent Israel of which approximately $333,000 had been contributed as of March 24, 1995. As a limited partner in Advent Israel, PEC has an indirect interest in all of Advent Israel's holdings other than Advent Israel's interest in Gemini. One of Advent Israel's first acquisitions was the purchase of an interest in P-Com Inc., a California manufacturer of microwave radios for short (1 to 20 kilometers) range telecommunications interconnections. Much of the technology P-Com utilizes was developed in Israel. In March 1995, P-Com had an initial public offering of its shares in the United States.
Liraz Systems Ltd. ("Liraz"). Liraz and its subsidiaries and affiliates develop comprehensive computerized business system solutions for private businesses and public organizations. Liraz specializes in developing software solutions in the manufacturing, health care, defense and bank areas as well as providing outsourcing services. Liraz's subsidiaries and affiliates include the following companies:
o Lehad-Binah Systems, Ltd., a 61% owned subsidiary which develops and markets leading application packages for IBM, Hewlett Packard, VAX, Data General and UNIX environments.
o YAANA Data Processing, Ltd., a 26% owned affiliate which specializes in outsourcing services, payroll, labor management and complete application packages. YAANA's stock is traded on the TASE.
o Kalanet, Ltd., a 22% owned affiliate which is Israel's leading distributor of software for personal computers, marketing and servicing over 10,000 different products.
o Bintel Systems Ltd., a 54.0% owned subsidiary which develops and markets new artificial intelligence applications, including marketing business intelligence (MBI), which organizes information from raw data into a concise decision-making tool for executive management.
o Kedem Systems Ltd., a 60.6% owned subsidiary which offers professional courses in computer systems.
o Across Data Systems, Inc. (formerly named Advanced Systems USA Inc.), a 97% owned subsidiary which provides state-of-the-art systems solutions to North American small-to-medium industries, retail businesses, gas stations and convenience stores. Its customers include Exxon, Chevron and Esso Canada.
o Burford International Applications Ltd., an 87.5% owned
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subsidiary which is based in England and provides complete global business solutions for financial and commercial industries on personal computer and UNIX systems.
The stock of Liraz is traded on the TASE.
LOGAL Educational Software and Systems Ltd. ("Logal"). Logal develops, designs, and publishes educational software and multimedia products based on the philosophy that learning is the active construction of knowledge.
Logal's simulation-based programs integrate sophisticated authoring systems, multimedia, animation, spreadsheets and numerous output options in a format that complements varied learning situations. Logal's complete line of products, which are targeted for students of high school and college level science and mathematics, consist of Explorer, an award- -------- winning series for physics, biology and chemistry, and Tangible MATH, a ------------- complete curriculum mathematics program group. Logal produces multimedia products in compact disc read only memory "CD-ROM" format and develops curriculum materials utilizing this technology.
In late 1994, Simon and Schuster, the textbook publisher, began publishing special versions of Explorer for use with Prentice Hall -------- chemistry, physics, biology and math college textbooks. Logal sells its products in Israel, the United States, Western Europe and Latin America.
Adir International Communications Services Ltd. ("Adir"). Adir provides outgoing international telephone service, international calling cards and facsimile communications from Israel, primarily serving corporate clients. Adir was granted licenses by Israel's Ministry of Communications to provide these services in direct competition with Bezeq, Israel's government controlled telephone company. Adir employs the latest proven technology to provide its services and is able to charge customers who use its outgoing international communication services lower rates than Bezeq because of the lower costs of Adir's telecommunications network.
Tius Elcon Ltd. ("Tius Elcon"). Tius Elcon designs, develops, produces and sells electronic products for the home care market, concentrating on the over-the-counter paramedical and healthful food preparation markets. Its products include the Memotherm Baby Thermometer, which permits accurate non-invasive measurement of a baby's temperature, the Fertimeter, which is an ovulation predictor, and the Spiro, a computerized asthma peak I-18
flow meter suitable for home use that measures airway obstruction and automatically analyzes the results for the user. Substantially all of Tius Elcon's products are exported.
Sign-On Computer Communications Services Ltd. ("Sign-On"). Sign-On furnishes private network telecommunication services to corporate clients in Israel. Through ISRASAT International Communication Corp., a company in which it has a 33.3% interest and whose other shareholders are Gilat Communication Engineering 1990 Ltd. and Elbit Ltd., Sign-On provides point to point international satellite communication services to corporate clients in Israel.
Incubator for Technological Entrepreneurship Kiryat Weizmann Ltd. ("Incubator Company"). Incubator Company, an affiliate of the Weizmann Institute of Science, provides funding, managerial expertise, administrative support and facilities to initial development stage companies that Incubator Company believes can successfully develop products for commercial use utilizing novel technologies. PEC has agreed to purchase a 5% interest in up to 12 new companies that are admitted to the Incubator Company program for a purchase price of $10,000 for each 5% interest. Generally as part of its purchase, PEC will receive the right to increase its interest in each new company by an additional 8% if an interest in the new company is purchased by a third party. The purchase price of such 8% interest will be based on the purchase price paid by the third party.
Through February 1995, PEC purchased interests in four companies in the Incubator program. The businesses of such companies include the development of transparent, electrically conductive polymers for use in the electronics industry, the design of equipment for improved processing and production of tomato seeds, the development of technology for the production of liquid absorbing polymers with variable absorbing capacity and the development of a transducer for high precision measurement of angular coordinates.
RTS Telecommunications Services Ltd. ("RTS") and RPA Leasing Inc. ("RPA"). RTS provides major hotels in St. Petersburg, Russia with direct dialing international telephone service by means of a microwave and satellite based network which connects the hotels with international telephone networks, utilizing the services of Adir. RPA leases telephone equipment and switchboards to a Russian company for use in major hotels in St. Petersburg, Russia for a five year term ending in December 1998. In view of the losses incurred by RTS and RPA and their negative equity, PEC has made provisions with respect to its holdings in these companies.
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Industry
Tambour Ltd. ("Tambour"). Tambour is Israel's largest paint producer. Its products include a wide range of water-based and synthetic paints, polyurethanes, epoxies, varnishes, texture coatings and primers, as well as special purpose paints for aviation and marine application. Tambour currently supplies approximately 70% of Israel's decorative paint requirements and exports its products throughout the world. Its products are sold all over Israel.
Through its affiliates, Tambour is involved in the production and marketing of water treatment facilities and chemicals (Italchem-Ayalon Ltd.), metal treatment chemicals (Chemitas 1988 Ltd.), glues and emulsions (Serafon Resinous Chemicals Corp. Ltd.), industrial sewage treatment systems (Aniam Ltd.), waste water purification using concentrated solar radiation (Solar Dynamics Ltd.) and the manufacture of printing ink (Tzah- Israeli Printing Inks Ltd.). Tambour also produces decorative wall-facing bricks. Tambour's stock is traded on the TASE.
Caniel-Israel Can Company Ltd. ("Caniel"). Caniel is Israel's largest manufacturer of cans and metal packaging material for processed and canned foods, soft drinks and beer. Caniel utilizes the latest technology to produce a full line of high quality products. It is Israel's only manufacturer of beverage cans. Caniel is reorganizing its production lines and restructuring its manufacturing systems.
Caniel also manufactures metal packaging for a variety of industrial and household products such as paints, lubricants, detergents and aerosols. Substantially all of Caniel's cans are sold to customers in Israel. Caniel also produces biodegradable plastic bottles for soft drinks and mineral water. Caniel's stock is traded on the TASE.
Mul-T-Lock Ltd. (Mul-T-Lock"). Mul-T-Lock designs, manufactures, markets and distributes high security products for the protection of life and property. Mul-T-Lock's products include decorative security doors, blast and gas-resistant doors and windows, fire resistant doors, safes, automobile transmission locks and a wide range of sophisticated cylinders and padlocks. Some of these products incorporate high technology electronic applications. Many of Mul-T-Lock's products are protected by patents and proprietary designs.
Mul-T-Lock has four manufacturing plants. It markets its products throughout Israel and exports them all over the world
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using a network of distributors and its own sales personnel. During 1994, Mul-T-Lock introduced 50 new products. Mul-T-Lock's stock is traded on the TASE.
Klil Industries Ltd. ("Klil"). Klil is engaged in aluminum extrusion, including casting of billets, manufacturing of extrusion dies and painting of extrusions. Klil is a leading supplier of aluminum extrusions in the form of semi-finished painted and mill-finished products for industry, as well as finished aluminum products to the building industry, such as windows, doors, curtain walls and shutters. Most of Klil's products are sold in Israel. Klil began operations at its new factory in Carmiel, Israel in March 1994. The factory has a modern production line for extrusions and is expected to begin a new production line for the painting of extrusions in the summer of 1995. Klil's stock is traded on the TASE.
Lego Irrigation Ltd. ("Lego"). Lego develops, manufactures and distributes irrigation equipment. Lego offers professional and amateur gardeners a full range of irrigation products, which are distributed throughout the world. Lego's products include labyrinth drippers, rotary, ball drive and pop-up sprinklers, adjustable nozzles and new pulsating technology products. Lego also owns a 50% equity interest in a company that develops and produces a new rotary disc filter which has wide use in agriculture, garden watering and drinking water. In 1994, Lego and two other companies formed a joint venture with an Indian fertilizer company to distribute in India irrigation systems manufactured by Lego and others. Lego's stock is traded on the TASE.
Maxima Air Separation Center Ltd. ("Maxima"). Maxima is Israel's second largest producer of industrial and specialized gases with a market share in Israel of approximately 40%. Its primary products are nitrogen and oxygen which it extracts from the air at its plant in the Negev desert in southern Israel. Nitrogen is used in the chemical, petro-chemical and food industries. Oxygen is used primarily in hospitals and for welding in the metal industry. Maxima's customers are mainly larger industrial users of gases.
Maxima also sells argon and acetylene and has facilities for mixing industrial gases and for filling containers with helium and hydrogen. Maxima imports specialized gases for laboratories and for use in the electronics industry. Maxima's stock is traded on the TASE.
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Tefron Ltd. ("Tefron"). Tefron designs, manufactures and markets high quality lingerie and undergarments for women, men and children for sale in Israel and for export. It operates sewing, cutting and knitting plants and a development center for the design and manufacture of its products. Tefron's products are marketed in Israel under Tefron's brand names and in Western Europe and the United States under the brand names of leading department stores.
Construction and Development
Property and Building Corporation Ltd. ("Property & Building"). Property & Building is one of the largest real estate holding companies in Israel and is engaged, directly and through its subsidiaries and affiliates, in the development, construction and sale of residential and commercial buildings, the construction and rental of industrial parks and office and commercial buildings, the purchase and development of land, and the furnishing of financial services, property management and property maintenance. Property & Building is also a substantial shareholder in companies engaged in the citrus industry in Israel. These companies accounted for approximately 38% of Israel's total citrus exports in 1994. In the development of residential housing, it is Property & Building's policy to develop and construct large, high quality projects for sale principally to upper income purchasers; such projects generally include recreational and commercial facilities. Property & Building owns approximately 350,000 square meters of commercial floor space located mainly in prime areas which it rents to tenants. The occupancy rate for its rental properties is approximately 99%. A subsidiary of Property & Building owns interests in modern sports complexes in Israel. The stock of Property & Building and the stock of five of its subsidiaries and affiliates are traded on the TASE.
Camdev Ltd. ("Camdev"). Camdev, which is 74% owned by Property & Building, is building the last 30 residential housing units of a 94 unit development in the Pisgat Zeev neighborhood of Jerusalem. In 1994, Camdev completed building the first 64 units of the development. The development is part of a larger housing development Camdev previously built and represents the balance of the property held by Camdev for development.
Shipping, Marketing and Other
El-Yam Ships Ltd. ("El-Yam") and Financial Holdings El-Yam (Hamigdal) Ltd. ("FHEY"). El-Yam is engaged, through subsidiaries, in worldwide ocean transportation of oil and dry bulk
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cargoes, such as grain, coal and iron ore. Its fleet, which aggregates approximately 670,000 deadweight tons, is operated under charters for varying durations. El-Yam has been engaged in the worldwide shipping business for over 41 years.
El-Yam owns nonvoting preferred stock of FHEY representing substantially all of the equity in FHEY. FHEY in turn owns approximately 36.3% of IDB Holding. IDB Holding owns through IDB Development approximately 70.3% of PEC's common stock. PEC owns 10.1% of the voting shares of FHEY and Discount Investment owns approximately 14% of such voting shares.
Super-Sol Ltd. ("Super-Sol"). Super-Sol operates one of the largest chains of supermarkets throughout Israel. Its supermarkets include 45 neighborhood Super-Sol stores, with emphasis on a wide variety of high quality food products and services, 19 large regional Hypercol stores, located primarily in industrial areas and serving predominately high and middle income families with both food and other products, 14 Gal-Yarok stores, located primarily in lower income areas, and four "food warehouses", named "Machsaney Mazon", which sell a smaller variety of goods than other stores at substantially lower prices and appeal to price- conscious customers. Super-Sol also operates a central computerized ordering center which caters to customers in major metropolitan areas desiring to place orders by telephone.
The food industry in Israel is characterized by increasing competition, as department stores have begun to provide food products, and small discount food chains have emerged to meet the needs of large numbers of immigrants who are not familiar with supermarket shopping and who have limited financial resources. Increased capital available to competing supermarket chains has also affected competition. Super-Sol has a significant market share, representing approximately 34% of sales of major chains and 8% of the entire retail food industry in Israel.
In 1994, a subsidiary of Super-Sol purchased a controlling 50% interest in the "Budapest Kozert" company, a chain of 24 supermarkets in Budapest, Hungary.
Super-Sol holds a 40% interest in a newly established chain of "do-it- yourself" stores in Israel named "Kne Uvne". The chain's three stores sell building and home improvement products. Super-Sol also has a 55% interest in Super Office Ltd., a newly formed company which sells office equipment and supplies. In 1994, that company opened its first two stores. In 1995, Super-Sol opened in Haifa Bay Israel's first mega-store, named "Universe Club", which is based on the warehouse shopping concept in the United States. Super-Sol's stock is traded on the TASE.
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"Delek"-The Israel Fuel Corporation Ltd. ("Delek"). Delek is one of Israel's leading importers and distributors of petroleum products, operating 165 gas stations throughout the country. Through a wholly owned subsidiary, Delek has a portfolio of equity holdings in the petrochemical, chemical, shipping and storage industries and at the end of 1994 had a 15.1% equity interest in the Super-Sol supermarket chain. Delek also owns Delek Automotive Systems, the holder of the Mazda motor vehicle franchise for Israel, and has an interest in Shagrir, an emergency roadside and towing service for vehicles. Delek's subsidiary, Delek Oil Exploration Ltd., carries out oil and gas exploration off the Tel Aviv shoreline.
Delek has instituted a program of modernizing its gasoline stations through the introduction of computer controlled systems and has completed the installation of the "Dalkan 2000" system for the automatic debit of customer accounts and report of vehicle fuel consumption. Delek's stock is traded on the TASE.
Renaissance Fund LDC ("Renaissance"). Renaissance is a newly- established fund with capital commitments of approximately $135 million whose objective is to generate capital appreciation through acquisitions of significant equity interests primarily in a portfolio of Israeli and Israel-related privately held and publicly traded companies and investments elsewhere in the Middle East.
In October 1994, Renaissance was part of a group that purchased a 33% equity interest in Paz Oil Company Ltd. ("Paz"), Israel's largest oil marketing and distribution company. As a result of the purchase, which was Renaissance's first acquisition, Renaissance has approximately a 14.3% equity interest in Paz. Paz is engaged in seven main businesses: gasoline service stations, industrial lubricants and solvents, asphalt, liquid propane gas, wholesale fuels, aviation fuel and real estate.
In February 1995, Renaissance was part of a group which purchased from the Government of Israel 100% of the shares of Shikun ve'Pituach le-Israel Ltd., one of Israel's largest housing and development companies ("SHOP"). Renaissance has approximately a 20.1% equity interest in SHOP.
General Engineers Limited ("General Engineers"). General Engineers sells, installs and services equipment for the following markets in Israel: Energy - power generation, power delivery and power control equipment; Medical - diagnostic x-ray, ultra-sound and surgical equipment; Scientific - diffraction and spectroscopy systems and electron microscopes; General Industry -
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a wide variety of electrical and mechanical systems, and industrial diamonds; Factory Automation - programmable controls and data acquisition systems; Lighting - lamps and luminaries; and Household Appliances - major appliances and housewares. This variety of equipment is manufactured by various United States, European and Japanese manufacturers. General Engineers is the only distributor and service agent for certain General Electric Company equipment in Israel, and represents in Israel, among others, American Sterilizer Co., Lapp Insulator Inc., Saftronics Ltd., Hitachi Instruments, GE-Fanuc, Liebherr, 3-L Filters and Rigaku Co.
Sano Dispec Development Ltd. ("Sano Dispec"). Sano Dispec is a newly established joint venture among PEC, Discount Investment, and Sano Bruno's Enterprises Ltd., an Israeli manufacturer of detergents, diapers and cosmetics. The objective of Sano Dispec is to form joint ventures in China using the know-how of the joint venturers and other Israeli parties.
Sano Dispec's first acquisition was the purchase of a 55% equity interest in Shen-Yang Sano Daily Use Articles Ltd. (formerly referred to as Shenyang-Sano Home-Care Enterprises Ltd.). Shen-Yang Sano is a newly formed company which in 1994 established a factory in the Chinese city of Shen-Yang for the manufacture of cleaning products and cosmetics. The factory began to manufacture and sell liquid cleaning products in December 1994, concentrating on sales in the Liao Ning province of China and other areas of northeastern China. Shen-Yang Sano intends to expand the sale of its products throughout eastern Asia.
Bulk Trading Corporation Ltd. ("Bulk Trading") Bulk Trading provides a full range of import services to major grain companies in Israel, including purchasing, locating suitable vessels for shipment, coordinating shipments, arranging for letters of credit, and arranging for loading, discharge and storage facilities.
Israel Discount Bank of New York ("IDBNY"). PEC owns 75,251 shares of nonvoting preferred stock of IDBNY with a carrying value of approximately $27 million. IDBNY is a New York State chartered, full-service commercial bank, with its principal office and one additional branch in New York City, a branch in the Cayman Islands, a banking subsidiary in Uruguay and representative offices in London, Paris, Toronto and Montevideo. IDBNY also maintains an international banking facility at its headquarters in New York City. As of December 31, 1994, IDBNY had consolidated assets of $3.6 billion, total deposits of $3.2
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billion and total capital funds (including subordinated capital notes and the allowance for possible loan losses) of $364 million. Its net income was $16 million in 1994, $11 million in 1993 and $14 million in 1992. IDBNY was ranked by The American Banker as the 16th largest commercial bank in New York ------------------- State and the 148th largest commercial bank in the United States in terms of deposits as of June 30, 1994. IDBNY is a member of the Federal Deposit Insurance Corporation. It is a subsidiary of Israel Discount Bank Ltd. ("IDBL"), the third largest bank in Israel.
The terms of the IDBNY preferred stock held by PEC provide for a yearly dividend equal to the preferred stock's share of the net income of IDBNY for the year, based generally on the preferred stock's proportionate share of IDBNY's total shareholder equity at the beginning of that year. For this purpose, the preferred stock constitutes 8.2% of the total shareholders' equity for the year beginning January 1, 1995. IDBL has an option to acquire the preferred stock from PEC at any time until September 1995 at a price equal to approximately $27 million. If IDBL at any time disposes of IDBNY shares representing more than 75% of the equity or voting power in IDBNY, PEC has the right to require the purchase of the preferred stock at a price equal to approximately $27 million.
Conditions in Israel
Substantially all of the Company's Affiliates conduct their principal operations in Israel and are directly affected by economic, political and military conditions in that country. The manufacturing operations of certain of the Affiliates are heavily dependent upon components and raw materials imported from the United States, several nations in Europe and other countries, and a substantial majority of the sales of some Affiliates are made outside Israel. Accordingly, the results of operations of the Company and substantially all of the Affiliates could be adversely affected if major hostilities involving Israel should occur or if trade between Israel and its present trading partners should be interrupted for substantial periods.
Since the establishment of the State of Israel in 1948, a state of hostility has existed, varying as to degree and intensity, among Israel and various Arab countries. In addition, Israel and companies doing business with Israel have been the subject of an economic boycott by the Arab countries since Israel's establishment. Furthermore, following the Six-Day War in 1967, Israel commenced administering the territories of the West Bank and the Gaza Strip and, since December 1987, increased civil unrest has existed in these territories. Although, as described below, Israel has entered into various agreements with
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Arab countries and the Palestine Liberation Organization ("PLO") and various declarations have been signed in connection with efforts to resolve some of the aforementioned problems, no prediction can be made as to whether a full resolution of these problems will be achieved or as to the nature of any such resolutions. To date, these problems have not had a material adverse impact on the financial condition or operations of the Affiliates although there can be no assurance that continuation of these problems will not have such an impact in the future.
A peace agreement between Israel and Egypt was signed in 1979 and limited economic and full political relations have been established between the two countries.
Since October 1991, Israel and certain of its neighbors have held direct negotiations to end the state of hostility between them and establish peace. In September 1993, Israel entered into a Declaration of Principles with the PLO, which sets forth a basic framework for continued negotiations between Israel and the PLO with respect to ending the state of hostility between such parties. In accordance with this agreement, in 1994 Israel transferred administration of the Gaza Strip and Jericho to the Palestinian Self-Rule Authority and the Israeli army withdrew from these areas. Although negotiations are continuing between Israel and the PLO to implement fully the Declaration of Principles, to date such negotiations have not resulted in any definitive agreement.
In October 1994, Israel and Jordan signed a peace treaty establishing full political and economic relations between the two countries. Although negotiations are continuing among Israel, Lebanon and Syria, to date such negotiations have not resulted in any agreement.
All male adult citizens and permanent residents of Israel under the age of 51 are, unless exempt, obligated to perform approximately 48 days of military reserve duty annually. Some unmarried women up to age 24 may also be required to perform up to 48 days of annual military reserve duty. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances. Many of the Affiliates' male officers and employees are currently obligated to perform annual reserve duty. While the Affiliates have operated effectively under these requirements since their organization, no assessment can be made of the full impact of such requirements on the Affiliates' work forces or businesses if conditions should change, and no prediction can be made as to the effect on the Affiliates of any expansion or reduction of such obligations.
The results of operations of certain of the Affiliates have been favorably affected by their participation in Israeli
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Government programs related to research and development, foreign currency exchange rate insurance, taxation and capital investment incentives, some of which have been reduced in recent years. Their results of operations would be adversely affected if these programs were further reduced or eliminated and not replaced with equivalent programs or if their ability to participate in these programs were significantly reduced.
Demographics
Since the beginning of 1990, Israel has been experiencing a new wave of immigration primarily from the former Soviet Union. Approximately 600,000 new immigrants arrived through the end of 1994, of which approximately 80,000 arrived in 1994, and it is expected that additional immigrants will arrive in Israel during the next few years. The future level of immigration is largely dependent on the political stability of Russia and the other countries of the former Soviet Union. If the number of additional immigrants is substantial, the increased population will place an increased strain on government services, short-term economic development and national resources.
The Israeli Government has found it necessary to raise additional revenue and to dedicate substantial funds to support programs, including housing, education and job training, designed to assist in the absorption of the new immigrants. Israeli Government policy in this area is in flux, and no prediction can be made as to the policies that will be adopted in the future or the effect thereof on other government spending programs, including defense. However, the increased immigration may also benefit Israel and its economy in the long-term by providing highly educated, cost competitive labor and by stimulating its growth.
While a decrease in the rate of immigration would relieve strain on government services, short-term economic development and national resources, such a decrease could also have a negative effect on those Affiliates whose revenues are derived mainly from the sale of products and services in Israel. These Affiliates include housing developers, such as Property & Building, manufacturers of supplies for the construction and housing industry, such as Tambour and Klil, and purveyors of food and other necessities, such as Super-Sol. No assessment can be made of the full impact of a significant change in the flow of immigration on the results of operations of these Affiliates or the other companies in which PEC has an interest.
The State of Israel receives significant amounts of economic and military assistance from the United States. In addition, in 1992 the United States agreed to provide Israel with supplemental I-28
assistance in the form of up to $10 billion of loan guarantees in order to help meet the strains imposed by increased immigration. Israel borrowed $2 billion that was guaranteed by the United States in each of 1993 and 1994. The borrowed funds were used to bolster Israel's foreign exchange reserves and to fund increased investments, mainly in infrastructure. Israel plans to borrow $2 billion per year guaranteed by the United States over the next three years. The Israeli economy would suffer material adverse consequences were such economic, military and supplemental assistance to be significantly reduced. There is no assurance that such assistance will continue at or near amounts received in the past.
Economy
Israel's gross domestic product ("GDP") increased by 6.8% in 1994, the highest GDP growth rate recorded in Israel since 1972, and almost twice the 1993 rate of 3.5%. Israel's per capita GDP increased by 4.3% in 1994, the largest increase in per capita GDP in the developed world. This increase was achieved even though Israel's population grew by 5.4% in 1994. This growth in Israel's per capita GDP was accompanied by a decrease in Israel's civilian unemployment rate from 10% in 1993 to 7.7% in 1994, which resulted from sustained growth in Israel's economy. The decline in the unemployment rate is even more significant in view of the expiration of government subsidized employment programs during 1994 and the issuance of work permits to thousands of foreign laborers to work in Israel.
Two of the principal negative developments in Israel's economy last year were the increase in the inflation rate from 11.25% for 1993 to 14.5% for 1994 and the decline in the personal savings rate. These developments can, to some extent, be attributed to Israel's absorption of many new immigrants into its economy. Many of the recent immigrants have now become financially established, and are using their income to purchase goods and services, thereby increasing private consumption and inflationary pressures. As in 1993, increases in housing prices fueled Israel's inflation rate. Housing prices rose in part because of greater demand from recent immigrants who were now able to purchase rather than just rent apartments.
Israel's GDP grew to New Israel Shekel ("NIS") 223 billion at current prices in 1994, an increase of 6.8% compared to 1993. Business sector GDP grew to NIS 149 billion in 1994, an increase of 7.9% over 1993. During the five year period from 1990 through 1994, GDP increased by 33% and business sector GDP rose by 40% while Israel's population grew by 19%, bolstered by mass immigration from the former Soviet Union.
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Israel's exports of goods and services rose by 10.6% in 1994 to $24 billion, a rate of increase similar to that recorded in 1993. Exports of goods increased by 13% to $16 billion and, excluding diamonds, increased by 12% to $11 billion. The fastest growing industrial export sectors in 1994 were metals, machinery and electronics (13% increase) and chemicals (11% increase), which were also the fastest growing industrial export sectors in 1993, and rubber and plastics (17% increase). Metals, machinery and electronics and chemicals accounted for 75% of the entire growth in industrial exports in 1994. Exports of polished diamonds rose to over $3.5 billion, 18% greater than in 1993. Agricultural exports rose by 7% to $584 million. This increase was achieved despite extensive crop damage caused by the unusually warm winter at the beginning of the year and cutbacks in production. Exports of other services increased by 7% in 1994. Although more tourists visited Israel in 1994 compared to 1993 (over 2 million tourists visited in 1994), earnings from tourism increased by only 4% in 1994 compared to 11% in 1993.
Increased exports to the Far East, especially Japan, South Korea, Singapore and Thailand, accounted for over a quarter of the growth in merchandise exports during 1994. A slightly lower percentage of the growth in exports was attributable to increased exports to the United States. Following the end of the recession in Western Europe, approximately 20% of the growth was attributable to exports to the members of European Community ("EC"), to whom exports had actually declined in 1993. The increase in trade with EC members was bilateral, and EC members accounted for 60% of the increase in merchandise imports in 1994. An exception to the overall trend of export growth was Eastern Europe, where Israel's exports decreased marginally because of this region's uncertain economic climate and the lack of foreign exchange.
Israel's increase in exports in 1994 was achieved even though the dollar weakened against the shekel in real terms during the year, resulting in a decrease in the profitability of exporting companies.
Imports of civilian goods and services (which exclude defense imports), rose by 12.7% to $32 billion in 1994. Imports of goods alone increased by 16%. The excess of imports of civilian goods and services over exports of these goods and services (an "import surplus") grew to $8.3 billion in 1994 compared to $5.9 billion in 1993. While the total dollar prices of imports rose faster than those of exports, in real terms import prices actually decreased. This decrease in real import prices encouraged manufacturers to accumulate inventories of imported production inputs and to purchase capital stock from outside of Israel. I-30
Israel's unemployment rate decreased last year to 7.7%, the lowest rate recorded since 1990 when the mass immigration to Israel of residents of the former Soviet Union began. The sharp decrease in the unemployment rate compared to earlier years resulted from a 7% increase in the number of jobs, which increase exceeded the 3.9% increase in the civilian labor force. The increase in the number of jobs resulted from greater economic activity and from large scale investment in previous years in capital stock (the means for producing goods and services). During 1994, capital stock grew by 6.3% in real terms. The number of jobs generated by the investment in capital stock more than outweighed any adverse effect on the unemployment rate from the expiration of government employment subsidization programs. This growth in capital stock also contributed to a 0.2% increase in labor productivity in the business sector following two years of decreases. The rate of increase in capital stock is an important indicator of the ability of the Israeli economy to maintain future growth. While economic growth in previous years was fueled by a sharp rise in the population and only a slight increase in capital stock, during 1994 this mix was reversed, auguring well for the business sector's future growth and ability to generate jobs.
Business sector hourly wages fell by 1.7% in 1994, while public sector wages increased by 8.7%, resulting in an overall rise in wages of 1.1%. In the past, such a large gap between business and public sector wages has been short-lived. Pressure may build on the business sector for wage increases to close this gap. Future wage increases may also result from the economy reaching its natural level of unemployment.
Gross domestic investment rose in 1994 by 8.4% to NIS 52 billion, a more rapid increase than in 1993. After a small increase of 0.2% in 1993, investment in fixed assets grew by 12.9% to NIS 51 billion in 1994. Approximately 75% of the increase in 1994 consisted of non-housing investment, which surged by 17.3% to NIS 37 billion. Non-housing investment, which is the basis for sustained economic growth, includes investment in machinery and equipment (up by 16.7%), land transportation equipment (up 16.8%), and structures and earthworks (up by 12.4%). The investment category that experienced the largest increase was imported machinery and equipment, which grew by 27.3% and added $1 billion to Israel's imports. Following a sharp decrease in 1993, investment in housing construction expanded by only 1.4% in 1994 to NIS 13 billion. This increase was slowed by a labor shortage in the construction industry resulting from the closure of the administered territories.
After maintaining an expansionary monetary policy for several years in order to encourage economic growth, the Bank of Israel began to restrict the money supply during 1994 because of
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its concern over the rise in the inflation rate. The consumer price index rose by 14.5% in 1994, far higher than the 8% level targeted at the beginning of 1994 by Israel's Finance Ministry and the Bank of Israel. Although sharp rises in the prices of housing due to increased demand and fruit and vegetables due to crop shortages were partially responsible for the increase in the index in 1994, the Bank of Israel's expansionary monetary policy in previous years was also a major factor adding to the increase in inflation during 1994.
Last year, the central bank imposed a tight monetary policy by repeatedly raising the cost of its funds to the commercial banks, from 9.7% in January 1994 to 17% in December 1994. Concurrently, the commercial banks' average lending rate increased from 14.6% to 22.5%. Despite this increase and an accompanying rise in borrowing rates, the banking system's aggregate financial margin (the excess of the banking system's aggregate lending rate over its average borrowing rate) remained largely unchanged during 1994, following several years of decline.
As a result of the Bank of Israel's monetary policy, during 1994 the amount of loans to the public grew at a slower pace than the growth in deposits, i.e. credit expanded by 24% to NIS 55 billion and deposits went up by 35% to NIS 47 billion. The growth in deposits was fueled by a large decrease in investment in equity securities. This increase in deposits and decrease in holdings of equity securities in 1994 reverses the trend that had developed in the banking industry in the years 1991-1993 away from traditional financing operations towards more off-balance-sheet activity with customers in the capital market. Indeed, reduced confidence in the capital market, at least by smaller savers, led to the foregoing major change in the composition of the public's financial asset portfolio in the course of the year.
The foreign currency market was relatively stable in 1994, and the Bank of Israel made no change in the 6% predetermined rate of annual devaluation of the shekel against a basket of currencies. This 6% rate of permitted devaluation is intended to reflect the differential between the levels of annual inflation in Israel and the countries included in the currency basket. The 6% rate was maintained despite calls for a major devaluation from exporters, whose profits suffered by the lack of a larger devaluation while Israel's inflation rate was increasing. In July 1994, continual bilateral trading was introduced into the foreign currency market for trading large sums of currency. Under this form of trading, trades may be conducted at spot rates, without having to wait for the banks' single daily exchange rate quotations.
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In 1994, the shekel was devalued by less than 1% against the dollar, from NIS 2.99 to NIS 3.01, and by 5.34% against the currency basket, from NIS 3.19 to NIS 3.35.
Israel had approximately $6.8 billion of foreign exchange reserves at the end of 1994 compared to $6.4 billion at the end of 1993, $5.1 billion at the end of 1992, $6.3 billion at the end of 1991 and $5.2 billion at the end of 1990.
After four consecutive years of buoyant trading, the expansion of stock market activity came to a halt in 1994. Share prices plummeted and volume dropped in 1994. The general share index dropped by 54% in real terms, and the volume of share trading totalled NIS 76 billion compared with NIS 84 billion in 1993. While the two-sided index of the 100 most traded companies listed on the Tel Aviv Stock Exchange fell by 44%, the broader index of smaller companies on the parallel list plunged by 67%. The market value of shares and convertible stocks at the end of 1994 amounted to NIS 100 billion, compared with NIS 152 billion at the end of 1993.
There are four main reasons for the market's decline in 1994. First, prices were at an extremely high speculative level after a four year boom. Second, profits of publicly traded companies decreased in 1994 compared to 1993. Third, the inflation rate increased, causing the Bank of Israel to impose higher interest rates. Finally, Israel enacted a capital gains tax in November 1994 on profits from the sale of shares of publicly traded companies. Although the capital gains tax became effective on January 1, 1995, the Israeli government decided later that month to repeal the tax.
The amount of capital raised on the Tel Aviv Stock Exchange in 1994 reached NIS 5.4 billion, compared with a record NIS 9.8 billion raised in 1993. Over half of the total amount raised came from share offerings made during the first four months of 1994, and represented the end of the wave of stock offerings in 1993. Of the total amount raised, NIS 3.8 billion came from share offerings and private placements by 177 companies, of which 82 were initial public offerings. An additional NIS 1.6 billion was raised from the exercise of options for publicly traded securities.
Plans to continue the privatization of government companies in 1994 were stalled by the recession in the capital market. The government realized only NIS 600 million in proceeds from privatization in 1994, compared to approximately NIS 3.3 billion in 1993.
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Item 2.



Item 2. PROPERTIES ------- ----------
None.
Item 3.

Item 3. LEGAL PROCEEDINGS ------- -----------------
None.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------- ---------------------------------------------------
None.
Executive Officers of the Registrant ------------------------------------ Date First Elected to
Name Age Position Office ---- --- -------- ----------
Frank J. Klein(a) 52 President Jan. 1995
James I. Edelson(b) 38 Executive Feb. 1992 Vice President, Secretary and General Counsel
William Gold(c) 57 Treasurer Feb. 1992
Officers are elected for a one-year term at the Annual Meeting of Directors scheduled in May or June of each year.
(a) Mr. Klein served as Executive Vice President of the Company from November 1977 to November 1991 and as Treasurer of the Company from May 1980 to November 1991. For more than 20 years prior to 1995, Mr. Klein was an officer of Israel Discount Bank of New York ("IDBNY"), serving as Executive Vice President of IDBNY from December 1985 to December 1994.
(b) Mr. Edelson is also U.S. Resident Secretary of IDB Holding. Prior to joining the Company, from August 1988 to January 1992, Mr. Edelson was associated with the law firm of Proskauer Rose Goetz & Mendelsohn, New York, New York.
(c) Mr. Gold was Secretary and Assistant Treasurer of the Company from August 1970 to February 1992.
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PART II -------
Item 5.

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED ------- ---------------------------------------------------- STOCKHOLDER MATTERS -------------------
(a) From January 1, 1993 until January 19, 1993, shares of the Company's Common Stock traded on the American Stock Exchange Composite Tape under the trading symbol ("IEC"). On January 19, 1993, shares of the Company's Common Stock began trading on the New York Stock Exchange under the same trading symbol. At the same time, trading of the Company's Common Stock on the American Stock Exchange was discontinued. The range of high and low sales prices of the Company's Common Stock for each of the fiscal quarters during the last two fiscal years as reported on the American Stock Exchange Composite Tape until January 19, 1993 and as reported on the New York Stock Exchange Composite Tape from January 19, 1993 are set forth below.
1993 High Low ---- ---- ---
First Quarter $30-7/8 $24-1/4 Second Quarter 27-1/4 22-3/8 Third Quarter 34-1/4 22-3/4 Fourth Quarter 34 28-1/4
1994 High Low ---- ---- ---
First Quarter $34-3/4 $27-1/4 Second Quarter 30-5/8 23-3/8 Third Quarter 30-1/2 23-1/8 Fourth Quarter 29-3/8 24-1/2
On March 24, 1995 the closing price of the Company's Common Stock on the New York Stock Exchange was $24.375 per share.
(b) As of March 24, 1995 there were 2,566 shareholders of record of the Company's Common Stock.
(c) The Company has not paid cash dividends since 1979. The decision not to pay cash dividends reflects the policy of the Company to apply retained earnings, including funds realized from the disposition of holdings, to finance its business activities. The payment of cash dividends in the future will depend upon the Company's operating results, cash flow, working capital requirements and other factors deemed pertinent by the Board of Directors.
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Item 6.

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA ------- ------------------------------------
The following selected consolidated financial data for the years ended December 31, 1994, 1993 and 1992, and at December 31, 1994 and 1993, are derived from the audited consolidated financial statements of the Company set forth elsewhere in this Annual Report which have been prepared in accordance with accounting principles generally accepted in the United States and have been audited by Arthur Andersen LLP and Haft & Gluckman LLP, each independent public accountants, as indicated in their report included elsewhere herein. The selected consolidated financial data for the years ended December 31, 1991 and 1990, and at December 31, 1992, 1991 and 1990, are derived from other audited consolidated financial statements of the Company not appearing in this Annual Report which have also been prepared in accordance with accounting principles generally accepted in the United States and have been audited by Arthur Andersen LLP and Haft & Gluckman LLP.
* Net income for 1993 is after the cumulative effect of a change in accounting for income taxes of $(1,173,713) or $(.06) per share of Common Stock. Net income for 1994 is after the cumulative effect of a change in accounting for marketable securities of $2,472,879 or $.13 per share of Common Stock.
No dividends were paid during the last five years.
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Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------- ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS -----------------------------------
Results of Operations ----------------------
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Consolidated net income was $32.6 million in 1994 compared to $42.0 million in 1993. The reduction in consolidated net income resulted primarily from decreases in equity in net income of Affiliated Companies, in net gain on issuance of shares by Affiliated Companies and in net gain on sales of investments. The reduction attributable to these factors was partially offset by a reduced provision for income taxes and by the effect of PEC's adoption of Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115") effective January 1, 1994 (which increased consolidated net income for 1994 by a cumulative effect adjustment of approximately $2.5 million, net of taxes ($3.8 million before taxes), offset in part by a reduction in revenues in 1994 of approximately $2.6 million for changes in market value of marketable securities). PEC's adoption of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" effective January 1, 1993 reduced consolidated net income in 1993 by a cumulative effect adjustment of approximately $1.2 million.
Equity in net income of Affiliated Companies for 1994 was $25.3 million compared to $33.5 million for 1993. This decrease reflected PEC's reduced equity in net income in 1994 in respect of some of PEC's Affiliated Companies, principally El-Yam, Scitex and Tefron, and the absence of net income in respect of C.I.D.L. Inc. ("CIDL"), an Affiliated Company until PEC sold its equity interest in CIDL in November 1993. The reduction in equity in net income in respect of Tefron and CIDL primarily reflected the effects of events that occurred in 1993--PEC's elimination of reserves in 1993 for Tefron, which increased equity in net income of Affiliated Companies in 1993 by the amount of the reserves, and the gain realized by CIDL in 1993 upon the sale of its sole asset. See Results of Operation - Year Ended December 31, 1993 Compared to Year Ended December 31, 1992. The reduction in PEC's equity in net income of Affiliated Companies also reflected losses in respect of other Affiliated Companies, particularly CellCom (start up losses), RDC (losses from holdings in early stage companies), and RTS and RPA (losses and additional provisions for these holdings). The reduction attributable to these factors was partially offset by PEC's increased equity in net income in respect of certain other Affiliated Companies, particularly Super-Sol, Bulk Trading (which had a loss in 1993) and Caniel and by PEC's reduced loss in respect of Adir.
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PEC's equity in net income of Affiliated Companies decreased in 1994 by approximately $2.7 million because the substantial decline in 1994 in prices of publicly traded securities in Israel reduced the net income of certain of PEC's Affiliated Companies, principally Property & Building and Tambour, which had invested a portion of their liquid funds on a short term basis in publicly traded Israeli mutual funds and equity securities pending permanent utilization in their businesses.
PEC realized a net gain on issuance of shares by Affiliated Companies of approximately $7.1 million for 1994 compared to approximately $11.5 million for 1993. Approximately $5.9 million of PEC's net gain on issuance of shares by Affiliated Companies for 1994 resulted from the exercise in February 1994 of all the then outstanding one year options to purchase ordinary shares of Tambour and approximately $500,000 of such net gain resulted from Lego's initial public offering in Israel in January 1994. The net gain on issuance of shares by Affiliated Companies for 1993 resulted principally from Tambour's sale in February 1993 of ordinary shares and one and two year options to purchase ordinary shares in an initial public offering in Israel and the subsequent exercise of some of those options, from Gilat Satellite's sale in April 1993 of ordinary shares in an initial public offering in the United States and from Mul-T-Lock's sale in January 1993 of ordinary shares in a private placement.
The net loss on sales of investments for 1994 of approximately $200,000 resulted from losses on PEC's sale of marketable securities of U.S. companies and marketable bonds of the U.S. Government and of a U.S. Government sponsored corporation. The net loss attributable to these factors was partially offset by a gain from PEC's sale of a small portion of the shares of Maxima. PEC's net gain on sales of investments for 1993 of approximately $4.1 million resulted from PEC's sale of 30% of the shares of Tefron, PEC's sale of marketable securities of U.S. companies and PEC's sale of a small portion of the shares of Maxima.
PEC's interest and dividend income increased in 1994 by approximately $200,000 compared to 1993 because of an increase of approximately $400,000 in dividend income from PEC's nonvoting preferred stock of IDBNY in 1994 compared with 1993. Although the amount of liquid assets decreased in 1994 compared to 1993 (approximately $75 million at the beginning of, and approximately $42.7 million at the end of, 1994 compared to approximately $87 million at the beginning of, and approximately $75 million at the end of, 1993), such decrease did not significantly affect PEC's interest and dividend income for 1994, excluding PEC's dividend income from its nonvoting preferred stock of IDBNY, compared to such income for 1993 primarily because of higher interest rates.
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See "Liquidity and Capital Resources". The amount of liquid assets was reduced principally because of the purchase of equity securities of new and existing Affiliated Companies and other Israeli companies and long term loans made to Affiliated Companies, principally CellCom.
The decrease in other income for 1994 reflected principally reduced fees for management services compared with 1993.
General and administrative expenses for 1994 decreased compared to 1993 due in part to the write-off of deferred American Stock Exchange listing fees for PEC's common stock during 1993 and to reduced provisions for employee pension expenses.
The provision for income taxes in 1994 decreased to $1.2 million from $7.6 million in 1993. As described in Note 2 to the Notes to Consolidated Financial Statements, PEC provides deferred income taxes on undistributed earnings of, and gains on issuances of shares by, Affiliated Companies that are not more than 50% owned by the IDB Group and in which the IDB Group does not otherwise have effective control. The Company does not provide deferred income taxes with respect to undistributed earnings of, and gains on issuances of shares by, Affiliated Companies that are more than 50% owned by the IDB Group or in which the IDB Group otherwise has effective control (the "Majority-Owned Affiliated Companies"). Such amounts are currently expected to be permanently reinvested in the Majority-Owned Affiliated Companies. PEC's provision for income taxes decreased for 1994 compared with 1993 primarily because of the decrease in income before income taxes for 1994 compared with 1993. The provision for income taxes as a percentage of income before income taxes decreased in 1994 compared with 1993 principally because of an increase in 1994 in the proportion of income from undistributed earnings of, and gains on issuances of shares by, Majority-Owned Affiliated Companies to net income and because of an increase of approximately $800,000 in the provision for income taxes in 1993 as a result of the increase in August 1993 in the U.S. federal corporate income tax rate from 34% to 35% for taxable income greater than $10 million. The provision for income taxes in 1993 reflected a capital loss for tax purposes that PEC realized upon its sale of 30% of the shares of Tefron in September 1993, which reduced PEC's provision for income taxes in 1993 by approximately $1.9 million.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Consolidated net income increased to $42.0 million in 1993 from $33.1 million in 1992. The increase in consolidated net income in 1993 as compared to 1992 resulted primarily from increases in PEC's equity in net income of Affiliated Companies
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and in net gain on sales of investments and a decrease in the provision for income taxes. The increase attributable to these factors was partially offset by a decrease in other income and by the effect of PEC's adoption of SFAS 109.
PEC's equity in net income of Affiliated Companies in 1993 increased to $33.5 million from $30.3 million in 1992. The increase in equity in net income of Affiliated Companies for 1993 reflects PEC's elimination of approximately $2.2 million of reserves for Tefron that PEC determined were no longer required, PEC's recognition of approximately $1.7 million of equity in net income of CIDL resulting from CIDL's sale of all of its shares of F.I.B.I. Holding Company Limited, its sole asset, and improved results of some of PEC's Affiliated Companies, principally El-Yam, Property & Building, Super-Sol and Gilat Satellite. These increases were partially offset by reduced earnings of certain other Affiliated Companies, principally Scitex, DIC and PEC Cable TV Ltd. (the holding company for PEC's interest in Tevel), Tambour and Elron and by losses in respect of Adir, RTS and Bulk Trading.
PEC realized a net gain on issuance of shares by Affiliated Companies of approximately $11.5 million in 1993 compared to approximately $11.3 million in 1992. Approximately $8.5 million of the net gain on issuance of shares by Affiliated Companies in 1993 resulted from Tambour's sale in February 1993 of ordinary shares and one and two year options to purchase ordinary shares in an underwritten initial public offering in Israel and the subsequent exercise of some of those options. Approximately $2.2 million of net gain on the issuance of shares by Affiliated Companies in 1993 resulted from Gilat Satellite's sale in April 1993 of ordinary shares in an underwritten initial public offering in the United States. A private placement of ordinary shares by Mul-T-Lock in January 1993 resulted in PEC realizing approximately $647,000 of net gain on the issuance of shares by Affiliated Companies. The net gain on issuance of shares by Affiliated Companies in 1992 resulted almost entirely from Scitex's sale in May 1992 of newly issued ordinary shares of Scitex to International Paper Company and from Elron's sale in March 1992 of newly issued ordinary shares of Elron to a group of investors in a private placement.
The net gain on sale of investments in 1993 of approximately $4.1 million resulted from the sale of marketable securities of U.S. companies, the sale of 30% of the shares of Tefron and the sale of a small portion of shares of Maxima, while the net gain on sale of investments in 1992 of approximately $2.0 million resulted from the sale of a small portion of the shares of Mul-T-Lock, the sale of all of PEC's shares in Tedea Technological Development and Automation Ltd. and the sale of marketable securities of U.S. companies.
II-6
The decrease in other income in 1993 reflects principally a loss with respect to PEC's interest in a limited partnership, which limited partnership generated income in 1992. The amount of the decrease was partially offset by increased fees in 1993 for management services.
General and administrative expenses in 1993 increased compared to 1992 due in part to the write-off of deferred American Stock Exchange listing fees for PEC's common stock and higher costs for financial and other services provided to the Company.
The provision for income taxes in 1993 decreased to $7.6 million from $13.2 million in 1992. The reduced provision for income taxes in 1993 is primarily attributable to an increase in the proportion of income from undistributed earnings of, and gains on issuances of shares by, Majority- Owned Affiliated Companies to net income in 1993 compared to 1992, including the $8.5 million gain on issuance of shares by Tambour.
In addition, PEC's provision for income taxes decreased in 1993 as compared to 1992 as a result of PEC's sale of 30% of the shares of Tefron in 1993. Although PEC had no carrying value for its interest in Tefron prior to the sale because the carrying value of its interest in Tefron had previously been reduced as a result of PEC's recognition of Tefron's losses, the basis of PEC's interest in Tefron for tax purposes prior to the sale was the cost of such interest. Upon PEC's sale of 30% of the shares of Tefron, PEC recognized all of the proceeds of such sale as net gain, but for tax purposes PEC realized a capital loss which reduced PEC's provision for income taxes by approximately $1.9 million. As discussed in Note 4 to the Notes to the Consolidated Financial Statements, the foregoing reductions in the provision for income taxes were partially offset by an increased provision for income taxes of approximately $800,000 as a result of the increase in 1993 in the United States federal corporate income tax rate from 34% to 35% for taxable income greater than $10 million. Approximately $688,000 of this increased provision relates to an additional deferred tax provision as of January 1, 1993.
Effective on January 1, 1993, PEC adopted SFAS 109, which increased PEC's deferred tax liability by approximately $1.2 million. As discussed in Note 2 to the Notes to the Consolidated Financial Statements, this increased liability has been recorded through PEC's income statement and reported as a cumulative effect of a change in accounting principle.
Shareholders' Equity --------------------
As discussed above and in Note 2 to the Notes to the Consolidated Financial Statements, PEC adopted SFAS 115 effective on January 1, 1994. The effect of adopting SFAS 115 for
II-7
securities classified as "available-for-sale securities" was to increase shareholders' equity, net of taxes, by approximately $3.8 million as of January 1, 1994. As a result of decreases in the market value of "available-for-sale securities" since January 1, 1994, the unrealized gain, net of taxes, from those securities that was included in shareholders' equity as of December 31, 1994 was approximately $2.8 million.
As discussed in Note 2 to the Notes to the Consolidated Financial Statements, commencing in 1993, translation differences are reflected in shareholders' equity as a "Cumulative Translation Adjustment". During 1994, although the consumer price index in Israel rose by 14.5%, the New Israel Shekel (the "NIS") was devalued by less than 1% against the dollar. As of December 31, 1994, the Cumulative Translation Adjustment reduced shareholders' equity by $13.1 million compared to $11.6 million at the end of 1993. During 1993, the NIS was devalued 8% against the dollar, of which approximately 60% of devaluation for the entire year occurred in the fourth quarter of 1993. As of December 31, 1993, the effect on shareholders' equity was a decrease of approximately $11.6 million.
Liquidity and Capital Resources -------------------------------
As of December 31, 1994, PEC's liquid assets (consisting of cash, money market funds, short-term bank deposits, marketable bonds and a limited partnership interest which PEC sold on January 31, 1995) totaled approximately $42.7 million. As discussed in Note 6 to the Notes to the Consolidated Financial Statements, as of the end of 1994 PEC had commitments to make capital contributions or loans of up to approximately $20.7 million to existing Affiliated Companies. For the year ended December 31, 1994, PEC received cash dividends and interest totaling $8.4 million (including $4.8 million of dividends received from the Affiliated Companies), which substantially exceeded the amount needed to pay PEC's general and administrative expenses.
During 1994, PEC generated a total of $24.2 million of liquid funds, of which $11.2 million was realized from the sale of marketable securities of U.S. companies, $10.6 million was generated from the collection of notes, loans and U.S. Government and State obligations, $2 million was generated from the sale of a partnership interest and $400,000 was generated from the sale of securities of Affiliated Companies.
During 1994, PEC purchased equity and debt securities of new and existing Affiliated Companies for approximately $34.0 million. The new Affiliated Companies, and PEC's purchase price for their securities, include CellCom - $8.3 million (represented by notes of CellCom), Delek - $4.9 million, Liraz - $2.4 million, The Renaissance Fund LDC - $2.2 million and Sano Dispec -
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$200,000. The existing Affiliated Companies in which PEC purchased securities in 1994 and the purchase price for such securities consist primarily of Elron - $7.4 million, DEP Technology Holdings Ltd., the holding company for PEC's interest in RDC - $1.5 million (represented by notes of DEP), Nice - $1.3 million, Tambour - $1.2 million, Gemini - $1 million, Scitex - $800,000 and Tel-Ad - $460,000 (represented by notes of Tel-Ad). During 1994, PEC purchased marketable securities of U.S. companies for approximately $11.2 million and paid taxes of approximately $1.6 million.
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Item 8.


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------- -------------------------------------------
This item commences on the following page.
Item 9.

Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ------- ----------------------------------------------------
None.
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HAFT & GLUCKMAN ARTHUR ANDERSEN LLP CERTIFIED PUBLIC ACCOUNTANTS LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------
To the Shareholders and Board of Directors of PEC Israel Economic Corporation:
We have audited the accompanying consolidated balance sheets of PEC Israel Economic Corporation (a Maine corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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 did not audit the financial statements of certain Affiliated Companies of the Company, which statements reflect assets and equity in net income of $224.8 million and $25.3 million, respectively, of the consolidated totals as of and for the year ended December 31, 1994, of $154.9 million and $25.9 million, respectively, of the consolidated totals as of and for the year ended December 31, 1993, and equity in net income of $21.8 million of the consolidated total for the year ended December 31, 1992. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of PEC Israel Economic Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 2 to the consolidated financial statements, the Company changed its method of accounting for income taxes, effective January 1, 1993, and the Company changed its method of accounting for marketable securities effective January 1, 1994.
HAFT & GLUCKMAN LLP ARTHUR ANDERSEN LLP
New York, New York March 30, 1995
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------ CONSOLIDATED BALANCE SHEETS ---------------------------
DECEMBER 31, ------------ 1994 1993 ----- ----- ASSETS ------
CASH AND CASH EQUIVALENTS $ 20,736,416 $ 42,665,957
INVESTMENTS (Note 3) 349,623,830 292,484,875
ASSETS OF GENERAL ENGINEERS LIMITED (Note 2) 9,018,224 8,722,142
OTHER ASSETS 4,312,494 4,000,416 ----------- ----------- Total assets $383,690,964 $347,873,390 =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------
LIABILITIES: Liabilities of General Engineers Limited (Note 2) $ 5,262,094 $ 5,484,976 Deferred income taxes (Notes 2 and 4) 31,702,309 30,214,359 Other liabilities 5,258,196 4,937,184 ----------- ----------
Total liabilities 42,222,599 40,636,519 ----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6) --------------------------------------
SHAREHOLDERS' EQUITY (Notes 2 and 5): Common stock, $1.00 par value, 40,000,000 shares authorized in 1994 and 30,000,000 shares authorized in 1993, 31,952,180 shares issued in 1994 and 18,758,588 shares issued in 1993 and 18,758,588 shares outstanding in 1994 and 1993 31,952,180 18,758,588 Class B preferred stock, no par value, 544,514 shares authorized in 1994 and 1993, none issued in 1994 and 1993 - - Additional paid-in capital 99,612,887 99,257,071 Unrealized gain on marketable securities, net 2,845,350 - Cumulative translation adjustment (13,114,003) (11,578,060) Retained earnings 233,365,543 200,799,272 ----------- -----------
354,661,957 307,236,871 Treasury Stock, 13,193,592 shares (13,193,592) - ----------- -----------
Total Shareholders' Equity 341,468,365 307,236,871 ----------- -----------
Total liabilities and shareholders' equity $383,690,964 $347,873,390 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME ---------------------------------
Years Ended December 31, ------------------------ 1994 1993 1992 ----- ----- ----- REVENUES:
Interest and dividends $ 3,574,485 $ 3,369,109 $ 3,556,626 Equity in net income of Affiliated Companies (Note 3) 25,337,908 33,541,985 30,301,198 Net gain on issuance of shares by Affiliated Companies 7,091,593 11,451,371 11,291,327 Revenues of General Engineers Limited (Note 2) 14,213,000 11,955,987 11,826,517 Net (loss) gain on sales of investments (Note 2) (241,623) 4,081,204 1,986,788 Change in market value of marketable securities (2,627,640) - - Other 397,640 781,430 1,391,165 ---------- ---------- ---------- 47,745,363 65,181,086 60,353,621 ---------- ---------- ---------- EXPENSES:
General and administrative 2,952,382 3,262,279 2,833,881 Cost of sales and expenses of General Engineers Limited (Note 2) 13,530,333 11,224,283 11,238,017 ---------- ---------- ----------
16,482,715 14,486,562 14,071,898 ---------- ---------- ---------- Income before income taxes and cumulative effect of accounting changes 31,262,648 50,694,524 46,281,723
Income Taxes (Note 4) 1,169,256 7,550,950 13,175,631 ---------- ---------- ----------
Income before cumulative effect of accounting changes 30,093,392 43,143,574 33,106,092
Cumulative effect of changes in accounting for: Marketable securities (Note 2) 2,472,879 - - Income taxes (Note 2) - (1,173,713) - ---------- ---------- ----------
Net income $32,566,271 $41,969,861 $33,106,092 ========== ========== ==========
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (continued)
Years Ended December 31, ------------------------ 1994 1993 1992 ----- ----- -----
Earnings per common share before cumulative effect of accounting changes $ 1.60 $ 2.30 $ 1.89
Cumulative effect on earnings per common share of changes in accounting for: Marketable securities 0.13 - - Income taxes - (0.06) -
Earnings per common -------- -------- -------- share (Note 5) $ 1.73 $ 2.24 $ 1.89 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Years Ended December 31, ------------------------ 1994 1993 1992 ------ ------ ------
Cash Flows From Operating Activities: Net income $ 32,566,271 $ 41,969,861 $ 33,106,092 Adjustments to reconcile net income to net cash (used in) provided by operating activities - Cumulative effect of changes in accounting for: Income taxes - 1,173,713 - Marketable securities (2,472,879) - - Change in market value of marketable securities 2,627,640 - - Purchase of marketable securities (16,398,296) - - Proceeds from sale of marketable securities 11,155,477 - - Equity in net income of Affiliated Companies (25,337,908) (33,541,985) (30,301,198) Loss (gain) on sales of investments 241,623 (4,081,204) (1,986,788) Loss (gain) on invest- ment in partnerships 374,762 542,844 (1,130,454) (Income) loss of consolidated subsidiaries (892,667) (1,255,724) 42,548 Amortization of premiums (discounts) on receivables, net 130,168 208,272 (15,730) Net gain on issuance of shares by Affiliated Companies (7,091,593) (11,451,371) (11,291,327) Dividends from Affiliated Companies 4,831,736 5,298,806 7,722,927 Increase in other assets (119,927) (639,145) (682,545) Provision for deferred income taxes (500,267) 5,250,466 8,750,402 Increase (decrease) in other liabilities 70,042 630,238 (3,616,870) Write-off of deferred charges - 110,457 - ---------- ----------- ---------- Net cash (used in) provided by operating activities $ (815,818) $ 4,215,228 $ 597,057 ----------- ----------- ----------
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (continued)
Years Ended December 31, ------------------------ 1994 1993 1992 ------ ------ ------
Cash Flows From Investing Activities:
Purchase of U.S. Government and state obligations $ - $(16,660,422) $ - Collection of U.S. Government and state obligations 10,495,505 2,616,845 - Purchases of notes receivable (62,011) (1,370,518) (212,642) Collection of capital notes and loans receivable 97,522 4,172,522 95,233 Proceeds from sales of equity interests 2,399,735 18,233,803 13,704,030 Purchase of equity interests (34,044,474) (34,581,590) (20,799,406) ----------- ----------- ----------
Net cash used in investing activities (21,113,723) (27,589,360) (7,212,785) ----------- ----------- ----------
Cash Flows From Financing Activities: Proceeds from issuance of common stock - - 37,641,340 ----------- ----------- ---------- Net cash provided by financing activities - - 37,641,340 ----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents (21,929,541) (23,374,132) 31,025,612
Cash and Cash Equivalents, beginning of year 42,665,957 66,040,089 35,014,477 ----------- ----------- ----------
Cash and Cash Equivalents, end of year $ 20,736,416 $ 42,665,957 $ 66,040,089 =========== ========== ==========
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
(continued)
Years Ended December 31, ------------------------ 1994 1993 1992 ------ ------ ------
Supplemental Disclosure of Cash Flow Information: Cash paid during the year for income taxes $1,576,871 $2,041,263 $7,953,546 Non-cash investing activities- Purchase of invest- ments on account - - 4,316,000 Balance of funds pending receipt on sale of investments - - 156,000 Exchange of shares of Tefron - 859,323 -
The accompanying notes are an integral part of these consolidated financial statements.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
1. THE COMPANY -----------
PEC Israel Economic Corporation and subsidiaries (the "Company") organizes, acquires interests in, finances and participates in the management of companies which are located in the State of Israel or are Israel-related. The Company is a subsidiary of IDB Development Corporation Ltd. ("IDB Development"). Discount Investment Corporation Ltd. ("Discount Investment") is also a subsidiary of IDB Development. IDB Development is a subsidiary of IDB Holding Corporation Ltd. ("IDB Holding"). All of these companies are hereinafter referred to as the "IDB Group Companies". As of December 31, 1994, IDB Development owned approximately 70.3% of the Company's outstanding common stock. For additional discussion, see Notes 3(e) and 5.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------
Investments -----------
The Company accounts for substantially all of its investments on the equity method. Under the equity method, the Company records its proportionate share of profits and losses and capital transactions based on its percentage of direct and indirect interests in earnings of companies 20% to 50% owned and in companies less than 20% owned in which the Company, together with the IDB Group Companies, has the ability to exercise significant influence. These investees are collectively referred to as "Affiliated Companies".
The excess of cost over net assets acquired and the excess of net assets acquired over cost, to the extent not otherwise applied, is amortized primarily over a ten-year period. Gains and losses on issuances of shares by Affiliated Companies are recognized in the accompanying consolidated statements of income.
Equity in net income of Affiliated Companies is reflected in the Company's financial statements based upon their fiscal years, all of which are December 31.
The Company consolidates its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. General Engineers Limited, a wholly
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd ------------------------------------------
owned Israeli subsidiary of the Company, sells various types of equipment in Israel, especially power generation equipment. Its assets, liabilities, and operations are grouped and presented separately in the accompanying consolidated financial statements.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115, marketable debt and equity securities, other than equity securities accounted for under the equity method, are reported at fair value, with unrealized gains and losses from those securities which are classified as "trading securities" included in net income and unrealized gains and losses from those securities which are classified as "available-for-sale securities" reported as a separate component of shareholders' equity. Debt securities classified as "held to maturity" are reported at amortized cost. The cumulative effect of adopting SFAS 115 as of January 1, 1994, for securities classified as "trading securities" was an increase in net income of $2,472,879, net of taxes ($3,804,429 before taxes), or $0.13 per share, which increase is reported separately in the accompanying consolidated statements of income. The effect, net of taxes, of adopting SFAS 115 for securities classified as "available-for-sale securities" was an increase in shareholders' equity of $3,790,603 as of January 1, 1994. As a result of decreases in the market value of "available-for-sale securities" since January 1, 1994, the unrealized loss, net of taxes, from those securities included in shareholders' equity as of December 31, 1994 was $945,253. The consolidated balance sheet as of December 31, 1993, included in investments marketable securities (classified as either "trading securities" or "available for sale securities") with a market value before taxes of $32 million and a cost of $24.1 million. For 1993 and 1992, these investments are carried at the lower of aggregate cost or market. Costs of marketable equity securities, excluding Affiliated Companies, are determined on a specific identification basis in calculating gains or losses.
Foreign Currency Translations -----------------------------
Two foreign subsidiaries and several Affiliated Companies prepare their primary financial statements in their local currency, the New Israel Shekel ("NIS"), in accordance with generally accepted accounting principles in Israel, which require financial statements
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd ------------------------------------------
Foreign Currency Translations -----------------------------
to be adjusted for the effects of inflation in Israel. For purposes of the Company's financial statements, these subsidiaries and Affiliated Companies provide financial information, which for 1994 and 1993 is in the local currency and for 1992 is in U.S. dollars, prepared in accordance with United States generally accepted accounting principles.
During 1993, it was determined that the economy of the State of Israel should no longer be considered "highly inflationary" under the guidelines of Statement of Financial Accounting Standards No. 52. Accordingly, NIS financial information is prepared by subsidiaries and Affiliated Companies whose "functional currency" is the local currency based on their dollar balances as of December 31, 1992 and reflecting their activity during 1994 and 1993 in NIS, which is then translated based on exchange rates at year-end for assets and liabilities and at average exchange rates for revenues and expenses. Translation differences are reflected as a component of shareholders' equity under the caption "Cumulative Translation Adjustment". Upon disposition of an investment, the related cumulative translation adjustment balance will be recognized in determining income or loss. If the NIS is devalued against the dollar, such cumulative translation adjustments are likely to result in reductions of shareholders' equity. This change in the accounting of the functional currency does not affect Affiliated Companies whose "functional currency" is the dollar, as their accounting continues as described in the following paragraph.
Prior to 1993, and for Affiliated Companies whose functional currency is the U.S. dollar, assets and liabilities of foreign subsidiaries and Affiliated Companies were and are translated using year-end exchange rates, except for property and equipment, inventory and certain investment and equity accounts which are translated at exchange rates prevailing on the dates of acquisition. Revenues and expenses are translated primarily at the exchange rates in effect at the time of the relevant transactions and partially at average rates of exchange during the year. Revenue and expense items relating to assets translated at historical rates are translated on the same basis as the related asset. Translation differences are included in the determination of income for the year.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont'd ------------------------------------------
Provision for Income Taxes --------------------------
The provision for income taxes is based on revenues and expenses reported for financial statement purposes. Deferred taxes arise from the different treatment of certain items for tax and financial statement reporting purposes, which result primarily from equity in the net income of, and net gain on issuance of shares by, Affiliated Companies and the change in market value of marketable securities in accordance with SFAS 115. The balance of deferred income taxes at December 31, 1994 was approximately $32 million. The Company's foreign subsidiaries and the Affiliated Companies file separate tax returns and provide for taxes accordingly.
Effective on January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, the deferred income tax provision is determined under the liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between financial statement and income tax bases of assets and liabilities using presently enacted tax rates. Deferred income tax expense principally represents such temporary differences related to investments in Affiliated Companies. The cumulative effect on prior years of this change in accounting principle was a reduction of net income of $1,173,713, or $.06 per share, and is reported separately in the accompanying consolidated statements of income. Prior years' consolidated financial statements have not been restated to apply the provisions of SFAS 109.
Deferred income taxes of approximately $51 million have not been accrued on the Company's temporary differences, totaling approximately $145 million, related to its investments in Affiliated Companies which are more than 50% owned by the IDB Group Companies and two other companies in which the IDB Group Companies have effective control. Such amounts are currently expected to be permanently reinvested in these companies.
Cash Equivalents ----------------
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Reclassification ----------------
Certain reclassifications have been made to the 1993 and 1992 consolidated financial statements to conform with the 1994 presentation.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
3. INVESTMENTS -----------
Certain information about the Company's investments follows (in thousands):
December 31, --------------------------------------- 1994 1993 ------------------- ------------------- Percentage Carrying Percentage Carrying Owned Value Owned Value ---------- -------- ---------- -------- Affiliated Companies: Tambour Ltd.(a)(i) 42% $ 54,495 45% $ 39,874 Scitex Corporation Ltd. (b)(i) 6% 47,113 6% 43,974 Super-Sol Ltd.(c)(i) 19% 38,243 19% 33,362 Property and Building Corporation Ltd. (d)(i) 31% 35,510 31% 31,614 Elron Electronic Industries Ltd. (f)(g)(i) 13% 29,638 11% 18,372 El-Yam Ships Ltd. (e)(f) 10% 23,808 10% 21,587 Caniel-Israel Can Company Ltd.(f)(i) 29% 13,683 28% 11,600 Klil Industries Ltd. (f)(i) 15% 10,668 15% 9,642 Mul-T-Lock Ltd.(f)(g)(i) 14% 5,860 14% 5,001 CellCom Israel Ltd.* (f) See Note 6(c) 10% 6,633 - - Gilat Satellite Networks Ltd. (f)(g)(i) 10% 4,009 10% 3,455 DIC and PEC Cable TV Ltd.(f) See Note 6(a) 49% 3,154 49% 2,573 Lego Irrigation Ltd.(f)(g)(i) 13% 2,768 16% 2,335 Electronics Line (E.L.) Ltd.(f)(i) 14% 2,403 14% 2,494 Nice Systems Ltd. (i) 10% 2,385 6% 1,712 Liraz Systems Ltd. (f)(i) 9% 2,376 - - DEP Technology Holdings Ltd.*(f) See Note 6(f) 33% 1,953 33% 1,171
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
December 31, --------------------------------------- 1994 1993 ------------------- ------------------- Percentage Carrying Percentage Carrying Owned Value Owned Value ---------- -------- ---------- --------
Maxima Air Separation Center Ltd. (f)(i) 12% $ 1,938 12% $ 1,770 Gemini Israel Fund L.P. See Note 6(h) 11% 1,765 11% 780 Gilat Communication Engineering 1990 Ltd. (f) 13% 747 11% 264 Tel-Ad Jerusalem Studios Ltd.* (f) See Note 6(b) 12% 460 - 240 Tefron Ltd. (g) 13% 259 13% 312 Sano Dispec Development Ltd. 25% 226 - - Adir International Communications Services Ltd.(f) 25% 221 25% 62 Camdev Ltd.(f) 26% 139 26% 175 Logal Educational Software and Systems, Ltd. (f) 6% 95 8% 113 Sign-On Computer Communications Services Ltd. (f) 13% 79 13% 83 Bulk Trading Corporation Ltd.** (f) 50% - 50% - RPA Leasing Inc.** 25% - 25% - RTS Telecommunications Services Ltd.** 15% - 15% - Tius Elcon Ltd. 13% - 13% 300 --------- --------- $ 290,628 $ 232,865 --------- ---------
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
December 31, --------------------------------------- 1994 1993 ------------------- ------------------- Percentage Carrying Percentage Carrying Owned Value Owned Value ---------- -------- ---------- --------
Other: Israel Discount Bank of New York (j) $ 26,965 $ 26,965 "Delek"-The Israel Fuel Corp. Ltd. (k) 5,407 - Renaissance Fund LDC See Note 6(j) 2,164 - Lipman Electronic Engineering Ltd. 1,688 1,688 Advent Israel Limited Partnership See Note 6(i) 333 154 MacPell Industries, Ltd. 180 502 Other long-term investments 128 307 ---------- --------- $ 36,865 $ 29,616 ========== ========= Investment in limited partnerships 5,207 7,598 Notes receivable 369 2,398 U.S. Government and State obligations 3,098 11,833 Investments in marketable securities 13,457 8,175 ---------- --------- $349,624 $292,485 ========== =========
*Included in the carrying values are the following loans to Affiliated Companies (in thousands): December 31, ----------------------- 1994 1993 --------- -------- CellCom Israel Ltd. $6,633 $ - DEP Technology Holdings Ltd. 1,953 1,171 Tel-Ad Jerusalem Studios Ltd. 460 -
**Negative equity of $228,000 in Bulk Trading and $1,150,000 in RPA Leasing and RTS Telecommunications is included in other liabilities.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
Information about certain Affiliated Companies follows:
(a) Tambour Ltd. ("Tambour") is Israel's largest paint producer. Summarized financial information for Tambour follows (in thousands): December 31, -------------------------- 1994 1993 1992 ------- -------- --------
Current assets $ 96,506 $ 81,059 $ 58,288 Total assets 154,562 114,335 78,630 Current liabilities 18,877 17,424 20,462 Shareholders' equity 128,986 95,609 56,713 Revenue 123,060 127,046 124,435 Income before taxes on income 22,549 24,327 27,129 Net income 19,618 17,446 15,908
In February 1993, Tambour completed a public offering of ordinary shares and one and two year options to purchase ordinary shares in Israel. Such shares are traded on the Tel Aviv Stock Exchange. The sale of shares and options raised approximately $27 million of capital for Tambour. As a result of the offering and subsequent exercises of certain of the options, the Company's proportionate share in Tambour decreased from 50% to 44.9%, and the Company realized a gain of approximately $8.5 million in 1993.
In February 1994, all of the then outstanding one year options were exercised and Tambour's capital rose by $20 million. As a result, the Company's proportionate share in Tambour decreased to 41%, and the Company realized a gain on issuance of shares by Tambour of approximately $5.9 million in 1994. In February 1995, all of the unexercised two-year options expired.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
(b) Scitex Corporation Ltd. ("Scitex") is a world leader in digital visual information communication for the graphic design, printing, publishing and video markets. Scitex develops, manufactures and markets a broad range of digital prepress, digital printing and digital video products. Summarized financial information for Scitex follows (in thousands):
December 31, ---------------------------- 1994 1993 1992 -------- -------- --------
Current assets $759,259 $675,626 $620,214 Total assets 942,023 885,917 776,244 Current liabilities 190,724 168,553 134,263 Shareholders' equity 749,735 716,259 641,290 Revenues 704,138 622,760 549,697 Income before taxes on income 79,320 106,221 146,021 Net income 63,750 94,339 122,375
In May 1992, Scitex sold newly issued shares to International Paper Co. representing approximately 11% of the share capital of Scitex for approximately $209 million. This sale resulted in a net gain after taxes to the Company of approximately $6 million in 1992.
(c) Super-Sol Ltd. operates one of the largest chains of supermarkets throughout Israel. Summarized financial information for Super-Sol Ltd. follows (in thousands):
December 31, ---------------------------- 1994 1993 1992 -------- -------- -------- Current assets $181,160 $144,121 $126,949 Total assets 338,711 274,875 264,124 Current liabilities 125,638 92,818 93,226 Long-term debt 6,699 5,506 4,160 Shareholders' equity 201,458 175,301 164,568 Income 635,830 531,775 518,058 Earnings before taxes 43,340 38,137 33,607 Net earnings 30,970 25,560 19,391
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
(d) Property and Building Corporation Ltd. ("Property and Building") is one of the largest real estate holding and development companies in Israel. Summarized financial information for Property & Building follows (in thousands):
December 31, ---------------------------- 1994 1993 1992 ------- -------- --------
Current assets* $ 55,050 $ 65,182 $ 55,821 Total assets 230,689 204,885 178,968 Current liabilities 38,975 31,447 13,987 Long-term liabilities 22,917 23,097 26,119 Shareholders' equity 115,971 101,388 95,922 Income 95,925 78,365 37,343 Earnings before taxes on income 30,705 27,304 25,032 Net earnings 15,868 15,229 10,121
* Including building projects and inventories 9,754 9,458 21,457
(e) El-Yam Ships Ltd. ("El-Yam") is engaged, through subsidiaries, in worldwide ocean transportation of oil and dry bulk cargoes, such as grains, coal and iron ore, under charters for varying durations. El-Yam owns nonvoting preferred stock of Financial Holdings El-Yam (Hamigdal) Ltd. ("FHEY") representing substantially all of the equity in FHEY. As of December 31, 1994, FHEY owned 36.3% of the outstanding shares of IDB Holding. The Company owns approximately 10.1% of the voting common stock of FHEY.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
IDB Holding, through IDB Development, has an equity interest in Clal (Israel) Ltd. ("Clal"), a publicly traded Israeli company. El-Yam's proportionate interest in Clal is approximately 8% and the Company's proportionate share is, therefore, approximately 0.8%. Prior to 1993, the Company's investment in Clal was carried at cost because of the inability to obtain the financial information in U.S. dollars in accordance with U.S. generally accepted accounting principles that was necessary in order to record the Company's share in the results of Clal on the equity basis. For 1993 and 1994, the results of Clal are included on the equity basis. El-Yam's auditors, in their report on the financial statements prepared for the Company's purposes, indicate that the investment prior to 1993 was carried at cost. In view of the Company's insignificant effective net ownership interest and based on information provided by Clal, management believes the effect on the Company's financial statements for 1992 is not material.
(f) The following summarized financial information represents an aggregation of the Company's percentage interests in the Affiliated Companies for which summarized financial information is not provided in the previous notes (in thousands):
December 31, ------------------------- 1994 1993 1992 ------- ------- -------
Current assets $ 51,385 $ 33,516 $ 28,722 Total assets 146,094 104,199 86,928 Long-term debt 17,613 7,758 9,558 Shareholders' equity 92,854 74,468 53,701 Revenue 58,877 45,659 42,334 Net income 5,186 6,292 7,544
(g) Significant capital transactions during the three years ended December 31, 1994 that are not otherwise discussed in Note 3 are as follows:
On March 16, 1992, Elron Electronic Industries Ltd. issued shares and options to purchase shares in Elron and in its affiliate Elbit Ltd. for approximately $23 million. This transaction resulted in the Company's share in Elron being reduced by 0.9% to 11.3% and in a net gain after taxes of approximately $1 million.
In January 1993, Mul-T-Lock Ltd. issued shares for approximately $7 million in a private placement. As a result, the Company's share in Mul-T-Lock Ltd. decreased by approximately 1% to 13.6% and the Company realized a gain of approximately $0.7 million.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
In April 1993, Gilat Satellite Networks Ltd. sold ordinary shares in an underwritten initial public offering in the United States. As a result of the sale, the Company's share in Gilat Satellite Networks Ltd. decreased from 13% to 9% and the Company realized a gain of approximately $2.2 million.
In September 1993, the Company sold 30% of the shares of Tefron Ltd. resulting in the Company realizing a gain from the sale of approximately $0.7 million. As a result of this sale, the Company eliminated a reserve of $2.2 million for Tefron Ltd. which was no longer required.
In September 1993, the Company recognized a gain of approximately $1.7 million resulting from the sale by C.I.D.L., Inc. ("CIDL") of all of its shares of F.I.B.I. Holding Company Ltd. In October 1993, the Company sold all of its holdings in CIDL to the other shareholder of CIDL at its carrying value of such holdings.
In January 1994, Lego Irrigation Ltd. sold ordinary shares in an underwritten initial public offering in Israel. As a result of the sale, the Company's share in Lego Irrigation Ltd. decreased from 16% to 13% and the Company realized a gain of approximately $500,000.
(h) The Company's equity in the net income of Affiliated Companies by major lines of business was as follows (in thousands):
December 31, ------------------------- 1994 1993 1992 ------ ------ ------
High technology and communications $ 1,056 $ 5,124 $10,430 Industry 12,180 13,855 11,095 Construction and development 4,701 4,730 3,112 Shipping, marketing and other 7,401 9,833 5,664 ------- ------- ------- $25,338 $33,542 $30,301 ======= ======= =======
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
(i) Certain of the Affiliated Companies are publicly traded and their shares are quoted on the Tel Aviv Stock Exchange and/or U.S. exchanges. The market values of the shares owned by the Company, based on the closing sale price on the principal market on which such shares are traded, were approximately $302 million and $499 million and their carrying values were approximately $251 million and $201 million at December 31, 1994 and 1993, respectively. The market value at March 26, 1995 of shares owned by the Company at December 31, 1994 was approximately $297 million.
(j) Pursuant to an exchange agreement entered into between the Company and Israel Discount Bank of New York ("IDBNY") in March 1992, the Company exchanged its common equity interest in IDBNY for nonvoting preferred shares of IDBNY. Israel Discount Bank Ltd. ("IDBL"), which owns all the shares of IDBNY other than those owned by the Company, has an option to acquire the nonvoting preferred shares from the Company at any time up to September 1995 for approximately $27 million. If IDBL at any time disposes of IDBNY common shares representing more than 75% of the equity or voting power in IDBNY, the Company has the right to require the purchase of the IDBNY nonvoting preferred stock held by the Company at a price equal to approximately $27 million.
From January 1, 1992, the Company has accounted for its investment in IDBNY on the cost method. The preferred stock of IDBNY pays an annual preferred dividend equal to the preferred stock's share of IDBNY's net income for the year, based generally on the preferred stock's proportionate share of IDBNY's total shareholders' equity at the beginning of that year. For this purpose, the preferred stock constituted approximately 9.0%, 8.9% and 8.6% of the total shareholders' equity of IDBNY for the years that began on January 1, 1992, 1993 and 1994, respectively. Such preferred stock constitutes approximately 8.2% of such shareholders' equity for the year beginning on January 1, 1995. The Company recognizes such dividend income on a quarterly basis based upon IDBNY's net income for such quarter.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
(k) As of December 31, 1994, the Company owned a 2% equity interest in "Delek" - The Israel Fuel Corporation Ltd. ("Delek") which it acquired in the summer of 1994 through market purchases on the Tel Aviv Stock Exchange, and Discount Investment owned a 26% equity interest in Delek. The Company classifies its equity interest in Delek as "available-for- sale securities". Delek is not being accounted for under the equity method because Delek has been unable to provide the Company with its financial statements for the year ended December 31, 1994 prepared in accordance with United States generally accepted accounting principles. At March 26, 1995 and December 31, 1994 the market value of the Company's equity interest in Delek based on the closing price of Delek's shares on the Tel Aviv stock exchange was $5,463,622 and $5,407,345, respectively, and the cost of such equity interest was $4,907,956.
4. INCOME TAXES ------------
The U.S. and Foreign components of income before income taxes are as follows (in thousands): December 31, ------------------------- 1994 1993 1992 ------ ------ ------ U.S. $ 4,176 $12,971 $13,400 Foreign 27,087 37,724 32,882 ------- ------- ------- $31,263 $50,695 $46,282 ======= ======= =======
Income tax expense is made up of the following components (in thousands): December 31, -------------------------- 1994 1993 1992 ---- ---- ---- Current:
U.S. $ 210 $ 465 $ 1,663 Foreign 1,459 1,836 2,764 Deferred (500) 5,250 8,749 ------ ------- ------ $ 1,169 $ 7,551 $13,176 ======= ======= ======
Deferred income tax expense principally represents temporary differences related to equity in net income of, and gain on issuances of shares by, Affiliated Companies and to changes in the market value of marketable securities.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
INCOME TAXES - cont'd ------------
A reconciliation of income tax expense as reflected in the accompanying statements with the statutory U.S. Federal income tax rate is as follows (in thousands):
December 31, ------------------------ 1994 1993 1992 ------ ------ ------ U.S. income taxes at statutory rates (35% for 1994, and 1993 and 34% for 1992) $10,942 $17,743 $15,736 Excess of taxes at statutory rates over taxes provided on equity in net income of, and net gain on issuance of shares by, Affiliated Companies (9,364) (10,080) (4,227) Additional provision for deferred taxes relating to increase in statutory rate to 35% - 688 - Other (409) (800) 1,667 ------- ------- ------- $ 1,169 $ 7,551 $13,176 ======= ======= =======
5. SHAREHOLDERS' EQUITY --------------------
On March 24, 1994, pursuant to a plan of reorganization, PEC Holdings Limited ("PECH"), a Maine corporation and a wholly owned subsidiary of IDB Development which owned 13,193,592 shares of the Company's common stock, transferred those shares of the Company's common stock to the Company (which holds them as treasury shares) in exchange for an identical number of newly issued shares of common stock. Immediately after the exchange, pursuant to such plan of reorganization, PECH was dissolved and distributed to IDB Development the newly issued shares of the Company's common stock received in the exchange, resulting in the Company becoming a direct subsidiary of IDB Development.
On June 1, 1992, the Company sold 3,000,000 newly issued shares of common stock in an underwritten public offering, generating net proceeds of $37.6 million after underwriting discounts, commissions and other expenses.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
SHAREHOLDERS' EQUITY - cont'd --------------------
Earnings Per Common Share -------------------------
The computations of earnings per common share are calculated using the weighted average number of common shares outstanding during the year. The weighted average number of outstanding shares in 1994 and 1993 was 18,758,588 and the weighted average number of outstanding shares in 1992 was 17,508,588.
6. COMMITMENTS AND CONTINGENCIES -----------------------------
(a) Tevel Israel International Communications Ltd. ("Tevel"), which is held 48.4% by DIC and PEC Cable TV Ltd., was awarded in 1988 cable television franchises in Israel. Under the terms of the franchise, the Company and Discount Investment are jointly committed to arrange for 51% of the financing required by Tevel to perform its franchise obligations. The Company has not arranged any financing for Tevel since October 1992 and does not presently anticipate being required to arrange any such financing in the near future.
(b) Tel-Ad Jerusalem Studios Ltd. ("Tel-Ad") is one of the three companies Israel's Second Authority for Television and Radio awarded a franchise in 1993 to operate Israel's second television station. The Company is obligated to provide up to $4 million of the financing required by Tel-Ad to fulfill its obligations under the franchise.
(c) CellCom Israel Ltd. ("CellCom") was awarded the license to operate Israel's second cellular telephone system in June 1994. CellCom intends to invest approximately $300 million through 1997 in the development and operation of the new cellular telephone system, of which approximately $130 million will be financed by CellCom's shareholders in proportion to their percentage interests in CellCom. At December 31, 1994, the Company had made shareholder loans to CellCom of $8.25 million. In March 1995, in response to a capital call by CellCom, the Company provided an additional $2.3 million of financing to CellCom.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
COMMITMENTS AND CONTINGENCIES - cont'd -----------------------------
In addition, 20.7% of the amounts payable by CellCom to a bank in connection with certain letters of credit made available by the bank to CellCom are guaranteed by a subsidiary of Discount Investment ("DIC's Subsidiary"). At December 31, 1994 and March 29, 1995 this guarantee of DIC's Subsidiary secured approximately $3.6 million and $3.8 million, respectively, of such amounts. The Company and DIC's Subsidiary have agreed that any payment pursuant to such guarantee will be shared by them according to the ratio between their respective ownership interests in CellCom when such payment is made. At December 31, 1994, the ownership interests of the Company and of DIC's Subsidiary in CellCom were 9.5% and 13.5%, respectively. In accordance with the agreement referred to in Note 6(g) and subject to the approval of Israel's Minister of Communication, an additional 2% ownership interest in CellCom will be transferred to the Company from DIC's Subsidiary.
(d) The Company has contracted with IDB Development for IDB to perform management and advisory services for the Company in Israel, including advice as to financial, economic, accountancy, legal and tax matters, for an annual fee of $130,000. During each of 1994, 1993 and 1992, the Company incurred expenses of $130,000 for these and other services.
(e) General Engineers Limited has a $2 million credit agreement with a bank. The Company has agreed with the bank that General Engineers Limited will remain a subsidiary of the Company as long as the credit agreement is in effect.
(f) The Company has agreed to contribute up to $9.0 million over a 10 year period ending in 2003 in DEP Technology Holdings Ltd. ("DEP") of which the Company had contributed $3.0 million as of December 31, 1994 through the purchase of capital notes of DEP.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
COMMITMENTS AND CONTINGENCIES - cont'd -----------------------------
(g) The Company and a wholly owned subsidiary of Discount Investment are parties to an agreement under which, among other things, each party provides services to the other party and offers the other party equal participation in new business opportunities. In consideration for such services and offers, each party pays the other a fee of 2 1/2% of the equity invested by such paying party in business opportunities initiated or initially presented by the other party. In 1994 the Company paid the wholly owned subsidiary of Discount Investment $101,500 under this agreement.
(h) In connection with the Company's investment in Gemini Israel Fund L.P. ("Gemini"), a venture capital limited partnership, the Company has agreed to make capital contributions of up to $3.0 million to Gemini. At December 31, 1994, the Company had contributed approximately $2.0 million to Gemini's capital.
(i) In connection with the Company's investment in Advent Israel Limited Partnership ("Advent Israel"), a venture capital limited partnership, the Company has agreed to make capital contributions of up to $500,000 to Advent Israel. At December 31, 1994, the Company had contributed approximately $333,000 to the capital of Advent Israel.
(j) In connection with the Company's investment in Renaissance Fund LDC ("Renaissance"), the Company has agreed to make capital contributions of up to $5.0 million to Renaissance. At December 31, 1994, the Company had contributed approximately $2.2 million to Renaissance. In March 1995, the Company contributed an additional $1.1 million to Renaissance.
(k) Certain directors of IDB Holding and/or its affiliates are also directors of the Company.
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS -----------------------------------
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 107 ("SFAS No. 107") entitled "Disclosures about Fair Value of Financial Instruments" which requires entities to disclose information about the estimated fair values of their financial instruments. SFAS No. 107 does not apply to investments accounted for under the equity method (See Note 3).
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Cash and Cash Equivalents -------------------------
The carrying value approximates fair value because of the short maturity of those instruments.
Investments -----------
The fair value of some investments are estimated based on quoted market prices for those or similar investments or based on contractual amounts.
For those investments for which there are no quoted market prices, management estimates fair value to approximate the carrying value.
1994 1993 ---- ---- Carrying Fair Carrying Fair Value Value Value Value -------- ------- -------- ------- (in thousands) (in thousands)
Cash and cash equivalents $ 20,736 $ 20,736 $42,666 $42,666 Investments- Other 55,591 55,859 50,516 58,524 U.S. Government and State obligations 3,098 3,098 11,833 11,939 Other assets- U.S. Government and State obligations 1,111 1,092 1,045 1,108
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
8. QUARTERLY RESULTS OF OPERATIONS - (UNAUDITED) ---------------------------------------------
Quarter Ended -------------------------------------------- 1994 March 31 June 30 September 30 December 31 ----- -------- ------- ------------ ----------- (in thousands, except per share data)
Revenues $14,185 $10,970 $14,854 $ 7,736 ====== ====== ====== ====== Income before cumulative effect of accounting change $ 9,791 $ 6,179 $ 9,505 $ 4,618
Cumulative effect of change in accounting for marketable securities 2,473 - - - ------ ------ ------ ------
Net income $12,264 $ 6,179 $ 9,505 $ 4,618
====== ====== ====== ====== Earnings per common share before cumulative effect of account- ing change $ .52 $ .33 $ .51 $ .24
Cumulative effect of change in accounting for marketable securities on earnings per common share .13 - - - ------ ------ ------ ------
Earnings per common share $ .65 $ .33 $ .51 $ .24 ====== ======= ====== ======
PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
QUARTERLY RESULTS OF OPERATIONS - (UNAUDITED) - cont'd ---------------------------------------------
Quarter Ended -------------------------------------------- 1993 March 31 June 30 September 30 December 31 ---- -------- ------- ------------ ----------- (in thousands, except per share data)
Revenues $18,485 $17,834 $16,049 $12,813 ====== ====== ====== ====== Income before cumulative effect of accounting change $13,264 $12,328 $10,349 $ 7,203
Cumulative effect of change in accounting for income taxes (1,174) - - - ------ ------ ------ ------
Net income $12,090 $12,328 $10,349 $ 7,203 ====== ====== ====== ====== Earnings per common share before cumulative effect of account- ing change $ .70 $ .66 $ .55 $ .39
Cumulative effect of change in accounting for income taxes on earnings per common share (.06) - - -
------ ----- ------ ------ Earnings per common share $ .64 $ .66 $ .55 $ .39 ====== ===== ====== ======
PART III --------
Item 10.



Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------- --------------------------------------------------
See Item 13 Below. Information with respect to executive officers of the Company is included at the end of part I above.
Item 11.

Item 11. EXECUTIVE COMPENSATION -------- ----------------------
See Item 13 Below.
Item 12.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND -------- --------------------------------------------------- MANAGEMENT ----------
See Item 13

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------- ----------------------------------------------
The information called for under Items 10, 11, 12 and 13 is incorporated by reference from the definitive proxy statement to be filed by the Company in connection with its 1995 Annual Meeting of Shareholders.
III-1
PART IV -------
Item 14.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON -------- ------------------------------------------------------ FORM 8-K --------
(a)(1) The following financial statements of PEC Israel Economic Corporation are filed in response to Item 8:
Report of Independent Public Accountants.
Consolidated Balance Sheets at December 31, 1994 and 1993.
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
(a)(2)(a) Financial statement schedules filed in response to Item 14(d) pursuant to Rule 3-09 of Regulation S-X:
Property and Building Corporation Ltd. and Subsidiary Companies:
Auditors' Report.
Balance Sheets as at December 31, 1994 and 1993.
Statements of Earnings for the years ended December 31, 1994, 1993 and 1992.
Statement of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992.
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.
Notes to the Financial Statements.
(a)(2)(b) Financial statement schedules filed in response to Item 14(d) pursuant to Rule 3-09 of Regulation S-X:
Tambour Ltd. and Subsidiaries:
Report of Independent Auditors.
IV-1
Consolidated Balance Sheets as at December 31, 1994 and 1993.
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992.
Statement of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992.
Consolidated Cash Flows Statements for the years ended December 31, 1994, 1993 and 1992.
Balance Sheets as at December 31, 1994 and 1993.
Statements of Income for the years ended December 31, 1994, 1993 and 1992.
Cash Flows Statements for the years ended December 31, 1994, 1993 and 1992.
Notes to the Consolidated Financial Statements.
(a)(2)(c) Reports of certified public accountants with respect to the financial statements of the following entities filed pursuant to Rule 2-05 of Regulation S-X:
Adir International Communications Services Ltd.
Bulk Trading Corporation Ltd.
Camdev Ltd.
Caniel-Israel Can Company Ltd.
CellCom Israel Ltd.
DEP Technology Holdings Ltd.
DIC and PEC Cable TV Ltd.
Electronics Line (E.L.) Ltd.
Elron Electronic Industries Ltd.
El-Yam Ships Ltd.
Gemini Capital Fund Management Ltd.
Gemini Israel Fund L.P.
IV-2
Gilat Communication Engineering 1990 Ltd.
Gilat Satellite Networks Ltd.
Ispah Holdings Limited
Klil Industries Ltd.
Lego Irrigation Ltd.
Liraz Systems Ltd.
Logal Educational Software and Systems Ltd.
Maxima Air Separation Center Ltd.
Mul-T-Lock Ltd.
PEC Finance Company Ltd.
RTS Telecommunications Services Ltd.
Scitex Corporation Ltd.
Sign-On Computer Communications Services Ltd.
Super-Sol Ltd.
Tel-Ad Jerusalem Studios Ltd.
(a)(2)(d) Schedules of PEC Israel Economic Corporation have been omitted since they are not applicable or the required information is shown in the financial statements or notes thereto.
(a)(3) The following exhibits are included in response to Item 14(c):
(3)(i). Composite Articles of Incorporation of the Company, as amended, filed as Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
(3)(ii). Composite By-Laws of the Company, as amended.
IV-3
10(i)(a). Voting Agreement dated December 10, 1980 between the Company and Discount Investment Corporation Ltd. (formerly Discount Bank Investment Corporation Ltd.), as amended by a Letter Agreement dated May 4, 1983 and by an Addendum dated December 30, 1983, filed as Exhibit 10(i)(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
10(i)(b). Amendment to Exhibit 10(i)(a) dated December 10, 1990 filed as Exhibit 10(i)(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference.
10(i)(c). Amendment to Exhibit 10(i)(a) dated as of February 1, 1993 filed as Exhibit 10(i)(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1992 and incorporated herein by reference.
10(i)(d). Shareholders' Agreement dated May 20, 1992 among Clal Electronics Industries Ltd., the Company, Discount Investment Corporation Ltd. and International Paper Company, filed as Exhibit A to Amendment No. 13 to the Company's Statement on Schedule 13D in respect of ordinary shares of Scitex Corporation Ltd. held as of June 12, 1992 and incorporated herein by reference.
10(i)(e). Business Opportunities Agreement dated as of November 30, 1993 among the Company, DIC Finance and Management Ltd., and, for the purpose of section 5 thereof only, PEC Finance Company Ltd. and Discount Investment Corporation Ltd., filed as Exhibit 10(i)(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
10(i)(f). Agreement dated December 24, 1991 between Israel Discount Bank Ltd. and PEC Financial Corporation, as amended, filed as Exhibit 10(i)(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
10(i)(g). Exchange Agreement dated December 24, 1991 between Israel Discount Bank Ltd. and PEC Financial Corporation, filed as Exhibit 10(i)(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
IV-4
10(i)(h). Agreement dated February 19, 1992 between Israel Discount Bank of New York and PEC Financial Corporation, filed as Exhibit 10(i)(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
10(i)(i). Agreement dated December 31, 1991 between PEC Loan Corporation Ltd. and IDB Development Corporation Ltd., filed as Exhibit 10(i)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
10(i)(j). Agreement dated January 31, 1993 among the Company, DIC Energy Holdings Ltd. and N.E.K. Properties Ltd. in respect of ordinary shares of Tambour Ltd., filed as Exhibit 10(i)(k) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference.
10(i)(k). Exchange Agreement dated as of January 4, 1994 among the Company, PEC Holdings Limited and IDB Development Corporation Ltd., filed as Exhibit 10(i)(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
10(iii)(a). Trust Agreement dated December 19, 1991 among the Company, Alan S. Rosenberg, as Trustee, and Joseph Ciechanover, filed as Exhibit 10(iii)(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.*
10(iii)(b). Supplemental Retirement Agreement dated as of January 1, 1995 between the Company and Frank J. Klein.*
21. Subsidiaries of the Registrant.
27. Financial Data Schedule.
Reports on Form 8-K:
(b) No reports on Form 8-K were filed during the fiscal quarter ended December 31, 1994.
------------------------- *This is a management contract or a compensatory plan or arrangement required to be filed as an exhibit.
IV-5
Property and Building Corporation Limited and Subsidiary Companies Financial Statements as at December 31, 1994 and 1993
Adjusted to the Shekel of December 1994 in NIS Thousands
Property and Building Corporation Limited and Subsidiary Companies
Financial Statements as at December 31, 1994 and 1993 --------------------------------------------------------------------------------
Contents
Page
Auditors' Report 2
Balance Sheets 3
Statements of Earnings 4
Statement of Shareholders' Equity 5
Statements of Cash Flows 6
Notes to the Financial Statements 9
Annex - Percentage of Holding in Related Companies 53
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 9, 1995
The Board of Directors Property and Building Corporation Limited
We have audited the balance sheets of Property and Building Corporation Limited ("the Company") as at December 31, 1994 and December 31, 1993, the related statements of earnings and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance) - 1973, and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 30 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter affects the determination of nominal net profit and shareholders' equity to the extent summarized in Note 31 C. to the financial statements.
Somekh Chaikin CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
The notes to the financial statements form an integral part thereof.
Note 2 - Cash and Cash Equivalents
Note 3 - Marketable Securities
Property and Building Corporation Limited and Subsidiary Companies
Notes to the Financial Statements as at December 31, 1994 (in NIS thousands) --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries Financial Statements December 31, 1994
Tambour Limited and Subsidiaries
Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Contents
Page
Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Statement of Shareholders' Equity 5
Consolidated Cash Flow Statements 6
Balance Sheets 9
Statements of Income 11
Cash Flow Statements 12
Notes to the Financial Statements 14
Appendix 56
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Haifa, March 6, 1995
Independent Auditor's Report to the Shareholders of Tambour Limited
We have audited the balance sheets of Tambour Limited ("the Company") and the balance sheets of the Company and subsidiary companies as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For the purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements of the Company in historical values which formed the basis of the adjusted statements appear in Note 20 to the financial statements.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
The financial statements of a consolidated company whose revenues in 1992 comprised approximately 3.3% of the total revenues in the consolidated statement of income, were audited in 1992 by another auditor.
In our opinion, based on our audit and the reports of another auditor, as mentioned above, the above-mentioned financial statements present fairly the financial position of the Company and of the Company and subsidiary companies as at December 31, 1994 and 1993, the results of operations, the changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal net income and shareholders' equity to the extent summarized in Note 22 to the financial statements.
Somekh Chaikin CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL)
Tambour Limited and Subsidiaries Statement of Shareholders' Equity --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd) --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Consolidated Cash Flows Statements for the Year Ended December 31 (Cont'd) --------------------------------------------------------------------------------
Balance Sheets as at December 31 --------------------------------------------------------------------------------
Tambour Limited
--------------------------------------------------------------------------------
Statement of Income for the Year Ended December 31 --------------------------------------------------------------------------------
Tambour Limited
Cash Flows Statements for the Year Ended December 31 --------------------------------------------------------------------------------
Tambour Limited
Cash Flows Statements for the Year Ended December 31 (Cont'd) --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 1 - General
Tambour Limited (hereafter "the Company") manufactures and markets a wide range of paints and coating materials, and is also involved, through its affiliated and subsidiary companies (hereafter the consolidation or the group), in the treatment of water and waste, the treatments of metals and the production of emulsions, glues and printing inks.
Note 2 - Reporting and Accounting Policies
A. Definitions
In these financial statements -
1. Subsidiary - A company in which the Company holds directly or indirectly more than 50% of the voting rights or the right to appoint more than 50% of the members of the Board of Directors whose financial statements are consolidated with those of the Company.
2. Affiliate - A company other than a consolidated company in which the Company holds, directly or indirectly more than 25% of the voting rights or the right to appoint more than 25% of the members of the Board of Directors, and which is included in the Company's financial statements on the equity basis.
3. Goodwill - The excess of the cost of an acquisition over the adjusted balance sheet value at the date of acquisition.
4. Related parties - As defined in Opinion No. 29 of the Institute of Certified Public Accountants in Israel.
5. Interested parties - As defined in the Securities Law.
6. Index - The consumer price index published by the Central Statistics Institute.
B. Financial statements in adjusted values
1. The Company prepared its financial statements on a historical cost basis adjusted for changes in the general purchasing power of the Shekel (Note 20 presents condensed financial statement data in nominal values).
2. The adjusted values of non-monetary assets do not necessarily represent the value of those assets in the market or to the business, but rather their cost adjusted for the changes in the general purchasing power of the Shekel.
3. In the adjusted financial statements, the words "cost" and "equity" shall mean adjusted cost and adjusted equity.
4. All comparative figures (including monetary items) are adjusted to the index of the end of the current year.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
C. Principles of adjustment
1. The Balance Sheet
Non-monetary items (mainly property, plant and equipment, inventories, share capital and paid-in capital) were adjusted for the changes in the consumer price index from the month of execution of each transaction up to the index published for the balance sheet month.
Monetary items are presented in the adjusted balance sheet at nominal value.
The value on equity basis of affiliated and subsidiary companies is determined according to the adjusted financial statements of those companies.
Deferred taxes, net, are computed based on the adjusted data.
2. Statements of Income
The items of the statements of income were adjusted according to the changes in the Consumer Price Index as follows:
a. Income and expenses deriving from non-monetary items (such as depreciation and amortization, changes in inventory, prepaid expenses and income, etc.) or from provisions included in the balance sheet (such as severance pay and vacation provision, etc.), were adjusted according to specific indices together with adjustment of the balance sheet item.
b. The remaining items of the statement of income (such as sales, purchases and production costs, etc.), other than the elements of finance income (expense), were adjusted according to indices of the month the transaction was took place.
c. The equity in the operating results of affiliated and subsidiary companies not consolidated, and the minority interest of consolidated subsidiaries' operating results, were determined based on the adjusted financial statements of the respective companies.
d. Finance income (expense), net, which cannot be calculated separately, is derived from the other elements of the financial statements. The item contains, inter alia, amounts required to correct various items in the statement of income for the inflationary component of the finance expenses incorporated therein.
e. Income taxes - Current taxes consist of advance payments made during the year and amounts due at the balance sheet date (or net of amounts to be refunded as of the balance sheet date). The advance payments are adjusted on the basis of the index at the time of each payment, while the amounts due (or refund due) are not adjusted. Therefore, the current taxes include the expense resulting from the erosion of the value of the advance tax payments from the date of payment to the balance sheet date.
Deferred taxes - see Notes 2K and 16C.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
C. Principles of adjustment (Cont'd)
3. Statement of Changes in shareholders' equity
(a) Dividends declared and paid during the year are adjusted based on the index of the month of payment. Dividends declared during the year but not yet paid as of the balance sheet date are not adjusted.
(b) Share capital arising from retained earnings are capitalization of real profits.
D. Consolidation of the financial statements
1. The consolidated financial statements include the financial statements of the Company and its subsidiaries.
A list of the companies whose financial reports are included in the consolidated financial statements and the extent of ownership and control in them, appears in the Appendix to the financial statements.
2. The equity acquired in excess of the cost of investments in subsidiaries - not ascribed to specific assets, is included in liabilities as deferred credits, net, and is amortized by the straight line method over a period of five years.
3. All intercompany balances, transactions and income from intercompany sales not yet realized outside the group - have been eliminated.
E. Investments in subsidiaries, affiliates and partnerships
Investments in companies and partnerships are included on the equity basis. Income from sales not yet realized outside the group have been eliminated. Excess of cost over equity not ascribed to specific assets and deferred credits are amortized by the straight line method over five years.
F. Cash and cash equivalents
Cash and cash equivalents include short-term deposits in banks for an original period of up to three months.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
G. Inventories
Inventories are carried at the lower of cost or market value. The cost is determined mainly as follows:
Raw materials and packaging materials - moving average method.
Finished products - based on computed costs of product, including raw materials, packaging materials, labor and fringe benefits and other production costs.
Work in progress - based on raw materials plus actual production costs.
H. Allowance for doubtful accounts
Allowance for doubtful accounts is computed mainly at a rate of 8.5% of the open balances of accounts receivable at year end.
I. Government loans and other securities
1. Government loans
Loans that can be redeemed early by transfer to the Bank of Israel, are presented at their redemption value, as per the Opinions of the Institute of Certified Public Accountants in Israel. The changes in loan value are included in the statements of income.
2. Marketable securities
Short-term marketable securities are presented on the basis of their market value on the balance sheet date. The changes in their value are ascribed to the statement of income.
J. Property, plant and equipment
1. Property, plant and equipment are presented at cost.
2. The cost of assets for which an investment grant was received is reflected net of the amount of the grant.
3. Improvements are added to the cost of assets, while maintenance and repair expenses are expenses as incurred.
4. Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
J. Property, plant and equipment (cont'd)
Annual depreciation rates: % -------- Buildings (*) 5 - 10 Machinery and equipment 10 - 20 Motor vehicles 15 - 20 Computers 20 - 33 Furniture and office equipment 6 - 100
* Buildings built or acquired up to 1993 - 10%.
5. Assets leased by capital lease are presented as Company assets at their normal purchase price (without the financing element), and depreciated at the accepted rates for such assets. Lease amounts payable in coming years, after deduction of the inherent finance element, are included in liabilities. The interest on these amounts is accrued currently and ascribed to the statement of income.
K. Deferred taxes
Companies in the group regulate the tax burden for timing differences of expense and income items between accounting and income tax purposes, additions from inventory adjustment and the adjustment element of depreciable assets not recognized for tax purposes.
The amount deferred each year are computed according to the liabilities approach at the tax rates that will be applicable on utilization of the deferred taxes or on realization of the tax benefits, as known at the time of authorization of the financial statements by the Board of Directors.
Deferred taxes included in current assets pertain to current items (inventory, provisions for vacation, etc). Deferred taxes included in "Investments and long-term debit balances" pertain to items that are not current (property, plant and equipment, etc.)
The main factors in respect of which deferred taxes are not computed are as follows:
a. Adjustment amounts for changes in the purchasing power of the Shekel with reference to private motor vehicles, under the rules determined by the Institute of Certified Public Accountants in Israel.
b. Investments in held companies, since the Company intends to hold such investments and not sell them.
c. Timing differences, net, for which a tax asset should be created but the possibility of realization of the benefit is in doubt.
d. Accumulated losses for tax purposes of a subsidiary acquired in 1992.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
L. Intangible assets, net
Know-how and patent rights - are stated at cost and amortized on the straight-line basis over 8 years, starting from the time of their first use, over their anticipated period of benefit.
M. Earnings per share
Earnings per share are computed in accordance with Opinion No. 55 of the Institute of Certified Public Accountants in Israel.
The computation of primary earnings per share takes into account warrants issued by the Company if their exercise is reasonable according to the tests provided in the above Opinion.
Computation of the diluted earnings per share takes into account warrants issued by the Company that were not included in the computation of the primary earnings per share, if their exercise does not lead to an increase in earnings per share (anti-dilutive effect).
N. Foreign currency and linkage
1. Assets (other than securities) and liabilities denominated in or linked to a foreign currency are stated at the representative exchange rates published by the Bank of Israel on the balance sheet date.
Assets (other than securities) and liabilities linked to the Consumer Price Index are stated at the linkage terms determined for each balance.
Data on Consumer Price Indices and exchange rates:
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 2 - Reporting and Accounting Policies (Cont'd)
2. Income and expenses in foreign currency are included in the nominal statements of income in the relevant line items at the exchange rates in effect at the time of their occurrence.
3. Exchange rate and linkage differences occurring as a result of the adjustment of foreign currency or CPI-linked assets and liabilities, appear in the nominal statements of income in the relevant line items upon their occurrence.
O. Hedging
On occasion, the Company executes non-specific hedging on liabilities for purchases abroad, carried out against anticipated future purchases, so as to minimize risks deriving from fluctuations in foreign currency exchange rates. Such hedging is executed in various foreign currencies. Profits or losses derived from such transactions are charged to the statement of income as they occur.
P. Liability regarding termination of employee-employer relationship
The liability of the Company and its affiliates and subsidiaries regarding the termination of employee-employer relationship is covered by provisions for severance indemnities, deposits in approved pension and severance funds and managers' insurance policies.
Q. Research and development expenses
Research and development costs are expensed as incurred.
R. Subsidiaries consolidated for the first time in 1994
1. In 1994, Solar Dynamics Inc. (hereafter "Solar") was consolidated for the first time following an increase in the Company's holding during the year from 50% to 60%.
2. The consolidated statements of income and cash flows for the year ended December 31, 1993 do not include the statements of income and cash flows of Solar.
3. See Section 'b' of the Statement of Cash Flows for Solar's balance sheet data on the date of attaining control.
Note 3 - Marketable Securities
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 4 - Accounts Receivable - Trade and Others
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 7 - Investments in Subsidiaries, Affiliates and Others
A. Consolidated subsidiaries
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 8 - Property, Plant and Equipment (Cont'd)
B.1. Part of the land and buildings in the amount of NIS 249 thousand is registered in the Land Registry Office in the name of a wholly-owned subsidiary.
2. NIS 995 thousand represents approximately 50,000 sq.m. of land, registered in the Land Registry in the name of a wholly-owned subsidiary, leased for a period of 49 years which expires in the year 2039. Beginning in 1993, these land lease rights are being amortized over the remaining lease period.
C. For information relating to liens and commitments on property, plant and equipment, see Note 14.
Note 9 - Bank Credits and Current Maturities of Long-Term Debt
Balances on linkage and interest rate basis:
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 12 - Liability Regarding Termination of Employee - Employer Relationship, Net
C. Unutilized sick leave
The financial statements include a provision for unutilized sick leave pay for those employees who reach the age of 55. The compensation to the employee or his heirs is a number of days, for each 30 unutilized sick days, determined according to a percentage of utilized sick days during the period of employment.
Note 13 - Share Capital and Reserves
A. Changes in share capital
1. On January 14, 1993, a decision was made to consolidate the Company's Ordinary "A" and Ordinary "B" shares of NIS 0.1 each, and to redistribute them so that 10 Ordinary Shares of NIS 0.1 would become one Ordinary share of NIS 1 par value.
2. On January 14, 1993, a decision was made to increase the Company's authorized share capital by NIS 99,950,000 by creating 99,950,000 Ordinary shares of NIS 1 par value each, with equal voting rights to those of existing Ordinary shares.
3. On January 26, 1993, a decision was made to distribute 49,950,000 Ordinary shares of NIS 1 par value each as bonus shares. The bonus shares were allotted from the Company's capital reserves and from retained earnings.
B. Issue on the Stock Exchange
1. In February 1993, the Company offered shares and warrants on the Tel-Aviv Stock Exchange. The Company offered the public and Company employees 4,500,000 Ordinary shares of NIS 1 par value each, together with 6,083,335 warrants (Series 1) and 6,083,335 warrants (Series 2). The shares and warrants are registered in the name of the holder.
Each warrant conferred the right to purchase an Ordinary share of NIS 1 par value for a CPI-linked cash payment of an exercise price of NIS 10.80 per warrant (Series 1) and NIS 12.35 per warrant (Series 2). The last dates of exercise of the warrants were February 10, 1994 and February 10, 1995, respectively.
The above shares and warrants were offered to the public and to employees as follows: 180,000 units to the public and senior employees, where each unit comprised 25 Ordinary shares, 25 warrants (Series 1) and 25 warrants (Series 2) and the tender fixed a maximum price of NIS 415 per unit. In addition, 1,583,335 warrants (Series 1) and 1,583,335 warrants (Series 2) were offered to tenured employees free of charge. (See 5 below).
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 13 - Share Capital and Reserves (Cont'd)
B. Issue on the Stock Exchange (Cont'd)
2. The gross proceeds of the above issue net of expenses amounted to NIS 85,996 thousand for the units offered to the public and senior employees.
3. During 1993, 1,185,742 warrants (series 1) and 25 warrants (Series 2) were exercised adding NIS 15,985 thousand net to the Company's shareholders' equity. In 1994, 4,896,494 warrants (Series 1) were exercised, contributing NIS 65,870 to shareholders' equity.
4. The balance of warrants not yet exercised as at December 31, 1994, 6,083,310 warrants (series 2) expired on February 10, 1995.
5. As mentioned in the notes to the December 31, 1993 audited financial statements, the warrants issued to employees free of charge, as part of the public offering in 1993, were presented in those financial statements as such.
The Company turned to the Income Tax Authority with the request that the amount which was taxable to the employees in 1993 be deductible for income tax purposes. Their response was positive on the condition that the expense be entered in the Company's books. Therefore, the Company decided to include this expense in the current financial statements as an extraordinary item in the amount of NIS 21,353 thousand, in the Statement of Income against the paid-in capital. The expense is shown net of the tax effect in the amount of NIS 8,743 thousands, which is also the net effect on shareholders' equity.
C. The share capital consists of:
Authorized Issued and paid for --------------------------- --------------------------- December 31 December 31 December 31 December 31 1994 1993 1994 1993 ------------- ----------- ------------ ----------- Number of shares (thousands) Number of shares (thousands) --------------------------- --------------------------- Ordinary shares of NIS 1.0 each 100,000 100,000 60,582 55,686 ------------- ----------- ------------ ----------- ------------- ----------- ------------ -----------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 14 - Liens, Guarantees, Contingencies and Commitments
A. Liens
Subsidiary companies' loans from banks and debt to automobile leasing companies in the amount of NIS 433 thousand are secured by liens on motor vehicles.
B. Guarantees
1. Bank loans and other liabilities of subsidiaries and affiliates in the maximum amount of approximately NIS 4,800 thousand are guaranteed by the Company. The balance of these bank loans and other liabilities as of December 31, 1994 amounted to approximately NIS 3,600 thousand.
The Company also has an unlimited guarantee towards banks for several subsidiaries and affiliates. The balance of the secured amounts as at December 31, 1994 is approximately NIS 600 thousand.
2. The Company has provided guarantees in the ordinary course of business and for the benefit of subsidiaries and affiliates in the approximate amount of NIS 340 thousand. The Company also guaranteed the payment of monthly rents of a subsidiary and an affiliate in the approximate amount of NIS 120 thousand (total future liability - approximately NIS 2,000 thousand).
3. The Company has provided a guarantee to a bank for employees' and sub-contractors loans of approximately NIS 970 thousand.
C. Contingencies
1. Various claims are pending against the group which have been partly provided for according to management's estimation based on legal counsel. In management's opinion, no further provisions are necessary.
2. Directors' and key employees' indemnity and insurance - the Company articles allow for indemnification and insurance of directors and key employees in accordance with the law. The liability is covered in a group insurance policy of the I.D.B. Group (an interested party).
3. An affiliate, Chemitas (1988) Limited (hereinafter - Chemitas) was asked by the Environmental Protection Agency to make certain investments in industrial waste-water purification. The discussions between Chemitas and the Environmental Protection Agency are in their initial stages and, therefore, the amount of the final investment that Chemitas will be asked to make cannot be estimated.
D. Commitments
The Company is committed, as of the balance sheet date, to purchase fixed assets in the approximate amount of NIS 4,000 thousand.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 15 - Earnings per Share
A.Primary earnings
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 16 - Taxes on Income
A. "Industrial company" - the Company and its main subsidiaries are industrial companies under the Encouragement of Industry (Taxes) Law, 1969, and are entitled to the benefit of accelerated depreciation rates.
B. The provisions for taxes were computed according to the Income Tax Ordinance (New Version), 1961, and the Income Tax Law (Inflationary Adjustments), 1985.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
G. Final tax assessments have been received by the Company for tax years up to and including 1990; consolidated subsidiaries have received final tax assessments for various years between 1986 - 1992.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 16 - Taxes on Income (Cont'd)
H. Effective tax reconciliation
I. A consolidated company has an accumulated loss for tax purposes in the approximate amount of NIS 12,000 thousand (See Note 2(k)) for which no deferred taxes receivable have been recorded.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 19 - Related Parties (Cont'd)
F. Transactions with banking groups
Certain banking groups, including via provident funds or mutual funds under their management, purchase and sell the company's shares as part of their day to day business. Occasionally, these banking groups' holdings of the outstanding share capital of the Company exceed 5% (which classifies them as "interested parties" as defined under the securities law) and occasionally fall below 5%. During the ordinary course of business, the Company carries out transactions with entities that may be defined as interested parties by being related to these banking groups. In light of the type of investment of the banking groups in the company, it is not practical to keep record of entities that constitute interested parties in the company because of the banking groups holdings and, regarding transactions that the company carries out with them, accordingly, no information regarding transactions with these institutes is included in these financial statements. In addition, according to the Company's management, transactions with these entities were carried out in the ordinary course of business with terms and prices that are usual in the company.
G. Also see Notes 4, 7, 10, 11, 14 and 18E.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 21 - Subsequent Events
A. On March 6, 1995, the Board of Directors of the Company decided upon an interim cash dividend distribution in the amount of NIS 10,000 thousands which constitutes NIS 0.165 per NIS 1 par value of shares outstanding on the date of declaration. This dividend is included in the financial statements as a dividend declared.
B. Expiration of warrants - see Note 13B (4).
C. Due to the continued fall of prices of securities traded on the stock exchange after the balance sheet date, the Company accumulated additional losses in the amount of NIS 1,000 thousand from the decrease in value of marketable securities.
Note 22 - Consolidated Financial Data Presented according to U.S. GAAP
A. Change in Method of Reporting
In December 1981, the Financial Accounting Standards Board in the U.S.A. established a new standard for reporting the financial position and results of operations of foreign subsidiaries in United States (U.S.) consolidated financial statements (SFAS No. 52). The Israeli subsidiaries and investees of PEC Israel Economic Corporation (PEC) had been preparing U.S. dollar financial statements under SFAS No. 52 utilizing the hyperinflationary economy approach which essentially retains historical dollar values for non-monetary assets including long-term investments, property and equipment and equity accounts.
The inflation rate in Israel has steadily declined to the point that the use of historical dollar accounting as prescribed in SFAS No. 52 may no longer be appropriate for the translation of financial statements of subsidiaries and investees based in Israel. Under hyperinflationary accounting (SFAS No. 52), the functional currency of the Israeli entities was defined as the reporting currency of the U.S. investor. For the purpose of PEC's investee companies the transition date for the reporting currency basis was determined to be December 31, 1992. Consequently, as from January 1, 1993, for U.S. GAAP purposes, this conversion has been implemented as follows:
1. Dollar values which had been maintained on an historical accounting basis (such as land, buildings, machinery and equipment, investments, etc.) have been translated into NIS at the exchange rate ruling at December 31, 1992.
2. Shareholders' equity has been translated on an historical basis.
The treatment of transactions carried out during the year was as follows:
1. Depreciation of assets converted according to 1. above was computed on the new NIS value over the remaining useful lives of the assets.
2. All other transactions have been presented on the same basis as the nominal consolidated financial statements. Section B of this note explains the differences between the nominal NIS financial statements prepared according to Israeli GAAP and the financial statement data presented in NIS according to U.S. GAAP for the purposes of PEC.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Note 22 - Consolidated Financial Data Presented according to U.S. GAAP (cont'd)
A. Change in Method of Reporting (cont'd)
3. Deferred taxes associated with the temporary difference that arise from a change in functional currency when an economy ceases to be considered highly inflationary, are reflected (as per FASB's EITF 92-8) as an adjustment to the cumulative translation adjustments component of shareholders's equity.
B. The main differences between the financial statements contained in Sections C, D and E of this note prepared according to U.S. GAAP and the financial statements prepared according to Israeli GAAP are as follows:
(1) Warrants issued to employees
Warrants issued to employees free of charge were recorded as an expense in 1993 in these financial statements in accordance with U.S. GAAP. The warrants issued to employees were recorded as an expense in the nominal shekels financial statements in 1994 at the amount which was taxable to the employees - see Note 13B (5).
The tax effect of this expense is included in the nominal NIS financial statements in the Statement of Income. For the purposes of the financial statements contained in this Note, prepared according to U.S. GAAP, the tax effect is included partially in the Statements of Income and the remainder is added to paid-in capital.
(2) Reserves in Shareholders' equity
Land, buildings, machinery and equipment were revalued in 1982 and a capital reserve was created in the nominal financial statements as permitted by Israeli GAAP. These assets are stated at historical cost and no capital reserves exist in the financial statements that follow in accordance with U.S. GAAP.
(3) Deferred credit (negative goodwill)
The consolidated nominal NIS financial statements include a deferred credit amortized over five years, as permitted by Israeli GAAP. For the purposes of the financial statements contained in this note, prepared according to U.S. GAAP, property, plant and equipment have been reduced by the excess cost over the assigned value of net assets acquired.
(4) Dividends declared
According to Israeli GAAP, dividends from the earnings of a year are accrued at the end of that year even though they are approved after that year's end. For the purposes of the financial statements contained in this note, these dividends have not been accrued since, according to U.S. GAAP, dividends are reflected as a liability when declared.
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Notes to the Financial Statements as at December 31, 1994 --------------------------------------------------------------------------------
Tambour Limited and Subsidiaries
Appendix - Consolidated and Affiliated Companies as of December 31, 1994 --------------------------------------------------------------------------------
Control and ownership ----------- % ----------- Consolidated companies Italchem Ayalon Ltd. 64 Aniam Purification Systems Ltd. 66.7 R.R.E. Rotem Engineering Ltd. 56.7 Gil - the Israeli Marketing Paint Company 24* Tambour Holdings 1993 Ltd. 100 Solar Dynamics Ltd. 60 Tzah - Israeli Printing Inks Ltd. 80 R.D. Glaso-Center Ltd. 100 Tovalah Ltd. 100 T.P. Development Establishment 100 Cotachem Farben G.M.B.H. 100 Tambour Paints (Hellas) LLC 100 Affiliated companies Ecosoft Ltd. 50 Vertigo Robotics Technology Ltd. 50 Alram Cooling Systems Ltd. 33.35 Chemitas 1988 Ltd. 50 Kne Uvne Marketing (1992) Ltd. 20 Serafon Resinous Chemicals Corp. Ltd. 46.5 International Ilios Cotachem S.A. 37 Mader Baufarben A.G. 34
Partnerships Ecosoft C.T. 1993 Limited Partnership 50 Kne Uvne Limited Partnership 20
Inactive Companies Ayalon Water Purification Ltd. 100 Engel-Aniam Ltd. 33.35 Askar Ltd. 100 Hamerakeh - Hydrohamer Ltd. 100 Tambourechev Ltd. 100 Chemetal Ltd. 100 Memberfil Ltd. 50 Nad (Investments) Ltd. 100 C.T.I. Inks (1983) Ltd. 80 Tzevah Paint Industries Ltd. 100 British Paints L.L.C. 37 Tamarin (Marine Paints) Ltd. 100
* 100% ownership and control, in effect
Shlomo Ziv & Co. | Certified Public Accountants (Isr.) | 6 Kaufman St. P.O.B. 50322 | Summit Tel-Aviv 61500, Gibor House | International Tel. 03-5179611 Fax. 03-5179418 | Associates, Inc. | Haifa 31018, 2 Hanamal St., P.O.B. 1886 | Tel. 04-675025/6 Fax. 04-679461 |
AUDITORS' REPORT TO THE SHAREHOLDERS OF ADIR INTERNATIONAL COMMUNICATIONS SERVICES CORPORATION LTD. -----------------------------------------------------------
We have examined the Balance Sheet of Adir International Communications Services Corporation Ltd. and the Consolidated Balance Sheet of Adir International Communications Services Corporation Ltd. and its subsidiary companies as at December 31, 1994 and 1993, the Statement of Profit and Loss of the Company and consolidated, the Changes in Equity Capital and the Statement of Cash-flows of the Company and consolidated for the two years period ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The above statement have been prepared on the basis of the historical cost convention, adjusted to the general purchasing power of the Israel Shekel, in conformity with Opinions 36 and 50 of the Institute of Certified Public Accountants in Israel. Condensed data in nominal Shekels of the above statements, on the basis of which the adjusted statements have been prepared, is given in Note 17.
For the purpose of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S.
In our opinion, the above financial statements present fairly, in conformity with generally accepted accounting principles, the financial position of the company and consolidated as at December 31, 1994 and 1993, the results of operations of the company and consolidated, the changes in its shareholders equity and the cash-flows in the company and consolidated, for the two years period ended December 31, 1994.
Pursuant to section 211 of the Companies Ordinance (New Version) 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above financial statements is given according to the best of our information and the explanations received by us as shown by the Company's books.
Without qualifying our opinion we direct your attention to the content of 1(C) attached to the financial statements about the affect of the international second operator an the company future reports.
SHLOMO ZIV & CO.
23 February, 1995 Certified Public Accountants (Isr.)
- 1 -
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 8, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF BULK TRADING CORPORATION LIMITED
We have audited the balance sheets of Bulk Trading Corporation Limited as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 15 to the financial statements.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
In our opinion, based on our audit and the reports of other auditors, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net profit (loss) and shareholders' equity to the extent summarized in Note 16 to the financial statements.
Somekh Chaikin CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, January 26, 1995
Auditor's Report to the Shareholders of Camdev Limited
We have audited the balance sheets of Camdev Limited as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance) - 1973, and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost of adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 11 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter affects the determination of nominal net profit and shareholders' equity to the extent summarized in Note 12C to the financial statements.
Somekh Chaikin CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
1928 ROJANSKY, HALIFI, MEIRI & Co. R H M Certified Public Accountants
----------------------------------------------------------------------- Ezra Abdat C.P.A.(Isr.) Nadav Hacohen C.P.A.(Isr.) Shaul Netzer-El C.P.A.(Isr.) Edmond Raviv C.P.A.(Isr.) Itzhak Gross C.P.A.(Isr.)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- TO THE SHAREHOLDERS OF ----------------------
CANIEL - ISRAEL CAN COMPANY LIMITED -----------------------------------
We have audited the consolidated balance sheet of Caniel-Israel Can Company Limited as at December 31, 1994 and 1993, the related consolidated Statements of income and Shareholders' Equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above Statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in nominal values which formed the basis of the adjusted statements appear in (Note 22) to the financial statements.
In our opinion, based on our audit, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal net income and shareholders' equity to the extent summarized in Note 25 to the financial statements.
Tel-Aviv, ROJANSKY, HALIFI, MEIRI & CO. March 6, 1995 CERTIFIED PUBLIC ACCOUNTANTS.
------------------------------------------------------------------------- 26, Rotschild Blv., Tel Aviv (Code 66882) Tel. 5607801 P.O.B. 367, Tel Aviv (Code 61003) Fax. 972-3-5600065
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 2, 1995
AUDITORS' REPORT TO THE SHAREHOLDERS OF CELLCOM ISRAEL LTD.
We have examined the balance sheet of CELLCOM ISRAEL LTD. (hereinafter the "Company") as at December 31, 1994 and the related income statement, statement of changes in shareholders' equity and statement of cash flows for the period of June 27, 1994 through December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed by the Auditors Regulations (Auditors' Mode of Performance) - 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The aforementioned financial statements were prepared on the historical cost basis adjusted for changes in the general purchasing power of the New Israeli Shekel in accordance with Opinions of the Institute of Certified Public Accountants in Israel. Condensed financial statements in terms of historical values, which served as the basis for the preparation of the adjusted financial statements appear in Note 20.
In our opinion, the aforementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1994, the results of its operations, the changes in shareholders' equity and its cash flows for the aforementioned period.
In our opinion, the aforementioned statements have been prepared in conformity with the Securities Regulations (Preparation of Annual Financial Statements) - 1993.
In our opinion, it would not be necessary to make any material adjustments in the historical financial statements, which appear in Note 20, in order to comply with generally accepted accounting principles in the United States.
Somekh Chaikin CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, February 28, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF DEP Technology Holdings Limited
We have audited the balance sheets of DEP Technology Holdings Limited as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the two years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 8 to the financial statements.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
In our opinion, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the two years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in the United States and Israel, consistently applied.
Somekh Chaikin
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 5, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF DIC AND PEC CABLE TV LTD.
We have audited the balance sheets of DIC and PEC Cable TV as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 5 to the financial statements.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
In our opinion, based on our audit, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net profit (loss) and shareholders' equity to the extent summarized in Note 6 to the financial statements.
Somekh Chaikin CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
Tel-Aviv, March 10, 1995
RASOLY & CO SOMEKH CHAIKIN Certified Public Accountants (Isr.) Certified Public Accountants (Isr.) Tel-Aviv Tel-Aviv
Report of Independent Public Auditors Electronics Line (E.L.) Limited
We have audited the consolidated balance sheets of Electronics Line (EL) Limited as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israeli Shekels. These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli Auditing standards and auditing standards generally accepted in the U.S. These 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 management as well evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 24 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows of each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net profit and shareholders' equity to the extent summarized in Note 25 to the financial statements.
RASOLY & CO SOMEKH CHAIKIN Certified Public Accountants (Isr.) Certified Public Accountants (Isr.)
Joint Auditors
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Elron Electronic Industries Ltd. (extended form to comply with U.S. standards)
We have audited the balance sheets of Elron Electronic Industries Ltd., (the "Company") as of December 31, 1994 and 1993 and the statements of income, shareholders' equity and cash flows for the years ended December 31, 1994, 1993 and 1992. 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 generally accepted auditing standards in Israel and the United States, including those prescribed by the Auditors' (Mode of Performance) Regulations (Israel), 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 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 aforementioned financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1994 and 1993 and the results of its operations and cash flows for the years ended December 31, 1994, 1993 and 1992, in conformity with accounting principles generally accepted in Israel (as to reconciliation to accounting principles generally accepted in the United States - see Note 2K). As more fully disclosed in Note 2J to the financial statements, the Company changed in 1993 its method of accounting for income taxes.
Luboshitz, Kasierer & Co. Ratzkovsky Fried & Co. Certified Public Accountants CertifiedPublic Accountants (Israel) (Israel)
Haifa, Israel March 8, 1995
HH HAFT & HAFT & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISR.) ------------------------ SL INCL. STRAUSS, LAZER & CO.
AUDITOR'S REPORT TO THE SHAREHOLDERS OF EL-YAM SHIPS LTD. ----------------------------------------
We have examined the special purpose Consolidated Balance Sheet of El-Yam Ships Ltd. as at December 31, 1994 and 1993 and the related Consolidated Statements of Income, Retained Earnings and Cash Flows for each of the three years ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including the rules prescribed under the Israel Auditor's Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in these circumstances.
As stated at the end of Note 2d, prior to 1993, an investment by the affiliated company in an affiliate was carried at cost, due to the fact that the necessary data in U.S. dollars for inclusion at equity could not be furnished.
In our opinion, except as noted in the previous paragraph as to 1992, the above Consolidated Financial Statements, derived from the primary financial statements expressed in Israel currency, present fairly in conformity with generally accepted accounting principles the financial position of the Company and its subsidiaries as at December 31, 1994 and 1993 and the results of the operations and cash flows for each of three years ended December 31, 1994.
Pursuant to the United States Securities and Exchange Commission requirements we state:
(1) The auditing standards and procedures mentioned above are Israeli auditing standards and procedures and were augmented by any additional procedures that were considered necessary, in order to comply with generally accepted auditing standards in the United States.
(2) These financial statements differ from those issued in Israel (in conformity with generally accepted accounting principles in Israel) as explained in Note 1 to the financial statements.
March 30, 1995 H.H.S.L. Haft & Haft & Co. Tel Aviv, Israel Certified Public Accountants (Isr.)
-------------------------------------------------------------------------------- TEL AVIV :HAFT BUILD. 51 WEIZMAN ST. P.O.B. 18115, CODE 61180. TEL. 972-3-6967231, FAX. 972-3-6953517 MAYA BUILD. 74 DEREKH PETAH TIKVA, CODE 67215, TEL. 972-3-5613545 FAX. 972-3-5613824 HAIFA :55 PINHAS MARGOLIN ST. P.O.B. 8081, CODE 31080, TEL. 972-4-525202, FAX. 972-4-555813 JERUSALEM :16 BILU ST. P.O.B. 790, CODE 91007. TELEPHONE 972-2-636276, FAX. 972-2-635534
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 1, 1995
Report of Independent Public Accountants to the Board of Directors of Gemini Capital Fund Management Ltd.
We have audited the accompanying balance sheet of Gemini Capital Fund Management Ltd. as at December 31, 1994 and December 31, 1993, statements of income, changes in shareholders' equity and cash flows for each of the two years then ended, translated into U.S. dollars. 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 generally accepted auditing standards including those prescribed by the Israel Auditors' Regulations (Auditors' Mode of Performance) - 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 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 Gemini Capital Fund Management Ltd. as at December 31, 1994 and December 31, 1993, and the results of its operations, changes in its shareholder's equity and cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States and Israel on the basis outlined in Note 2A to the financial statements.
Somekh Chaikin Certified Public Accountants
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 1, 1995
Report of Independent Public Accountants to the Board of Directors of Gemini Israel Fund L.P.
We have audited the accompanying balance sheet of Gemini Israel Fund L.P. as of December 31, 1994 and December 31, 1993, statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1994 and for the eleven month period ended December 31, 1993, translated into U.S. dollars. 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 generally accepted auditing standards, including those prescribed by the Israel Auditors' Regulations (Auditors' Mode of Performance). These 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 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 Gemini Israel Fund as of December 31, 1994 and December 31, 1993, the results of its operations, changes in its shareholders' equity and cash flows for the year ended December 31, 1994 and for the eleven month period ended December 31, 1993, in conformity with accounting principles generally accepted in the United States and in Israel on the basis detailed in Note 2A to the financial statements.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
As explained in Note 2, the financial statements include investments valued at U.S. dollars 5,516 thousand (previous year - U.S. dollars 3,805 thousand) (33% of partners capital at balance sheet date, previous year - 53%) whose values have been estimated by the Limited Partnership's general partner in the absence of readily ascertainable market values. We have reviewed the procedures used by the general partner in arriving at its estimate of value of such investments and have inspected underlying documentation and in the circumstances we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation these estimated values may differ significantly from the values that would have been used, had a ready market for the investments existed and the differences could be material.
Somekh Chaikin Certified Public Accountants
Kesselman Coopers & Kesselman & Lybrand
certified public accountants (Isr.)
AUDITORS' REPORT ----------------
To the Shareholders of
GILAT COMMUNICATION ENGINEERING 1990 LTD. -----------------------------------------
We have examined the financial statements of Gilat Communication Engineering 1990 Ltd. (hereafter - the Company) and the consolidated financial statements of the Company and its subsidiaries: balance sheets at December 31, 1994 and 1993 and the related statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. Our examinations were made in accordance with generally accepted auditing standards, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances. Data relating to the Company's share in profits of an associated company - adjusted NIS 150,486 for 1994 (1993 - share in losses - adjusted NIS 346,851) are based on that associated company's financial statements which have been examined by other certified public accountants.
The aforementioned financial statements have been prepared on the basis of historical cost adjusted to reflect the changes in the general purchasing power of Israeli currency, in accordance with Opinions of the Institute of Certified Public Accountants in Israel. Condensed nominal Israeli currency data of the Company, on the basis of which its adjusted financial statements were prepared, are presented in note 14.
In our opinion, based upon our examinations and the reports of the other accountants referred to above, the aforementioned financial statements present fairly, in conformity with accounting principles generally accepted in Israel, the financial position - of the Company and consolidated - at December 31, 1994 and 1993 and the results of operations and the cash flows - of the Company and consolidated - for each of the three years in the period ended December 31, 1994.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net income and shareholders' equity to the extent summarized in note 15.
Tel-Aviv Kesselman & Kesselman March 9, 1995 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member of Coopers & Lybrand (International)
Kesselman & Kesselman Coopers & Lybrand Certified Public Accountants (Isr.)
REPORT OF INDEPENDENT AUDITORS -------------------------------
To the Shareholders of
GILAT SATELLITE NETWORKS LTD. ------------------------------
We have examined the consolidated balance sheets of Gilat Satellite Networks Ltd.(the "Company") and its subsidiaries at December 31, 1994 and 1993 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. Our examinations were made in accordance with generally accepted auditing standards, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the consolidated financial position of the Company and its subsidiaries at December 31, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel and in the United States (as applicable to these financial statements, such accounting principles are practically identical).
Tel-Aviv, Israel Kesselman & Kessleman February 21, 1995 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 2, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF ISPAH HOLDINGS LIMITED
We have audited the balance sheets of Ispah Holdings Ltd. as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
The data relating to the equity value of investments is an affiliated company and to the Company's share in the results of this company are based on financial statement which were examined by other auditors.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 4 to the financial statements.
In our opinion, based on our audit and the reports of other auditors, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net profit (loss) and shareholders' equity to the extent summarized in Note 5 to the financial statements.
Somekh Chaikin CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
Kesselman & Kesselman Coopers & Lybrand Certified Public Accountants (Isr.)
AUDITORS' REPORT ----------------
To the Shareholders of
KLIL INDUSTRIES LIMITED -----------------------
We have examined the financial statements of Klil Industries Limited (the company) and the consolidated financial statements of the company and its wholly-owned subsidiary: balance sheet at December 31, 1994 and 1993, and the statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed by the Auditors (Mode of Performance) Regulations, 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The aforementioned financial statements have been prepared on the basis of historical cost adjusted to reflect the changes in the general purchasing power of Israeli currency, in accordance with Opinions of the Institute of Certified Public Accountants in Israel. Condensed nominal Israeli currency data of the company, on the basis of which its adjusted financial statements were prepared, are presented in note 11.
In our opinion, the aforementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position - of the company and consolidated - at December 31, 1994 and 1993 and the results of operations and cash flows - of the company and consolidated - for each of the three years in the period ended December 31, 1994. Also, in our opinion, the abovementioned financial statements have been prepared in accordance with the Securities (Preparation of Annual Financial Statements) Regulations, 1993.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net income and shareholders' equity to the extent summarized in note 12.
Haifa, Kesselman & Kesselman March 1, 1995
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
COHEN, EYAL, YEHOSHUA & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
51 WEIZMANN ST., P.O. BOX 21592 COHEN ELIAHU C.P.A. (ISR.) TEL AVIV 61214, ISRAEL EYAL ITAMAR C.P.A. (ISR.) TEL. 03-6952210, FAX. 03-6950148 YEHOSHUA NISSIM C.P.A. (ISR.)
AUDITORS REPORT TO THE SHAREHOLDERS OF -------------------------------------- LEGO IRRIGATION LTD. --------------------
We have examined the balance sheet of Lego Irrigation Ltd. (the Company) as at December 31, 1994, and 1993, the statements of profit and loss, changes in shareholders' equity and cash flows for each of the three years ended December 31, 1994. Our examination was made in accordance with generally accepted auditing standards, including those prescribed by the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances.
The financial statements are prepared on the basis of historical cost as adjusted for the effects of inflation according to the opinions of the Institute of Certified Public Accountants in Israel. Note 23 gives a summary of the above mentioned financial statements based on the nominal historical data which served as the bases for the preparation of the adjusted statements.
In Note 24 are given data of the Company's nominal net profit and shareholders' equity on the basis of accounting policies determined by PEC Israel Economic Corporation (interested party) and for its purposes.
The financial statements of an included company, the operating results of which for the years up to and including the year 1993 were included in the Company's financial statements on equity basis, were audited by other Certified Public Accountants.
In our opinion, based on our examination, and on the opinion of other certified public accountants, as aforesaid, the above financial statements, present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1994, and 1993, the results of its operations, changes in shareholders' equity and cash flows for each of the three years ended December 31, 1994 and in our opinion they are prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements), 1993.
March 6, 1995 Cohen, Eyal, Yehoshua and Co. Certified Public Accountants (Isr.)
JUNGERMAN, GILBOA, SILBER CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
MOSHE JUNGERMAN C.P.A. (ISR). DAVID GILBOA C.P.A. (ISR.) KOBI SILBER C.P.A. (ISR.)
Auditors' Report to the Shareholders ------------------------------------ of -- Liraz Systems Limited ---------------------
We have examined the Balance Sheet of Liraz Systems Ltd. (hereinafter - the Company), and the Consolidated Balance Sheet of the Company and its subsidiaries (hereinafter - the Group) as of December 31, 1994 and 1993, and the Statements of Operations, the Statements of Changes in Shareholders' Equity and the Statements of Cash Flows of the Company, and of the Group, for each of the three years in the period ended December 31, 1994. Our examination was conducted in accordance with generally accepted auditing standards, including those prescribed in the Auditors' Regulations (Auditor's Mode of Performance), 1973, and accordingly, we have applied such auditing procedures as we considered necessary under the circumstances.
The abovementioned financial statements have been prepared on the basis of the historical cost, adjusted for the changes in the general purchasing power of the Israeli currency in accordance with the principles prescribed in the Opinions of the Institute of Certified Public Accountants in Israel. Condensed nominal data, which served as the basis for the preparation of the adjusted financial statements, are presented in Note 31.
The financial statements of consolidated subsidiaries, whose assets constitute approximately 36.1% (1993 approx. 22.4%) of total assets contained in the consolidated balance sheet, and whose revenues constitute approximately 39.7% (1993 approx. 12.4%, 1992 approx. 15.3%) of total revenues included in the consolidated statement of operations, were examined by other auditors.
In our opinion, based on our examination and on the reports of the other auditors, as aforesaid, the financial statements referred to above, present fairly in conformity with generally accepted accounting principles, the financial position of the Company and of the Group as of December 31, 1994 and 1993, the results of the operations, the changes in shareholders' equity, and the cash flows of the Company and the Group, for each of the three years in the period ended December 31, 1994.
In our opinion, the abovementioned financial statements have been prepared in conformity with the Securities Regulations (Preparation of Annual Financial Statements), 1993.
Jungerman, Gilboa, Silber Certified Public Accountants (Israel)
Tel Aviv, February 28, 1995
28 AMINADAV ST. TEL AVIV 67898 TEL. 03-5622332 FAX. 03-5627190
KOST LEVARY & FORER A MEMBER OF ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
LOGAL EDUCATIONAL SOFTWARE AND SYSTEMS LTD.
We have audited the balance sheets of Logal Educational Software and Systems Limited (the "Company") and the consolidated balance sheet of the Company and its subsidiary at December 31, 1994 and 1993 and the related Company and consolidated statements of operations, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994. Our audit was made in accordance with generally accepted auditing standards, including those prescribed by the Auditors (Mode of Performance) Regulations (Israel), 1973, and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
The accompanying financial statements are remeasured into U.S. dollars in accordance with the principles described in Note 2a.
In our opinion, based on our audit, the aforementioned financial statements present fairly, in accordance with generally accepted accounting principles in Israel and the United States, which as applicable to these financial statements, are in all material respects identical, the financial position of the Company and the consolidated financial position of the Company and its subsidiary as at December 31, 1994 and 1993, and the results of the Company and consolidated operations, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994.
Pursuant to Section 211 of the Companies Ordinance (New Version), 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
Tel-Aviv, Israel KOST, LEVARY and FORER February 22, 1995 Certified Public Accountants (Israel)
Igal Brightman & Co. -------------- ------------------------------------------------------- 3 Daniel Frisch Street Telephone: 972(3) 692-4111 Tel Aviv 64731, Israel Facsimile: 972(3) 696-0130 P.O.B. 16593, Tel Aviv 61164
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF "MAXIMA" - AIR SEPARATION CENTER LTD. -------------------------------------
We have examined the balance sheets of "Maxima" - Air Separation Center Ltd. - consolidated and for the Company - as of December 31, 1994 and 1993 and the related statements of operations, changes in shareholders' equity and cash flows - consolidated and for the Company - for each of the three years in the period ended December 31, 1994, expressed in Israeli currency. Our examinations were made in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditors' Regulations (Mode of Performance), 1973, and, accordingly, we have applied such auditing procedures as we considered necessary in the circumstances. Such auditing standards are substantially identical to generally accepted auditing standards in the United States.
The aforementioned financial statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israeli currency, in accordance with opinions issued by the Institute of Certified Public Accountants in Israel. Condensed nominal financial data, on the basis of which the adjusted financial statements have been prepared, is presented in Note 30 to the financial statements.
In our opinion, based on our examinations, the aforementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position - consolidated and for the Company - as of December 31, 1994 and 1993, and the results of operations, changes in shareholders' equity and cash flows - consolidated and for the Company - for each of the three years in the period ended December 31, 1994.
The financial information presented in accordance with generally accepted accounting principles in the United States is based on nominal historical amounts in Israeli currency and is included in Note 31 to the financial statements.
Tel-Aviv, Israel Igal Brightman & Co. March 6, 1995. Certified Public Accountants
--------------- -------------------------------------------------------------- Deloitte Touche I. Brightman M. Bar-Levav C. Schwartzbard D. Valiano A. Inbar Tohmatsu B(D) Ratowitz Z. Feldman S. Gothalf R. Benvenisti E. Hendler International Office in Jerusalem: New Clal Center, 42 Agrippas Street --------------- Jersusalem 94301, ISRAEL Tel: 972 (2)235157 Fax: 972 (2)233628
Kesselman & Kesselman Coopers & Lybrand Certified Public Accountants (Isr.)
AUDITORS' REPORT ----------------
To the Shareholders of
MUL-T-LOCK LIMITED ------------------
We have examined the balance sheets at December 31, 1994 and 1993 of Mul-T-Lock Limited (hereafter - the company) and the consolidated balance sheets of the company and its subsidiaries at December 31, 1994 and 1993 and the statements of income, changes in shareholders' equity and cash flows - of the company and consolidated - for the three years ended December 31, 1994. Our examinations were made in accordance with generally accepted auditing standards, including those prescribed by the Auditors (Mode of Performance) Regulations, 1973, and accordingly we have applied such auditing procedures as we considered necessary in the circumstances. The financial statements of a consolidated subsidiary, whose assets at December 31, 1994 and 1993 constitute approximately 1.9% of total consolidated assets and whose turnover for the years 1994, 1993 and 1992 constitutes approximately 3%, 3.7%, and 2.6%, respectively, of total consolidated turnover, have been examined by other certified public accountants.
The aforementioned financial statements have been prepared on the basis of historical cost adjusted to reflect the changes in the general purchasing power of Israeli currency, in accordance with Opinions of the Institute of Certified Public Accountants in Israel. Condensed nominal Israeli currency data of the company, on the basis of which its adjusted financial statements were prepared, are presented in note 16.
In our opinion, based upon our examinations and the reports of the other accountants referred to above, the aforementioned financial statements present fairly, in conformity with generally accepted accounting principles, the financial position - of the company and consolidated - at December 31, 1994 and 1993 and the results of operations and cash flows - of the company and consolidated - for the three years ended December 31, 1994. Also, in our opinion, the abovementioned financial statements have been prepared in accordance with the Securities (Preparation of Annual Financial Statements) Regulations, 1993.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net income and shareholders' equity to the extent summarized in note 17.
Tel-Aviv, Kesselman & Kesselman March 9, 1995
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
HH HAFT & HAFT & CO. CERTIFIED PUBLIC ACCOUNTANTS (ISR.) ------------------------ SL INCL. STRAUSS, LAZER & CO.
AUDITOR'S REPORT TO THE SHAREHOLDERS OF PEC FINANCE COMPANY LTD. ---------------------------------------
FOR PARENT COMPANY PURPOSES ---------------------------
We have examined the balance sheet of PEC Finance Company Ltd. at December 31, 1994 and December 31, 1993, and the statements of profit and loss, of changes in shareholders' equity and of cash flows for each of the three years then ended. Our examination was made in accordance with generally accepted auditing standards, including those prescribed by the Auditors' Regulations (Mode of Performance), 1973, and we accordingly applied such auditing procedures as we considered necessary under the circumstances.
The above financial statements were prepared on the historical cost basis, adjusted for the changes in the general purchasing power of the Israeli currency, in accordance with Statements of Opinion issued by the Institute of Certified Public Accountants in Israel. A summary of the Company's financial statements in nominal (historical) New Israel Shekels, on the basis of which the adjusted financial statements were prepared, is included in Note 10.
Financial statements as of dates and for periods prior to January 1, 1993 were examined by other auditors.
In our opinion, based on our examination, the financial statements referred to above present fairly, in conformity with generally accepted accounting principles, the financial position of the Company as at December 31, 1994 and December 31, 1993, and the results of its operations, changes in shareholders' equity and cash flows for each of the three years then ended.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would not have affected the determination of nominal/historical net profit nor shareholders' equity for the year ended December 31, 1994.
March 14, 1995 H.H.S.L. Haft & Haft & Co. Certified Public Accountants (Isr.)
- 1 -
-------------------------------------------------------------------------------- TEL AVIV :HAFT BUILD. 51 WEIZMAN ST. P.O.B. 18115, CODE 61180. TEL. 972-3-6967231, FAX. 972-3-6953517 MAYA BUILD. 74 DEREKH PETAH TIKVA, CODE 67215, TEL. 972-3-5613545 FAX. 972-3-5613824 HAIFA :55 PINHAS MARGOLIN ST. P.O.B. 8081, CODE 31080, TEL. 972-4-525202, FAX. 972-4-555813 JERUSALEM :16 BILU ST. P.O.B. 790, CODE 91007. TELEPHONE 972-2-636276, FAX. 972-2-635534
CHRYSANTHOU 2 & CHRISTOFOROU
CERTIFIED PUBLIC ACCOUNTANTS (CYPRUS)
------------------------------------ Representing ARTHUR ANDERSEN & CO, SC -------------------------------------- Corner Th. Dervis - Florinis Street P.O. Box 1675, CY-1512 Nicosia, Cyprus 357-2-475181 Telephone 357-2-473909 Facsimile
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF RTS TELECOMMUNICATIONS SERVICES LIMITED
We have audited the accompanying balance sheet of RTS Telecommunications Services Limited as of December 31, 1994 and 1993, and the related statements of operations, shareholders' equity and cash flows for the two years then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards. 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 RTS Telecommunications Services Limited as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. For a clarification on this issue refer to Note 6. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
CHRYSANTHOU & CHRISTOFOROU Certified Public Accountants (Cyprus)
Nicosia, January 24, 1995.
Partners: M. Christoforou FCCA C.M. Christoforou BA (Econ), ACA, MBIM V. Hadjivassiliou FCA E.N. Philippou FCA N.D. Papakyriacou BSc (Econ), ACA A. Chrysanthou BA (Econ), ACCA
Consultant: Chr. Chrysanthou
Kesselman & Kesselman Coopers & Lybrand Certified Public Accountants (Isr.)
REPORT OF INDEPENDENT AUDITORS ------------------------------
To the Shareholders of
SCITEX CORPORATION LTD. -----------------------
We have examined the consolidated balance sheets of Scitex Corporation Ltd. (the "Company") and its subsidiaries at December 31, 1994 and 1993 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. Our examinations were made in accordance with generally accepted auditing standards, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973, and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the consolidated financial position of the Company and its subsidiaries at December 31, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted (GAAP) in the United States (as applicable to these financial statements, such accounting principles are practically identical to Israeli GAAP, except for the treatment of investment in non-current quoted shares, as explained in note 4(c)(2)).
As discussed in note 1m, in 1993 the Company adopted Statement No. 109 of the Financial Accounting Standards Board of the United States ("Accounting for Income Taxes").
Tel Aviv, Israel Kesselman & Kesselman February 15, 1995 Certified Public Accountants (Isr.)
Kesselman & Kesselman is a member firm of Coopers & Lybrand (International)
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, February 28, 1995
Report of Independent Public Accountants of Sign-on Tikshouv Services Ltd.
We have audited the balance sheet of Sign-on Tikshouv Services Ltd. as at December 31, 1994 and 1993, the related statement of income and shareholders' equity and cash flows for the two year in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973 and, accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 17 to the financial statements.
Comparative data for the years ended December 31, 1992 included in the financial statements have been audited and reported upon by other auditors.
In our opinion, based on our audit and the reports of other auditors, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholder's equity and cash flows for each of the two years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of nominal/historical net profit (loss) and shareholders' equity to the extent summarized in Note 18 to the financial statements.
Somekh Chaikin Certified Public Accountants (Isr.)
Certified Public Accountants (Isr) Tel Aviv 61006 Haifa 31001 Jerusalem 91001 33 Yavetz Street 5 Palyam Street 33 Jaffa Road P.O.Box 609 P.O.Box 210 P.O.Box 212 Tel: (03) 517 4444 Tel: (04) 670 338 Tel: (02) 253 291 Telecopier: Telecopier: Telecopier: (972) 3 517 4440 (972) 4 670 319 (972) 2 253 292 -------------------------------------------------------------------------------- SOMEKH CHAIKIN
Tel-Aviv, March 12, 1995
Report of Independent Public Accountants to the Shareholders of Super-Sol Limited
We have audited the consolidated balance sheets of Super-Sol and its subsidiaries and the financial statements of the Company as at December 31, 1994 and 1993, the related statements of income and shareholders' equity and cash flows for each of the three years in the period then ended, expressed in New Israel Shekels. 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 generally accepted auditing standards, including those prescribed under the Auditors Regulations (Auditor's Mode of Performance), 1973, and accordingly we have performed such auditing procedures as we considered necessary in the circumstances. For purposes of these financial statements there is no material difference between generally accepted Israeli auditing standards and auditing standards generally accepted in the U.S. These 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 management as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
The above statements have been prepared on the basis of historical cost as adjusted for the changes in the general purchasing power of the Israel currency in accordance with opinions issued by the Institute of Certified Public Accountants in Israel.
Condensed statements in historical values which formed the basis of the adjusted statements appear in Note 30 and 31 to the financial statements.
The financial statements of certain consoldiated companies whose assets represent approximately 3.3% of the total assets included in the consolidated balance sheet and whose income represents approximately 3.9% of the income included in the consolidated statments of income were examined by other auditors who provided us with their reports. Similarly the data relating to the equity value of investments in the consolidated financial statments of investments in affiliated companies and to the group's share in the results of these companies presented on an equity basis are based on financial statements some of which were audited by other auditors.
-------------------------------------------------------------------------------- A Member of the Price Waterhouse Worldwide Organization
In our opinion, based on our audit and the reports of other auditors, the above mentioned financial statements present fairly the financial position of the Company as at December 31, 1994 and 1993, the results of its operations, the changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994, in conformity with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of historical net profit and shareholders' equity to the extent summarized in Note 32 to the financial statements.
Somekh Chaikin Certified Public Accountants (Isr.)
KOST LEVARY & FORER A MEMBER OF ERNST & YOUNG INTERNATIONAL
REPORT OF INDEPENDENT AUDITORS To the Shareholders of TEL-AD JERUSALEM STUDIOS LIMITED
We have audited the balance sheet of Tel-Ad Jerusalem Studios Limited (hereafter - "the Company") at December 31, 1994, and the related statements of operations, changes in shareholders' equity and cash flows for the year then ended. Our audit was made in accordance with generally accepted auditing standards, including those prescribed by the Auditors (Mode of Performance) Regulations (Israel), 1973, and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
The financial statements of the affiliated company have been examined by other auditors.
The aforementioned financial statements have been prepared on the basis of the historical costs adjusted for the changes in the general purchasing power of the Israeli currency as measured by the changes in the Israeli Consumer Price Index, as required by Statements of the Institute of Certified Public Accountants in Israel.
A summary of the financial statements in nominal (historical) new Israeli Shekels which served as a basis for the adjusted statements, is presented in Note 21.
In our opinion, based upon our examinations and the reports of the other auditors referred to above, the aforementioned financial statements present fairly the financial position of the Company at December 31, 1994, and the results of its operations, the changes in its shareholders' equity and its cash flows for the year then ended, in conformity with accounting principles generally accepted in Israel.
Pursuant to Section 211 of the Companies Ordinance (New Version), 1983, we state that we have obtained all the information and explanations we have required and that our opinion on the above statements is given according to the best of our information and the explanations received by us and as shown by the books of the Company.
At the request of part of the shareholders we have remeasured into Nominal NIS, according to the principles determined in SFAS 52, the figures of the balance sheets as of December 31, 1994 and the statements of operations for the year ended December 31, 1994, as presented in the appendix to the financial statements.
The remeasured financial statements do not include part of the disclosures required by U.S. GAAP.
In our opinion, the remeasured financial statements, except for the absence of part of the disclosures required, are in conformity with accounting principles generally accepted in the United States and in Israel (as applicable to these financial statements, such accounting principles are in all material respects substantially identical).
Also, in our opinion, the translation of the aforementioned nominal figures into Nominal NIS is proper, and was made in accordance with the principles set forth in SFAS 52.
Tel-Aviv, Israel KOST, LEVARY and FORER February 22, 1995 Certified Public Accountants (Israel)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PEC ISRAEL ECONOMIC CORPORATION
Date: March 31, 1995 By:/s/JAMES I. EDELSON --------------------------- James I. Edelson, Executive Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Date ---- ----
/s/RAPHAEL RECANATI March 31, 1995 ------------------------------ Raphael Recanati, Chairman of the Board of Directors
/s/FRANK J. KLEIN March 31, 1995 ------------------------------ Frank J. Klein, President and Principal Executive Officer; Director
/s/WILLIAM GOLD March 31, 1995 ------------------------------ William Gold, Treasurer, Principal Financial Officer and Principal Accounting Officer
Name Date ---- ----
March , 1995 ----------------------------- Robert H. Arnow, Director
March , 1995 ----------------------------- Joseph Ciechanover, Director
March , 1995 ----------------------------- James S. Crown, Director
March , 1995 ----------------------------- Roger Cukierman, Director
/s/HERMANN MERKIN March 31, 1995 ----------------------------- Hermann Merkin, Director
/s/HARVEY M. MEYERHOFF March 31, 1995 ----------------------------- Harvey M. Meyerhoff, Director
/s/ALAN S. ROSENBERG March 31, 1995 ----------------------------- Alan S. Rosenberg, Director
/s/HERBERT M. SINGER March 31, 1995 ----------------------------- Herbert M. Singer, Director
/s/DOV TADMOR March 31, 1995 ----------------------------- Dov Tadmor, Director
/s/RICHARD S. ZEISLER March 31, 1995 ----------------------------- Richard S. Zeisler, Director
EXHIBITS
TO
REPORT ON FORM 10-K
OF
PEC ISRAEL ECONOMIC CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 1994
EXHIBIT INDEX Page No. --------
(3)(i). Composite Articles of Incorporation of the Company, as amended, filed as Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
(3)(ii). Composite By-Laws of the Company, as amended. 237
10(i)(a). Voting Agreement dated December 10, 1980 between the Company and Discount Investment Corporation Ltd. (formerly Discount Bank Investment Corporation Ltd.), as amended by a Letter Agreement dated May 4, 1983 and by an Addendum dated December 30, 1983, filed as Exhibit 10(i)(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
10(i)(b). Amendment to Exhibit 10(i)(a) dated December 10, 1990 filed as Exhibit 10(i)(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference.
10(i)(c). Amendment to Exhibit 10(i)(a) dated as of February 1, 1993 filed as Exhibit 10(i)(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1992 and incorporated herein by reference.
10(i)(d). Shareholders' Agreement dated May 20, 1992 among Clal Electronics Industries Ltd., the Company, Discount Investment Corporation Ltd. and International Paper Company, filed as Exhibit A to Amendment No. 13 to the Company's Statement on Schedule 13D in respect of ordinary shares of Scitex Corporation Ltd. held as of June 12, 1992 and incorporated herein by reference.
10(i)(e). Business Opportunities Agreement dated as of November 30, 1993 among the Company, DIC Finance and Management Ltd., and, for the purpose of section 5 thereof only, PEC Finance Company Ltd. and Discount Investment Corporation Ltd., filed as Exhibit 10(i)(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
10(i)(f). Agreement dated December 24, 1991 between Israel Discount Bank Ltd. and PEC Financial Corporation, as amended, filed as Exhibit 10(i)(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
Page No. -------- 10(i)(g). Exchange Agreement dated December 24, 1991 between Israel Discount Bank Ltd. and PEC Financial Corporation, filed as Exhibit 10(i)(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
10(i)(h). Agreement dated February 19, 1992 between Israel Discount Bank of New York and PEC Financial Corporation, filed as Exhibit 10(i)(h) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
10(i)(i). Agreement dated December 31, 1991 between PEC Loan Corporation Ltd. and IDB Development Corporation Ltd., filed as Exhibit 10(i)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
10(i)(j). Agreement dated January 31, 1993 among the Company, DIC Energy Holdings Ltd. and N.E.K. Properties Ltd. in respect of ordinary shares of Tambour Ltd., filed as Exhibit 10(i)(k) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference.
10(i)(k). Exchange Agreement dated as of January 4, 1994 among the Company, PEC Holdings Limited and IDB Development Corporation Ltd., filed as Exhibit 10(i)(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
10(iii)(a). Trust Agreement dated December 19, 1991 among the Company, Alan S. Rosenberg, as Trustee, and Joseph Ciechanover, filed as Exhibit 10(iii)(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.*
10(iii)(b). Supplemental Retirement Agreement dated as of January 1, 1995 between the Company and Frank J. Klein.* 250
21. Subsidiaries of the Registrant. 259
27. Financial Data Schedule. 261
------------------------- *This is a management contract or a compensatory plan or arrangement required to be filed as an exhibit.