UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the
fiscal year ended December 31, 2009
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the
transition period from _______ to _______
Commission
file number 0-538
AMPAL-AMERICAN
ISRAEL CORPORATION
(Exact
Name of Registrant as Specified in Its Charter)
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New
York
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13-0435685
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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555
Madison Avenue
New
York, NY, USA
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10022
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code (866) 447-8636
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each
Class
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Name of Each Exchange
on which Registered
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Class
A Stock, par value $1.00 per share
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The
NASDAQ Global Market
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer (as defined in
Rule 405 of the Securities Act).
Yes o No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o No
x
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act (Check one):
Large
accelerated filer o Accelerated filer
x Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes o No
x
The
aggregate market value of the registrant’s voting stock held by non – affiliates
of the registrant on June 30, 2009, the last business day of the registrant’s
most recently completed second fiscal quarter was $52,679,249 based upon the
closing market price of such stock on that date. As of February 25, 2010, the
number of shares outstanding of the registrant’s Class A Stock, its only
authorized and outstanding common stock, is 56,133,764.
AMPAL-AMERICAN ISRAEL
CORPORATION AND SUBSIDIARIES
Index to
Form 10-K
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Page
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PART I
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3
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21
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30
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30
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31
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32
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PART II
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33
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35
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35
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48
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49
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49
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49
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49
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PART III
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50
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50
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50
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50
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50
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PART IV
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51
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1-33
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2
ANNUAL
REPORT ON FORM 10-K
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2009
OF
AMPAL-AMERICAN ISRAEL CORPORATION
As used
in this report on Form 10-K (the “Report”), the term “Ampal” or “registrant”
refers to Ampal-American Israel Corporation. The term “Company” refers to Ampal
and its consolidated subsidiaries. Ampal is a New York corporation founded in
1942.
The
Company primarily acquires interests in businesses located in the State of
Israel or that are Israel-related. Ampal’s investment focus is principally on
companies or ventures where Ampal can exercise significant influence, on its own
or with investment partners, and use its management experience to enhance those
investments. In determining whether to acquire an interest in a specific
company, Ampal considers quality of management, potential return on investment,
growth potential, projected cash flow, investment size and financing, and
reputable investment partners.
The
Company’s strategy is to invest opportunistically in undervalued assets with an
emphasis in the following fields: Energy, Chemicals, Telecommunications, Real
Estate, Project Development and Leisure Time. We believe that past experience,
current opportunities and a deep understanding of the above-referenced sectors
both domestically in Israel and internationally will allow the Company to bring
high returns to its shareholders. The Company emphasizes investments which have
long-term growth potential over investments which yield short-term
returns.
The
Company provides its investee companies with ongoing support through its
involvement in the investees’ strategic decisions and introduction to the
financial community, investment bankers and other potential investors both in
and outside of Israel.
Significant Developments
Acquisition
of 012 Smile Communications Ltd.
On
January 31, 2010, Ampal, through its indirect wholly owned subsidiary Merhav
Ampal Energy Ltd. (“MAE”) and MAE's wholly owned subsidiary 012 Smile Telecom
Ltd. ("012 Smile," formerly Ampal Investments and Communications 2009 Ltd.),
closed the transaction to purchase the current on-going business of 012 Smile
Communications Ltd. (“012”), pursuant to an Asset Purchase Agreement (the "012
Agreement") between MAE (on behalf of 012 Smile) and 012, dated November 16,
2009, as amended on January 26, 2010 ("012 Acquisition") for 1.2 billion New
Israeli Shekels ("NIS"), or approximately $322 million. Ampal, through its
subsidiaries, acquired substantially all the assets and liabilities of 012,
including all of its customer and supplier agreements, management, employees,
infrastructure, equipment and other assets, but excluding (i) certain retained
cash and other customary excluded assets, (ii) the rights and obligations of 012
related to the acquisition of Bezeq – The Israeli Telecommunications Corporation
Ltd. and (iii) certain indebtedness and other liabilities. Prior to
closing of the acquisition, 012 Smile received all required licenses for the
conduct of the business from the Israeli Ministry of Communications ("Ministry
of Communications").
As a
result of the 012 Acquisition, 012 Smile has become a leading provider of
communication services in Israel, offering a wide range of broadband and
traditional voice services. 012 Smile's broadband services include broadband
Internet access with a suite of value-added services, specialized data services
and server hosting, as well as new innovative services such as local telephony
via voice over broadband and a WiFi network of hotspots across Israel.
Traditional voice services include outgoing and incoming international
telephony, hubbing, roaming and signaling and calling card services. 012 Smile
services residential and business customers, as well as Israeli cellular
operators and international communication services providers through its
integrated multipurpose network, which allows 012 Smile to provide services to
almost all of the homes and businesses in Israel. For further information
regarding 012 Smile, see “Telecommunications – 012 Smile Telecom
Ltd.”
Ampal
financed the 012 transaction with a combination of (i) available cash, (ii) the
proceeds of a new 012 Credit Facility, dated January 31, 2010 (the “012 Credit
Facility”), between 012 Smile, Bank Leumi Le'Israel B.M. ("Leumi") and Israel
Discount Bank Ltd. ("Discount," and together with Leumi, the "Bank Lenders"),
for 800 million NIS, (approximately $215 million) and (iii) a 012 Loan
Agreement, dated January 31, 2010 (the "012 Loan Agreement"), between MAE, 012
Smile, Harel Insurance Company Ltd. and its affiliates (collectively, "Harel")
and Menora Mivtachim Insurance Ltd. and its affiliates (collectively, "Menora,"
and together with Harel, the "Institutional Lenders"), for 220 million NIS
(approximately $59 million). Ampal has guaranteed the obligations of 012 Smile
under the 012 Credit Facility. For further information regarding the financing
of the 012 transaction, see "Item 7 - Management Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources
- Financing of the 012 Acquisition."
3
Sugarcane
Ethanol Production Project
On
December 31, 2009, Ampal signed an option exercise agreement (the “Exercise
Agreement”) with Merhav (M.N.F) Ltd. (“Merhav”) pursuant to which it exercised,
subject to certain conditions, its option (the “Option”) to convert Ampal’s
existing loan to Merhav (consisting of $20 million of principal plus accrued
interest) (the “Loan”) into a 25% equity interest in the sugarcane ethanol
production project in Colombia (the “Project”) being developed by Merhav. The
Loan is evidenced by an Amended and Restated Promissory Note, dated December 25,
2008 (the “Note”), issued by Merhav in favor of Ampal, and is secured by
Merhav’s pledge of its shares of Class A Stock of Ampal, pursuant to that
certain Pledge Agreement, dated December 24, 2007, between Merhav and Ampal (the
“Pledge Agreement”). Merhav’s obligations under the Note are guaranteed by Mr.
Yosef A. Maiman pursuant to a personal guaranty, dated as of December 25, 2008
(the “Guaranty”). The Option is evidenced by an Option Agreement, dated December
25, 2007, between Merhav and Ampal, as amended on December 25, 2008 (the “Option
Agreement”). The Loan, Option and related transactions are summarized in
previously filed annual and periodic reports.
Pursuant
to the Exercise Agreement, the conversion of the Loan into a 25% equity interest
in the Project will take the form of the issuance to Ampal of 25% of all of the
issued and outstanding equity interests in Merhav Renewable Energies Limited, a
Cyprus corporation and subsidiary of Merhav (“Merhav Energies”). The purchase
price for the 25% equity stake in Merhav Energies, to be paid at closing, is the
outstanding balance of the Note on December 31, 2009, or approximately $22.249
million. The closing of the purchase of the 25% equity stake and the conversion
of the Loan is subject to, among other things, (i) the initial disbursement of
(or other evidence of) long term debt financing for the Project obtained from
Banco do Brasil or any other unaffiliated third party lender (the date such
financing is obtained, the “Qualified Financing Date”), (ii) the payment in full
of all outstanding amounts due and payable under the Note, and (iii) the
delivery at closing of the Shareholders’ Agreement (as defined below) by Merhav
and Ampal, setting forth certain agreements relating to the governance of Merhav
Energies. At closing, the Note and the Guaranty shall be cancelled and the
pledge of Merhav’s shares of Class A Stock under the Pledge Agreement shall be
released. The closing is to occur on the Qualified Financing Date or as soon as
practicable thereafter, but no later than December 31, 2010. The Exercise
Agreement contains other customary closing conditions, as well as customary
representations and warranties.
Pursuant
to the Exercise Agreement, the Note was amended to extend its maturity date to
the earlier of the Qualified Financing Date or December 31, 2010. Additionally,
Merhav and Ampal have agreed that, under certain circumstances, each will
arrange for loans to Merhav Energies from to time to time through third parties,
directly or indirectly, for up to $15 million.
As stated
above, as a condition to closing Ampal’s purchase of a 25% equity stake in
Merhav Energies, Merhav, Ampal and Merhav Energies will enter into a
Shareholders’ Agreement (the “Shareholders’ Agreement”), to provide for, among
other things, (i) restrictions on the transfer of shares of Merhav Energies,
(ii) a right of first refusal on transfers of shares of Merhav Energies, (iii)
tag-along and drag-along rights on the transfer of shares of Merhav Energies,
(iv) preemptive rights on the issuance of new shares of capital stock (or other
equity interest) by Merhav Energies, subject to the anti-dilution rights of
Ampal, and (v) the right of Ampal to designate 25% of the directors of Merhav
Energies. In addition to preemptive rights under the Shareholders’ Agreement,
Ampal has been granted anti-dilution protection, which may result in the
issuance of additional shares of Merhav Energies to Ampal, in the event that,
prior to end of the 180 day period following the commencement of the Project’s
operations, Merhav sells, or Merhav Energies issues, shares of Merhav Energies
at a per share price that is less than the per share price paid by Ampal under
the Exercise Agreement.
Merhav is
a multinational corporation with interests in a range of sectors, including
energy, infrastructure projects and agriculture. Merhav is a significant
shareholder of Ampal and is wholly owned by Mr. Yosef A. Maiman, the President,
CEO and member of the controlling shareholder group of Ampal. Because of the
foregoing relationship, a special committee of the Board of Directors of Ampal
composed of Ampal’s independent directors negotiated and approved the
transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which
has been retained as financial advisor to the special committee, advised the
special committee on this transaction.
Stock
and Debenture Repurchase Program
Ampal’s
Board of Directors approved a stock repurchase program, effective as of November
23, 2008. Under the program, Ampal is authorized to repurchase up to $20 million
of its outstanding shares of its Class A Stock, from time to time depending on
market conditions, share price and other factors. The board also approved a
repurchase plan, effective as of November 23, 2008, of Ampal’s Series A and
Series B debentures that are traded on the Tel Aviv Stock Exchange
("TASE").
4
The
repurchases may be made on the open market, in block trades or otherwise, and
may include derivative transactions. The program may be suspended or
discontinued at any time. Ampal adopted a Rule 10b5-1 trading plan, which
allowed Ampal to repurchase its Class A Stock in the open market during periods
in which stock trading by Ampal is otherwise prohibited due to insider trading
laws.
In 2008,
the Company purchased 1,366,415 shares of Class A Stock for an aggregate amount
of $1.1 million, and it also purchased 5,074,418 Series A debentures and
68,723,757 Series B debentures for an aggregate amount of $2.4
million.
In 2009,
the Company purchased 292,103 shares of Class A Stock for an aggregate amount of
$0.3 million, and it also purchased 15,039,000 Series A debentures and 7,928,956
Series B debentures for an aggregate amount of $3.4 million.
Investee
Companies by Industry Segment
Listed
below by industry segment are all of the substantial investee companies in which
Ampal had ownership interests as of December 31, 2009, the principal business of
each and the percentage of equity owned, directly or indirectly, by Ampal.
Further information with respect to our significant investee companies is
provided after the following table. For industry segment financial information
and financial information about foreign and domestic operations, see Note 18 to
Ampal’s consolidated financial statements included in this Report for the fiscal
year ended December 31, 2009.
|
Industry
Segment
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Principal
Business
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Percentage
as
of
December
31,
2009(1)
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||||
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Chemicals
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||||||
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Gadot
Chemical Tankers and Terminals Ltd.
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Chemical
Sales, Storage, Shipping, Transport and Distribution
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100.0
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||||
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Energy
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||||||
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East
Mediterranean Gas Company
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Natural
Gas Provider & Pipeline Owner
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12.5
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(2) | |||
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Global
Wind Energy
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Renewable
Energy
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50.0
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||||
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Real
Estate
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||||||
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Bay
Heart Ltd.
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Shopping
Mall Owner/Lessor
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37.0
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||||
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Leisure-Time
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||||||
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Country
Club Kfar Saba Ltd.
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Country
Club Facility
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51.0
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||||
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Finance
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||||||
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Ampal
Energy Ltd
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Holding
Company
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100.0
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||||
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Merhav
Ampal Energy Ltd
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Holding
Company
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100.0
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||||
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Ampal
(Israel) Ltd.
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Holding
Company
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100.0
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||||
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Ampal
Holdings (1991) Ltd.
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Holding
Company
|
100.0
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||||
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(1)
|
Based
upon current ownership percentage. Does not give effect to any potential
dilution.
|
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(2)
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8.2%
of which are held directly and 4.3% of which are held through Merhav Ampal
Energy Holdings, LP, an Israeli limited partnership, which is a joint
venture between Ampal, the Israel Infrastructure Fund and other
institutional investors.
|
Chemicals
GADOT
CHEMICAL TANKERS AND TERMINALS LTD. (“GADOT”)
General
Gadot, a
wholly owned subsidiary of Ampal (99.99% on a fully diluted basis), was founded
in 1958 as a privately held Israeli company with operations in distribution and
marketing of liquid chemicals for raw materials used for industrial purposes.
Since then, Gadot has expanded into a group of companies, which currently forms
Israel’s leading chemical distribution organization. Through its subsidiaries,
Gadot ships, stores, and distributes liquid chemicals, oils, and a large variety
of materials to countries across the globe, with an emphasis on Israel and
Western Europe. In our description of Gadot’s business operations, the term
“Gadot” refers to Gadot and its consolidated subsidiaries. Gadot listed its
shares for trade on the TASE in 2003 and was delisted from trade on October 16,
2008, following Ampal's successful tender offers to purchase Gadot's publicly
held shares.
5
Gadot’s
business is influenced by certain economic factors, which include (i) global
changes in demand for chemicals used as raw materials for industrial purposes,
(ii) price fluctuations of chemicals and raw materials, (iii) price fluctuations
of shipping costs, ship leases and ship fuel, (iv) general global financial
stability, and (v) currency fluctuations between the NIS and other currencies,
primarily the U.S. dollar.
Gadot’s
operations are divided into three main service sectors:
|
|
·
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Importing,
marketing and sale of chemicals and other raw materials in Israel and
Europe;
|
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·
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Shipping,
primarily between the European ports of the Atlantic ocean and the
Mediterranean sea port and Agency Services for Shipping Companies and
Docked Ships; and
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·
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Logistical
services in Israel and Europe;
|
These
service sectors are synergistic and complimentary, so that Gadot provides its
customers with a full range of services, from acquiring chemicals based on a
customer’s needs, logistical handling including shipping and transport,
offloading, storage and delivery. Members of the Gadot group of companies also
provide services for other members of the group, strengthening the group as a
whole.
Gadot
revenues for 2009 totaled approximately $394 million compared to approximately
$535 million in 2008. The 26% decrease in revenues is mainly the result of the
following factors:
|
|
·
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Slowdown
in the markets, especially in Europe, led to a decrease in sold
quantities;
|
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·
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The
prices of chemicals decreased dramatically as a result of commodities
price decrease;
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·
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The
chemical carrier sector has been suffering over recent years from limited
growth in demand and stagnant freight rates;
and
|
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·
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Gross
profit decreased by 16% from $44.5 million to $37.5 million. This decrease
is the result of revenue decrease which was partly offset by operating
cost reductions.
|
Importing, Marketing and
Sale of Chemicals and Other Raw Materials
Gadot
imports, markets and sells chemicals and other raw materials, primarily liquid
chemicals which are imported in tanker ships and via other methods. These
chemicals and other materials are used as raw materials in the medical,
cosmetics, paint, plastic, electronics, agriculture, food and other industries.
Other activities of Gadot in this sector include:
|
|
·
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sale
and marketing of oils and other liquid products which are used as food
additives in soft drinks, meat and
poultry;
|
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·
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operating
a sales agency in Israel representing well-known manufacturers, selling a
wide range of products, including chemicals, active medicinal agents,
electronic components, rubber, polymers, minerals and materials for the
textile and paint industry;
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·
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sale
and marketing of fine chemical agents used in research laboratories and
biochemical industries and marketing of laboratory equipment;
and
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·
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sale
and marketing of inorganic
chemicals.
|
The
chemicals that Gadot deals with are in many cases poisonous or hazardous and
require Gadot to obtain permits for handling poisonous materials. Special
permits are also obtained from environmental authorities, fire safety
authorities and other governmental bodies for handling hazardous or flammable
substances. Gadot conducts inspections and quality assurance testing and
provides its employees with training and equipment necessary for working with
hazardous and poisonous substances. Gadot has qualified for and received the
ISO-9001:2000 quality standard for its quality assurance in chemical and liquid
matter transport and distribution, as well as the ISO 14001:2004 quality
standard for its environmental management system.
Gadot
generally provides its services to its long-term customers in Israel and in the
Benelux area consisting mainly of large industrial factories that use chemicals
and other materials as raw materials in their manufacturing processes. These
customers are spread over a wide variety of industries which reduces the risk of
a downturn in any one type of industry having a significant effect on the
revenues of Gadot. Gadot is not dependent on any single customer in this service
sector. Nevertheless, the loss of any long-term customer may materially affect
the short-term or even mid-term revenues and net profits of Gadot.
6
Sales,
marketing and distribution are conducted by sales teams consisting of Gadot
employees, who are constantly in touch with existing customers and who also
actively seek out new markets and customers. Sales are made by purchase orders
which subsequently are supplied from the existing stock of Gadot. A relatively
small percent of sales is made via backlog orders, as supply time is generally
quick.
The
chemical market is very competitive and Gadot has many competitors in Israel,
Europe and other countries. Gadot’s competitors include sales agents of large
chemical manufacturers, small importers and factories that import materials
themselves for their own use. Competition is especially fierce in marketing
chemicals packaged in barrels and jugs or in ISO-tanks (special containers used
to transport liquid matter), since these do not require investment in special
storage facilities, which makes it easier for competitors to enter the
market.
Gadot’s
main advantages over its competition in the chemical market are due
to:
|
|
·
|
its
ability to provide full door-to-door logistical services to its customers,
from purchase, shipping and storage, to land transport to the customer’s
factory;
|
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·
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its
ability to purchase and maintain surplus in large quantities of different
chemicals ready for sale in a variety of packaging types and
sizes;
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|
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·
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ownership
of the only chemical fluids terminal in Israel, capable of providing
storage and transport;
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·
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decades
of experience in the field;
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|
|
·
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stable,
long term relationships with existing
customers;
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|
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·
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the
quality of products supplied by it and the reputation and good will of its
suppliers; and
|
|
|
·
|
professional
support provided by suppliers and by Gadot for its
products.
|
Gadot’s
main disadvantages in the chemical market are (i) the market consisting of
highly sophisticated customers that are very knowledgeable of product pricing
and alternatives from competitors, which makes it hard to increase profitability
and (ii) the high costs involved in purchasing and maintaining large quantities
in surplus for immediate supply.
Most of
the raw materials sold by Gadot are manufactured outside of Israel, in Europe,
the United States, South America, the Far East and South Africa. The variety of
supply sources allows for increased availability in changing market
conditions.
Gadot is
not dependent on any one supplier in the chemicals market. There are numerous
suppliers for each product sold by it, mostly located outside of Israel.
Purchase of chemicals and raw materials is generally made directly from the
manufacturer, by way of purchase orders.
Shipping
Gadot
provides its customers (including subsidiaries within the Gadot group of
companies) with shipping services, shipping liquid chemicals in tanker ships
both to and from Israel. As of December 31, 2009, Gadot uses a fleet of 8
vessels, of which 6 are leased and 2 are owned by Gadot, with loading
capabilities ranging from 8,000 tons to 17,000 tons. The total capacity of
Gadot’s fleet as of December 31, 2009, was approximately 100,000 tons. The main
shipping lines operated by Gadot are Israel – Northern Europe and Israel –
United States, with many interim stops in Europe's Atlantic sea ports
and in Mediterranean sea ports. Gadot also provides logistical support for ships
anchored in the ports of Haifa and Ashdod in Israel. These services include
coordination of all technical procedures while in port, such as payment of port
fees, care of the crew and providing ships with supplies.
Gadot’s
fleet is subject to strict international regulation with regard to safety of
shipping hazardous chemicals and environmental protection of the seas which
mainly provide standards for ship conditions and maintenance and crew safety and
training. In order to comply with these strict standards and to fulfill customer
demand for compliance, all the ships used in Gadot’s fleet are double hulled and
the tanks used for chemical storage are made of stainless steel, which reduces
the danger of corrosion and leakage. All ships in the fleet are managed by
companies with the experience and knowledge necessary to comply with such
regulations and they are inspected by the relevant authorities at least once a
year for deficiencies. If a ship is not in compliance with the standards, it is
not permitted to set sail until all deficiencies are remedied.
In the
first half of 2007 shipping prices generally rose, particularly in the ‘spot’
shipping assignments. In the second half of 2007 prices stabilized,
however the price of ship fuel continued to rise, which caused gross profit to
decline compared with the first half of 2007. During 2008 the shipping prices
gradually rose, although they decreased towards the end of the year. The price
of ship fuel rose during the first half of 2008 and decreased substantially
during the second half of the year. During 2009 the chemical carrier sector has
been suffering from limited growth in demand and stagnant freight rates which
resulted in decreased profitability.
7
There are
a number of critical factors necessary for succeeding in the chemical shipping
business, including:
|
|
·
|
managing
a modern fleet of ships capable of transporting a variety of chemicals
with a variety of different capacities in order to meet customer needs and
strict regulation;
|
|
|
·
|
availability
of ships on the various shipping
lines;
|
|
|
·
|
professional
operation of cargo, in order to increase efficiency and
safety;
|
|
|
·
|
having
a strategy of buying or leasing ships at low prices, while entering into
long-term shipping contracts with customers at high prices, in order to
minimize exposure to changes in the shipping market and to increase
profitability;
|
|
|
·
|
creating
and maintaining strategic relationships with key customers;
and
|
|
|
·
|
cooperation
with other companies operating in the field, in order to increase the
number of ships working the same line or market and to penetrate new
markets.
|
Competition
in the field of shipping is concentrated mainly in the availability of ships and
the price of transport. Larger shipping companies have an advantage over smaller
ones because they have more and higher quality ships. Therefore, the large
companies are usually chosen by customers with large scale shipping needs for
long-term periods of time. The mid-size and small shipping companies usually
compete for the ‘spot’ shipping assignments. Most of Gadot’s competitors in this
service sector are shipping companies of the same size as Gadot. Gadot’s success
is dependent to a large extent on the shipping fees it charges its customers and
on its ability to lease ships at reasonable costs. Gadot’s main strengths over
its competitors are its steady lines to Israeli ports, along the Mediterranean
Sea and from Europe to Central America, and its new and modern fleet. Its main
weakness is in international shipping lines, where its competitors have larger
fleets capable of providing more frequent service.
Most of
Gadot’s shipping contracts are for periods of between one to five years, some
with options to extend the term. The remainder of its contracts are made on an
ad hoc basis. Gadot has two open term contracts that terminate only by consent
of the parties. These shipping contracts are drafted according to a global
standard called a “Tanker Voyage Charter Party” contract. These contracts state
the shipping fee and quantity and provide other standard terms, such as type of
goods, size, handling instructions, port of loading and off-loading, loading and
off-loading time, late fees, time tables, jurisdiction and insurance. These
contracts also incorporate by reference the provisions of certain standardized
shipping contracts.
Gadot is
not dependent on any single customer in this sector.
Gadot
leases the vessels in its fleet according to “Time Charter Party” contracts,
which provide for the lease of a ship together with its crew. These contracts
are drafted according to a global standard, except for the specific terms, such
as the lease period and fees. The average lease period of ships in the Gadot
fleet is from one to three years, usually with an option to extend the term. The
lease fee may fluctuate based on market conditions, or renewal or exit points in
the contract. These contracts usually provide for the state of the vessel upon
delivery to the lessee, maintenance requirements, indemnification to the owners,
permission to sub-lease, insurance, inspection rights, compliance with technical
specifications and jurisdiction. Sometimes such contracts include an option to
purchase the ship at previously agreed terms. Vessels are operated commercially
by the lessee, by designating shipping lines and cargo for the vessel, while the
lessor operates the technical aspects of running the ship and crew.
Agency Services for Shipping
Companies and Docked Ships
Gadot
acts as a general agent for shipping companies and for ships docked in Israel.
It is also the exclusive representative in Israel of large shipping
companies.
Gadot’s
services to ships at port include logistical support for ships anchored in port
in Israel. These services include coordination of all technical procedures while
in port, such as payment of port fees, care for the needs of the ship’s crew and
providing ships with supplies.
Gadot’s
services to shipping companies include logistical support for cargo arriving in
Israel, such as finding local storage facilities for a ship’s cargo,
coordinating loading and off-loading of ships, locating and identifying cargo,
replacement crews and other services.
ISO-Tank
Transportation
Gadot
provides transportation services for liquid chemicals in ISO-tanks. ISO-tanks
are transported in various ways, including by truck, train, ferry and ship.
ISO-tank transport allows the customer to purchase liquid chemicals directly
from the supplier, without requiring storage and off-loading. The quantities
transported in ISO-tanks are usually significantly smaller than quantities
transported by tanker.
Gadot
currently owns 220 ISO-tanks and it leases additional ISO-tanks from external
sources from time to time in order to meet customer demand. Gadot also leases
ISO-tanks to third parties, which include heating systems and upper or lower
off-loading apparatuses, as needed.
8
Logistical Operations in
Europe
Gadot
offers its customers logistical services for chemicals and hazardous materials
in Western Europe, including off-loading and storage, filling barrels and
containers, door-to-door transport and handling sensitive chemicals. Gadot
provides full services to its customers throughout the whole supply
chain.
The
services provided by Gadot in this sector include:
|
|
·
|
Delivery
- import and export of goods to and from Europe to other destinations
around the world, including contracting with shipping companies, dealing
with tax authorities, port release and
documentation;
|
|
|
·
|
Storage
- storage of customer’s materials in storage facilities, often under
specialized conditions (such as temperature control,
etc.);
|
|
|
·
|
Transport
- complete door-to-door service, from arrival of goods in port, storage,
packaging and delivery to final destination;
and
|
|
|
·
|
Packaging
- packaging of dry and liquid chemicals in barrels, containers or
sacks.
|
Gadot has
long-term leases of storage facilities in three countries for providing these
services, with an aggregate area of approximately 180,000 square meters. These
storage facilities maintain very high standards and Gadot is the only entity
within the storage sector in Europe with facilities in several countries. This
gives Gadot a considerable advantage over its competitors in this field. Gadot
also contracts with land and sea transport companies to facilitate its
logistical services.
Operating
in this sector requires Gadot to obtain appropriate licenses from authorities
and to maintain strict European standards for handling hazardous materials and
for operating storage facilities. Stored chemicals are categorized by their
hazard level and each facility has in place the appropriate approvals and
restrictions for the relevant type of material. Regulation in this field changes
from time to time and Gadot needs to constantly comply with such
regulations.
This
sector has experienced growth in recent years in Western Europe, since an
increasing number of companies and manufacturers prefer to outsource their
logistical operations due to the strict regulatory requirements. During 2009
this sector also suffered from the world recession as its customers reduced
their logistical operations activities.
Some of
the main criteria for success in this service sector are: (i) location of
storage facilities near industrial factories or seaports, (ii) wide geographic
spread of facilities and (iii) ability to provide quality service in an
all-inclusive manner.
The main
entry barrier in operating in the logistics sector is compliance with licensing
requirements. Applying for such licenses is an expensive and often long process,
without certainty of the outcome. Another entry barrier is the necessity to
maintain specialized storage facilities capable of storing chemicals and
hazardous materials.
Gadot’s
customers in this service sector include chemical manufacturers and distributors
that import or export their goods in Europe. Gadot is not dependent on any one
customer in this sector.
Most
customers enter into a framework agreement with Gadot which stipulates the scope
of services and fees for each service. Fees are generally adjusted annually.
Most agreements do not have a minimum quantity requirement.
Gadot’s
marketing and distribution efforts are conducted by Gadot’s sales people in each
country whose goal is to locate potential customers for logistical
services.
Gadot
takes great measures to protect the environment in its facilities in Western
Europe. The storage facilities are equipped with cement or ceramic flooring,
drainage systems and holding tanks to avoid ground contamination. Gadot has
qualified for and received the ISO-9001:2000 quality standard for its quality
assurance in this sector. Gadot’s facilities have also been inspected a number
of times by the CEFIC (the European Chemical Industry Council) according to a
safety and quality assessment plan of the CEFIC. The storage facilities are
periodically tested by local authorities for ground contamination and fire
safety.
9
Logistical Operations in
Israel
The
logistical services provided by Gadot in Israel include:
|
|
·
|
land
transport;
|
|
|
·
|
storage,
loading and off-loading of materials;
and
|
|
|
·
|
ISO-tank
transportation;
|
Land
Transport
Gadot
offers land transport services to its customers for chemicals and other
materials from Israeli ports to the customer’s factory, and vice versa. Land
transportation from chemical plants outside of Israel to Gadot’s ships is
provided by subcontractors.
Gadot
currently owns a fleet of 50 tanker trucks and 76 trailers (of which 45 trailers
are capable of transporting hazardous materials). The fleet of tanker trucks is
generally in full use by Gadot, which occasionally is required to lease
additional tanker trucks from other companies in order to fulfill demand. The
trailer fleet is generally not in full use due to the number of tanker trucks
Gadot owns and the highly specialized purpose of each trailer.
Gadot
faces much competition in this field, and it holds an estimated Israeli market
share of 15% to 17%.
Storage, Loading and
Off-Loading of Materials
Gadot
provides storage, loading and off-loading services of chemicals and other
materials to its customers (including to subsidiaries in the Gadot group of
companies) in an area located near the southern terminal of the Kishon port in
Haifa.
Gadot is
currently the only provider of chemical storage, loading and off-loading
services in Israel. These services were declared a monopoly by the Israeli
Antitrust Authority and are therefore subject to regulation, which includes a
price list stipulated by the Antitrust Authority, and periodical inspections of
profitability, the result of which may require Gadot to reduce its prices for
these services. To date, Gadot has never received such an instruction. Gadot’s
quality control process for storage and loading has qualified for and received
the ISO-9001 quality standard.
Gadot’s
facility currently has 80 storage tanks with capacities of between 30 to 2,650
cubic meters, which are constantly maintained. The total storage capacity of
these tanks is approximately 46,000 cubic meters. The facility also has a pipe
loading system which allows for direct off-loading of liquid chemicals from a
ship’s tank to a storage tank.
Energy
EAST
MEDITERRANEAN GAS COMPANY S.A.E
EMG, an
Egyptian joint stock company, organized in 2000 in accordance with the Egyptian
Special Free Zones system, has been granted the right to export natural gas from
Egypt to Israel, other locations in the East Mediterranean basin and to other
countries. EMG has linked the Israeli energy market with the Egyptian national
gas grid via an East Mediterranean pipeline with the first gas delivery
occurring in May 2008. EMG is the developer, owner and operator of the pipeline
and its associated facilities on shore in both the point of departure at El
Arish, Egypt and the point of entry in Ashkelon, Israel. EMG signed the
following gas supply contracts with its Israeli customers:
|
|
·
|
In
late 2005, a contract was signed with the Israel Electric Corporation
("IEC") for 2.1 billion cubic meters ("BCM") annually over 15-20 years.
The contract was amended on September 17, 2009. The total contracted gas
supply to IEC is approximately 42 BCM and the total value of the contract
is approximately $6 billion.
|
|
|
·
|
In
December 2007, a contract was signed with Dorad Energy, Ltd. ("Dorad") (an
independent power producer) and was amended in July 2009. The
contract determines that the duration of the gas supply will be for 17
years with an option to Dorad to extend the term for 5 more years. The
total contracted gas supply is expected to be between 12.5 BCM to 16 BCM
and the total annual amount of income is expected to be between $125
million to $150 million.
|
|
|
·
|
On
October 19, 2009, EMG entered into three contracts with respect to three
combined cycle cogeneration plants: Ashdod Energy Ltd.; Ramat Negev Energy
Ltd., and Solad Energy Ltd. with a total production capacity of 270
Megawatts and 240 tons of steam per hour. The contracts provide for gas
deliveries over an 18 year contract
period.
|
|
|
·
|
In
November 2009, a contract was signed with Haifa Chemicals South Ltd., for
gas supply for its industrial uses. The total value of the contract will
be between $70 million to $100 million, over a contract term of 5-8 years.
The gas delivery will start in the second quarter of
2010.
|
|
|
·
|
In
December 2009, a contract was signed with Makhteshim-Agan for gas supply
for its industrial uses over a contract term of 5 years. The gas delivery
is scheduled to begin in the middle of 2010.
|
10
In
June 2009, EMG and its upstream supplier in Egypt entered into an amendment
(“Amendment”) to the Gas Sales & Purchase Agreement (“GSPA”) with regard to
repricing gas sold to EMG. The Amendment to the GSPA includes price increases,
periodic price adjustments and new gas delivery targets. Subsequently, EMG
entered into negotiations with both of its then contracted clients, IEC and
Dorad, in order to amend their contracts to reflect the provisions contained in
the Amendment. The Dorad amendment was signed in July 2009 and the IEC amendment
was signed on September 17, 2009 and received all required approvals by the IEC
in February 2010.
EMG is in
the process of negotiating several additional agreements covering much of the
anticipated 7.0 BCM annually earmarked for the Israeli market. This project is
governed by an agreement signed between Israel and Egypt which designates EMG as
the authorized exporter of Egyptian gas, secures EMG’s tax exemption in Israel
and provides for the Egyptian government’s guarantee for the delivery of the gas
to the Israeli market.
In May
2008, the Government of Egypt adopted legislation that purports to revoke the
tax free status of existing free zone companies operating in the iron, cement,
steel, petroleum, liquefaction and transport of natural gas industries. The
legislation, by its terms, would apply to EMG. Ampal understands that the impact
of this change in law would be to impose a 20% tax on EMG’s net future income.
It is not clear to what extent the legislation will be enforced or whether it is
valid under Egyptian legal principles. The legislation is, to Ampal's
understanding, unusual, and it is not clear whether EMG will be successful in
its negotiations and therefore what, if any, impact the legislation will
ultimately have on EMG.
On
November 29, 2007, Ampal and the Israel Infrastructure Fund ("IIF"), leading a
group of institutional investors ("Investors"), purchased a 4.3% interest in
EMG, through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership
(the “Joint Venture”), from Merhav for a purchase price of approximately $95.4
million, using funds provided by the Investors. In addition to the Joint
Venture’s purchase from Merhav, Ampal contributed into the Joint Venture an
additional 4.3% interest in EMG already held by Ampal. The Joint Venture now
holds a total of 8.6% of the outstanding shares of EMG. Ampal’s contribution was
valued at the same price per EMG share as the Joint Venture’s purchase. This
amount is equivalent to the purchase price (on a per share basis) paid by Ampal
for its December 2006 purchase of EMG shares from Merhav.
As of
December 31, 2009, the Company’s Financial Statements reflect a 16.8% interest
in shares of EMG, with 8.2% held directly and 8.6% held through the Joint
Venture (of which Ampal owns 50%). For more information concerning our interest
in EMG, please see “Item 7 - Management Discussion and Analysis of Financial
Condition and Results of Operations” below.
Global
Wind Energy Ltd. ("GWE")
Merhav
Ampal Energy Ltd. (“MAE”) and Clal Energy, LP (“Clal”), an Israel-based limited
partnership, formed GWE, a company that focuses on the new development and
acquisition of controlling interests in renewable energy, including wind energy
projects outside of Israel. GWE is owned equally by Clal and the Company through
MAE, seeks to either develop or acquire wind energy opportunities with a goal of
establishing at least 150MW of installed capacity until the middle of 2011.
GWE’s current projects are the development of wind farms in Greece and Poland.
In January 2010, GWE received a production license for its 42MW wind farm in
Greece. The Company has approved a Euro 25 million investment budget for these
projects.
As of
December 31, 2009, the Company has invested $2.9 million in GWE.
Telecommunications
012 SMILE TELECOM LTD. ("012
Smile")
General
Following
the 012 acquisition, 012 Smile has become a leading provider of communication
services in Israel, offering a wide range of broadband and traditional voice
services. 012 Smile's broadband services include broadband Internet access with
a suite of value-added services, specialized data services and server hosting,
as well as new innovative services such as local telephony via voice over
broadband ("VoB") and a WiFi network of hotspots across Israel. Traditional
voice services include outgoing and incoming international telephony, hubbing,
roaming, signaling and calling card services. 012 Smile services residential and
business customers, as well as Israeli cellular operators and international
communication services providers through its integrated multipurpose network,
which allows 012 Smile to provide services to almost all of the homes and
businesses in Israel. In our description of 012 Smile’s business operations, the
term "012" refers to the business of 012 that was acquired by 012
Smile.
Broadband
Internet Access
012 is
one of Israel’s three leading ISPs providing high speed broadband access to the
Internet via ADSL and cable networks. 012 offers high-speed
continuous access connections employing digital leased lines at various
bandwidths. 012 offers broadband access at speeds of up to 100 Megabits per
second. In addition to Internet access, 012 offers a diverse suite of
value-added services that are incremental to its core Internet access service,
which focus on enhancing 012's customers’ Internet experience by providing
additional features and applications and by increasing access
security.
11
012
provides its residential Internet access customers a suite of value-added
services, including: e-mail, global remote access, unified messaging, wireless
and wired home networking, parental content filtering, security services (e.g.,
firewalls, anti-virus and anti-spam), online backup and content
services.
012
provides its business Internet access customers a suite of value-added services,
including: security services (e.g., firewalls, anti-virus and anti-spam), e-mail
(including multiple and large mailboxes and domains), VPN services, enterprise,
procurement and integration services, IP roaming, unified messaging and
networking, wireless and wired links and online backup.
Specialized
Data Services
012
provides specialized data services to bandwidth-intensive organizations and
international carriers, allowing them to transmit electronic data from point to
point or from point to multi-points. 012's fee structure for these
services depends on three main factors: volume of capacity, distance and the
type of technology used. Most services are provided under one to two year
contracts.
VoB
Services
As of
December 31, 2009, 012 had approximately 135,000 VoB local telephony
lines. 012 offers this service in accordance with a license issued by
the Ministry of Communications to its wholly owned subsidiary 012 Telecom Ltd.
012's VoB local telephony customers can make and receive calls using a standard
telephone plugged into a specialized VoB unit that can be used almost anywhere
where a reliable broadband Internet connection is available. 012
transmits these calls using VoIP technology, which converts voice signals into
digital data packets for transmission over the Internet and provides service by
using customers’ existing broadband Internet connections.
PRI
Services
012
offers primary rate interface ("PRI") services to business customers, which
offer high quality point-to-point PRI ISDN communications lines, over which up
to 30 calls can be transferred simultaneously. This service is primarily used by
large corporate customers, including some of Israel’s largest
corporations. This service is offered in accordance with a license
issued by the Ministry of Communications.
IP-TRUNKING
Services
012
offers its business customers IP-TRUNKING services, which provide
interconnections between service providers using session initiation protocol
("SIP"). This service offers high quality point-to-point IP communications
lines, over which up to 60 calls can be transferred simultaneously.
IP
Centrex
012
offers its business customers an IP-based PBX, or telephone switching system,
which connects to the customer through a broadband connection, IP Central Office
Exchange Service or IP Centrex, and offers VoIP and other IP-based services as
well as connectivity to the regular telephone system. Among the
IP-based services offered are 4-digit internal calling, web-administration
portal, free calls between different branches world-wide, conference bridging,
interactive voice response, or IVR (auto attendant), call hold, call transfer,
last number look-up and redial, call forward and three-way
calling. This service is offered in accordance with a license granted
by the Ministry of Communications.
Server
Hosting and Co-location Services
012
operates three server hosting facilities with approximately 16,000 square feet
of space. The most recent hosting facility, opened in June 2007, is
designed to provide and support the most advanced set of communications services
that house web servers and related software and provide connectivity to the
Internet for business customers. Many customers utilize 012's
services to manage their web servers, which generate a considerable amount of
traffic, ranging from thousands to hundreds of thousands of hits a
day. Clients are able to configure and operate their servers remotely
and save on router, Internet connection, security system and network
administration costs. 012 also offers co-location services to its
business customers at its server hosting facilities. As part of 012's
co-location services, it houses the back-up servers used by businesses to ensure
that their systems do not lose data or suffer a lengthy interruption of service
because of a power outage, computer fault, or other reasons. 012
supplies power, lights, network bandwidth and the physical security of the site,
and its facilities have multiple power backups that are able to provide power
during lengthy power outages.
12
WiFi
Network
012
currently operates a comprehensive network of hotspots covering hotels,
hospitals, other public areas and all commercial airports throughout Israel. 012
has entered into contracts with many of the entities that sponsor the service in
their facilities or communities and are the exclusive provider on their
premises. Many of these contracts provide for revenue sharing
arrangements. 012 also provides open public access WiFi services throughout
central Jerusalem.
Traditional
Voice Services
012
offers traditional voice services to residential and business customers
throughout Israel and to international carriers and local cellular operators.
012 is one of the three largest international telephony services providers in
Israel, providing global international telephony services through direct
connections with approximately 90 carriers.
012's
outgoing international telephony services to its residential and business
customers include direct international dialing services, international and
domestic pre-paid and post-paid calling cards and call-back services. In
addition, 012 offers its business customers international toll-free numbers and
its 012 Mobile service. 012 Mobile is an international cellular service offering
fixed rates on calls from anywhere in the world. 012 offers incoming
international telephony services to international carriers, which include
termination services for telephone calls originating outside of
Israel.
012
provides hubbing-traffic routing between approximately 90 network operators.
Hubbing is defined as a system architecture where several network operators
connect to a peering point, or a hub, from where they are rerouted.
012
provides roaming and signaling services for cellular operators. Signaling
messages indicate a mobile user’s location while roaming within Israel through
012's signal transfer point ("STP"), or when traveling abroad. 012 bills the
cellular operators based on the number of signaling messages sent and
received.
Regulatory
Environment
012
operates in a highly regulated industry in Israel, which has undergone
significant changes in the past decade, transitioning from a slow moving market,
with a single state-owned carrier, Bezeq, to one that, although still
highly-regulated, has grown rapidly and is highly competitive in nearly every
segment. The Ministry of Communications has mandated an “open access” policy,
which requires Bezeq and HOT, the incumbent local cable provider, to provide
access to their infrastructure, including last-mile access to homes and offices.
The Ministry of Communications has also adopted a policy to encourage new
entrants into the communications market, which has led to increased competition
in the market. 012 faces competition in all segments of its operations and it
believes it maintains its competitive position based on the quality of its
services and competitiveness of its price.
In March
2008, the Gronau Committee, which was appointed by the Ministry of
Communications to consider and recommend the best means to promote further
sustainable competition in the Israeli communications market, issued its
recommendations to the Minister of Communications. The Gronau Committee’s
recommendations call for several structural changes within the communications
markets, including local loop unbundling of Bezeq’s infrastructure, which, if
accepted and implemented, would allow 012 to compete in the IPTV (Internet
Protocol Television) sectors and improve its competitive position in the VoB
business market, while worsening 012's position in other segments, by allowing
the cellular operators in Israel to compete in the traditional long distance
telephony market.
The table
below lists 012's current licenses that were granted to it, the type of services
012 offers under each of such licenses and their respective terms.
|
License
|
Services
Provided
|
Expiration
Date
|
|
International
telephony license (general license)
|
Voice
•
Outgoing and incoming international telephony services
•
International calling cards services
Specialized data
services
|
January
2030 with possible extensions for 10 years each
|
|
VoB and DFL license
(general
license)
|
Local data and voice
services
•
Local telephony using VoB access
•
Local telephony using dedicated lines based on PRI services
Local infrastructure and data
services
|
December
2025 with possible extensions for 10 years
each
|
13
|
License
|
Services
Provided
|
Expiration
Date
|
|
WiMAX technology experimental
license
|
Broadband, data, international
and local voice service based on the WiMAX
infrastructure
|
The
experimental license for the city of Sderot and the Negev area will expire
in September 2010
|
|
Endpoint
Network Services
|
Supply,
install, operate and maintain all types of endpoint network equipment,
including central switchboards, telephone cables, connection closets,
etc.
|
December
2014
|
|
VoBoC
experimental license
|
A
special license to conduct a marketing experiment that will examine the
provision of domestic telephony services using the innovative VoBoC
technology
|
March
2010
|
Each
license requires 012 to adhere to certain requirements, which include the scope
of services to be provided under the license, the amount of royalties to be paid
to the Ministry of Communications, technical standards employed by 012 in
providing the services, maintenance and support procedures and protocols, 012's
communications with customers and information to be provided to the Ministry of
Communications on a regular basis.
Market
Share
As of
December 31, 2009, 012 estimated that its market share of the international
telephony market was 34%, based on the number of incoming and outgoing minutes
in Israel. 012 estimated that its market share of the broadband Internet access
market as of December 31, 2009 was approximately 32% - 33%, based on its
broadband market analysis. As of December 31, 2009, 012 provided services
to approximately one million registered household customers and approximately
90,000 registered business customers. 012's enterprise customer base consists of
many of Israel’s leading companies, including 62 of the 100 largest companies in
Israel (as determined by Dun & Bradstreet), which includes the two
largest Israeli banks and the Government of Israel.
The
Israeli communications market is led by five main groups: (i) 012 (ii) The IDB
Group (iii) Bezeq (iv) Hot and (v) Partner. Each group has interests in the
following communications sectors:
|
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·
|
ISP market. The three
largest ISPs in Israel are 012, Netvision 013 Barak (a company owned by
The IDB Group) and Bezeq International (a company owned by Bezeq), which
collectively control substantially all of the Israeli broadband Internet
access market.
|
|
|
·
|
International long distance
market. There are currently three dominant competitors in the
market: 012, NetVision 013 Barak and Bezeq International. The fourth
competitor, Xfone, has a minor share of the
market.
|
|
|
·
|
Fixed-line communications
market. Bezeq, which traditionally controlled the fixed-line
communications market, controls approximately 78.2% of the residential
fixed-line communications market and 85.8% of the business fixed-line
communications market as of November 2009. According to a new format for
measuring market share introduced in November 2009 by a committee
appointed by the Ministry of Communications, Bezeq’s market share based on
normative income is 76.9% for regular lines and 80.8% for traffic lines.
In 2001 the Ministry of Communications issued to 012 a point-to-point
fixed-line special license for data services. In 2003 the Ministry of
Communications issued a license to HOT for fixed-line communications. In
December 2005 012 Telecom, a fully owned subsidiary of 012, was granted a
license (which superseded 012's point-to-point fixed-line special license
for data services). Similar licenses have been issued to Globalcall and
Cellcom, both subsidiaries of the IDB Group, and Partner, which is a major
cellular operator unaffiliated with any of the three main telecom groups.
Recently, Bezeq International, a subsidiary of Bezeq has also received a
similar license. According to the policy of the Ministry of
Communications, since Bezeq’s market share of domestic fixed-line
telephony in a particular customer segment (business or private) has
fallen below 85%, Bezeq’s license is in the process of being amended and
it has started the process to obtain approval to market bundled services,
which could potentially include local and international telephony,
broadband Internet access, Internet service provider services, cellular
services and multi-channel TV. The Minister of Communication’s decision
whether to approve Bezeq's marketing a basket of services will be based on
the status of competition in the applicable telecommunications sector and
is likely to be subject to conditions set forth by the Ministry of
Communications.
|
|
|
·
|
Cellular services.
There are four companies presently providing cellular service in Israel:
Cellcom, a subsidiary of The IDB Group, Partner, Pelephone, a wholly-owned
subsidiary of Bezeq, and MIRS Communications
Ltd.
|
14
Network
and Technology
012's
multi-purpose network supports broadband and traditional voice services across
Israel, as well as dial-up, ADSL, ISDN and cable broadband services. 012's
network infrastructure is designed to provide customers with reliability and
throughput, while minimizing 012's costs through efficient use of its
international and domestic infrastructure. Reliability is primarily achieved
through redundancy in mission critical systems, minimizing the number of single
points of failure, that is, points where the failure of a single component of
the network could interrupt service to customers. Throughput is achieved by
deploying robust systems, diverse network architecture, multi-peered Internet
backbone connections, efficient load balancing and high-speed switching cores.
Efficient bandwidth allocation and management is achieved through constant
monitoring of Internet traffic and web caching that optimizes the flow of
traffic through 012's multiple Internet connections.
In
order to optimize the performance of 012's network and support systems, 012
consistently utilizes some of the most specialized and advanced communication
technologies, software and equipment, working with vendors such as Amdocs,
BroadSoft, Checkpoint, Cisco, Hewlett-Packard, IBM, Juniper, Microsoft, Nortel
and PeopleSoft.
ISP Network
Infrastructure
012's ISP
network infrastructure is built on the basis of three tiers: core, aggregation
and access.
Core. The core tier of the
network is built around three backbone datacenters (one in Tel Aviv and two in
Petach-Tikva, all in central Israel). These three main sites are
interconnected using a dense wavelength division multiplexing optical ring,
which provides a total of 20 Gigabits per second bandwidth between the
sites. The connection that links the devices to the core tier uses
10 Gigabit Ethernet
technology. Each datacenter in itself is built in a multiple star
topology (either dual star or triple star) in order to achieve multiple levels
of reliability. The network fully supports multi protocol label
switching ("MPLS"), which enables 012 to ensure quality of service for critical
applications and utilize advanced techniques, such as traffic engineering and
service level agreements ("SLAs"). MPLS also plays a crucial role in offering
value-added services to business customers, such as VPN access.
The core
edge is where 012's network interconnects with other ISP networks that are
either operated by other ISPs in Israel or international upstream providers. 012
is directly connected to all the other major Israeli ISPs as well as to the
Israeli Internet Exchange (IIX). 012's network edge spans to two of the world’s
largest Internet hubs where it co-locates edge routers in order to peer with
upstream providers. Those hubs are in London and Frankfurt. This
international and local reach of 012's network is designed to assure both
geographical redundancy and efficient routing.
012 has
approximately 10 Gigabits of Internet connection capacity between Israel and
Europe, and a local Internet connection capacity of 40 Gigabits. 012
continuously monitors capacity demands on its network and expands network
resources ahead of market demands. 012 operates a 24 hour, seven days
a week, 365 days a year, network operations center staffed with trained
operators who utilize advanced monitoring hardware and software systems to
ensure that the quality of its service meets the standards provided in its SLAs,
and immediately handle faults if those occur. 012's network operation
center monitors network traffic, quality of service and security issues, as well
as the performance of the equipment located at each of our various datacenters
and points of presence.
Aggregation. The aggregation
tier aggregates the access tier into the core backbone using MPLS technology and
10 Gigabit Ethernet links. This tier is based on carrier grade Ethernet switches
in a fully redundant topology.
Access. 012's tiered network
enables access between different network functions providing customers with
three major connectivity options to access its network:
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Broadband
access: provided through either Bezeq, the incumbent local telephony
operator, offering ADSL lines, or by HOT, the incumbent local cable
provider that offers cable-modem
access.
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Leased
line access: provided through third party transmission
providers. Our leased line offerings include Frame Relay, E1,
DS3, and Fast Ethernet lines. All business customers using this
access are connected through dedicated routers in order to provide the
highest level of service.
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Wireless
access: provided to customers that are located within close proximity to
one of our PoPs or requiring point to point or point to multi-point
connectivity.
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International Telephony
Switching Systems
Through
its international telephony switching systems, 012 has connections with
international carriers in North America, South America, the Middle East, Western
Europe, Eastern Europe, Asia and Africa. 012's intelligent network platforms
provide it with post and pre-paid services and international toll free
services. These platforms give 012 the ability to build new services
without using a vendor’s intervention. 012's platforms also give it the ability
to connect with other telecommunications providers using IP connections as well
as legacy time division multiplexed, or TDM, connections.
012's
international telephony services are provided to and from Israel by means of
four marine communications cables designed for the rapid transfer of large
capacity content. Most of the communication traffic to and from Israel is routed
via the Lev and Med Nautilus submarine cable systems whose capacity far exceeds
that of the other two cables, Emos-1 and CIOS. 012 uses this infrastructure to
provide its international telephony services under agreements with the owners of
the rights to these cables.
15
Transmission
Network
An
independent transmission infrastructure is used in order to connect 012's sites.
The network is based on an X Display Manager platform at the core and a service
delivery management platform at the edge. All elements are actively controlled
and managed with network specific software.
012's
network implements Dense Wavelength Division Multiplexing over leased
fibers throughout its sites utilizing up to 32 wavelengths (of which currently
eight are being utilized) providing Gigabit Ethernet and SDH STM-16 connectivity
between the sites.
012
provides broadband services from its Israeli sites in Petach-Tikva and Tel Aviv,
which interconnect with both international and domestic carriers. 012 also has
PoPs in Europe (London and Frankfurt) and the United States (New Jersey). These
five sites create a multi-technology, multi-service, fully redundant
network.
012's IP
network is able to ensure the proper quality of service for each application.
This has enabled 012 to use the same IP network to support its international
telephony operations as well as its Internet operations. In order to
increase its voice network reach, 012 installed a VoIP gateway at its facility
in Frankfurt. This gateway enables 012 to transmit calls in a more cost
efficient manner between Israel and Europe. 012 intends to install such gateways
at its other international facilities.
In order
to generate warnings, the anti-fraud system relies on a set of filters. Those
filters are manually defined by 012's anti-fraud team. 012's anti-fraud
operation center is manned 24 hours a day, 365 days a year. The anti-fraud team
investigates every warning message produced by the system. Because of the high
level of sophistication of telephony hackers, the filters are updated manually
and on regular basis to answer any new threat that hackers may devise and to
make sure that our usage policy of the telephony system is imposed.
VoIP Local Call
System
012's
integrated VoIP local call system has been designed to provide smooth
scalability. 012 has a class 4 switch in Petach-Tikva using a media
gateway that enables connections under European and U.S. standards and SIP, and
ISDN user port signaling. This platform gives 012 the ability to
connect with other communications providers using IP connection as well as
legacy TDM connection.
012 has a
class 5 switch in Petach-Tikva with enhanced Internet access that enables
customers to change and operate features of their telephone line by
themselves. The platform offers a wide range of services including IP
Centrex multimedia, IP infrastructure and security, provided by specialized
routers, firewalls and a session boarder controller.
Strengths
012
relies on the following competitive strengths to maintain and enhance its
position as a leading communication services provider in Israel:
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Significant market
share. 012 has a diversified residential and business customer base
and it believes it has a leading market share in Israel in the broadband
and the traditional voice markets.
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High level of brand
recognition. 012 believes its brands are among the most recognized
and respected consumer brands in Israel, are associated with reliability
and quality of service and provide it with a strong platform for the
introduction of new services and expansion into new market
segments.
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Wide range of services offered
on 012's advanced multipurpose network infrastructure. 012's wide
range of services allows it to offer customized voice and data services
that address the specific communications needs of its customers, attracts
new customers and solidifies its market position by cross-selling to
existing customers and thus increasing revenues per subscriber. 012's
services are offered to its customers on an individual basis or as part of
a bundle of multiple services.
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Demonstrated ability to
capitalize on the evolving communications technology landscape. 012
believes that it is positioned to capitalize on technological changes and
trends in the dynamic communications environment. Over the past five
years, 012 has continually expanded its offerings to include advanced
broadband services, such as VoB and
WiFi.
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16
Marketing,
Sales and Customer Services
012's
focus is to present a “one-stop shop” solution to its residential and business
customers by offering a diverse basket of solutions and a unique service
experience in a competitive environment. 012 seeks to strengthen its
brand awareness and to create a unified branding approach among its voice and
data customers for its various service offerings. 012 also actively
promotes and cross-sells its services to existing customers with special bundled
offerings aimed at servicing their communications needs and enhancing customer
loyalty. This marketing and communications strategy is executed through all
levels of 012's business. Marketing teams target the business and residential
sub-sectors separately. Each marketing team includes specialists who focus on
marketing communications and product development and has an economics control
manager who ensures that all marketing activities are cost
effective.
012's
sales and customer service functions are carried out by separate service centers
that respond to calls from residential and business customers. 012
services its customer groups through dedicated multi-language call center
personnel and multi-language technical support staff. The business
service center is responsible for sales and customer care for the business
sector. 012's business service center’s marketing and sales force has
three areas of focus: broadband access, traditional voice and specialized data
services.
Technical
support is available to all residential and business customers on a 24-hour
basis. Customers can obtain customer support by telephone, e-mail or fax. 012
also publishes printed reference materials and maintain comprehensive
descriptions of its customer care services on its website as well as
troubleshooting tips and configuration information.
Real
Estate
BAY
HEART LTD. (“BAY HEART”)
Bay Heart
was established in 1987 to develop and lease a shopping mall by the name of
Cinemall (the “Mall”) in the Haifa Bay area. Haifa is the third largest city in
Israel. The Mall, which opened in May 1991, is a three-story facility with
approximately 280,000 square feet of rentable space. The Mall is located at the
intersection of two major roads and provides a large mix of retail and
entertainment facilities, including seven movie theaters. In 2008, the Mall
completed extensive renovations, including the construction of a new complex of
23 movie theaters and entertainment facilities.
Leisure-Time
COUNTRY
CLUB KFAR SABA LTD. (“KFAR SABA”)
Kfar Saba
operates a country club facility (the “Club”) in Kfar Saba, a town north of Tel
Aviv. Kfar Saba holds a long-term lease to the real estate property on which the
Club is situated. The Club’s facilities include swimming pools, tennis courts
and a club house.
The Club,
which has a capacity of 2,000 member families, operated at capacity for the 2009
season. The Company owns 51% of Kfar Saba.
EMPLOYEES
The
executive officers of Ampal are listed in “Item 10” below.
As of
December 31, 2009:
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Ampal
(Israel) Ltd. and Merhav Ampal Energy Ltd. had 30
employees;
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Gadot,
a wholly owned subsidiary of Ampal, had 645 employees;
and
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Country
Club Kfar Saba Ltd. had 6 employees and 97 hourly based
employees.
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Following
the acquisition of 012 in January 2010, 012 Smile, an indirect wholly
owned subsidiary of Ampal, had 493 full-time employees and 1,264 part-time
employees.
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Relations
between the Company and its employees are satisfactory.
17
CONDITIONS
IN ISRAEL
Most of
the companies in which Ampal directly or indirectly invests conduct their
principal operations in Israel and are directly affected by the economic,
political, military, social and demographic conditions there. A state of
hostility, varying as to degree and intensity, exists between Israel and the
Arab countries and the Palestinian Authority (the “PA”). Israel signed a peace
agreement with Egypt in 1979 and with Jordan in 1994. Since 1993, several
agreements have been signed between Israel and Palestinian representatives
regarding conditions in the West Bank and Gaza. While negotiations have taken
place between Israel, its Arab neighbors and the PA to end the state of
hostility in the region, it is not possible to predict the outcome of these
negotiations and their eventual effect on Ampal and its investee companies.
Hamas, an Islamist movement, won the majority of the seats in the Parliament of
the PA in January 2006 and took control of Gaza by force in June 2007. During
the summer of 2006, Israel waged a war with the Hezbollah movement in Lebanon,
which involved thousands of missile strikes in Northern Israel. Since June 2007,
thousands of missiles have been fired from Gaza at population centers in
southern Israel, leading to an armed conflict between Israel and Hamas in
January 2009. In the meantime, Iran has threatened to attack Israel and is
widely believed to be developing nuclear weapons. This security
situation has had an adverse effect on Israel’s economy, primarily in the
relevant geographic areas, and increased the political and military
uncertainty in Israel and the Middle East. See “Item 1A - Risk Factors” below
for a further discussion of the possible impact of the political and military
situation in Israel on the Company.
All male
adult citizens and permanent residents of Israel under the age of 48 are
obligated, unless exempt, to perform military reserve duty annually.
Additionally, all these individuals are subject to being called to active duty
at any time under emergency circumstances. Some of the officers and employees of
Ampal’s investee companies are currently obligated to perform annual reserve
duty. While these companies have operated effectively under these requirements
since they began operations, Ampal cannot assess the full impact of these
requirements on their workforce or business if conditions should change. In
addition, Ampal cannot predict the effect on its business in a state of
emergency in which large numbers of individuals are called up for active
duty.
CERTAIN
UNITED STATES AND ISRAELI REGULATORY MATTERS
SEC
Exemptive Order
In 1947,
the SEC granted Ampal an exemption from the Investment Company Act of 1940, as
amended (the “1940 Act”), pursuant to an Exemptive Order. The Exemptive Order
was granted based upon the nature of Ampal’s operations, the purposes for which
it was organized, which have not changed, and the interest of purchasers of
Ampal’s securities in the economic development of Israel. There can be no
assurance that the SEC will not reexamine the Exemptive Order and revoke,
suspend or modify it. A revocation, suspension or material modification of the
Exemptive Order could materially and adversely affect the Company unless Ampal
were able to obtain other appropriate exemptive relief. In the event that Ampal
becomes subject to the provisions of the 1940 Act, it could be required, among
other matters, to make changes, which might be material, to its management,
capital structure and methods of operation, including its dealings with
principal shareholders and their related companies.
TAX
INFORMATION
Ampal (to
the extent that it has income derived in Israel) and Ampal’s Israeli
subsidiaries are subject to taxes imposed under the Israeli Income Tax
Ordinance. The corporate tax rate in Israel is 26% for the 2009 tax year and 25%
for the 2010 tax year. Following an amendment to the Israeli Income Tax
Ordinance, which was published on July 23, 2009 (“Amendment No. 171”) , the
corporate tax rate is scheduled to be reduced as follows: 24% for the 2011 tax
year, 23% for the 2012 tax year, 22% for the 2013 tax year, 21% for the 2014 tax
year, 20% for the 2015 tax year and 18% for the 2016 tax year and thereafter.
The Israeli tax rate on capital gains derived by a corporation after January 1,
2003, is generally 25% for the 2009 tax year and is scheduled to be equal to the
corporate tax rate for future tax years. However certain exemptions from capital
gains tax may apply to non-Israeli resident corporations.
A tax
treaty between Israel and the United States became effective on January 1, 1995
(“the Treaty”). The Treaty has not substantially affected the tax position of
the Company in either the United States or in Israel.
Under
Israeli domestic law Ampal, as a non-resident, is generally subject to
withholding tax at a rate of 25% on dividends it receives from Israeli companies
(20% for dividends received after January 1, 2006, under certain circumstances).
This rate may be reduced to either 15% or 12.5%, (under Israeli law and/or the
provisions of the Treaty), depending on the ownership percentage in the investee
company, and on the type of income generated by such investee company from which
the dividend is distributed (by contrast, dividends received by one Israeli
company from another Israeli company are generally exempt from Israeli corporate
tax, unless (i) they arise from income generated from sources outside of Israel,
in which case they are generally subject to tax at a rate of 25%/ corporate tax
rate (certain tax credits may be available for tax paid or withheld at source)
or (ii) they are paid out of the profits of an “approved enterprise” to either
residents or non-residents, in which case tax is withheld at a rate of
15%).
18
Pursuant
to an arrangement with the Israeli tax authorities, Ampal’s income from Israeli
sources has been taxed based on principles generally applied in Israel to income
of non-residents. Ampal has filed agreed upon tax returns with the Israeli tax
authorities through the tax year 2008. Based on the tax returns filed by Ampal
through 2008, it has not been required to make any additional tax payments in
excess of the tax withheld on dividends it has received. In addition, pursuant
to Ampal’s arrangement with the Israeli tax authorities, the aggregate taxes
paid by Ampal in Israel and in the United States on interest, rent and dividend
income derived from Israeli sources has not exceeded the tax which would have
been payable by Ampal in the United States had such interest, rent and dividend
income been derived by Ampal from United States sources. There can be no
assurance that this arrangement will continue to be in effect in the future.
This arrangement does not apply to taxation of Ampal’s Israeli
subsidiaries.
Generally,
under the provisions of the Israeli Income Tax Ordinance, taxable income from
Israeli sources paid to non-residents of Israel by residents of Israel is
subject to withholding tax at the rate of 25%, unless a specific exemption is
available. However, such rate of withholding tax may be reduced under the
Treaty, with respect to certain payments made by Israeli tax residents to US tax
residents that qualify for benefits of the Treaty. For example, under the
Treaty, the rate of withholding tax applicable on interest is generally reduced
to 17.5%. Amendment No. 169 to the Israeli Income Tax Ordinance, effective from
January 1, 2009, introduced an exemption from Israeli tax on interest paid to
non-residents of Israel on bonds traded on the Tel Aviv Stock Exchange, provided
certain conditions are met. The continued tax treatment of Ampal by the Israeli
tax authorities in the manner described above is based, among other things, on
Ampal continuing to be treated, for tax purposes, as a non-resident of Israel
that is not doing business in Israel.
Under
Israeli law, Israeli tax residents are taxed on capital gains generated from
sources in Israel or outside of Israel, whereas non-residents are taxable only
with respect to gains generated from sources in Israel unless a specific
exemption is available or unless a tax treaty between Israel and the
shareholder’s country of residence provides otherwise. Capital gains are
generally regarded as being from Israeli sources if arising from the sale of
assets either located in Israel or which represent a right to assets located in
Israel (including gains arising from the sale of shares in companies resident in
Israel, and of rights in non-resident entities that mainly represent ownership
and rights to assets located in Israel, with regard to such assets). Under the
Treaty, US tax residents are subject to Israeli capital gains tax on the sale of
shares in Israeli companies if they have held 10% or more of the voting rights
in such companies at any time during the 12 months immediately preceding the
sale. Since January 1, 1994, the portion of the gain attributable to
inflationary differences prior to that date is taxable at a rate of 10%, while
the portion of the gain attributable to inflationary differences between such
date and the date of disposition of the asset is exempt from tax. Non-residents
of Israel may elect to compute the inflationary portion of the gain based on the
change in the rate of exchange between Israeli currency and the foreign currency
in which the shares were purchased, rather than the change in the Israeli
consumer price index. If such election has been made by non-residents of Israel,
they may be exempt from the 10% tax on the inflationary gain mentioned above,
with respect to the sale of shares in companies that are considered Israeli tax
residents. However, beginning January 1, 2006, the section of the Israeli Tax
Ordinance under which the regulations providing such tax exemption to
non-Israeli residents were promulgated, was rescinded. It is therefore unclear
whether this exemption shall continue to be applicable. The remainder of the
gain (“Real Capital Gain”), if any, is taxable to corporations at the corporate
tax rate. However, Real Capital Gains realized by corporations from the sale of
capital assets that had been acquired prior to January 1, 2003 shall be
apportioned on a linear basis to the periods before and after the same date,
namely - the portion of the gain attributed to the period before January 1, 2003
shall be subject to tax at a rate equal to the corporate tax rate in effect at
the time of the sale (in 2009 – 26%), whereas the portion of the gain attributed
to the period after January 1, 2003 shall be taxed at the rate of 25%. Special
rules apply with respect to listed securities.
Foreign
corporations are generally exempt from tax on gains from the sale of shares in
publicly traded companies if the capital gain was not generated from their
permanent establishment in Israel. Following an amendment to the Israeli Income
Tax Ordinance, which came into effect on January 1, 2006 ("Amendment No. 147"),
a broader exemption was introduced under domestic law for non-residents
regardless of their percentage holding in an Israeli company (not holding real
estate rights) to include capital gains from the sale of securities (even where
not traded in Israel), which are purchased between July 1, 2005 through December
31, 2008, provided certain conditions are met. Amendment No. 169 to the Israeli
Income Tax Ordinance, effective from January 1, 2009, expanded the earlier
exemption from Israeli capital gains tax so that it applies to shares in a
non-publicly traded Israeli company acquired on or after January 1, 2009 by any
foreign resident investors, provided certain conditions are met. However,
according to Section 68A(a) of the Israeli Income Tax Ordinance, non-Israeli
corporations are not entitled to any such exemption from Israeli capital gains
tax if Israeli residents (i) have a controlling interest of 25% or more in such
non-Israeli corporation, or (ii) are the beneficiaries or are entitled to 25% or
more of the revenues or profits of such non-Israeli corporation, whether
directly or indirectly.
Individuals
and companies in Israel pay value added tax (“VAT”) at a rate of 16% (the VAT
rate is scheduled to be reduced to 15.5% for the 2011 tax year and thereafter)
of the price of assets (excluding shares) sold and services rendered. In
computing its VAT liability, certain of Ampal’s Israeli subsidiaries may be
entitled to claim as a deduction input VAT they have incurred with respect to
goods and services acquired for the purpose of their business, to the extent
such transactions are subject to VAT.
19
UNITED
STATES FEDERAL TAXATION OF AMPAL
Ampal and
its United States subsidiaries (in the following discussion, generally referred
to collectively as “Ampal U.S.”) are subject to United States taxation on their
taxable income, as computed on a consolidated basis, from domestic as well as
foreign sources. The gross income of Ampal U.S. for United States tax purposes
includes or may include (i) income earned directly by Ampal U.S., (ii) Ampal
U.S.’s pro rata share of certain types of income, primarily “subpart F income”
earned by certain Controlled Foreign Corporations in which Ampal U.S. owns or is
considered owning 10 percent or more of the voting power, and (iii) Ampal U.S.’s
pro rata share of ordinary income and capital gains earned by certain Passive
Foreign Investment Companies in which Ampal U.S. owns stock, and with respect to
which Ampal has elected that such company be treated as a Qualified Electing
Fund. Subpart F income generally includes, among other things, certain
dividends, interest, royalties, rents, and capital gains. Since 1993, the
maximum federal rate applicable to domestic corporations is 35%.
Certain
of Ampal’s non-U.S. subsidiaries have elected to be treated as partnerships for
U.S. tax purposes. As a result, Ampal is generally subject to U.S. tax on its
distributive share of income earned by such subsidiaries (generally computed
with reference to Ampal’s proportionate interest in such entity), as it is
earned, i.e. – without regard to whether or not such income is distributed by
the subsidiary. Certain of Ampal’s wholly-owned non-U.S. subsidiaries have
elected to be treated as “disregarded entities” for U.S. federal tax
consequences. As a result, Ampal is subject to US tax on all income earned by
such subsidiaries, as it is earned.
Ampal
U.S. is generally entitled to claim as a credit against its United States income
tax liability all or a portion of income taxes or of taxes imposed in lieu of
income taxes, paid to foreign countries. If Ampal U.S. receives dividends from a
non-US corporation in which it owns 10% or more of the voting stock, Ampal U.S.
is treated (in determining the amount of foreign income taxes paid by Ampal U.S.
for purposes of the foreign tax credit) as having paid the same proportion of
the foreign corporation’s post-1986 foreign income taxes as the amount of such
dividends bears to the foreign corporation’s post-1986 undistributed
earnings.
In
general, the total foreign tax credit that Ampal U.S. may claim is limited to
the same proportion of Ampal U.S.’s United States income taxes that its foreign
source taxable income bears to its taxable income from all sources, US and
non-US. This limitation is applied separately with respect to passive and active
items of income, which may further limit Ampal’s ability to claim foreign taxes
as a credit against its U.S. tax liability. The use of foreign taxes as an
offset against United States tax liability is further limited by certain rules
pertaining to the sourcing of income and the allocation of deductions. As a
result of the combined operation of these rules, it is possible that Ampal U.S.
elects under relevant tax rules to deduct the foreign taxes, in lieu of claiming
such taxes as a foreign tax credit.
Ampal
U.S. may also be subject to the alternative minimum tax (“AMT”) on corporations.
Generally, the tax base for the AMT on corporations is the taxpayer’s taxable
income increased or decreased by certain adjustments and tax preferences for the
year. The resulting amount, called alternative minimum taxable income, is then
reduced by an exemption amount and subject to tax at a 20% rate. As with the
regular tax computation, AMT can be offset by foreign tax credits as well as net
operating losses (“NOL”), both of which are separately calculated under AMT
rules. The AMT NOL is generally limited to offsetting 90% of the
alternative minimum taxable income.
Available
information
We maintain a website at
www.ampal.com. We make available on our website under “Investor
Relations” - “SEC Filings,” free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports as soon as reasonably practicable after we electronically file or
furnish such materials with the Securities and Exchange Commission.
FORWARD-LOOKING
STATEMENTS
This
Report (including but not limited to factors discussed in the “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” as
well as those discussed elsewhere in this Report) includes forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to the Company that are based on the
beliefs of management of the Company as well as assumptions made by and
information currently available to the management of the Company. When used in
this Report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan,” and similar expressions, as they relate to the Company or the management
of the Company, identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events or future financial
performance of the Company, the outcome of which is subject to certain risks and
other factors which could cause actual results to differ materially from those
anticipated by the forward-looking statements, including among others, the
economic and political conditions in Israel, the Middle East, including the
situation in Iraq, the impact of the credit crisis and in the global business
and economic conditions in the different sectors and markets where the Company’s
portfolio companies operate. These risks and uncertainties include, but are not
limited to, those described in “Item 1A - Risk Factors” and elsewhere in this
Report and those described from time to time in our future reports filed with
the Securities and Exchange Commission.
20
SHOULD
ANY OF THOSE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING
ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS OR OUTCOME MAY VARY FROM THOSE
DESCRIBED THEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR
PLANNED. SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO
THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS IN THIS PARAGRAPH AND ELSEWHERE DESCRIBED
IN THIS REPORT AND OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS.
An
investment in our securities involves risks and uncertainties. These risks and
uncertainties could cause our actual results to differ materially from our
historical results or the results contemplated by any forward-looking statements
contained in this Report or that we make in other filings with the SEC under the
Securities and Exchange Act of 1934 or in other public statements. The risks
described below are not the only risks facing the Company. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results. You should consider the following factors
carefully, in addition to the other information contained in this Report, before
deciding to purchase, sell or hold our securities.
Risks
Associated with Ampal
Because
most of the companies in which we invest conduct their principal operations in
Israel, we may be adversely affected by the economic, political, social and
military conditions in the Middle East.
Most of
the companies in which we directly or indirectly invest have principal
operations that are Israel-related. We may, therefore, be directly affected by
economic, political, social and military conditions in the Middle East,
including Israel’s relationship with the Palestinian Authority and Arab
countries. In addition, many of the companies in which we invest are dependent
upon materials imported from outside of Israel. We also have interests in
companies that import and export significant amounts of products to and from
Israel. Our existing 100% stake in Gadot (99.99% on a fully diluted basis), our
existing 16.8% stake in EMG (8.6% of which is held by the Joint Venture, of
which Ampal owns 50%), an Egyptian joint stock company, and our existing 100%
stake in 012 Smile, together represent a substantial portion of our investment
portfolio and may be particularly sensitive to conditions in the Middle East.
Accordingly, our operations could be materially and adversely affected by acts
of terrorism or if major hostilities should continue or occur in the future in
the Middle East or trade between Israel and its present trading partners should
be curtailed, including as a result of acts of terrorism in the United States.
Any such effects may impact our value and the value of our investee
companies.
Hamas, an
Islamist movement, won the majority of the seats in the Parliament of the PA in
January 2006 and took control of Gaza by force in June 2007. During the summer
of 2006, Israel waged a war with the Hezbollah movement in Lebanon, which
involved thousands of missile strikes in Northern Israel. Between June 2007 and
December 2008, thousands of missiles were fired from Gaza at population centers
in southern Israel, leading to an armed conflict between Israel and Hamas in
January 2009. In the meantime, Iran has threatened to attack Israel and is
widely believed to be developing nuclear weapons. This security situation has
had an adverse effect on Israel’s economy, primarily in the
relevant geographic areas. Although we do not believe that this
situation has had a material adverse effect on our business or financial
condition, if such situation resumes and/or escalates,
the adverse economic effect may deepen and spread to additional areas
and may materially adversely affect the Company and its subsidiaries’ business
and financial condition.
Changes
in the purchase price allocation for the 012 transaction may adversely affect
the pro forma financial information included in our report on Form 8–K/A filed
on December 12, 2009 and our financial statements going forward.
As part
of the acquisition of the business of 012, we have prepared a preliminary
purchase price allocation for allocating the consideration of the asset purchase
transaction to specific assets of 012. This is a complex process and
can be finalized up to 12 months after transaction date. If, for any
reason, we find it necessary or appropriate to make adjustments to such purchase
price allocation after the consummation of the 012 transaction, this
may result in significant changes to the pro forma financial information
included in our report on Form 8–K/A filed on December 12, 2009, in connection
with the 012 transaction and may result in materially adverse changes to our
financial statements going forward, as compared to the accounting treatment
reflected on the pro forma financial information.
Because
of our significant investment in 012 Smile, we may be adversely affected by
changes in the financial condition, business, or operations of 012.
The 012
investment constitutes one of our largest holdings. As a result, changes in the
financial condition, business or operations of 012 Smile (see “Risk Factors –
Risks Associated with 012's Business") will significantly affect our financial
condition and results of operations. Furthermore, the current global economic
downturn may materially adversely affect 012 Smile’s business (see “Risk Factors
– Conditions and changes in the national and global economic and political
environments may adversely affect our business and financial
results”).
21
Because
of our significant investment in Gadot, we may be adversely affected by changes
in the financial condition, business, or operations of Gadot.
The
Company beneficially owns 100% of Gadot (99.99% on a fully diluted basis) and we
consolidate Gadot in the accompanying financial statements. This investment
constitutes one of our largest holdings. As a result, changes in the financial
condition, business or operations of Gadot (see “Risk Factors – Risks Associated
with Gadot's Business") will significantly affect our financial condition and
results of operations. Furthermore, the current global economic downturn may
materially adversely affect Gadot’s business (see “Risk Factors – Conditions and
changes in the national and global economic and political environments may
adversely affect our business and financial results”). Although Gadot has
historically paid dividends to its shareholders, changes in Gadot’s operations
may limit its ability to pay dividends in the future. Further, as a
component of Ampal’s consolidated financial statements any dividends paid will
not be reflected as income by Ampal. While the payment of dividends
would not impact Ampal’s consolidated earnings, it could limit the financial
resources available to operate the Company which could adversely affect our
operations and financial condition.
Because
of our significant investment in EMG, we may be adversely affected by changes in
the financial condition, business, or operations of EMG.
The
Company beneficially owns approximately 16.8% of EMG (8.6% of which is held by
the Joint Venture, of which Ampal owns 50%), a result of a series of
transactions with our controlling shareholder, which was accounted as
transaction between entities under common control. This investment constitutes
one of our largest holdings. As a result, changes in the financial condition,
business or operations of EMG, including, without limitation, gas supply
interruptions such as those experienced during 2008 and the ability of EMG to
utilize the pipeline, whether as a result of environmental, regulatory or
political issues or otherwise, may impact our ability to receive dividends from
EMG which could adversely affect our operations and financial condition.
Additionally, we have a minority interest in EMG, and therefore, do not have the
ability to significantly influence or direct the affairs of EMG.
In May
2008, the Government of Egypt adopted legislation that purports to revoke the
tax free status of existing free zone companies which would also apply to EMG.
The impact of this recent change in law would be to impose a 20% tax on EMG’s
future income. It is not clear to what extent the legislation will be enforced
or whether it is valid under Egyptian legal principles. If such legislation is
enforceable or valid under Egyptian law, it could adversely affect our
operations and financial condition.
Conditions
and changes in the national and global economic and political environments may
adversely affect our business and financial results.
Adverse
economic conditions in markets in which our investee companies operate can harm
our business. Current global financial conditions have been characterized by
increased volatility and several financial institutions have either gone into
bankruptcy or have had to be rescued by governmental authorities. It is believed
that the current recession could continue and worsen. With major financial
institutions de-levering their balance sheets, credit was constricted for much
of 2008 and 2009 and may likely remain so for an extended period. Partly as a
result, entire industries are facing extreme contraction and even the prospect
of collapse. If economic growth in the United States and other countries
continues to decline, this may have a negative impact on our liquidity,
financial condition and stock price, which may impact the ability of the Company
to obtain financing and other sources of funding in the future on terms
favorable to the Company, if at all. Additionally, these factors, as well as
other related factors, may cause decreases in asset values that are deemed to be
other than temporary, which may result in impairment losses. If such increased
levels of volatility and market turmoil continue, it may materially adversely
affect the Company’s results of operations.
Our
freedom to operate our business is limited as a result of certain restrictive
covenants contained in the 012 Credit Facility and in the loan we took to
finance the 012 acquisition.
The 012
Credit Facility and the 012 Loan Agreement contain a number of restrictive
covenants that limit the operating flexibility of the Company, 012 Smile and
MAE. These covenants include, among other things: maintaining certain financial
ratios and thresholds; limitations on distributions and dividends; limitations
on dispositions of assets, changes in the general nature of the 012 business or
to 012 Smile's corporate structure; and certain limitations on payment of
management fees to the control holders of 012 Smile. For further information,
see "Item 7 – Management’s Discussion and Analysis of Financial Condition and
Results of Operation – Liquidity and Capital Resources – Financing of the 012
Acquisition." Such obligations may hinder our future operations or the manner in
which we, 012 Smile or MAE operate our respective businesses, which could have a
material adverse effect on our business, financial condition or results of
operations.
The SEC may
re-examine, suspend or modify our exemption from the Investment Company Act of
1940, as amended.
In 1947,
the SEC granted us an exemption from the 1940 Act, pursuant to an exemptive
order. The exemptive order was granted based upon the nature of our operations.
There can be no assurance that the SEC will not re-examine the exemptive order
and revoke, suspend or modify it. A revocation, suspension or material
modification of the exemptive order could materially and adversely affect us
unless we were able to obtain other appropriate exemptive relief. In the event
that we become subject to the provisions of the 1940 Act, we could be required,
among other matters, to make changes, which might be material, to our
management, capital structure and methods of operation, including our dealings
with principal shareholders and their related companies.
22
As
many of our investee companies conduct business outside of the United States, we
are exposed to foreign currency and other risks.
We are
subject to the risks of doing business outside the United States, including,
among other risks, foreign currency exchange rate risks, changes in interest
rates, equity price changes of our investee companies, import restrictions,
anti-dumping investigations, political or labor disturbances, expropriation and
acts of war. No assurances can be given that we will be protected from future
changes in foreign currency exchange rates that may impact our financial
condition or performance.
Foreign
securities or illiquid securities in our portfolio involve higher risk and may
subject us to higher price volatility. Investing in securities of foreign
issuers involves risks not associated with U.S. investments, including
settlement risks, currency fluctuations, local withholding and other taxes,
different financial reporting practices and regulatory standards, high costs of
trading, changes in political conditions, expropriation, investment and
repatriation restrictions, and settlement and custody risks.
Changes
in taxation requirements could affect our financial results.
We are
subject to income tax in the numerous jurisdictions in which we generate
revenues. Increases in income tax rates could reduce our after-tax income from
affected jurisdictions.
We
have had a history of losses which may ultimately compromise our ability to
implement our business plan.
We have
had losses in four of the past five fiscal years. We will continue to make
investments opportunistically and to divest ourselves from certain assets which
we believe lack growth potential. However, if we are not able to generate
sufficient revenues or we have insufficient capital resources, we will not be
able to implement our business plan of investing in, and growing, companies with
strong long-term growth prospects and investors will suffer a loss on their
investment. This may result in a change in our business strategies.
The
loss of key executives could cause our business to suffer.
Yosef A.
Maiman, the Chairman of our Board of Directors, President and CEO, and other key
executives, have been key to our business to date. The loss or retirement of
such key executives and the concomitant loss of leadership and experience that
would occur could adversely affect us.
We
are controlled by a group of investors, which includes Yosef A. Maiman, our
Chairman, and this control relationship could discourage attempts to acquire
us.
A group
of shareholders consisting of Yosef A. Maiman, the Chairman of our Board of
Directors, President & CEO, Ohad Maiman, Noa Maiman, and Yoav Maiman, and
the companies Merhav, De Majorca Holdings Ltd. ("De Majorca") and Di-Rapallo
Holdings Ltd. ("Di-Rapallo") beneficially owns approximately 61.54% of the
voting power of our Class A Stock. The group was formed in recognition of the
Maiman family’s strong connection with the Company and in furtherance of the
group’s common goals and objectives as shareholders, including the orderly
management and operation of the Company. By virtue of its ownership of Ampal,
this group is able to control our affairs and to influence the election of the
members of our Board of Directors. This group also has the ability to prevent or
cause a change in control of Ampal. Mr. Maiman owns 100% of the economic shares
and one-quarter of the voting shares of De Majorca and Di-Rapallo. Merhav is
wholly owned by Mr. Maiman.
Because
we are a “controlled company,” we are exempt from complying with certain listing
standards of the NASDAQ Global Market (“NASDAQ”).
Because a
group of investors who are acting together pursuant to an agreement hold more
than 50% of the voting power of our Class A Stock, we are deemed to be a
“controlled company” under the rules of NASDAQ. As a result, we are exempt from
the NASDAQ rules that require listed companies to have (i) a majority of
independent directors on the board of directors, (ii) a compensation committee
and nominating committee composed solely of independent directors, (iii) the
compensation of executive officers determined by a majority of the independent
directors or a compensation committee composed solely of independent directors
and (iv) a majority of the independent directors or a nominating committee
composed solely of independent directors elect or recommend director nominees
for selection by the board of directors. Accordingly, our directors who hold
management positions or who are otherwise not independent have greater influence
over our business and affairs.
23
We
do not publish the value of our assets.
It is our
policy not to publish the value of our assets or our views on the conditions of
or prospects for our investee companies. To the extent the value of our
ownership interests in our investee companies were to experience declines in the
future, our performance would be adversely impacted.
We
do not typically pay cash dividends on our Class A Stock.
We have
not paid a dividend on our Class A Stock other than in 1995. Past decisions not
to pay cash dividends on Class A Stock reflected our policy to apply retained
earnings, including funds realized from the disposition of holdings, to finance
our business activities and to redeem or repay our outstanding debt, including
our $215.3 million (as of December 31, 2009) unsecured notes on which principal
payments commence in 2011. The payment of cash dividends in the future will
depend upon our operating results, cash flow, working capital requirements and
other factors we deem pertinent.
The
market price per share of our Class A Stock on NASDAQ and TASE fluctuates and
has traded in the past at less than our book value per share.
Stock
prices of companies, both domestically and abroad, are subject to fluctuations
in trading price. Therefore, as with a company like ours that invests in stocks
of other companies, our book value and market price will fluctuate, especially
in the short term. As of February 25, 2010, the market price on NASDAQ was $2.78
per share. However our shares have in the past traded below book value. You may
experience a decline in the value of your investment and you could lose money if
you sell your shares at a price lower than you paid for them.
Our
listing on NASDAQ requires us to satisfy a number of conditions, including a
minimum bid price of at least $1.00 per share. We cannot assure you that we will
be able to continue to satisfy the minimum bid, or continue to meet the other
continued listing requirements of NASDAQ in the future. If we are delisted from
the NASDAQ, trading in our Class A Stock may be conducted, if available, on the
OTC Bulletin Board or another medium. In the event of such delisting, an
investor would likely find it significantly more difficult to dispose of, or to
obtain accurate quotations as to the value of, our Class A Stock, and our
ability to raise future capital through the sale of our Class A Stock could be
severely limited.
Our
Class A Stock may not be liquid.
Our Class
A Stock is currently traded on NASDAQ and the TASE. The trading volume of our
Class A Stock may be adversely affected due to the limited marketability of our
Class A Stock as compared to other companies listed on NASDAQ and the TASE.
Accordingly, any substantial sales of our Class A Stock may result in a material
reduction in price of our Class A Stock because relatively few buyers may be
available to purchase our Class A Stock.
The
rating assigned to our notes has been downgraded and put on the "watchlist," and
any future downgrade, suspension or withdrawal of the rating could cause the
liquidity or market value of the notes to decline significantly and we may
experience increased difficulty in raising debt financing in the
future.
Global Economic
Conditions.
The
overall demand for chemical products, especially commodity chemicals, is highly
dependent on general economic conditions. During 2009, both the prices and
demand for chemicals have been volatile. The global manufacturing and economic
slowdown negatively influence demand. A downturn in demand for chemical products
may impact the financial condition or performance of Gadot’s chemical products
business.
Price
Fluctuation.
Gadot is
exposed to fluctuations in chemical prices on the international market. It
minimizes this risk by keeping surplus in stock only for its immediate needs,
based on expected demand and past experience. Gadot is also exposed to
fluctuations in shipping prices resulting from global supply and demand. Since
Gadot’s ship leases are generally for long term periods, a downturn in shipping
prices may impact the financial condition or performance of Gadot’s shipping
business.
Price
Fluctuation of Ship Fuel.
Gadot is
exposed to fluctuations in ship fuel prices, which have a direct effect on the
profitability of its shipping operations. It minimizes this risk by using price
adjustment mechanisms tracking the price of ship fuel in its shipping contracts
with customers, especially in its long term contracts.
24
Exchange
Rates.
Exchange
rate fluctuations between the U.S. dollar and the New Israeli Shekel (“NIS”) may
negatively affect Gadot’s earnings. A substantial majority of Gadot’s revenues
and expenses are denominated in U.S. dollars. However, a significant portion of
the expenses associated with Gadot’s Israeli operations, including personnel and
facilities related expenses, are incurred in NIS. Consequently, inflation in
Israel will have the effect of increasing the dollar cost of Gadot’s operations
in Israel, unless it is offset on a timely basis by a devaluation of the NIS
relative to the U.S. dollar. In addition, if the value of the U.S. dollar
decreases against the NIS, Gadot’s earnings may be negatively impacted. In 2009,
the U.S. dollar depreciated slightly against the NIS by 0.71% and inflation
increased by 3.85%. We cannot predict any future trends in the rate of inflation
in Israel or the rate of devaluation or appreciation of the NIS against the U.S.
dollar or of the U.S. dollar against the NIS. If the U.S. dollar cost of Gadot’s
operations in Israel increases and if the current trend of depreciation of the
U.S. dollar against the NIS continues, Gadot’s dollar-measured results of
operations will be adversely affected. In addition, exchange rate fluctuations
in countries other than Israel where Gadot operates and does business may also
negatively affect its earnings.
Interest
Rate Fluctuations.
Gadot’s
operations are funded mostly through short term and long term bank debt, which
causes an exposure to interest rate fluctuations.
Ecological
Concerns and Licensing Requirements.
Some of
Gadot’s products are characterized by high risk to those who might be exposed to
them in the course of their handling and shipping. Some of the products
may also potentially cause ecological damage and pollution, if not handled
properly. The clean up and correction of such damage could cause Gadot to incur
high costs.
Ongoing
environmental pollution or contamination is not covered by Gadot’s insurance
policies for ecological damage. These policies only cover pollution caused by
sudden, accidental and unexpected occurrences. Gadot takes safety measures to
avoid such risks, such as laying concrete buffers to protect soil, continuous
maintenance of chemical tanks and periodical ground sampling in the vicinity of
chemical tanks. However, these precautions cannot ensure total prevention of
contaminating water sources or ground.
In
addition, licensing requirements around the world are becoming stricter, due to
growing ecological awareness. Gadot may have to invest increasing amounts of
money and resources in order to fulfill all international licensing requirements
necessary for its operations.
Storage
Facility License.
Gadot’s
chemical storage facility is located on land owned by the Haifa port authority.
A cancellation or termination of the licenses permitting Gadot to use the land
would materially adversely affect Gadot’s ability to operate its chemical
storage facility.
Risks
Associated with 012 Smile's Business
012
Smile has experienced significant growth, which has placed a substantial strain
on its resources. The failure to successfully implement its growth strategy
could adversely affect 012 Smile's ability to continue to grow or sustain its
revenues and profitability.
The
demand on 012 Smile's network infrastructure, technical and customer support
staff and other resources has grown with its expanding customer base and is
expected to continue to grow as 012 Smile expands its business. 012 Smile's
infrastructure, technical and customer support staff, operational and billing
systems and other resources may not adequately accommodate or facilitate the
growth of its business.
Part of
012 Smile's growth strategy is managing and reducing the costs associated with
delivering its services, including recurring service costs such as
communications and customer support costs as well as expenses incurred to add
new customers, such as sales and marketing, installation and hardware costs. 012
Smile may not be able to manage its expanding operations effectively or be able
to continue to grow, and any failure to do so could affect 012 Smile's ability
to generate revenues, control expenses and sustain or increase its
profitability.
The
recent change in regulatory limitations on Bezeq The Israel Telecommunications
Corp. Ltd. will likely result in increased competition, and may result in a
reduction in 012 Smile's revenues from interconnect fees.
Bezeq The
Israel Telecommunications Corp. Ltd. ("Bezeq"), the incumbent local telephony
provider, is subject to several regulatory limitations, including restrictions
on its ability to provide bundled service offerings, restrictions to entry into
the VoB market and supervised tariffs. Under its license, Bezeq is also subject
to the principle of structural separation in providing its various communication
services.
25
According
to the policy of the Ministry of Communications, once Bezeq’s market share of
domestic fixed-line telephony in a particular customer segment (business or
private) falls below 85%, Bezeq’s license will be amended so as to enable it to
submit an application for the Minister of Communication’s approval to market a
basket of services (including broadcast services) in that customer segment,
which includes telecommunications services provided by Bezeq and by a
subsidiary. The Minister of Communication’s decision whether to approve Bezeq's
marketing a basket of services will be based on the status of competition in the
applicable telecommunications sector and is likely to be subject to conditions
set forth by the Ministry of Communications.
Recent
announcements of the Ministry of Communications stated that Bezeq’s share of the
fixed-line phone market had declined sufficiently to permit it to seek authority
to offer a package of bundled services, with respect to the residential sector.
Accordingly, Bezeq applied to the Ministry of Communications to begin providing
bundled services, which could potentially include local and international
telephony, broadband Internet access, Internet service provider, or ISP,
services, cellular services and multi-channel TV.
The
Ministry of Communications had conducted several hearings that may lead to
additional amendments to Bezeq and its subsidiaries’ licenses that will allow
them to offer such bundled services. In the event the Ministry of Communications
allows the Bezeq group to bundle services, this may increase Bezeq’s competitive
position in the communication market and increase its direct competition with
us, in a manner that may materially and adversely affect our results of
operations.
Bezeq
pays 012 Smile interconnect fees with respect to calls being made from Bezeq
fixed-lines to 012 Smile's VoB lines. Bezeq has raised the claim that it should
not be required to pay 012 Smile interconnect fees because 012 Smile uses its
infrastructure. Although the Ministry of Communications has determined that
Bezeq should pay 012 Smile interconnect fees for calls originated from Bezeq
fixed-lines to 012 Smile's lines at the same tariff as 012 Smile pays Bezeq,
this determination will be reviewed by the Ministry of Communications, and there
is no certainty that the Ministry of Communications will not reverse its
determination that Bezeq should pay 012 Smile interconnect fees at then current
rates or at all.
Changes
in the regulatory and legal compliance environment could adversely affect 012
Smile's operations and business activities and could result in increased
competition and reduced revenues and profitability.
012 Smile
operates in a highly regulated industry in Israel, which limits its flexibility
in managing its business. 012 Smile is subject to regulation regarding
communications licenses, antitrust and arrangements pertaining to
interconnection and leased lines. 012 Smile's business and operations could be
adversely affected by decisions by regulators, in particular the Ministry of
Communications as well as changes in laws, regulations or government policy
affecting its business activities.
Such
actions could result in increased competition and expenses, and reduced revenues
and profitability.
The
current legislation in Israel grants the Ministry of Communications extensive
regulatory and supervisory authority with respect to 012 Smile's business, as
well as the authority to impose substantial sanctions, such as fines. As a
result, the interpretation and implementation of laws and regulations as well as
provisions of 012 Smile's licenses are subject to the administrative discretion
of the Ministry of Communications.
Further
risks and uncertainties result from the fact that changes in such laws,
regulations or government policies may not be adopted or implemented in the
manner that 012 Smile expects and may be further amended, interpreted or
enforced in an unexpected manner or in a manner adverse to 012 Smile's
business.
012
Smile depends on maintaining and renewing its existing regulatory licenses in
order to fully conduct its business. 012 Smile's inability to maintain and renew
its existing licenses would negatively impact its operations, revenues and
profitability.
012
Smile's ability to offer its broadband and traditional voice services depends on
its ability to maintain and renew the licenses it has received from the Ministry
of Communications. Although 012 Smile is entitled to renew its licenses, such
licenses are subject to many terms and conditions. Any renewal or extension is
subject to the discretion of the Ministry of Communications and may be renewed
or extended, if at all, on terms materially different to the terms under which
012 Smile now operates. Any such change in the terms and conditions of 012
Smile's licenses may materially and adversely affect its results of operations.
012 Smile's licenses may be suspended or revoked by the Ministry of
Communications if it defaults under or violates their terms. Each license
requires 012 Smile to adhere to certain requirements, which include the scope of
services to be provided under the license, the amount of royalties to be paid to
the Ministry of Communications, technical standards employed by 012 Smile in
providing the services, maintenance and support procedures and protocols, 012
Smile's communications with customers and information to be provided to the
Ministry of Communications on a regular basis.
The
regulations promulgated under the Israeli Communications Law, 1982, (the
"Communications Law"), apply to 012 Smile. These regulations restrict ownership
of 012 Smile shares and who can serve as its directors. The regulations provide
that a majority of 012 Smile's directors must be Israeli citizens and residents,
Israeli citizens and residents must own at least 20% of its outstanding share
capital and must have the right to appoint at least 20% of its directors. In
addition, the licenses provide that, without the approval of the Ministry of
Communications, no person may acquire shares representing 10% or more of 012
Smile's outstanding share capital. If these requirements are not complied with,
012 Smile will be in breach of its licenses and such licenses could be changed,
suspended or revoked, and 012 Smile may also incur substantial
fines.
26
The
communications industry is constantly evolving. New technologies and processes
may require additional licenses from the Ministry of Communications. 012 Smile's
ability to introduce new services depends upon its ability to receive the
appropriate licenses.
012
Smile's introduction of any new licensed services under an existing license must
be authorized by the Ministry of Communications and is subject to a review
period of up to 60 days, which period may be extended by the Ministry of
Communications. Such review may cause 012 Smile to lose critical time in
bringing new services to market. Furthermore, the Ministry of Communications may
refuse to allow 012 Smile to introduce such new services or make the
introduction of the services subject to various conditions.
While 012
Smile believes that it is currently in compliance with all material requirements
of its licenses, the technical standards used to measure these requirements as
well as other license provisions are subject to interpretation and 012 Smile
cannot be certain of its compliance. Accordingly, 012 Smile cannot be certain
that its licenses will not be revoked, will be extended when necessary, or, if
extended, on what terms an extension may be granted.
012
Smile operates in the highly competitive communications industry with existing
participants and potential participants that have significant resources and
customers, and a regulatory authority that has encouraged new entrants, which
could intensify price competition, increase 012 Smile's expenses and limit its
ability to maintain or increase its market share.
012 Smile
is subject to intense competition, which it expects will continue in the future.
Moreover, 012 Smile's services are subject to regulation by the Ministry of
Communications, whose policy is to encourage new entrants and not limit the
number of licenses, which may continue to increase competition and may lead to
further reductions in prices and fees charged to customers.
The
Ministry of Communications has encouraged new entrants into the broadband access
market. HOT, the incumbent local cable provider that offers cable-modem access
has recently applied to Ministry of Communications requesting an ISP license
through one of its affiliates. While we cannot predict if or when HOT will
become an ISP, its entry into the market could significantly harm 012 Smile's
competitive position in the broadband access market. The Ministry of
Communications declared its intention to allow a subsidiary of HOT to receive an
ISP license and to bundle services in the HOT group and is presently conducting
several hearings on this issue.
In March
2008, the Gronau Committee, which was appointed by the Ministry of
Communications to consider and recommend the best means to promote further
sustainable competition in the Israeli communications market, issued its
recommendation to the Minister of Communications. The Gronau Committee’s
recommendations call for several structural changes within the communications
markets, including local loop unbundling of Bezeq’s infrastructure, which, if
accepted and implemented, would allow 012 Smile to compete in the MVNO (a mobile
virtual network operator) and IPTV sectors and improve its competitive position
in the VoB business market, while worsening its position in other segments, by
allowing the cellular operators in Israel to compete in the traditional long
distance telephony market.
On August
20, 2008, Israel’s Minister of Communications issued his decision to implement
the recommendations of the Gronau Committee to increase competition in the
communication market. When implemented, 012 Smile expects that this will result
in the following:
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|
·
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Increased
competition within the Israel cellular communication market by granting
MVNO licenses;
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·
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Cellular
operators will not be allowed to enter the international long distance
market unless an international communication services provider will be
granted an MVNO license, subject to changes in the tariffs for the
international calls made by cellular phone users;
and
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·
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Increased
competition within the landline communication services as a result of
enforcing local loop unbundling of the infrastructure of Bezeq. Following
such local loop unbundling, Bezeq’s subsidiaries will be allowed to offer
bundled services, subject to several additional terms and
conditions.
|
In
January 2010, the Israel Minister of Communications published new regulations
allowing the grant of MVNO licenses. Based on the experience of operators
elsewhere and according to the conclusions of the report prepared for the
Ministry of Communications by a leading international consulting company, 012
Smile assumes that the entry of a MVNO using the frequencies and antennas of an
existing mobile operator will lead to increased competition in Israel. The entry
of additional operators into the mobile sector may alter the balance that has
prevailed among the cellular operators in recent years and increased competition
will ultimately result in lower prices for consumers. The entry of MVNO
operators into this market may increase the competition among the companies in
the sector and encourage them to provide more attractive offers to their
customers.
The
Ministry of Communications has also encouraged new entrants into the
international telephony services sub-sector. Israel’s cellular operators are
currently not licensed to provide international telephony services. If this
situation were to change, competition would be further intensified and could
require 012 Smile to lower its prices, grant incentives to customers, increase
selling and marketing expenses and related customer acquisition costs and could
also result in increased customer churn. These developments could create a more
formidable competitor offering bundled international telephony, broadband
Internet access, data, local telephony and mobile services, which could harm 012
Smile's competitive position.
27
012 Smile
expects other competitors, including companies that are not presently engaged in
local and international telephony, will provide VoB services in the future when
they receive the appropriate licenses from the Ministry of Communications, which
could adversely impact 012 Smile's ability to increase its market
share.
012 Smile
also competes against established alternative voice communication providers,
such as Skype, which are not subject to licensing restrictions in Israel, as
well as independent voice over Internet protocol, or VoIP, service providers
that may choose to sacrifice revenue in order to gain market share and may offer
their services at lower prices or for free. Such competitive environment could
intensify price competition and limit 012 Smile's ability to maintain or
increase its market share of the local telephony market.
012
Smile operates in a market which already exhibits maturity and high user
penetration, and it may have to offer price reductions and increase marketing
efforts to attract and retain customers, which may have a negative impact on its
profitability.
The
Israeli communications market is mature, with both traditional voice and
broadband access being particularly competitive segments of the communications
market. 012 Smile's future revenues will depend significantly on its ability to
retain existing customers, to sell those customers additional services, such as
local telephony, to offer a wide range of enhanced communications services on an
individual basis or as part of a bundle of multiple services, and to attract new
customers from other providers. 012 Smile may not be successful in such efforts.
In addition, the competitive market environment has required 012 Smile in the
past and may require it in the future to adopt an aggressive marketing policy in
order to attract a greater number of customers, including reducing its rates. If
adopted in the future, 012 Smile cannot be certain that this strategy will be
successful. Price reductions caused by increased competition, as well as the
expenses associated with the marketing efforts required to attract and retain
customers, may have a negative impact on 012 Smile's profitability.
012
Smile's operations depend on its ability to successfully expand and upgrade its
network and integrate new technologies and equipment into its network. Any
future system failures or difficulty in expanding or upgrading its network, or
making new features available, could increase its expenses and negatively impact
its financial results.
Capacity
constraints within 012 Smile's networks and those of its suppliers have occurred
in the past and will likely occur in the future. As the number of 012 Smile's
customers using broadband services and the amount and type of information they
wish to transmit over the Internet increases, 012 Smile may need to expand and
upgrade its technology, processing systems and network infrastructure, which
could be expensive and involve substantial management resources and capital
expenditures. 012 Smile does not know whether it will be able to accurately
project the rate or timing of any such increases, or expand and upgrade its
systems and infrastructure in a timely and cost-efficient manner. Any future
system failures or difficulty in expanding or upgrading 012 Smile's network, or
making new features available could increase 012 Smile's expenses and negatively
impact its financial results.
The
broadband and traditional voice services markets are subject to rapid
technological change, which could adversely affect 012 Smile's ability to
compete and increase its expenses.
The
markets in which 012 Smile competes are characterized by rapidly changing and
converging technology, evolving industry standards, frequent new service
announcements, introductions and enhancements and changing customer demands. New
services and technologies may be superior to the services or technologies that
012 Smile uses and may render its services and technologies obsolete or require
it to incur substantial expenditures to modify or adapt its services or
technologies. The development and expansion of 012 Smile's services is dependent
upon adopting new technologies and updating its systems to meet new standards.
This can be a lengthy process involving long and complex evaluations and
decision-making procedures that can continue over a number of months or even
years. 012 Smile's future success will depend on its ability to continually
improve the performance, features and reliability of its broadband and
traditional voice services in response to competitive service offerings and the
evolving demands of the marketplace.
The cost
of implementing major infrastructure upgrade projects may fluctuate due to a
number of variables over which 012 Smile has little or no control, and even
though 012 Smile estimates the cost of such projects based on its previous
experience, costs may exceed its estimations. Such fluctuations may be due to a
lengthy or complex implementation process and/or the lack of commitment of
sufficient resources of, or delays caused by, the ultimate supplier and could
increase 012 Smile's expenses and have a negative impact on our results of
operations or financial performance.
28
012
Smile is dependent on certain suppliers and if any of its arrangements with
these suppliers are terminated, it may not be able to replace them on
commercially reasonable terms or at all, which could increase 012 Smile's
expenses and reduce its profitability.
012 Smile
relies on a number of third-party computer systems, networks and service
providers, including local and international telephony and cable companies. All
broadband Internet access by 012 Smile's customers is, and will continue to be,
connected through the infrastructure of local access providers, Bezeq and HOT,
and is dependent on the open access policy of the Ministry of Communications. At
present, the Ministry of Communications does not permit HOT and Bezeq to charge
012 Smile for use of their infrastructure. If such restriction is deregulated,
012 Smile may incur substantial costs, which may adversely affect its
profitability.
012
Smile's ISP services are also dependent on the communications infrastructure
owned and maintained by local access providers. Bezeq has suffered work
stoppages on several occasions in recent years as a result of conflicts with its
unionized employees. These work stoppages resulted in several days of
interruption to the services 012 Smile provides. In addition, Bezeq, HOT and
other infrastructure providers have suffered technical network failures in the
past. A disruption in 012 Smile's customer access to Israel’s fixed-line
communications infrastructure could significantly impact the services that 012
Smile provides to its customers. An increase in 012 Smile's cost of access to
Israel’s fixed-line communications infrastructure could adversely impact its
results of operations. 012 Smile also depends on third parties for the physical
repair and maintenance of leased lines. If an interruption or deterioration in
the performance of these third-party services occurs, 012 Smile's services may
be disrupted.
Many of
012 Smile's services are dependent on the submarine infrastructure made
available by Med Nautilus, owned by Telecom Italia, which connects countries
bordering the Mediterranean Sea to all major Western European countries and to
the United States. Med Nautilus has an effective monopoly over the provision of
international submarine services to the Israeli communications industry.
Although prices in respect of maintenance and current capacity are agreed to on
a long-term basis and 012 Smile's contract with Med Nautilus sets out the prices
to be paid by 012 Smile for additional capacity for approximately two years, Med
Nautilus has the ability to raise prices without 012 Smile being able to seek an
alternative supplier for additional capacity.
Many of
012 Smile's relationships with third party providers are terminable upon short
notice. In addition, many of 012 Smile's third party suppliers and
communications carriers sell or lease services to its competitors and may be, or
in the future may become, competitors themselves. If any of 012 Smile's
arrangements with third parties is terminated, it may not be able to replace
them on commercially reasonable terms or at all, which could increase 012
Smile's expenses and reduce its profitability.
012
Smile is exposed to risks relating to its network infrastructure and is
dependent on services it receives from its external suppliers. If the level of
service 012 Smile receives from its external suppliers decreases, it may not be
able to maintain the quality and breadth of its services, which could reduce its
revenues and harm its operations.
012
Smile's network platform is highly complex. Multiple faults occurring at the
same time could severely affect 012 Smile's service. Although 012 Smile
engineering staff is trained to operate and maintain 012 Smile's systems, there
are numerous functions that they are unable to perform without external support.
In addition, if the level of service 012 Smile receives from its external
suppliers decreases, it may adversely impact 012 Smile's ability to properly
maintain and operate its systems and therefore have a direct effect on its
service. Also, as VoB technology continues to evolve, 012 Smile will be faced
with the risks associated with the use of new software.
012 Smile
does not have a direct network connection to all the possible call destinations
around the world and depends on its business partners to connect calls generated
by its customers to their final destinations worldwide. 012 Smile's level of
service is largely dependent on the level of service it receives from its
international partners with respect to both call completion as well as call
quality. Although 012 Smile makes extensive efforts to ensure quality of the
calls as well as the breadth of its services, 012 Smile cannot be sure that its
partners will provide an adequate level of service, that it would be able to
successfully replace a partner should that become necessary or that it will be
able to maintain and increase the quality and breadth of its
services.
012
Smile may be subject to challenges to its trademarks and may lose its ability to
use key third party intellectual property rights, which could negatively impact
its operations and harm its future growth.
012 Smile
has various trademarks, trade secrets and copyrightable materials, as well as
licenses to use third party software and trademarks. If 012 Smile is not
successful in protecting its intellectual property, its business and financial
results could suffer. There is no guarantee that trademarks 012 Smile uses will
not be subject to infringement proceedings or that 012 Smile will obtain
registration of other trademarks for which it may seek protection in the
future.
012 Smile
holds licenses to use various third party software and hardware products. 012
Smile cannot guarantee that renewal of these licenses or any licenses for
additional software or hardware that may be required to operate its business
will be available as needed. While 012 Smile's third party licensors have
represented to it that they have the right to license their software and
hardware, and in some cases have agreed to provide indemnification, 012 Smile
cannot guarantee that its use of third party software and hardware does not
infringe the rights of others. Application for some of 012 Smile's trademarks
and service marks containing the SMILE logo were opposed in the past. While the
opposition proceeding was terminated due to the failure of the opponent to file
evidence, there is no assurance that oppositions or cancellation proceeding
challenging the registration of such marks will not be filed in the future. Any
infringement claims, even if unsuccessful, could result in damage to 012 Smile's
reputation and the expenditure of significant financial and managerial
resources.
29
012
Smile may be restricted in the conduct of its operations during periods of
national emergency, which could negatively affect its business
operations.
During
periods of national emergency, the Ministry of Communications and other
governmental authorities may issue various instructions regarding the use of 012
Smile's network, including the use of the network by the Israeli security
forces. In addition, the Israeli Equipment Registration and IDF Mobilization
Law, 1987 permits the registration, taking and use of engineering equipment and
facilities by Israel’s Defense Forces. These actions could adversely affect 012
Smile's business operations.
|
ITEM
1B.
|
None.
We lease
our headquarters located at 555 Madison Avenue in New York City. The lease is
for a period of three years which commenced on January 1, 2010. The annual rent
of this lease is $113,052.
We also
lease offices located at 10 Abba Eben Street, Herzliya, Israel. The lease is for
a period of 10 years which commenced on January 24, 2007. The annual rent for
this lease is $454,772. We sublease part of the offices for an annual sublease
rent of $237,343.
Gadot
leases its headquarters located at 16 Habonim Street, Netanya, Israel. The lease
will expire in September 2010. The rent for the remaining period is $ 0.1
million. In 2010 Gadot moved its headquarters to 10 Abba Eben Street, Herzliya,
Israel. The lease is for a period of 3 years which commenced in January 2010.
The annual rent for this lease is $ 0.9 million.
Gadot
leases a 17,000 square meter storage tank facility located in the northern bank
of the Kishon port in Haifa from the port authority. The annual rent for this
lease is $1.4 million. The lease expires in 2022. Gadot also leases an
additional 56,000 square meter storage tank facility from the port authority
located in the southern terminal of the Kishon port in Haifa in connection with
its storage and loading services. The annual rent for this lease is $1.6
million. See “Item 1 – Business – Chemicals – Gadot Chemical Tankers and
Terminals Ltd. – Storage, Loading and Off-Loading of Materials.” This lease
expires in 2014.
Gadot
also owns an additional 20,000 square meters area adjacent to the northern
terminal, serving as its Israeli logistics facility and analytical and quality
assurance laboratory. Gadot also leases a 1,100 square meter building in Ohr
Akiva, Israel, the annual rent for this lease is $75,750, a 7,500 square meter
area in the Ashdod, Israel, industrial zone, the annual rent for this lease is
$115,992, and a 6,300 square meter area in Kiryat Atta, Israel, the annual rent
for this lease is $56,023.
Gadot
owns approximately 45,000 square meters of land in Greece, which was occupied by
a chemical terminal. This terminal was destroyed by a fire in July
2006.
As of
December 31, 2009, Gadot owned two vessels with an aggregate loading capability
of approximately 26,500 tons. Gadot leases six vessels, with an aggregate
loading capability of approximately 65,600 tons. The lease period for two of the
vessels shall expire at the end of 2010, another two of the vessels lease period
shall expire toward the end of 2011 and the other remaining two vessels lease
period shall expire during 2012 with an option to purchase. The aggregate lease
fees for the six leased vessels in 2009 amounted to $25 million. In 2010, the
lease payments are expected to amount to approximately $27 million due to an
additional two leased vessels, which will replace the two vessels that will be
returned at the end of 2010.
Gadot has
contracted a shipyard for the construction of four additional vessels built with
a loading capability of 17,500 each, for a consideration of approximately $29
million per vessel. These vessels will be delivered during 2010 and
2011.
012
Smile's corporate headquarters are currently located in a 7,000 square
meter leased facility in Petach Tikva, Israel. The annual rent for the premises
is NIS 5.5 million (approximately $1.5 million) linked to the Israeli
Consumer price index ("CPI"), and the term of the lease ends in July 2012 and is
subject to a renewal option for an additional five year period. 012
Smile also rents (i) an additional 1,300 square meters in Petach Tikva
at an annual rent of NIS 1.1 million (approximately $276,000) linked to the
Israeli CPI, under a lease that terminates in October 2012 that is subject to a
renewal option for an additional seven years; (ii) an additional 4,700
square meters in Rishon Le’zion at an annual rent of NIS 2.9 million
(approximately $750,000) linked to the Israeli CPI, under a lease that
terminates in January 2014; (iii) an additional 800 square meters in
Ramat-Gan at an annual rent of NIS 540,000 (approximately $142,000), under a
lease that terminates in June 2011; and (iv) an additional 1,500 square
meters in Petach-Tikva at an annual rent of NIS 0.8 million (approximately
$210,000) linked to the Israeli CPI, under a lease that terminates in
December 2011 that is subject to a renewal option for an additional ten
years.
Country
Club Kfar Saba Ltd. occupies an approximately 30,000 square meter lot in the
town of Kfar Saba, Israel, which is leased for five consecutive ten-year
periods, at the end of which the land returns to the lessor. The lease expires
on July 14, 2038, and lease payments in 2009 totaled $230,557.
Other
properties of the Company are discussed elsewhere in this Report. See “Item 1 -
Business.”
30
Claims Against Subsidiaries and
Affiliates
Legal
claims arising in the normal course of business have been filed against
subsidiaries and affiliates of the Company.
Gadot
Gadot has
received third party notices in a number of lawsuits regarding pollution of the
Kishon River in Israel. These lawsuits have been filed by various claimants who
claim harm by the polluted water of the river, including soldiers from various
units in the Israeli Defense Forces who trained in the river, fishermen who
fished in the river, the Haifa rowing club and industrial companies that use the
river. Some of the lawsuits are claims for monetary damages (some of the claims
are unlimited in amount; one is for approximately $6 million) and some are for
injunctions against further pollution of the river. Gadot denies liability in
all these claims and has filed statements of defense for each claim. Part of
Gadot’s storage tank facility is leased from the Haifa port authority. In 2001
the port authority requested that Gadot participate in an offer to find a
consultant to examine ground contamination in the area surrounding the facility.
Gadot has responded, denying the existence of ground contamination and, in any
case, that it is the source of such contamination. Gadot believes that if there
is contamination, its source is the contaminated waters of the Kishon River or
the Mediterranean Sea.
012
Pursuant
to the 012 Agreement, the following claims involving 012 have been assumed by
012 Smile, which will incur any of the liabilities or benefits resulting from
such claims.
|
|
1.
|
On
January 2, 2005, a claim was made against 012 and three other
companies regarding alleged infringement of Israeli Patent No. 76993 of
November 10, 1985, unjust enrichment, breach of statutory duties and
conversion (the “2005 Claim”). The plaintiffs’ demands include payment of
amounts of income generated from exploitation of the patent, payment of
reasonable royalties for exploitation of the patent, punitive damages,
litigation costs and attorneys’ fees, and payment of linkage differentials
and interest from the date of creation of the debt until the date of
actual payment. The 2005 Claim states that the monetary amount cannot be
determined at this stage and that it has been assessed for the purpose of
court fees only at NIS 10 million (approximately $2.6 million), against
all defendants collectively and separately. On July 17, 2005, a
statement of defense was filed against plaintiffs and a third party notice
was filed against the providers of the telecommunications systems
allegedly infringing on the patent (the “Third Party Defendants”), seeking
indemnification and compensation for any liability that may be imposed in
the context of the 2005 Claim (the “Third Party Proceedings”). The
plaintiffs have also initiated similar proceedings against other
telecommunication companies in other countries, including the United
Kingdom and the United States. Some telecommunication companies, including
one of the initial defendants named in this 2005 Claim, have settled with
the plaintiffs and obtained a license, whereas other telecommunication
companies have refused to settle. For example, the corresponding English
patent was declared invalid following a legal action and appeals. In the
2005 Claim, the parties have mutually exchanged affidavits in response to
discovery requests and interrogatories, and the District Court scheduled
another pre-trial hearing for April 14, 2010. One of the Third Party
Defendants in the Third Party Proceedings is Nortel Networks Israel (Sales
and Marketing) Ltd. (“Nortel Israel”). In a separate proceeding, on
January 19, 2009, the District Court of Tel Aviv issued an ex parte order
according to which all legal proceedings to which Nortel Israel is a
party, including the above-mentioned Third Party Proceedings, were stayed
and the District Court also appointed Adv. Avi D. Pelossof and accountant
Yaron Har-Zvi as Nortel Israel's Trustees. On February 25, 2009, 012 and
another defendant in the 2005 Claim, filed a motion with the Court
requesting that it allow 012 and the other applicant to continue the Third
Party Proceedings against Nortel Israel. This Motion was later granted by
the Court. On November 24, 2009, the court approved Nortel Israel's
proposed Creditors Arrangement. 012 and Nortel Israel's Trustees have
reached a Settlement Agreement, resolving all disputes in connection with
the Third Party Proceedings, between 012 and Nortel Israel (“Settlement
Agreement”). Under the terms of the Settlement Agreement, Nortel Israel
undertook to pay 012 NIS 420,000 (approximately $111,000) (“the First
Consideration”) within 30 days following the approval of the Creditors
Arrangement by the Court (such First Consideration was already paid to
012), and an additional amount of up to NIS 367,500 (approximately
$97,000) out of the future consideration that may be received by Nortel
Israel from future sales of its divisions or business activities to third
parties. In consideration, 012 agreed to dismiss the Third Party
Proceedings against Nortel Israel and Telrad Networks Ltd.
("Telrad"). On February 14, 2010, the Court dismissed the Third
Party Proceedings against Nortel Israel and
Telrad.
|
31
|
|
2.
|
In
April 2008, a motion to certify a class action was filed with various
District Courts in Israel against several international telephony
companies including 012, with respect to prepaid calling card services.
The plaintiffs allege that: (i) the defendants unlawfully charged
consumers in excess of the tariffs published by them, (ii) the prepaid
calling cards provide an average of 50% of the units of time indicated to
the purchasers of the cards, (iii) the defendants deducted from the
prepaid calling card the time spent when a user unsuccessfully attempts to
make a call utilizing the card, (iv) the defendants calculated and
collected payment not by units of round minutes indicated, (v) the
defendants provided misleading information about the number of “units” on
the card, and (vi) the defendants formed a cartel that arranged and raised
the prices of calling cards. In the event the lawsuit is certified as a
class action, the total amount claimed against 012 is NIS 226.4 million
(approximately $60 million). 012 replied to the motion on April 2009, and
the court is currently awaiting the filing of final summaries by the
parties before granting its
decision.
|
|
|
3.
|
In
November 2008, a motion to certify a class action was filed with the Tel
Aviv District Court in Israel against 012. The action alleges that 012
unlawfully raised the monthly tariffs for its Internet services. The total
amount of the claim is NIS 81.5 million (approximately $21.6 million). 012
replied to the motion on May 2009. The motion is scheduled to be heard on
March 16, 2010.
|
|
|
4.
|
In
November 2009, a motion to certify a class action was filed against 012
with the Central District Court in Israel. Together with the filing of the
motion, the plaintiff filed a motion for a temporary restrictive order to
prevent 012 from deleting or changing data from its database with regard
to the plaintiff's claims in the motion. The motion alleges that 012 has
violated the Israeli "anti spam" law by sending advertising materials to
its customers. The amount of the plaintiff's personal claim is
set at NIS 10,000 (approximately $2,650). The estimated amount of the
entire claim is yet to be known. On November 29, 2009, the court granted a
temporary order which prevents 012 from deleting or changing data from its
database with regard to specific messages which according to the motion
were sent by the plaintiff to 012. 012 filed its response to the motion on
February 2010. The motion is scheduled to be heard on March 28,
2010.
|
|
|
5.
|
In
November 2009, a motion to certify a class action was filed against 012
with the Tel-Aviv District Court in Israel. The motion alleges that 012
unlawfully charges its customers who do not pay their debts on time with
collection expenses. The estimated amount of the entire claim is NIS 21.75
Million (approximately $5.8 million). 012 has not yet replied to the
motion. The motion is scheduled to be heard on May 24,
2010.
|
|
|
6.
|
In
December 2009, a motion to certify a class action was filed against 012
with the Central District Court in Israel. The motion alleges that 012
unlawfully intervenes with web traffic, especially as it relates to Peer
to Peer websites. The estimated amount of the entire claim is NIS 40
Million (approximately $10.6 million). 012 has not yet replied to the
motion.
|
|
|
7.
|
In
January 2010, a motion to certify a class action was filed against 012,
012's subsidiary, 012 Telecom Ltd., and others with the Central District
Court in Israel. The motion alleges that 012 unlawfully charges its
customers when placing calls to 012's support center. The total amount of
the action against 012 and its subsidiary is approximately NIS 48.6
million (approximately $12.9 million). 012's response to the motion is due
by March 21, 2010.
|
32
PART
II
PRICE
RANGE OF CLASS A STOCK
Ampal’s
Class A Stock is listed on NASDAQ Global Market under the symbol “AMPL.” The
following table sets forth the high and low bid prices for the Class A Stock, by
quarterly period for the fiscal years 2009 and 2008, as reported by NASDAQ
Global Market and representing inter-dealer quotations which do not include
retail markups, markdowns or commissions for each period, and each calendar
quarter during the periods indicated. Such prices do not necessarily represent
actual transactions.
|
High
|
Low
|
|||||
|
2009:
|
||||||
|
Fourth
Quarter
|
3.59
|
1.84
|
||||
|
Third
Quarter
|
2.95
|
1.65
|
||||
|
Second
Quarter
|
3.12
|
1.77
|
||||
|
First
Quarter
|
2.10
|
0.55
|
||||
|
2008:
|
||||||
|
Fourth
Quarter
|
3.24
|
0.50
|
||||
|
Third
Quarter
|
5.99
|
2.70
|
||||
|
Second
Quarter
|
7.09
|
4.30
|
||||
|
First
Quarter
|
7.71
|
5.54
|
As of
February 25, 2010, there were approximately 1,248 record holders of Class A
Stock.
Ampal
listed its Class A Stock on the TASE on August 6, 2006, and since then it has
been a dual listed company.
VOTING
RIGHTS
The
holders of Class A Stock are entitled to one vote per share on all matters voted
upon. The shares of Class A Stock do not have cumulative voting rights in
relation to the election of the Company’s directors, which means that any holder
of at least 50% of the Class A Stock can elect all of the members of Board of
Directors of Ampal.
DIVIDEND
POLICY
Ampal has
not paid a dividend on its Class A Stock other than in 1995. Past decisions not
to pay cash dividends on Class A Stock reflected the policy of Ampal to apply
retained earnings, including funds realized from the disposition of holdings, to
finance its business activities and to redeem debentures. 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. Ampal is subject to limitations on certain distributions and dividends to
stockholders. See “Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operation.”
For
equity compensation plan information required by Item 201(d) of Regulation S-K,
please see “Item 12” below.
STOCK
PERFORMANCE RELATIVE TO PEER GROUP AND INDEXES
The
following graph compares the percentage change in cumulative total return
(change in the stock price plus reinvested dividends) of Ampal Class A Stock,
the S&P 500 Stock Index, the peer group index (“Peer Group Index”) composed
of Elbit Imaging Ltd. (an Israeli holding company) and Elron Electronic
Industries Ltd. (an Israeli holding company focusing on high tech ventures in
Israel) for the period December 31, 2004 through December 31, 2009. Peer Group
Index companies are Israeli holding companies and dual-listed on the NASDAQ
Global Market and the Tel Aviv Stock Exchange. The stock price performances
shown on the graph are not intended to forecast or be indicative of future price
performance.
33
34
|
ITEM 6.
|
The
selected consolidated statement of operations data for the years ended December
31, 2007, 2008 and 2009 and consolidated balance sheet data as of December 31,
2008 and 2009 have been derived from our audited consolidated financial
statements included in this Report. The selected consolidated statement of
operations data for the year ended December 31, 2005 and the selected
consolidated balance sheet data as of December 31, 2005 and 2006 have been
derived from our unaudited consolidated financial statements not included
herein.
This data
should be read in conjunction with our consolidated financial statements and
related notes included herein and “Item 7 - Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
|
Fiscal
year ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006(3)(1)
|
2005(1)
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||||||
|
(U.S. dollars in thousands,
except per share data)
|
||||||||||||||||||||
|
Revenues
|
$ | 404,271 | $ | 556,637 | $ | 37,797 | $ | 14,544 | $ | 21,519 | ||||||||||
|
Loss
from continuing operations
|
(20,802 | ) | (16,711 | ) | (13,578 | ) | (6,027 | ) | (5,916 | ) | ||||||||||
|
Income
(loss) from discontinued operations, net of tax
|
-- | -- | 21,344 | (1,060 | ) | (42 | ) | |||||||||||||
|
Net
income (loss)
|
$ | (20,802 | ) | $ | (16,711 | ) | 7,766 | $ | (7,087 | ) | $ | (5,958 | ) | |||||||
|
Basic
and diluted EPS(2):
|
||||||||||||||||||||
|
Loss
from continuing operations
|
$ | (0.37 | ) | $ | (0.29 | ) | $ | (0.26 | ) | $ | (0.35 | ) | $ | (0.31 | ) | |||||
|
Income
(loss) from discontinued operations, net of tax
|
$ | -- | $ | -- | $ | 0.42 | $ | (0.05 | ) | $ | -- | |||||||||
| (0.37 | ) | (0.29 | ) | 0.16 | (0.40 | ) | (0.31 | ) | ||||||||||||
|
Total
assets
|
$ | 920,600 | $ | 935,917 | $ | 774,789 | $ | 401,683 | $ | 211,485 | ||||||||||
|
Notes,
loans and debentures payable
|
$ | 698,605 | $ | 596,456 | $ | 403,367 | $ | 104,163 | $ | 50,366 | ||||||||||
|
(1)
|
Results
have been restated for the discontinued operations of our real estate
operations, which were sold in August 2007.
|
|
(2)
|
Computation
for the years 2006 and 2005 is based on net income (loss) after deduction
of preferred stock dividends (in thousands) of $2,438 and $191,
respectively for those years. On July 31, 2006, all of the preferred stock
was converted into Class A Stock.
|
|
(3)
|
In
2006, the Company changed the method by which it accounts for share-based
compensation by adopting ASC 718, which resulted in expenses of $720,
$1,365, $783 and $720 thousand for the years 2009, 2008, 2007 and 2006,
respectively, and impacted the EPS by $(0.01), $(0.03), $(0.01) and
$(0.03), respectively.
|
OVERVIEW
We seek
to maximize shareholder value through acquiring and investing in companies that
we consider have the potential for growth. In utilizing our core competencies
and financial resources, our investment portfolio primarily focuses on
Israel-related companies engaged in various market fields including Chemicals,
Telecommunications, Energy, Real Estate, Project Development and Leisure
Time.
Our
investment focus is primarily on companies or ventures where we can exercise
significant influence, on our own or with investment partners, and use our
management experience to enhance those investments. We are also monitoring
investment opportunities, both in Israel and abroad, that we believe will
strengthen and diversify our portfolio and maximize the value of our capital
stock. In determining whether to acquire an interest in a specific company, we
consider the quality of management, return on investment, growth potential,
projected cash flow, investment size and financing, and reputable investment
partners. We also provide our investee companies with ongoing support through
our involvement in the investee companies’ strategic decisions and introductions
to the financial community, investment bankers and other potential investors
both in and outside of Israel.
For a
description of significant developments during 2009, see “Item 1 – Business –
Significant Developments during 2009.”
35
Our
results of operations are directly affected by the results of operations of our
investee companies. A comparison of the financial statements from year to year
must be considered in light of our acquisitions and dispositions during each
period. Our future results of operations, liquidity and capital resources will
be influenced by the acquisition of 012 in January 2010. For further
information, see "- Liquidity and Capital Resources - Financing of the 012
Acquisition" below.
The
results of investee companies which are greater than 50% owned by us are
included in the consolidated financial statements. We account for our holdings
in investee companies over which we exercise significant influence, generally
20% to 50% owned companies (“affiliates”), under the equity method. Under the
equity method, we recognize our proportionate share of such companies’ income or
loss based on its percentage of direct and indirect equity interests in earnings
or losses of those companies. The results of operations are affected by capital
transactions of the affiliates. Thus, the issuance of shares by an affiliate at
a price per share above our carrying value per share for such affiliate results
in our recognizing income for the period in which such issuance is made, while
the issuance of shares by such affiliate at a price per share that is below our
carrying value per share for such affiliate results in our recognizing a loss
for the period in which such issuance is made. We account for our holdings in
investee companies, other than those described above, on the cost method or in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115,
“Accounting for Certain Investments in Debt and Equity Securities.” In addition,
we review investments accounted for under the cost method and those accounted
for under the equity method periodically in order to determine whether to
maintain the current carrying value or to write down some or all of the
investment. For more information as to how we make these determinations, see
“Critical Accounting Policies.”
For those
subsidiaries and affiliates whose functional currency is considered to be a
currency other than the U.S. dollar, assets and liabilities are translated at
the rate of exchange at the end of the reporting period and revenues and
expenses are translated at the average rates of exchange during the reporting
period. Translation differences of those foreign companies’ financial statements
are included in the cumulative translation adjustment account (reflected in
accumulated other comprehensive loss) of shareholders’ equity. Should the
exchange rate of those other currencies change against the U.S. dollar,
cumulative translation adjustments are likely to be effected in the
shareholders’ equity. As of December 31, 2009, the accumulated effect on
shareholders’ equity was a decrease of approximately $1.2 million. Upon the
disposition of an investment, the related cumulative translation adjustment
balance will be recognized in determining gains or losses.
CRITICAL ACCOUNTING
POLICIES
The
preparation of Ampal’s consolidated financial statements is in conformity with
generally accepted accounting principles in the United States ("U.S. GAAP")
which requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying consolidated
financial statements and related footnotes. Actual results may differ from these
estimates. To facilitate the understanding of Ampal’s business activities,
described below are certain Ampal accounting policies that are relatively more
important to the portrayal of its financial condition and results of operations
and that require management’s subjective judgments. Ampal bases its judgments on
its experience and various other assumptions that it believes to be reasonable
under the circumstances. Please refer to Note 1 to Ampal’s consolidated
financial statements included in this Report for the fiscal year ended December
31, 2009 for a summary of all of Ampal’s significant accounting
policies.
Business
combinations
On
January 1, 2009, the Company adopted authoritative
guidance issued by the Financial Accounting Standards Board (“FASB”) on business
combinations. The guidance retains the fundamental requirements that the
acquisition method of accounting (previously referred to as the purchase method
of accounting) be used for all business combinations, but significantly changes
the accounting for certain aspects of business combinations. Under this
guidance, an acquiring entity is required to recognize all the assets acquired
and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. The guidance changes the accounting treatment
for certain specific acquisition related items including: (1) expensing
acquisition related costs as incurred, with the exception that the costs
to issue debt or equity securities are recognized in accordance with other
applicable GAAP; (2) valuing noncontrolling interests at fair value at the
acquisition date; (3) expensing restructuring costs associated with an
acquired business; (4) capitalization of in-process research and development
at fair value; and (5) recognizing the acquisition-date fair value of contingent
consideration as part of the consideration transferred in exchange for the
acquire.
The Company accounts for each
business combination by
applying the acquisition method, which requires (i) identifying the acquirer; (ii) determining the
acquisition date; (iii) recognizing and measuring the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest of the
acquirer in the acquiree at their acquisition date fair value; and (iv)
recognizing and measuring goodwill or a gain from a bargain purchase. Goodwill
is measured and recorded as the amount by which the consideration transferred,
generally at the acquisition date fair value, exceeds the
acquisition date fair value of identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest of the acquirer in the acquiree. To the
contrary, if the acquisition date fair value of identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest of the
acquirer in the acquiree exceeds the consideration transferred, it is
considered a bargain purchase and the company would recognize the resulting
gain in earnings on the acquisition date.
36
Assets
acquired and liabilities assumed in a business
combination that arise from contingencies are recognized at fair value on the
acquisition date if fair value can be determined during the measurement period. If
acquisition date fair value cannot be determined during the measurement
period, the Company account for the acquired contingencies using existing guidance
for a reasonable estimate.
Goodwill
and Other Intangible Assets
Goodwill
is not amortized but is subject to impairment tests annually on December 31 or
more often when events or circumstances indicate that the carrying amount of
goodwill may not be recoverable. A goodwill impairment loss is recognized to the
extent the carrying amount of goodwill exceeds the implied fair value of
goodwill. The Company assesses intangible assets subject to amortization, when
events or circumstances indicate that the carrying amount of those assets may
not be recoverable.
We
regularly assess whether goodwill have been impaired and will adjust its
carrying values whenever significant events or changes in circumstances indicate
that some or all of the carrying value of the goodwill may not be recoverable.
Our judgments regarding the existence of impairment indicators are based on
legal factors, market conditions and operating performances of our businesses
and products. Future events could cause us to conclude that impairment
indicators exist and that the carrying value of our goodwill is impaired. Any
resulting impairment loss could have a material adverse impact on our financial
position and results of operations. No impairment losses relating to goodwill
have been recorded to date.
We
evaluate the recoverability and measure the possible impairment of goodwill
based on fair value calculations. The impairment test is a two-step process that
begins with the estimation of the fair value of the reporting unit. Our goodwill
is allocated to the chemical operating unit. The first step screens for
potential impairment, and the second step measures the amount of the impairment,
if any. As part of the first step to assess potential impairment, we compare our
estimate of fair value for this operating unit to its book value. If the book
value of the operating unit is greater than the estimate of its fair value, we
would then proceed to the second step to measure the impairment, if any. The
second step measures the amount of impairment by comparing the implied fair
value of goodwill with its carrying value. As of December 31, 2009, the first
step process resulted in no potential impairment; accordingly, we did not need
to perform the second step measures.
We have
selected December 31 as the date on which to perform our annual impairment
test for goodwill.
Investment in EMG and other cost
basis investments
The
Company accounts for its 16.8% equity interest (includes 8.6% held by the Joint
Venture) in EMG and a number of other investments on the basis of the cost
method. EMG, which is one of the Company’s most significant holdings as of
December 31, 2009, was acquired by Ampal and by a joint venture in which Ampal
is a party in a series of transactions from Merhav, which is an entity
controlled by one of the members of the Company’s controlling shareholder group.
As a result, the transactions were accounted for as transfers of assets between
entities under common control, which resulted in Merhav transferring the
investment in EMG at carrying value. Due to the nature of Merhav’s operations,
this entity would be treated as an investment company under U.S. GAAP, and as
such, the carrying value of the investment in EMG would equal fair value. As a
result, the 16.8% investment in EMG was transferred at carrying value, which
equals fair value. Application of the cost basis method requires the Company to
periodically review these investments in order to determine whether to maintain
the current carrying value or to write down some or all of the investment. While
the Company uses some objective measurements in its review, such as the
portfolio company’s liquidity, achievement of milestones set forth in its
business plan or projections and seeks to obtain relevant information from the
company under review, the review process involves a number of judgments on the
part of the Company’s management. These judgments include assessments of the
likelihood of the company under review to obtain additional financing, to
achieve future milestones, make sales and to compete effectively in its markets.
In making these judgments the Company must also attempt to anticipate trends in
the particular company’s industry as well as in the general economy. There can
be no guarantee that the Company will be accurate in its assessments and
judgments. To the extent that the Company is not correct in its conclusion it
may decide to write down all or part of the particular investment.
Marketable
Securities
We
determine the appropriate classification of marketable securities at the time of
purchase. We hold marketable securities classified as trading securities that
are carried at fair value. We classify investment in marketable securities as
investment in trading securities, if those securities are bought and held
principally for the purpose of selling them in the near term (held for only a
short period of time). All the other securities are classified as available for
sale securities.
ASC
320-10 (formerly SFAS 115, “Accounting for Certain Investments in Debt and
Equity Securities”) and ASC 320-10 (formerly SAB 59, “Accounting for Noncurrent
Marketable Equity Securities”), provide guidance on determining when an
investment is other-than-temporarily impaired. Investments are reviewed
quarterly for indicators of other-than-temporary impairment. This determination
requires significant judgment. In making this judgment, we evaluate, among other
factors, the duration and extent to which the fair value of an investment is
less than its cost; the financial health of the investee; and our intent and
ability to hold the investment. Investments with an indicator are further
evaluated to determine the likelihood of a significant adverse effect on the
fair value and amount of the impairment as necessary. If market, industry and/or
investee conditions deteriorate, we may incur future impairments.
37
Long- lived
assets
On
January 1, 2002, Ampal adopted ASC 360-10 (formerly SFAS 144, “Accounting for
the Impairment or Disposal of Long- Lived Assets”). ASC 360-10 requires that
long-lived assets, to be held and used by an entity, be reviewed for impairment
and, if necessary, written down to the estimated fair values, whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable through undiscounted future cash flows.
Accounting for Income
Taxes
As part
of the process of preparing our consolidated financial statements, we are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves us estimating our current tax exposure together
with assessing temporary differences resulting from differing treatment of items
for tax and accounting purposes. These differences result in deferred tax assets
and liabilities, which are included in our consolidated balance sheet. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income, and, to the extent we believe that recovery is not
likely, we must establish a valuation allowance. To the extent we establish a
valuation allowance or increase this allowance in a period, we must include an
expense within the tax provision in the statement of operations. A valuation
allowance is currently set against certain tax assets because management
believes it is more likely than not that these deferred tax assets will not be
realized through the generation of future taxable income.
Significant
management judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and our future taxable income for
purposes of assessing our ability to realize any future benefit from our
deferred tax assets. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, our operating results
and financial position could be materially affected.
We
account for uncertain tax positions in accordance with ASC 740-10 (formerly FIN
48). The application of income tax law is inherently complex. As such, we are
required to make many assumptions and judgments regarding our income tax
positions and the likelihood of such tax positions being upheld if challenged by
applicable regulatory authorities. Interpretations and guidance surrounding
income tax laws and regulations change over time. As such, changes in our
assumptions and judgments can materially affect amounts recognized in the
consolidated balance sheets and statements of operations.
Employee Stock-Based Compensation
Effective
January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123
(revised 2004), “Share-based Payment” (ASC 718 (formerly “FAS 123(R)”). ASC 718
and related interpretations and amends Accounting Standards Codification 230-10
(formerly SFAS No. 95, "Statement of Cash Flows” (“ASC 230-10”)). ASC 718
requires awards classified as equity awards to be accounted for using the
grant-date fair value method. The fair value of stock options is determined
based on the number of shares granted and the price of our common stock, and
determined based on the Black-Scholes models, net of estimated forfeitures. We
estimated forfeitures based on historical experience and anticipated future
conditions.
In March
2005, the SEC issued ASC 718-10 (formerly SAB 107). ASC 718-10 provides
supplemental implementation guidance on ASC 718, including guidance on valuation
methods, inventory capitalization of share-based compensation cost, income
statement effects, disclosures and other issues. ASC 718-10 requires share-based
payment to be classified in the same expense line items as cash compensation. We
have applied the provisions of ASC 718-10 in our implementation of ASC
718.
We
elected to adopt the modified prospective transition method, permitted by ASC
718. Under such transition method, ASC 718 was implemented as of the first
quarter of 2006 with no restatement of prior periods. The valuation provisions
of ASC 718 apply to new awards and to awards modified, repurchased, or cancelled
after January 1, 2006. Additionally, compensation cost for the portion of awards
for which the requisite service has not been rendered that are outstanding as of
January 1, 2006, is recognized over the remaining service period using the
grant-date fair value of those awards as calculated for pro forma disclosure
purposes under ASC 718.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
ASC
810 (formerly SFAS No. 167)
In June
2009, the FASB issued accounting guidance contained within ASC 810,
“Consolidation,” regarding the consolidation of variable interest entities
(formerly SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”). ASC 810 is intended to improve financial reporting by
providing additional guidance to companies involved with variable interest
entities and by requiring additional disclosures about a company’s involvement
with variable interest entities. This standard is effective for interim and
annual periods ending after November 15, 2009. We are currently assessing
the potential impacts, if any, on our consolidated financial
statements.
38
RESULTS
OF OPERATIONS
Fiscal
year ended December 31, 2009 compared to fiscal year ended December 31,
2008:
General
The
Company recorded a consolidated net loss of $20.8 million for the fiscal year
ended December 31, 2009, as compared to a net loss of $16.7 million for the same
period in 2008. The decrease in earnings is primarily attributable to gain from
the repurchase of the Company's debentures in 2008.
In 2008
the Company included the results of operations of Gadot, which was purchased in
three tranches, on December 3, 2007, June 3, 2008 and August 12, 2008,
respectively. The following table is a summary of Gadot's results of operations
for the years ended December 31, 2008 and 2009, respectively:
|
2009
|
2008
|
|||||||
|
(U.S.
dollars in millions)
|
||||||||
|
Chemical
income
|
$ | 393.9 | $ | 534.9 | ||||
|
Chemical
expense
|
$ | 362.6 | $ | 497.6 | ||||
|
Marketing
expense
|
$ | 6.9 | $ | 10.8 | ||||
|
Other
expense (mainly general and administrative)
|
$ | 19.0 | $ | 21.7 | ||||
|
Interest
expense
|
$ | 6.7 | $ | 7.8 | ||||
|
Net
gain
|
$ | 0.6 | $ | 1.9 | ||||
In
the fiscal year ended December 31, 2009, the Company recorded $393.9 million of
Chemical income, as compared to $534.9 million of Chemical income in the
corresponding period in 2008. The decrease in Chemical income is mainly
attributed to the slowdown in the markets, especially in Europe, which led to
the decrease in quantities sold and product prices and due to significant
decrease in the demand for chemical carrier shipping.
In the
fiscal year ended December 31, 2009, the Company recorded $6.9 million of
marketing expense, as compared to $10.8 million of marketing expense in the
corresponding period in 2008. These expenses are attributable to Gadot's
marketing expenses being composed mainly of salary and commission
expenses.
In the
fiscal year ended December 31, 2009, the Company recorded $38.4 million of
general, administrative and other expense, as compared to $41.4 million in the
corresponding period in 2008. The decrease is primarily the result of a
restructuring plan that took place at Gadot.
In the
fiscal year ended December 31, 2009, the Company recorded $0.4 million of
minority interests in gain of subsidiaries, net, as compared to $1.4 million in
the corresponding period in 2008. These gains are mainly attributable to
currency exchange gain in the notes issued to the partners in the Joint Venture,
resulting from changes in the valuation of the NIS compared to the U.S.
dollar.
In the
fiscal year ended December 31, 2009, the Company recorded $32.9 million in
interest expense, as compared to $41.1 million in interest expense for the
corresponding period in 2008. The decrease in interest expense relates to the
decrease in interest rates of the Company's notes payable and the decrease of
the Company's outstanding debentures due to the repurchase plan.
In the
fiscal year ended December 31, 2009, the Company recorded $5.4 million currency
exchange gain, as compared to a $13.2 million currency exchange gain for the
corresponding period in 2008. The decrease in currency exchange gain is related
to a change in the valuation of the NIS as compared to the U.S.
dollar that mainly influenced the Company's debentures.
In the
fiscal year ended December 31, 2009, the Company recorded $0.9 million of net
realized gain on investments, compared to $1.3 million of net realized gain in
the same period in 2008. The net gain recorded in 2009 was primarily
attributable to the sale of Hod Hasharon Limited Partnership ($0.5 million gain)
and the sale of certain assets by FIMI Opportunity Fund L.P ("FIMI") ($0.1
million gain).
Result
of Operations Analyzed by Segments
|
2009
|
2008
|
|||||||
|
(U.S.
dollars in thousands)
|
||||||||
|
Revenues:
|
||||||||
|
Chemicals
|
$ | 393,896 | $ | 535,424 | ||||
|
Finance
|
14,288 | 19,852 | ||||||
|
Leisure-Time
|
2,400 | 2,770 | ||||||
| 410,884 | 558,046 | |||||||
|
Equity
in earning of affiliates
|
(1,214 | ) | (1,409 | ) | ||||
|
Total
|
$ | 409,670 | $ | 556,637 | ||||
39
In the
fiscal year ended December 31, 2009, the Company recorded $409.7 million in
revenue which was comprised of $393.7 million in the Chemicals segment, $14.4
million in the Finance segment, $2.4 million in the Leisure-Time segment and a
$1.2 million loss in equity, as compared to $556.6 million for the same period
in 2008 which was comprised of $535.4 million in the Chemicals segment, $19.9
million in the Finance segment, $2.8 million in the Leisure-Time segment and a
$1.4 million loss in equity. The decrease in the Finance segment revenue is
primarily related to gain of the debentures repurchase in 2008.
All
revenues in the Chemicals segment are attributed to Gadot. Gadot's revenues in
the year ended December 31, 2009 decreased by 26.4% as compared to the revenues
in the year ended December 31, 2008. This decrease is mainly attributed to the
slowdown in the markets, especially in Europe, which led to the decrease in
quantities sold and product prices and due to significant decrease in the demand
for chemical carrier shipping.
|
2009
|
2008
|
|||||||
|
(U.S.
dollars in thousands)
|
||||||||
|
Expenses:
|
||||||||
|
Chemicals
|
$ | 397,434 | $ | 540,424 | ||||
|
Finance
|
36,564 | 35,294 | ||||||
|
Leisure-Time
|
2,538 | 2,756 | ||||||
|
Total
|
$ | 436,536 | $ | 578,474 | ||||
In the
fiscal year ended December 31, 2009, the Company recorded $436.5 million in
expenses which was comprised of $397.4 million in the Chemicals segment, $36.6
million in the Finance segment and $2.5 million in the Leisure-Time segment, as
compared to $578.5 million expense for the same period in 2008 which was
comprised of $540.4 million in the Chemicals segment, $35.3 million in the
Finance segment and $2.8 million in the Leisure-Time segment.
All
expenses in the Chemicals segment are attributed to Gadot. Gadot's expenses in
the year ended December 31, 2009 decreased by 26.5% as compared to the expenses
in the year ended December 31, 2008. This decrease is mainly attributed to
chemical commodity pricing being a derivative of the crude oil pricing. During
2008 the price of crude oil increased significantly and caused an increase in
chemical commodity prices as well. Since September 2008, the price of crude oil
decreased and led to a decrease in chemical commodity prices in
2009.
Fiscal
year ended December 31, 2008 compared to fiscal year ended December 31,
2007:
General
The
Company recorded a consolidated net loss of $16.7 million for the fiscal year
ended December 31, 2008, as compared to a net income of $7.8 million for the
same period in 2007. The decrease in earnings is primarily attributable to the
gain on sale of discontinued operations in 2007, the increase in interest
expense and increase in the Israeli consumer price index that the Company's
debentures (issued in 2008) are linked to.
In 2008
the Company included the results of operations of Gadot, which was purchased in
three tranches, on December 3, 2007, June 3, 2008 and August 12, 2008,
respectively. In 2007, the Company included the results of operations of Gadot
for one month – December. The following table is a summary of Gadot's results of
operations for the year ended December 31, 2008 and for the month of December
2007, respectively:
|
2008
|
December 2007
|
|||||||
|
(U.S.
dollars in millions)
|
||||||||
|
Chemical
income
|
$ | 534.9 | $ | 28.5 | ||||
|
Chemical
expense
|
$ | 497.6 | $ | 26.2 | ||||
|
Marketing
expense
|
$ | 10.8 | $ | 0.7 | ||||
|
Other
expense (mainly general and administrative)
|
$ | 21.7 | $ | 1.0 | ||||
|
Interest
expense
|
$ | 7.8 | $ | 0.2 | ||||
|
Net
gain
|
$ | 1.9 | $ | 2.8 | ||||
In the
fiscal year ended December 31, 2008, the Company recorded $10.8 million of
marketing expense, as compared to $0.7 million of marketing expense in the
corresponding period in 2007. These expenses are attributable to Gadot, whose
results of operation were consolidated for the first time in December 2007.
Marketing expense is composed mainly of salary and commission
expenses.
40
In the
fiscal year ended December 31, 2008, the Company recorded a $41.4 million of
general, administrative and other expense, as compared to $14.7 million in the
corresponding period in 2007. The increase is mainly due to consolidating Gadot
for the first time in December 2007.
In the
fiscal year ended December 31, 2008, the Company recorded a $1.4 million of
minority interests in gain of subsidiaries, net, as compared to $1.6 million in
the corresponding period in 2007. These losses are mainly attributable to
currency exchange gain in the notes issued to the partners in the Joint Venture,
resulting from changes in the valuation of the NIS compared to the U.S.
dollar.
In the
fiscal year ended December 31, 2008, the Company recorded a $41.1 million in
interest expense, as compared to $10.1 million in interest expense for the
corresponding period in 2007. The increase in interest expense relates to the
increase in notes payable which the Company received to finance the purchase of
Gadot, issuance of the Company's Series B debentures, increase in the Israeli
consumer price index and the interest expense of Gadot which the Company
included for the first time in December 2007.
In the
fiscal year ended December 31, 2008, the Company recorded a $13.2 million
currency exchange gain, as compared to a $3.1 million currency exchange loss for
the corresponding period in 2007. The increase in currency exchange gain is
related to a change in the valuation of the NIS as compared to the U.S. dollar
that mainly influenced the Company's Series B debentures that were issued in
April 2008.
In the
fiscal year ended December 31, 2008, the Company recorded $1.3 million of net
realized gain on investments, compared to $0.6 million of net realized gain in
the same period in 2007. The net gain recorded in 2008 was primarily
attributable to the sale of Hod Hasharon Limited Partnership ($0.8 million
gain), the sale of certain assets by PSINet Europe, one of the holdings of one
of Ampal’s investee companies Telecom Partners (“TP”) ($0.2 million gain), sale
of certain assets by Ophir Holdings ($0.2 million gain) and the sale of certain
assets by FIMI Opportunity Fund L.P ("FIMI") ($0.1 million gain).
Result
of Operations Analyzed by Segments
|
2008
|
2007
|
|||||||
|
(U.S.
dollars in thousands)
|
||||||||
|
Revenues:
|
||||||||
|
Chemicals
|
$ | 535,424 | $ | 31,922 | ||||
|
Finance
|
19,852 | 4,867 | ||||||
|
Leisure-Time
|
2,770 | 2,531 | ||||||
| 558,046 | 39,320 | |||||||
|
Equity
in earning of affiliates
|
(1,409 | ) | (1,523 | ) | ||||
|
Total
|
$ | 556,637 | $ | 37,797 | ||||
In the
fiscal year ended December 31, 2008, the Company recorded $556.6 million in
revenue which was comprised of $535.4 million in the Chemicals segment, due to
the acquisition of Gadot in 2007 and 2008, $19.9 million in the Finance segment,
$2.8 million in the Leisure-Time segment and a $1.4 million loss in equity, as
compared to $37.8 million for the same period in 2007 which was comprised of
$31.9 million in the Chemicals segment, $4.9 million in the Finance segment,
$2.5 million in the Leisure-Time segment and a $1.5 million loss in equity. The
increase in the Finance segment revenue is primarily related to the increase in
realized and unrealized gains on marketable securities and interest income from
deposits.
All
revenues in the Chemicals segment are attributed to Gadot. Gadot's revenues in
the year ended December 31, 2008 increased by 49% as compared to the revenues in
the year ended December 31, 2007. This increase is mainly attributed to the
consolidation for the first time of a subsidiary of Gadot that Gadot purchased
in 2008. Eliminating the contribution to revenues of such subsidiary, the
revenues of Gadot in the year ended December 31, 2008 decreased by 26% as
compared to the revenues in the year ended December 31, 2007. This increase in
revenues is attributed to the winding-up of Chem –Tankers C.V., a 50% limited
partnership, as of April 30, 2008, resulting in the distribution of the
operating routes between the partners, previously presented as equity earnings
of unconsolidated subsidiary, and to the increase in crude oil prices and its
derivatives in the petrochemical industry.
|
2008
|
2007
|
|||||||
|
(U.S.
dollars in thousands)
|
||||||||
|
Expenses:
|
||||||||
|
Chemicals
|
$ | 540,424 | $ | 27,788 | ||||
|
Finance
|
35,294 | 25,216 | ||||||
|
Leisure-Time
|
2,756 | 2,420 | ||||||
|
Total
|
$ | 578,474 | $ | 55,424 | ||||
41
In the
fiscal year ended December 31, 2008, the Company recorded $578.5 million in
expenses which was comprised of $540.4 million in the Chemicals segment, due to
the acquisition of Gadot in 2007 and 2008, $35.3 million in the Finance segment
and $2.8 million in the Leisure-Time segment, as compared to $55.4 million
expense for the same period in 2007 which was comprised of $27.8 million in the
Chemicals segment, $25.2 million in the Finance segment and $2.4 million in the
Leisure-Time segment. The increase in expenses in the Finance segment is
primarily attributable to the increase in interest expense related to the notes
issued to institutional investors in Israel and loans payable to Israel Discount
Bank Ltd.
All
expenses in the Chemicals segment are attributed to Gadot. Gadot's expenses in
the year ended December 31, 2008 increased by 51% as compared to the expenses in
the year ended December 31, 2007. This increase is mainly attributed to the
consolidation for the first time of a subsidiary of Gadot that Gadot purchased
in the year ended December 31, 2008. If eliminating the contribution to expenses
of such subsidiary, the expenses of Gadot in the year ended December 31, 2008
increased by 26% as compared to the expenses in the year ended December 31,
2007. This increase in expenses is attributed to winding-up of Chem –Tankers
C.V., a 50% limited partnership, as of April 30, 2008, a 50% limited partnership
resulting in the distribution of the operating routes between the partners,
previously presented as equity earnings of unconsolidated subsidiary, and to the
increase in crude oil prices and its derivatives in the petrochemical
industry.
SELECTED
QUARTERLY FINANCIAL DATA
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
(U.S.
dollars in thousands, except per share data)
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||
|
Fiscal
Year Ended December 31, 2009
|
||||||||||||||||
|
Revenues
|
$ | 125,233 | $ | 95,097 | $ | 102,945 | $ | 82,210 | ||||||||
|
Net
interest expense
|
7,274 | 6,131 | 13,233 | 2,878 | ||||||||||||
|
Net
(loss) income
|
12,494 | (13,404 | ) | (18,131 | ) | (1,761 | ) | |||||||||
|
Basic
and diluted EPS:
|
||||||||||||||||
|
Earnings
(Loss) per share of Class A Stock
|
0.22 | (0.24 | ) | (0.32 | ) | (0.03 | ) | |||||||||
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
(U.S.
dollars in thousands, except per share data)
|
||||||||||||||||
|
Unaudited
|
||||||||||||||||
|
Fiscal
Year Ended December 31, 2008
|
||||||||||||||||
|
Revenues
|
$ | 128,729 | $ | 153,904 | $ | 143,937 | $ | 130,067 | ||||||||
|
Net
interest expense
|
3,777 | 8,998 | 16,864 | 6,982 | ||||||||||||
|
Net
(loss) income
|
(10,275 | ) | (17,370 | ) | (12,642 | ) | 23,576 | |||||||||
|
Basic
EPS
|
||||||||||||||||
|
Earnings
(Loss) per share of Class A Stock
|
(0.18 | ) | (0.3 | ) | (0.22 | ) | 0.41 | |||||||||
|
Diluted
EPS:
|
||||||||||||||||
|
Earnings
(Loss) per share of Class A Stock
|
(0.18 | ) | (0.3 | ) | (0.22 | ) | 0.39 | |||||||||
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows
On
December 31, 2009, cash, cash equivalents and marketable securities were $100.7
million, as compared with $121.6 million in 2008. The decrease is mainly
attributable to purchase of fixed assets and investments that the Company
made.
As of
December 31, 2009, the Company had $29.3 million of marketable securities as
compared to $52.9 million in 2008. The decrease is attributable to the sale of
marketable securities.
42
The
Company may also receive cash from operations and investing activities and
amounts available under credit facilities, as described below. The Company
believes that these sources are sufficient to fund the current requirements of
operations, capital expenditures, investing activities and other financial
commitments of the Company for the next 12 months. However, to the extent that
contingencies and payment obligations described below and in other parts of this
Report require the Company to make unanticipated payments, the Company would
need to further utilize these sources of cash. The Company may need to draw upon
other sources of cash, which may include additional borrowing, refinancing of
its existing indebtedness or liquidating other assets, the value of which may
also decline.
Cash
flows from operating activities
Net cash
provided by operating activities totaled approximately $1.1 million for the
fiscal year ended December 31, 2009, as compared to approximately $1.0 million
used in operating activities in 2008. The increase in cash flows from operating
activities is mainly attributed to improved collection from
customers.
Cash
flows from investing activities
Net cash
used in investing activities totaled approximately $6.7 million for the fiscal
year ended December 31, 2009, as compared to approximately $171.2 million used
in investing activities in 2008. The change in net cash used in investing
activities is primarily attributable to proceeds from the sale of
available-for-sale securities in 2009, which were partially offset by increase
in capital improvements in 2009, and deposits granted, investments made in
affiliates and available-for-sale shares in 2008.
Cash
flows from financing activities
Net cash
provided by financing activities was approximately $2.0 million for the fiscal
year ended December 31, 2009, as compared to approximately $195.6 million of net
cash provided by financing activities in 2008. The change in net cash used in
financing activities is primarily attributable to the issuance of the Company’s
Series B debentures in the amount of $166.9 million in 2008 and by the increase
of the notes payable.
For
information on the debt financing of the 012 acquisition in January 2010, see "-
Financing of the 012 Acquisition" below.
Investments
On
December 31, 2009, the aggregate fair value of trading and available-for-sale
securities were approximately $27.2 million, as compared to $52.9 million on
December 31, 2008. The decrease in 2009 is mainly attributable to the sale of
marketable securities.
|
a)
|
In
2009 the Company made the following
investments:
|
|
|
1.
|
Option
Agreement for Sugarcane Ethanol Project in
Colombia.
|
On
December 31, 2009, Ampal signed the Exercise Agreement with Merhav pursuant to
which it exercised, subject to certain conditions, its Option to convert Ampal’s
existing loan to Merhav (consisting of $20 million of principal plus accrued
interest) (the “Loan”) into a 25% equity interest in the Project being developed
by Merhav. The Loan is evidenced by the Note, issued by Merhav in favor of
Ampal, and is secured by Merhav’s pledge of its shares of Class A Stock of
Ampal, pursuant to the Pledge Agreement between Merhav and Ampal. Merhav’s
obligations under the Note are guaranteed by Mr. Yosef A. Maiman pursuant to the
Guaranty. The Option is evidenced by the Option Agreement between Merhav and
Ampal, as amended. The Loan, Option and related transactions are summarized in
previously filed annual and periodic reports.
Pursuant
to the Exercise Agreement, the conversion of the Loan into a 25% equity interest
in the Project will take the form of the issuance to Ampal of 25% of all of the
issued and outstanding equity interests in Merhav Energies. The purchase price
for the 25% equity stake in Merhav Energies, to be paid at closing, is the
outstanding balance of the Note on December 31, 2009, or approximately $22.249
million. The closing of the purchase of the 25% equity stake and the conversion
of the Loan is subject to, among other things, (i) the Qualified Financing Date,
(ii) the payment in full of all outstanding amounts due and payable under the
Note, and (iii) the delivery at closing of the Shareholders’ Agreement by Merhav
and Ampal, setting forth certain agreements relating to the governance of Merhav
Energies. At closing, the Note and the Guaranty shall be cancelled and the
pledge of Merhav’s shares of Class A Stock under the Pledge Agreement shall be
released. The closing is to occur on the Qualified Financing Date or as soon as
practicable thereafter, but no later than December 31, 2010. The Exercise
Agreement contains other customary closing conditions, as well as customary
representations and warranties.
Pursuant
to the Exercise Agreement, the Note was amended to extend its maturity date to
the earlier of the Qualified Financing Date or December 31, 2010. Additionally,
Merhav and Ampal have agreed that, under certain circumstances, each will
arrange for loans to Merhav Energies from to time to time through third parties,
directly or indirectly, for up to $15 million.
43
As stated
above, as a condition to closing Ampal’s purchase of a 25% equity stake in
Merhav Energies, Merhav, Ampal and Merhav Energies will enter into the
Shareholders’ Agreement, to provide for, among other things, (i) restrictions on
the transfer of shares of Merhav Energies, (ii) a right of first refusal on
transfers of shares of Merhav Energies, (iii) tag-along and drag-along rights on
the transfer of shares of Merhav Energies, (iv) preemptive rights on the
issuance of new shares of capital stock (or other equity interest) by Merhav
Energies, subject to the anti-dilution rights of Ampal, and (v) the right of
Ampal to designate 25% of the directors of Merhav Energies. In addition to
preemptive rights under the Shareholders’ Agreement, Ampal has been granted
anti-dilution protection, which may result in the issuance of additional shares
of Merhav Energies to Ampal, in the event that, prior to end of the 180 day
period following the commencement of the Project’s operations, Merhav sells, or
Merhav Energies issues, shares of Merhav Energies at a per share price that is
less than the per share price paid by Ampal under the Exercise
Agreement.
Merhav is
a multinational corporation with interests in a range of sectors, including
energy, infrastructure projects and agriculture. Merhav is a significant
shareholder of Ampal and is wholly owned by Mr. Yosef A. Maiman, the President,
CEO and member of the controlling shareholder group of Ampal. Because of the
foregoing relationship, a special committee of the Board of Directors of Ampal
composed of Ampal’s independent directors negotiated and approved the
transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which
has been retained as financial advisor to the special committee, advised the
special committee on this transaction.
|
|
2.
|
Additional
investment of $0.6 million in GWE.
|
|
|
3.
|
A
loan to Bay Heart of $1.2 million.
|
|
|
4.
|
In
March 2009 Gadot purchased a 39% stake in the shipping agency F.C.C.
SHIPPING Ltd. for the amount of $0.4 million. F.C.C. SHIPPING Ltd. was
nominated as the exclusive agent in Israel of Hanjin Shipping, a Korean
shipping company.
|
For
information on the 012 acquisition in January 2010, see "- Financing of the 012
Acquisition" below.
b) In
2009, Ampal made the following dispositions:
|
|
1.
|
During
2009, the Company received proceeds in the total amount of $0.3 million
from the sales of certain investments by
FIMI.
|
|
|
2.
|
In
April 2009, the Company received $0.5 million from the sale of Country
Club Hod Hasharon Sport Center.
|
|
|
Debt
|
|
Notes
issued to institutional investors in Israel, the convertible note issued to
Merhav and other loans payable pursuant to bank borrowings are either in U.S.
dollars, linked to the Consumer Price Index in Israel or in unlinked New Israel
Shekels, with interest rates varying depending upon their linkage provision and
mature between 2009-2019.
The
Company finances its general operations and other financial commitments through
bank loans from Bank Hapoalim, Union Bank of Israel and Israel Discount Bank
Ltd. ("Discount Bank"). As of December 31, 2009, the outstanding indebtedness
under these bank loans totaled $394.9 million and the loans mature through
2009-2019.
On April
29, 2008, Ampal completed a public offering in Israel of NIS 577.8 million
(approximately $166.8 million) aggregate principal amount of Series B Debentures
due 2017. The debentures are linked to the Israeli consumer price index and
carry an annual interest rate of 6.6%. The debentures rank pari passu with
Ampal’s unsecured indebtedness. The debentures will be repaid in five equal
annual installments commencing on January 31, 2012, and the interest will be
paid semi-annually. As of December 31, 2009, the outstanding debt under the
debentures amounts to $143.2 million, due to the change in valuation of the NIS
as compared to the U.S. dollar. Ampal deposited an amount of $44.6 million with
Clal Finance Trusties 2007 Ltd. in accordance with a trust agreement dated April
6, 2008, to secure the first three years worth of payments of interest on the
debentures. As of December 31, 2009 the outstanding amount of the deposit was
$25.3 million. The debt offering was made solely to certain non-U.S.
institutional investors in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended. The debentures have not been and will not be
registered under the U.S. securities laws, or any state securities laws, and may
not be offered or sold in the United States or to United States persons without
registration unless an exemption from such registration is available. Midroog
Ltd. (an affiliate of Moody's Investors Service) currently rates Ampal's Series
A and Series B Debentures as A3 on its "Watchlist.”
44
Ampal
funded the Gadot transaction with a combination of available cash and the
proceeds of the Credit Facility, dated November 29, 2007, between MAE and
Discount Bank, for approximately $60.7 million, which amount was increased, on
the same terms and conditions, on June 3, 2008, by approximately $11.3 million
in order to fund the second stage of the transaction and on September 23, 2008,
by approximately $15.4 million in order to fund the third stage of the
transaction. The Credit Facility is divided into two equal loans of
approximately $43.7 million. The first loan is a revolving loan that has no
principal payments and may be repaid in full or in part on December 31 of each
year until 2019, when a single balloon payment will become due. The second loan
also matures in 2019, has no principal payments for the first one and a half
years, and shall thereafter be paid in equal installments over the remaining ten
years of the term. Interest on both loans accrues at a floating rate equal to
LIBOR plus a percentage spread and is payable on a current basis. Ampal has
guaranteed all the obligations of MAE under the Credit Facility and Ampal’s
interest in Gadot has also been pledged to Discount Bank as a security for the
Credit Facility. Yosef Maiman has agreed with Discount Bank to maintain
ownership of a certain amount of the Company’s Class A Stock. The Credit
Facility contains customary affirmative and negative covenants for credit
facilities of this type.
As of
December 31, 2009, the Company has a $6.6 million loan with Union Bank of Israel
that bears interest at the rate of LIBOR plus 2% to be repaid in six annual
installments commencing on April 2, 2008 and various other loans with Union Bank
of Israel in the aggregate amount of $5.3 million bearing interest at rates
between 2.25% and 2.9% to be repaid until 2011. The loan agreement contains
financial and other covenants.
As of
December 31, 2009, the Company has a $13.5 million loan with Bank Hapoalim as
part of a $27 million loan facility. The funds borrowed under the loan facility
are due in six annual installments commencing on December 31, 2007 and bear
interest at an annual rate of LIBOR plus 2%. The related loan agreement contains
financial and other covenants including an acceleration of payment upon the
occurrence of certain changes in the ownership of the Company’s Class A Stock.
As of December 31, 2009, the Company is in compliance with its debt
covenants.
On
November 20, 2006, the Company entered into a trust agreement with Hermetic
Trust (1975) Ltd. pursuant to which the Company issued Series A debentures to
institutional investors in Israel in the principal aggregate amount of NIS 250.0
million (approximately $58.0 million) with an interest rate of 5.75%, which is
linked to the Israeli consumer price index. The debentures were registered for
trading on the TASE in August 2007. The debentures rank pari passu with our
unsecured indebtedness. The debentures will be repaid in five equal annual
installments commencing on November 20, 2011, and the interest is paid
semi-annually. As of December 31, 2009, the outstanding debt under the
debentures amounts to $67.8 million.
The
Company had a short term loan from Bank Hapoalim in the amount of $3.5 million,
bearing interest of 2.88%, which is to be repaid by June 2010, and a revolving
short term loan in the amount of $3.0 million bearing interest of 4.5
%.
As of
December 31, 2009, the Company has a $97.1 million loan from institutional
investors who own 50% of Merhav Ampal Energy Holdings, LP. The loan is not
linked to the Consumer Price Index in Israel, bears no interest and is repayable
upon agreement by both parties.
As of
December 31, 2009, Gadot, a wholly owned subsidiary of Ampal, has short term
loans, including current maturities, payable in the amount of $98.8 million and
long term loans payable in the amount of $79.3 million. The various short term
loans payable are either unlinked or linked to the USD or Euro and bear interest
at rates between 3% to 7%. The various long term loans payable are either
unlinked or linked to the Consumer Price Index in Israel or linked to the USD or
Euro and bear interest at rates between 4.4% to 9.1%.
As of
December 31, 2009, the Company, trough MAE, has two loans of approximately $43.7
million each from Discount Bank. The first loan is a revolving loan that has no
principal payments and may be repaid in full or in part on December 31 of each
year until 2019, when a single balloon payment will become due. The second loan
also matures in 2019, has no principal payments for the first 1.5 years, and
shall thereafter be paid in equal installments over the remaining 9.5 years of
the term. Interest on both loans accrues at a floating rate equal to LIBOR plus
a percentage spread and is payable on a current basis. Ampal has guaranteed all
the obligations of MAE under the credit facility and Ampal’s interest in Gadot
has also been pledged to Discount Bank as a security for the Credit Facility.
In addition, Yosef A Maiman has agreed to maintain ownership of a certain
amount of the Company’s Class A Common Stock throughout the term of the loan.
The credit facility contains customary affirmative and negative covenants for
credit facilities of this type.
45
The
weighted average interest rates and the balances of these short-term borrowings
at December 31, 2009 and December 31, 2008 were 2.4% on $170.9 million and 5.1%
on $157.2 million, respectively.
|
Payments
due by period (in thousands)
|
||||||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than
1
year
|
1
– 3 years
|
3-5
years
|
More
than
5
years
|
|||||||||||||||
|
Long-Term
Debt (4)
|
$ | 223,996 | $ | -- | $ | 139,201 | $ | 15,706 | $ | 69,089 | ||||||||||
|
Debentures
|
$ | 215,377 | $ | -- | $ | 60,185 | $ | 84,363 | $ | 70,829 | ||||||||||
|
Short-Term
Debt
|
$ | 170,922 | $ | 170,922 | $ | -- | $ | -- | $ | -- | ||||||||||
|
Expected
interest payment (3)
(4)
|
$ | 87,310 | $ | 18,588 | $ | 33,517 | $ | 18,131 | $ | 9,461 | ||||||||||
|
Capital
Call Obligation (1)
|
$ | 2,800 | $ | 2,800 | $ | -- | $ | -- | $ | -- | ||||||||||
|
Operating
Lease Obligation (2)
|
$ | 230,009 | $ | 46,066 | $ | 86,508 | $ | 32,523 | $ | 64,913 | ||||||||||
|
Capital
Lease Obligation
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
|
Ship Purchase
Obligations
|
$ | 49,246 | $ | 21,887 | $ | 27,359 | $ | -- | $ | -- | ||||||||||
|
Other
Long-Term Liabilities Reflected on the Company’s Balance Sheet Under
GAAP
|
||||||||||||||||||||
|
Total
|
$ | 979,661 | $ | 260,263 | $ | 346,770 | $ | 150,722 | $ | 214,292 | ||||||||||
|
|
(1)
|
See
Note 19(h) to Ampal’s consolidated financial statements included in this
Report for the fiscal year ended December 31,
2009.
|
|
|
(2)
|
See
Note 19 to Ampal’s consolidated financial statements included in this
Report for the fiscal year ended December 31,
2009.
|
|
|
(3)
|
In
calculating estimated interest payments on outstanding debt obligations,
the Company assumed an exchange rate as of December 31, 2009 of NIS 3.775
to 1 U.S. dollar.
|
|
|
(4)
|
As
a result of the financing described below, related to the acquisition of
012 Smile, The Company will have approximately $274 million additional
long term debt. The Company expected interest payments are also expected
to increase by approximately $15 million in the next
year.
|
As of
December 31, 2009, the Company issued guarantees on certain outstanding loans to
its investees and subsidiaries in the aggregate principal amount of $41.2
million. This includes:
|
|
(1)
|
The
Company provided an $8.6 million guarantee on indebtedness incurred by Bay
Heart.
|
|
|
(2)
|
$32.6
million guarantees of Gadot for outstanding
loans.
|
Financing
of the 012 Acquisition
On
January 31, 2010, Ampal, through its indirect wholly owned subsidiary MAE and
MAE's wholly owned subsidiary 012 Smile (formerly Ampal Investments and
Communications 2009 Ltd.), completed its previously announced purchase of the
current on-going business of 012 for 1.2 billion NIS, or approximately $322
million, pursuant to the 012 Agreement Ampal, through its
subsidiaries, acquired substantially all the assets and liabilities of 012,
including all of its customer and supplier agreements, management, employees,
infrastructure, equipment and other assets, but excluding (i) certain retained
cash and other customary excluded assets, (ii) the rights and obligations of 012
related to the acquisition of Bezeq – The Israeli Telecommunications Corporation
Ltd. and (iii) certain indebtedness and other liabilities. Prior to
closing of the acquisition, 012 Smile received all required licenses for the
conduct of the business from the Israeli Minister of Communication.
Ampal
financed the 012 transaction with a combination of (i) available cash, (ii) the
proceeds of the 012 Credit Facility, for 800 million NIS, (approximately $215
million) and (iii) 012 Loan Agreement, for 220 million NIS (approximately $59
million).
012
Credit Facility
The loan
under the 012 Credit Facility was funded 80% by Leumi and 20% by Discount. Leumi
was appointed arranger on behalf of the Bank Lenders. The 012 Credit
Facility, denominated in NIS, is divided into three tranches as follows: 500
million NIS (or approximately $134 Million), 200 million NIS (or approximately
$54 Million) and 100 million NIS (or approximately $27 Million), respectively,
which are subject to the following terms:
|
|
·
|
The
first tranche matures in 2017, with the principal payable in fourteen
equal semi-annual installments, with the first payment due on July 31,
2010. The interest on the first tranche accrues at a rate of 4.2% per
year, payable every three months, with the first payment due on April 30,
2010. The principal and interest payments are linked to the Israeli
consumer price index.
|
46
|
|
·
|
The
second tranche has no principal payments until maturity in 2017, when a
single balloon payment will become due. The interest on the second tranche
accrues at a rate of 5.1% per year, payable every three months, with the
first payment due on April 30, 2010. The principal and interest
payments are linked to the Israeli consumer price
index.
|
|
|
·
|
The
third tranche is a revolving loan for terms of three, six or twelve
months, at the discretion of 012 Smile, provided that the final maturity
of the loan is no later than July 31, 2013. The interest on the third
tranche is based on the prime interest plus a spread and accrues at a rate
of prime plus 0.75% per year, is payable every three months, with the
first payment due three months after receipt of the relevant loan
amount.
|
The 012
Credit Facility contains customary affirmative and negative covenants for credit
facilities of this type, including, among others, (i) providing the Bank Lenders
with certain financial information, (ii) the maintenance by 012 Smile of a
minimum EBIDTA, (iii) the maintenance by 012 Smile of certain debt service
ratios, (iv) the maintenance by 012 Smile of certain minimum debt to EBIDTA
ratios, (v) limitations on distributions and dividends to stockholders by 012
Smile, subject to certain exceptions, and (vi) ensuring that 012 Smile remains
the sole owner of the acquired business of 012 and that it does not make any
material changes to the business or to its corporate structure.
The 012
Credit Facility provides for customary events of default, including, among
others, failure to pay any principal or interest when due, failure to comply
with covenants, any material representation or warranty made by 012 Smile
proving to be false in any material respect, certain bankruptcy, insolvency or
receivership events affecting the Company, 012 Smile or their respective
affiliates, defaults relating to certain other indebtedness, revocation of a
permit or license required in the operations of 012 Smile's business, the
merger, spin-off or the like of 012 Smile, the Company or affiliates thereof,
imposition of certain judgments and a change in control of the Company or 012
Smile.
012
Smile's rights and assets have been pledged to the Bank Lenders as security for
the 012 Credit Facility. The Company and MAE have also guaranteed all the
obligations of 012 Smile under the 012 Credit Facility, as well as up to 43
million NIS (or approximately $11.5 Million) of additional credit from the Bank
Lenders. MAE also pledged to the Bank Lenders all the equity it holds in, or
debt owed to it by, 012 Smile. In addition, the Company agreed with
the Bank Lenders to comply with certain covenants during the period of its
guarantee, including, among others, to maintain a minimum stockholders' equity
and a maximum ratio of net indebtedness to net capitalization, and that Mr.
Yosef A. Maiman would remain the controlling stockholder of the
Company.
012 Loan
Agreement
Pursuant
to the 012 Loan Agreement, the 220 million NIS (or approximately $59 million)
principal of the loan is payable in equal semi-annual installments on January 31
and July 31 of each year, with the first payment due on January 31, 2012. The
interest on the loan accrues at a rate of 7% per year, payable in equal
semi-annual installments on January 31 and July 31 of each year, with the first
payment due on January 31, 2011. The principal and interest payments
are linked to the Israeli consumer price index. The loan is also
subject to a semi-annual fee at a rate of 0.5% of the unpaid principal and a
semi-annual fee based, among other things, on the EBIDTA of 012
Smile.
012
Smile's rights and assets will be pledged (subject to the approval for such
pledge by the Israeli Minister of Communication) to the Institutional
Lenders as security for the 012 Loan Agreement. MAE also pledged to
the Institutional Lenders all the equity and debt it holds in or is owed by 012
Smile. The Company has also guaranteed all the obligations of 012 Smile under
the 012 Loan Agreement. An amount of 20 million NIS (or approximately $5.3
Million) from the loan amount was also deposited in a special account, which was
pledged by MAE in favor of the Institutional Lenders.
The 012
Loan Agreement contains customary affirmative and negative covenants for credit
facilities of this type, including, among others, (i) the maintenance of minimum
stockholders' equity in the Company, (ii) the maintenance by the Company of a
maximum ratio of net indebtedness to net capitalization, (iii) the maintenance
by 012 Smile of a maximum ratio of indebtedness to EBIDTA, (iv) certain
limitations on payment of management fees to the controlling stockholders of 012
Smile, (v) providing the Institutional Lenders with certain financial
information, and (vi) mandatory pre-payment obligations in the event of certain
dispositions by MAE. In addition, the Company has agreed not to distribute any
dividends prior to the first interest payment date under the 012 Loan Agreement,
which is January 31, 2012.
The 012
Loan Agreement provides for customary events of default, including, among
others, failure to pay any principal or interest when due, failure to comply
with covenants, any material representation or warranty made by MAE or 012 Smile
proving to be false in any material respect, certain bankruptcy, insolvency or
receivership events affecting the Company, MAE or 012 Smile, defaults relating
to certain other indebtedness (including indebtedness to the Bank Lenders), Mr.
Yosef A. Maiman, ceasing to be a controlling stockholder of the Company,
revocation of a permit or license required in the operations of 012 Smile's
business, imposition of certain judgments, a sale of the business or assets of
MAE or 012 Smile, a change in control of MAE or 012 Smile and a
downgrading of the Company's publicly traded notes by Israeli domestic rating
agencies to BB+ or less or revocation of such rating.
47
Off-Balance
Sheet Arrangements
|
|
Other
than the foreign currency contracts specified below, the Company has no
off-balance sheet arrangements.
|
Foreign
Currency Contracts
The
Company’s derivative financial instruments consist of foreign currency forward
exchange contracts to purchase or sell U.S. dollars. These contracts are
utilized by the Company, from time to time, to manage risk exposure to movements
in foreign exchange rates. None of these contracts have been designated as
hedging instruments. These contracts are recognized as assets or liabilities on
the balance sheet at their fair value, which is the estimated amount at which
they could be settled, based on market prices or dealer quotes, where available,
or based on pricing models. Changes in fair value are recognized currently in
earnings.
As of
December 31, 2009, the Company had open foreign currency forward exchange
contracts to purchase U.S. dollars and sell Euros in the amount of $5.8 million,
to purchase Euro and sell U.S. dollars in the amount of $1.6 million and to
purchase U.S. dollars and sell NIS in the amount of $2.0 million.
On May
15, 2008, the Company entered into a SWAP agreement with respect to its Series B
debentures, in the principal amount of $165.7 million, due 2016. As a result of
this agreement, the Company is currently paying an effective interest rate of
LIBOR plus 5.12% on $43.9 million of these debentures, as compared to the
original 6.6% fixed rate which is linked to the Israeli consumer price
index.
On April
1, 2009, the Company entered into a interest rate SWAP agreement with respect to
its loan to finance the purchase of Gadot in the principal amount of $43.7
million, due 2019. As a result of this agreement, the Company is currently
paying a fixed interest rate of 2.95% as compared to LIBOR in the original Gadot
Loan Agreement.
As of
December 31, 2009, the value of the currency SWAPs resulted in a $3.1 million
decrease in other assets and a corresponding increase in interest
expense.
CHANGES
IN SHAREHOLDERS EQUITY
There
were no repurchase of shares during the fourth quarter of the fiscal
year ended December 31, 2009.
MARKET
RISKS AND SENSITIVITY ANALYSIS
The
Company is exposed to various market risks, including changes in interest rates,
foreign currency exchange rates and equity price changes. The following analysis
presents the hypothetical loss in earnings, cash flows and fair values of the
financial instruments which were held by the Company at December 31, 2009, and
are sensitive to the above market risks.
During
the fiscal year ended December 31, 2009, there have been no material changes in
the market risk exposures facing the Company as compared to those the Company
faced in the fiscal year ended December 31, 2008.
Interest
Rate Risks
At
December 31, 2009, the Company had financial assets totaling $103.1 million and
financial liabilities totaling $610.2 million. For fixed rate financial
instruments, interest rate changes affect the fair market value but do not
impact earnings or cash flows. Conversely, for variable rate financial
instruments, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors are held
constant.
At
December 31, 2009, the Company did not have fixed rate financial assets and had
variable rate financial assets of $103.1 million. A ten percent decrease in
interest rates would not increase the unrealized fair value of the fixed rate
assets.
At
December 31, 2009, the Company had fixed rate debt of $325.5 million and
variable rate debt of $284.7 million. A ten percent decrease in interest rates
would increase the unrealized fair value of the financial debts in the form of
the fixed rate debt by approximately $5.1 million.
The net
decrease in earnings and cash flow for the next year resulting from a ten
percent interest rate increase would be approximately $1.1 million, holding
other variables constant.
48
Foreign
Currency Exchange Rate Sensitivity Analysis
The
Company’s exchange rate exposure on its financial instruments results from its
investments and ongoing operations. As of December 31, 2009, the Company had
open foreign currency forward exchange contracts to purchase U.S. dollars and
sell Euros in the amount of $5.8 million, to purchase Euro and sell U.S. dollars
in the amount of $1.6 million and to purchase U.S. dollars and sell NIS in the
amount of $2.0 million. Holding other variables constant, if there were a ten
percent devaluation of the foreign currency, the Company’s cumulative
translation loss reflected in the Company’s accumulated other comprehensive loss
would increase by $7.8 million, and regarding the statements of operations a ten
percent devaluation of the U.S. Dollar exchange rate would be reflected in a net
increase in earnings and cash flow would be $23.1 million, and a ten percent
devaluation of the Euro exchange rate would be reflected in a net increase in
earnings and cash flow would be $0.1 million.
Equity
Price Risk
The Company’s investments at December 31,
2009, included trading marketable securities which are recorded at a fair value
of $2.2 million, including a net unrealized gain of $0.1 million, and $27.2
million of trading securities that are classified as available for sale,
including a net unrealized loss of $1.4 million. Those securities have exposure
to equity price risk. The estimated potential loss in fair value resulting from
a hypothetical ten percent decrease in prices quoted on stock exchanges is
approximately $2.9 million. There would be no impact on cash flow resulting from
a hypothetical ten percent decrease in prices quoted on stock
exchanges.
None.
Disclosure
Controls and Procedures
The
Company’s management with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this Report. Based
on such evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company’s
disclosure controls and procedures are effective. Notwithstanding the foregoing,
a control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that it will detect or uncover failures
within the Company to disclose material information otherwise required to be set
forth in the Company’s periodic reports.
Management’s
Annual Report on Internal Control Over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)). The Company’s management with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer conducted an evaluation of the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2009 based on the framework
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, the
Company’s management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2009.
Attestation
Report of the Registered Public Accounting Firm
Management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009 has been audited by Kessleman & Kesselman,
a member of PricewaterhouseCoopers International Limited, an independent
registered public accounting firm, as stated in their report attached
hereto.
Changes
in Internal Control Over Financial Reporting
There
have not been any changes in the Company’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the Company’s fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect the Company’s internal
control over financial reporting.
49
PART III
The
information with respect to directors, executive officers and corporate
governance required by this Item 10 is herby incorporated in this Annual Report
on Form 10-K by reference to our Proxy Statement, to be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this Annual Report on Form 10-K, for our annual meeting of
stockholders to be held in 2010.
ITEM
11. EXECUTIVE COMPENSATION
The
information with respect to executive compensation required by this Item 11 is
herby incorporated in this Annual Report on Form 10-K by reference to our Proxy
Statement, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K, for our annual meeting of stockholders to be held in 2010.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The
information with respect to security ownership of certain beneficial owners and
management and related stockholder matters required by this Item 12 is herby
incorporated in this Annual Report on Form 10-K by reference to our Proxy
Statement, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year covered by this Annual Report on Form
10-K, for our annual meeting of stockholders to be held in 2010.
The
information with respect to certain relationships and related transactions and
director independence required by this Item 13 is herby incorporated in this
Annual Report on Form 10-K by reference to our Proxy Statement, to be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K, for our annual meeting
of stockholders to be held in 2010.
The
information with respect to principal accountant fees and services required by
this Item 14 is herby incorporated in this Annual Report on Form 10-K by
reference to our Proxy Statement, to be filed with the securities and Exchange
Commission within 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K, for our annual meeting of stockholders to be held in
2010.
50
(a) The
following documents are filed as a part of this report:
|
Page
Reference
|
|||
|
(1)
Financial Statements and Supplementary Data
|
|||
|
Ampal-American
Israel Corporation and Subsidiaries
|
|||
|
1
|
|||
|
2
|
|||
|
4
|
|||
|
5
|
|||
|
7
|
|||
|
7
|
|||
|
10
|
|||
|
Supplementary
Data:
|
|||
|
Selected
quarterly financial data for the years ended December 31, 2009 and
2008
|
42
of annual report
|
||
(2)
Financial Statement Schedules
|
|
(i)
|
Schedule
of Representative Rates of Exchange between the U.S. dollar and NIS for
three years ended December 31, 2009
|
Representative
Rates of Exchange
Between
the U.S. dollar and the New Israeli Shekel
For
the Three Years Ended December 31, 2009
The
following table shows the amount of NIS equivalent to one U.S. dollar on the
dates indicated (or the nearest date thereto, if the exchange rate was not
publicized on that date):
|
2009
|
2008
|
2007
|
||||||||||
|
March
31
|
4.1880 | 3.5530 | 4.155 | |||||||||
|
June
30
|
3.9190 | 3.3520 | 4.249 | |||||||||
|
September
30
|
3.7580 | 3.4210 | 4.013 | |||||||||
|
December
31
|
3.7750 | 3.8020 | 3.846 | |||||||||
|
|
(ii)
|
Valuation
and Qualifying Accounts
|
51
VALUATION
AND QUALIFIYING ACCOUNTS
For
the Three Years Ended December 31, 2009
(U.S.
$ in thousands)
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
|
Balance
at beginning of period
|
Charged
to costs and expenses
|
Charged
to other accounts
|
Deductions
|
Balance
at end of period
|
||||||||||||||||
|
Year
ended December 31, 2009
|
$ | 300 | $ | 1,235 | $ | (135 | ) | $ | -- | $ | 1,400 | |||||||||
|
Year
ended December 31, 2008
|
$ | -- | $ | 300 | $ | -- | $ | -- | $ | 300 | ||||||||||
|
Year
ended December 31, 2007
|
$ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
ALLOWANCE IN RESPECT OF
CARRYFORWARD TAX LOSSES:
|
Balance
at beginning of period
|
Charged
to costs and expenses
|
Charged
to other accounts
|
Deductions
|
Balance
at end of period
|
||||||||||||||||
|
Year
ended December 31, 2009
|
$
|
26,413
|
$
|
4,037
|
$
|
--
|
$
|
--
|
$
|
30,450
|
||||||||||
|
Year
ended December 31, 2008
|
$
|
24,474
|
$
|
1,939
|
$
|
--
|
$
|
--
|
$
|
26,413
|
||||||||||
|
Year
ended December 31, 2007
|
$
|
26,387
|
$
|
(1,913
|
)
|
$
|
--
|
$
|
--
|
$
|
24,474
|
|||||||||
|
|
(iii)
|
Reports
of Other Certified Public Accountants filed pursuant to Rule 2-05 of
Regulation S-X:
|
Bay Heart
Ltd.
Chemship
B.V.
Finlog
B.V.
Hod
Hasharon Sport Center Ltd.
Hod
Hasharon Sport Center (1992) Limited Partnership
Exhibit
3 - Articles of Incorporation and By-Laws
|
3a.
|
Amended
and Restated Certificate of Incorporation of Ampal-American Israel
Corporation, dated May 28, 1997. (Filed as Exhibit 3a. to Form 10-Q, for
the quarter ended June 30, 1997 and incorporated herein by reference, File
No. 0-5380).
|
|
3b.
|
Certificate
of Amendment of Certificate of Incorporation, dated July 18, 2006 (Filed
as Exhibit 3.1 to Form 8-K, filed with the SEC on July 19, 2006, and
incorporated herein by reference).
|
|
3c.
|
Certificate
of Amendment of Certificate of Incorporation, dated July 18, 2006 (Filed
as Exhibit 3.1 to Form 8-K, filed with the SEC on July 19, 2006, and
incorporated herein by reference).
|
|
3d.
|
Certificate
of Amendment of Certificate of Incorporation, dated February 7, 2007
(Filed as Exhibit 3.4 to Form S-3, filed with the SEC on February 28,
2007, and incorporated herein by
reference).
|
|
3e.
|
By-Laws
of Ampal-American Israel Corporation as amended, dated February 14, 2002
(incorporated by reference to Exhibit 3b. of Ampal’s Form 10-K filed on
March 27, 2002).
|
52
Exhibit
4 - Instruments Defining the Rights of Security Holders, Including
Indentures
|
4a.
|
Form
of Indenture dated as of November 1, 1984. (Filed as Exhibit 4a. to
Registration Statement No. 2-88582 and incorporated herein by
reference).
|
|
4b.
|
Form
of Indenture dated as of May 1, 1986. (Filed as Exhibit 4a. to
Pre-Effective Amendment No. 1 to Registration Statement No. 33-5578 and
incorporated herein by reference).
|
|
4c.
|
English
translation of the original Hebrew language Trust Deed dated November 20,
2006 between Ampal-American Israel Corporation and Hermetic Trust (1975)
Ltd. for debt offering. (Filed as Exhibit 4c to Report on Form 10-K for
the fiscal year ended December 31, 2006, File No.
000-00538).
|
|
4d.
|
English
translation of the original Hebrew language Trust Deed dated April 6,
2008, between Ampal-American Israel Corporation and Clal Finance Trustees
2007 Ltd., as amended, for Series B debentures offering in Israel (Filed
as Exhibit 4.a to Form 10-Q, filed with the SEC on May 7, 2008, and
incorporated herein by reference).
|
Exhibit
10 - Material Contracts
|
10a.
|
The
Company’s 2000 Incentive Plan (Filed as an exhibit to the Company’s Proxy
Statement for the 2000 Annual Meeting of
Shareholders).*
|
|
10b.
|
Amendment
to the Company’s 2000 Incentive Plan adopted by the Board of Directors on
February 14, 2002. (Filed as Exhibit 10i to the report on Form 10-K filed
on March 27, 2003). *
|
|
10c.
|
Compensation
and Indemnification Agreement, dated as of December 13, 2004, between
Ampal-American Israel Corporation and each of Mr. Yehuda Karni, Mr. Eitan
Haber and Mr. Menachem Morag. (Filed as Exhibit 10j to the report on Form
10-K filed on March 15, 2005).
|
|
10d.
|
Omnibus
Agreement, dated as of December 1, 2005, between Merhav Ampal Energy Ltd.
and Merhav M.N.F. Ltd. (Filed as Exhibit 10l to the report on Form 10-K
filed on March 29, 2006).
|
|
10e.
|
Form
of Option Agreement pursuant to the 2000 Incentive Plan (Filed as Exhibit
99.1 of Form 8-K, filed with the SEC on October 11, 2005, and incorporated
herein by reference). *
|
|
10f.
|
Form
of Option Agreement for December 12, 2006 grants pursuant to the 2000
Incentive Plan. (Filed as Exhibit 10o to Report on Form 10-K for the
fiscal year ended December 31, 2006, File No. 000-00538).
*
|
|
10g.
|
Stock
Purchase Agreement between Merhav Ampal Energy Ltd.and Merhav M.N.F. Ltd.,
dated August 1, 2006 (Filed as Exhibit 10 of Form 8-K, filed with the SEC
on August 3, 2006, an incorporated herein by
reference).
|
|
10h.
|
Stock
Purchase Agreement between Merhav Ampal Energy Ltd. and Merhav M.N.F.
Ltd., dated November 28, 2006 (Filed as Exhibit 10.1 to Form 8-K, filed
with the SEC on December 1, 2006, and incorporated herein by
reference).
|
|
10i.
|
Agreement
of Certain Shareholders between Merhav Ampal Energy Ltd. and Merhav M.N.F.
Ltd. dated August 1, 2006. (Filed as Exhibit 10r to Report on Form 10-K
for the fiscal year ended December 31, 2006, File No.
000-00538).
|
|
10j.
|
Form
of Convertible Promissory Note between Ampal-American Israel Corporation
and Merhav M.N.F. Ltd. (Filed as Exhibit 10.2 to Form 8-K, filed with the
SEC on December 1, 2006, and incorporated herein by
reference).
|
|
10k.
|
English
translation of the original Hebrew language Form of Employment Agreement
for each of Yosef A. Maiman, Irit Eluz, Yoram Firon, Amit Mantsur and Zahi
Ben-Atav. (Filed as Exhibit 10x to Report on Form 10-K for the fiscal year
ended December 31, 2006, File No. 000-00538).
*
|
|
10l.
|
Understanding
for the Repayment of a Foreign Currency Loan between Bank Hapoalim BM and
Ampal (Israel) Ltd. dated April 26, 2007. (Filed as Exhibit 10.1 to Report
on Form 10-Q, filed with the SEC on May 15,
2007).
|
|
10m.
|
Letter
of Understanding between Bank Hapoalim BM and Ampal Israel (Ltd), dated
April 26, 2007. (Filed as Exhibit 10.2 to Report on Form 10-Q, filed with
the SEC on May 15, 2007).
|
|
10n.
|
Letter
of Understanding between Bank Hapoalim BM and Ampal-American Israel
Corporation, dated April 26, 2007 (Filed as Exhibit 10.3 to Report on Form
10-Q, filed with the SEC on May 15,
2007).
|
|
10o.
|
Agreement
among Ampal Industries Inc., Phoenix Holdings Ltd. and Golden Meybar
(2007) Ltd., dated July 10, 2007 (Filed as Exhibit 10.2 to Form 10-Q,
filed with the SEC on August 8, 2007, and incorporated herein by
reference).
|
53
|
10p.
|
Agreement
between Merhav Ampal Energy Ltd. and Netherlands Industrial Chemical
Enterprises B.V., dated November 20, 2007, to purchase a 65.5% controlling
interest in Gadot Chemical Tankers and Terminals Ltd. (Filed as Exhibit
10ee to Report on Form 10-K for the fiscal year ended December 31, 2007,
File No. 000-00538).
|
|
10q.
|
Credit
Facility between Merhav Ampal Energy Ltd. and Israel Discount Bank Ltd.,
dated November 29, 2007, for the funding of the Gadot transaction (Filed
as Exhibit 10ff to Report on Form 10-K for the fiscal year ended December
31, 2007, File No. 000-00538).
|
|
10r.
|
Option
Agreement between the Company and Merhav M.N.F. Ltd., dated December 25,
2007, providing Ampal with the option to acquire up to a 35% equity
interest in a sugarcane ethanol production project in Colombia (Filed as
Exhibit 10gg to Report on Form 10-K for the fiscal year ended December 31,
2007, File No. 000-00538).
|
|
10s.
|
Amended
Option Agreement between the Company and Merhav M.N.F. Ltd., dated
December 25, 2008, providing Ampal with the option to acquire up to a 35%
equity interest in a sugarcane ethanol production project in Colombia
(Filed as Exhibit 10ee to Report on Form 10-K for the fiscal year ended
December 31, 2008, File No.
000-00538).
|
|
10t.
|
Promissory
Note, dated as of December 25, 2007, by Merhav M.N.F. Ltd. in favor of
Ampal (Filed as Exhibit 10hh to Report on Form 10-K for the fiscal year
ended December 31, 2007, File No.
000-00538).
|
|
10u.
|
Amended
and Restated Promissory Note, dated as of December 25, 2008, by Merhav
M.N.F. Ltd. in favor of Ampal (Filed as Exhibit 10gg to Report on Form
10-K for the fiscal year ended December 31, 2008, File No.
000-00538).
|
|
10v.
|
Pledge
Agreement, dated December 25, 2007, between Merhav M.N.F. Ltd. and Ampal
(Filed as Exhibit 10ii to Report on Form 10-K for the fiscal year ended
December 31, 2007, File No.
000-00538).
|
|
10w.
|
Guaranty
Agreement, dated December 25, 2008, between Yosef A. Maiman, Merhav M.N.F.
Ltd. and Ampal (Filed as Exhibit 10ii to Report on Form 10-K for the
fiscal year ended December 31, 2008, File No.
000-00538).
|
|
10x.
|
Form
of Stock Option Certificate pursuant to the 2000 Incentive Plan for
Repricing of Options on December 8, 2008 (Filed as Exhibit 10.1 to the
Current Report on Form 8-K, filed with the SEC on December 12, 2008, and
incorporated herein by reference).*
|
|
10y.
|
Form
of Stock Option Certificate pursuant to the 2000 Incentive Plan for
Options Granted on December 8, 2008 (Filed as Exhibit 10.2 to the Current
Report on Form 8-K, filed with the SEC on December 12, 2008, and
incorporated herein by reference).*
|
|
10z.
|
English
translation of Hebrew Language Employment Agreement between Gadot Chemical
Tankers and Terminals Ltd. and Erez I. Meltzer, dated April 13, 2009
(Filed as Exhibit 10.1 to the Current Report on Form 8-K, filed with the
SEC on April 14, 2009, and incorporated herein by
reference).*
|
|
10aa.
|
Asset
Purchase Agreement, dated November 16, 2009, as amended on January 26,
2010, between Merhav Ampal Energy Ltd. (on behalf of 012 Smile Telecom
Ltd.) and 012 Smile Communications
Ltd.
|
|
10bb.
|
English
translation of the original Hebrew language 012 Credit Facility, dated
January 31, 2010, between 012 Smile Telecom Ltd., Bank Leumi Le'Israel
B.M. and Israel Discount Bank Ltd.
|
|
10cc.
|
English
translation of the original Hebrew language 012 Loan Agreement, dated
January 31, 2010, between Merhav Ampal Energy Ltd., 012 Smile Telecom
Ltd., Harel Insurance Company Ltd. and its affiliates and Menora Mivtachim
Insurance Ltd. and its affiliates.
|
|
10dd.
|
Option
Exercise Agreement, dated December 31, 2009, between Ampal and Merhav
M.N.F. Ltd., pursuant to which Ampal exercised its option to convert
Ampal’s existing loan into a 25% equity interest in the sugarcane ethanol
production project in Colombia.
|
*
Management contract, compensatory plan or arrangement.
54
Exhibit
11 - Statement re Computation of Earnings Per Share
Exhibit
12 - Statement re Computation of Ratios
Exhibit
21 - Subsidiaries of the Registrant
012 Smile
Telecom Ltd., an Israeli company
Ampal
Financial Services Ltd., an Israeli company
Ampal
Development (Israel) Ltd., an Israeli company
Ampal
Realty Corporation, a New York corporation
Ampal
Communications, Inc., a Delaware corporation
Ampal
Enterprises Ltd, an Israeli Company
Ampal
Holdings (1991) Ltd., an Israeli company
Ampal
Industries, Inc., a Delaware corporation
Ampal
International Ventures (2000) Ltd., an Israeli company
Ampal
(Israel) Ltd., an Israeli company
Ampal
Properties Ltd., an Israeli company
Ampal
Communication LP, an Israeli limited partnership
Ampal
Communication Holdings Ltd., an Israeli company
Ampal
Energy Ltd., an Israeli company
Merhav-Ampal
Energy Ltd., an Israeli company
Country
Club Kfar Saba Ltd., an Israeli company
Merhav
Ampal Energy Limited Partnership, an Israeli limited partnership
Merhav
Ampal I.I.F General Partner Ltd, an Israeli company
Global
Wind Energy Israel Ltd., an Israeli company
Global
Wind Energy Cyprus Limited, a Cyprus company
CL-AM
Argithea Public Limited Energy Company, a Greek company
Global
Wind Energy Poland Sp. z o.o. , a Polish company
Global
Wind Energy Poland 2 Sp. z o.o., a Polish company
Gadot
Chemicals Tankers & Terminals Ltd., an Israeli company
Gadot
Chemicals Terminals (1985) Ltd., an Israeli company
Gadot
Sales & Distribution Ltd., an Israeli company
Gadot Yam
Chemical Shipping Ltd., an Israeli company
GCT Ltd.,
a Connecticut company
Shelah
Chemical Haulage Service Co. Ltd., an Israeli company
GCT
Netherlands B.V., a Dutch company
Eurochem
Maritime B.V., a Dutch company
Gadot
A.S.M Ltd., an Israeli company
Gadot Lab
Supplies Ltd., an Israeli company
Euro
–Gama Properties Ltd., an Israeli company
GCT-EST
B.V. – Lichtenstein registered company, taxable in Israel
GCT
Holding B.V., a Dutch company
Gadot
Storage & Handling Limited Partnership, an Israeli limited
partnership
55
Chemichlor
(2005) Chemicals Marketing Ltd., an Israeli company
Bax
Chemicals B.V., a Dutch company
Bax
Chemicals France S.A.R.L., a French company
Bax
Chemicals Export Overseas B.V., a Dutch company
Bax
Chemicals Italia SRL., an Italian company
Chyma
Bulk Chemicals Shipping S.A. Greece, a Greek company
Chyma
Hellas S.A. Greece, a Greek company
Finlog
B.V. (Holding), a Dutch company
VLS Group
Germany GmbH, a German company
Vopak
Logistic Services Pernis B.V., a Dutch company
Vopak
Logistic Services Belgium N.V., a Belgian company
VLS
Dusseldorf GmbH, a German company
VLS
Netherlands.B.V. , a Dutch company
VLS
Moerdijk B.V., a Dutch company
Chemical
Sailor Ltd., a Maltese Company
Chemical
Marketer Ltd., a Maltese Company
Distributor
Shipping a Maltese Company
Blue Sky
Shipping Ltd., a Marshall Islands Company
Product
Tanker Inc., a Marshall Islands Company
Sea Coral
Shipping Ltd., a Marshall Islands Company
Golden
Globe Maritime S.A., a Marshall Islands Company
GY
General Cargo Ltd., a Marshall Islands Company
Lausannne
Maritime Inc., a Liberian Company
Lutetia
Maritime Inc., a Liberian Company
Neda
Maritime Inc., a Liberian Company
Gammacrrux
Maritime Inc., a Liberian Company
Gadko
Logistics Ltd., an Israeli company
Tanco
International Ltd., an Israeli company
Packer
Shipping Ltd., an Israeli company
Conmart
(Ship Agents) Ltd., an Israeli company
FCC
Shiping Ltd., an Israeli company
Zurgadim
Ltd., an Israeli company
56
Exhibit
23 - Consents of Experts and Counsel:
|
|
|||
|
23.1
|
Kesselman
& Kesselman CPAs (Isr) A member of PricewaterhouseCoopers
International Limited
|
E-23.1
|
|
|
|
|||
|
23.2
|
Brightman
Almagor & Co., Certified Public Accountants A member firm of Deloitte
Touche Tohmatsu
|
E-23.2
|
|
|
23.3
|
Mazars
Paardekooper Hoffman Accountants N.
|
E-23.3
|
|
|
23.4
|
Mazars
Paardekooper Hoffman Accountants N.V
|
E-23.4
|
|
|
23.5
|
KPMG
Somekh Chaikin, Certified Public Accountants
|
E-23.5
|
|
|
23.6
|
KPMG
Somekh Chaikin, Certified Public Accountants
|
E-23.6
|
|
|
|
Exhibit
31.1 - Certification of Yosef A. Maiman pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit
31.2 - Certification of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit
32.1 - Certification of Yosef A. Maiman pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit
32.2 - Certification of Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
57
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 8th day
of March, 2010.
|
|
||
|
AMPAL-AMERICAN
|
||
|
ISRAEL
CORPORATION
|
||
|
By:
|
/s/
YOSEF A. MAIMAN
|
|
|
Yosef
A. Maiman, Chief Executive
Officer
and President (Principal Executive
Officer)
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
|
|
|
|
||
|
Signatures
|
Title
|
Date
|
||
|
/s/
YOSEF A. MAIMAN
|
Chairman
of the Board of
Directors,
President & CEO
|
March
8, 2010
|
||
|
Yosef
A. Maiman
|
||||
|
|
||||
|
/s/
LEO MALAMUD
|
Director
|
March
8, 2010
|
||
|
Leo
Malamud
|
||||
|
|
||||
|
/s/
DR. JOSEPH YERUSHALMI
|
Director
|
March
8, 2010
|
||
|
Dr.
Joseph Yerushalmi
|
||||
|
|
||||
|
/s/
DR. NIMROD NOVIK
|
Director
|
March
8, 2010
|
||
|
Dr.
Nimrod Novik
|
||||
|
|
||||
|
/s/
YEHUDA KARNI
|
Director
|
March
8, 2010
|
||
|
Yehuda
Karni
|
||||
|
|
||||
|
/s/
MENAHEM MORAG
|
Director
|
March
8, 2010
|
||
|
Menahem
Morag
|
||||
|
|
||||
|
/s/
JOSEPH GEVA
|
Director
|
March
8, 2010
|
||
|
Joseph
Geva
|
||||
|
|
||||
|
/s/
EREZ I. MELTZER
|
Director
|
March
8, 2010
|
||
|
Erez
I. Meltzer
|
||||
|
|
||||
|
/s/
DANIEL VAKNIN
|
Director
|
March
8, 2010
|
||
|
Daniel
Vaknin
|
||||
|
/s/
GIDEON WEINSTEIN
|
Director
|
March
8, 2010
|
||
|
Gideon
Weinstein
|
||||
|
/s/
IRIT ELUZ
|
CFO,
Senior Vice President
–
Finance and Treasurer
(Principal
Financial Officer)
|
March
8, 2010
|
||
|
Irit
Eluz
|
||||
|
|
||||
|
/s/
ZAHI BEN-ATAV
|
VP
Accounting & Controller
(Principal
Accounting Officer)
|
March
8, 2010
|
||
|
Zahi
Ben-Atav
|
58
To the
Board of Directors and Shareholders of
Ampal-American
Israel Corporation
In our
opinion, based on our audits and the reports of other independent auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, cash flows and changes in equity present fairly, in all material
respects, the financial position of Ampal-American Israel Corporation and
subsidiaries (the “Company”) at December 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Report on Internal Control over Financial Reporting appearing under
Item 9(A) of the 2009 Annual Report to Shareholders. Our
responsibility is to express opinions on these financial statements and on the
Company's internal control over financial reporting based on our integrated
audits. We did not audit the financial statements of certain
consolidated subsidiaries whose assets constituted approximately 9.0% of the
consolidated assets as of December 31, 2008, and whose revenues constituted
approximately 26.7% and 23.4% of the consolidated revenues for the year ended
December 31, 2008 and 2007, respectively. We did not audit the financial
statements of affiliated companies, the Company's interest in which, as
reflected in the balance is of $5,894 thousands and $5,598 thousands as of
December 31, 2009 and 2008, respectively and total share in equity loss of
($1,814) ,($2,429) and ($1,581) for each of the three years in the period ended
December 31, 2009. The financial statements of those consolidated
subsidiaries and affiliated companies were audited by other independent auditors
whose reports thereon have been furnished to us, and our opinion on the
financial statements expressed herein, insofar as it relates to the amounts
included for those companies, is based solely on the reports of the other
independent auditors. We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits and the reports of other
independent auditors provide a reasonable basis for our opinions.
As
discussed in Note 1 to the consolidated financial statements, as of January 1,
2009 the Company changed the manner in which it accounts for non-controlling
interests and as of January 1, 2009 and the manner in which it accounts for
uncertain tax positions as of January 1, 2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
Kesselman & Kesselman Certified Public Accountants (Isr.)
A member
of PricewaterhouseCoopers International Limited
Tel Aviv,
Israel
March 8,
2010
1
AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
|
Assets
As At
|
||||||||
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
ASSETS
|
(U.S.
Dollars in thousands)
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 71,377 | $ | 68,682 | ||||
|
Marketable
securities (Note 2(b))
|
29,345 | 52,859 | ||||||
|
Accounts
receivable (Net of allowance for doubtful amount $1.4 and
$0.3)
|
99,655 | 111,231 | ||||||
|
Deposits,
notes and loans receivable
|
10,102 | 13,834 | ||||||
|
Inventories
|
28,556 | 33,744 | ||||||
|
Other
assets
|
20,135 | 19,510 | ||||||
|
Total
current assets
|
259,170 | 299,860 | ||||||
|
Non-current
assets:
|
||||||||
|
Investments
(Notes 2, 3 and 17)
|
371,305 | 375,612 | ||||||
|
Fixed
assets, less accumulated depreciation of $21,038 and $13,175 (Note
7)
|
148,738 | 112,195 | ||||||
|
Deposits,
notes and loans receivable
|
35,154 | 45,134 | ||||||
|
Deferred
tax
|
30,907 | 22,819 | ||||||
|
Other
assets
|
13,071 | 13,958 | ||||||
|
Goodwill
(Note 7)
|
51,878 | 51,556 | ||||||
|
Intangible
assets (Note 6)
|
10,377 | 14,783 | ||||||
|
Total
Non-current assets
|
661,430 | 636,057 | ||||||
|
TOTAL
ASSETS
|
$ | 920,600 | $ | 935,917 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
2
AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (continued)
|
Liabilities
and
Equity
As At
|
||||||||
|
December
31,
2009
|
December
31,
2008
|
|||||||
|
(U.S.
Dollars in thousands)
|
||||||||
|
LIABILITIES
|
||||||||
|
Current
liabilities:
|
||||||||
|
Notes
and loans payable and current maturities (Note 9)
|
$ | 170,922 | $ | 157,233 | ||||
|
Accounts
payable, accrued expenses and others (Note 11)
|
76,292 | 83,925 | ||||||
|
Total
current liabilities
|
247,214 | 241,158 | ||||||
|
Long term
liabilities:
|
||||||||
|
Notes
and loans payable (Note 9)
|
223,996 | 222,499 | ||||||
|
Debentures
(Note 10)
|
215,325 | 216,724 | ||||||
|
Deferred
tax
|
2,933 | 5,965 | ||||||
|
Other
long term liabilities (Note11)
|
9,137 | 9,476 | ||||||
|
Total
long term liabilities
|
451,391 | 454,664 | ||||||
|
Commitments
and Contingencies (note 19)
|
||||||||
|
Total
liabilities
|
698,605 | 695,822 | ||||||
|
EQUITY
(Note 12)
|
||||||||
|
Ampal
shareholders' equity:
|
||||||||
|
Class
A Stock $1 par value; December 31,2009 and 2008, respectively authorized
100,000,000 and 100,000,000 shares; issued 63,277,321 and 63,277,321
shares; outstanding 56,133,764 and 56,425,867
shares
|
63,277 | 63,277 | ||||||
|
Additional
paid-in capital
|
191,984 | 191,263 | ||||||
|
Retained
earnings
|
10,260 | 31,062 | ||||||
|
Accumulated
other comprehensive loss
|
(14,688 | ) | (17,876 | ) | ||||
|
Treasury
stock, at cost (December 31,2009 and 2008, respectively 7,143,557 and
6,851,454)
|
(28,763 | ) | (28,500 | ) | ||||
|
Total
Ampal shareholders’ equity
|
222,070 | 239,226 | ||||||
|
Noncontrolling
interest
|
(75 | ) | 869 | * | ||||
|
Total
equity
|
221,995 | 240,095 | ||||||
|
TOTAL
LIABILITIES AND EQUITY
|
$ | 920,600 | $ | 935,917 | ||||
*
Noncontrolling interests reclassification
The
accompanying notes are an integral part of these consolidated financial
statements.
3
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(U.S.
Dollars in thousands, except per share data)
|
||||||||||||
|
REVENUES:
|
||||||||||||
|
Chemical
income
|
$ | 393,896 | $ | 534,934 | $ | 28,546 | ||||||
|
Real
estate income
|
237 | 53 | - | |||||||||
|
Realized
gains on investments (Note 3)
|
870 | 1,291 | 552 | |||||||||
|
Realized
and unrealized gains (losses) on marketable securities
|
250 | (37 | ) | 173 | ||||||||
|
Gain
(loss) on sale of fixed assets
|
(156 | ) | (6 | ) | 3,376 | |||||||
|
Interest
income
|
3,553 | 4,522 | 3,954 | |||||||||
|
Leisure-time
income
|
2,700 | 2,770 | 2,530 | |||||||||
|
Gain
from redemption of debt, gain from change in ownership interest in a
subsidiary and other income
|
4,135 | 14,519 | 189 | |||||||||
|
Total
revenues
|
405,485 | 558,046 | 39,320 | |||||||||
|
EXPENSES:
|
||||||||||||
|
Chemical
expenses - cost of goods sold
|
362,558 | 497,575 | 26,220 | |||||||||
|
Real
estate expenses
|
769 | 50 | - | |||||||||
|
Equity
in losses of affiliates (Note 17)
|
1,214 | 1,409 | 1,523 | |||||||||
|
Loss
from impairment of investments & real estate (Note 3)
|
447 | - | 575 | |||||||||
|
Interest
expenses
|
32,869 | 41,143 | 10,127 | |||||||||
|
Translation
loss (gain)
|
(5,399 | ) | (13,183 | ) | 3,086 | |||||||
|
Marketing
expenses
|
6,917 | 10,819 | 719 | |||||||||
|
General,
administrative and other expenses
|
38,375 | 42,070 | 14,697 | |||||||||
|
Total
expenses
|
437,750 | 579,883 | 56,947 | |||||||||
|
Loss
before income taxes
|
(32,265 | ) | (21,837 | ) | (17,627 | ) | ||||||
|
Provision
for tax benefits (Note 15)
|
(11,038 | ) | (6,526 | ) | (5,625 | ) | ||||||
|
Loss
from continuing operations and after tax benefits
|
(21,227 | ) | (15,311 | ) | (12,002 | ) | ||||||
|
Discontinued
operations:
|
||||||||||||
|
Gain
disposal, net of tax
|
-- | -- | 21,761 | |||||||||
|
Loss from operation of discontinued, net of tax
|
-- | -- | (417 | ) | ||||||||
| -- | -- | 21,344 | ** | |||||||||
|
Net
(loss) income for the year
|
$ | (21,227 | ) | $ | (15,311 | ) | $ | 9,342 | ||||
|
Less:
Net gain (loss) attributable to noncontrolling interests
|
425 | (1,400 | )* | (1,576 | )* | |||||||
|
Net
(loss) income attributable to Ampal's shareholders
|
(20,802 | ) | (16,711 | ) | 7,766 | |||||||
|
Basic
and diluted EPS (Note 14):
|
||||||||||||
|
Loss
from continuing operations attributable to Ampal's
shareholders
|
(0.37 | ) | (0.29 | ) | (0.26 | ) | ||||||
|
Discontinued
operations attributable to Ampal's shareholders
|
-- | -- | 0.42 | |||||||||
| $ | (0.37 | ) | $ | (0.29 | ) | $ | 0.16 | |||||
|
Shares
used in calculation (in thousands)
|
56,151 | 57,755 | 51,362 | |||||||||
*
Noncontrolling interests reclassification
**
Attributable to Ampal's shareholders only
The
accompanying notes are an integral part of these consolidated financial
statements.
4
AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(U.S.
Dollars in thousands)
|
||||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | (21,227 | ) | $ | (15,311 | ) | $ | 9,193 | ||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||||||
|
Equity
in losses of affiliates
|
1,214 | 1,409 | 1,523 | |||||||||
|
Realized
and unrealized gains on investments, net
|
(1,120 | ) | (1,254 | ) | (725 | ) | ||||||
|
Gain
on disposal of discontinued operations, net of tax
|
-- | -- | (21,761 | ) | ||||||||
|
Loss
(gain) on sale of fixed assets
|
156 | 6 | (3,376 | ) | ||||||||
|
Depreciation
and amortization expense
|
15,471 | 12,931 | 1,367 | |||||||||
|
Gain
from amortization of tenants' deposits
|
-- | -- | (677 | ) | ||||||||
|
Impairment
of investments
|
447 | -- | 575 | |||||||||
|
Non
cash stock based compensation
|
1,066 | 1,365 | 782 | |||||||||
|
Interest
on convertible note to related party
|
-- | -- | 815 | |||||||||
|
Translation
(gain) loss
|
(5,399 | ) | (13,183 | ) | 2,967 | |||||||
|
Decrease
(increase) in other assets
|
9,695 | 1,821 | (17,387 | ) | ||||||||
|
(Decrease)
increase in accounts payable, accrued expenses and other
|
(2,960 | ) | 5,011 | 8,535 | ||||||||
|
Investments
made in trading securities
|
-- | (81 | ) | (23,803 | ) | |||||||
|
Proceeds
from sale of trading securities
|
2,417 | 2,212 | 18,021 | |||||||||
|
Gain
from change in ownership interest in a subsidiary
|
-- | (490 | ) | -- | ||||||||
|
Dividends
received from affiliates
|
1,357 | 4,620 | 185 | |||||||||
|
Net
cash (used in) provided by operating activities
|
1,117 | (944 | ) | (23,766 | ) | |||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Deposits,
notes and loans receivable collected
|
14,484 | 9,686 | 3,643 | |||||||||
|
Deposits,
notes and loans receivable granted
|
-- | (54,552 | ) | (10,000 | ) | |||||||
|
Purchase
and improvements of fixed assets
|
(44,233 | ) | (42,408 | ) | (1,178 | ) | ||||||
|
Investments
made in available for sale shares
|
(19,314 | ) | (47,744 | ) | -- | |||||||
|
Investments
made in Gadot, net
of cash(1)
|
-- | (41,266 | ) | (78,153 | ) | |||||||
|
Investments
made in EMG, affiliates and others
|
(1,906 | ) | (13,699 | ) | (105,099 | ) | ||||||
|
Proceeds
from sale of available for sale share
|
42,512 | 12,654 | -- | |||||||||
|
Proceeds
from disposal of investments:
|
||||||||||||
|
Affiliate
and others
|
918 | 2,211 | 5,643 | |||||||||
|
Proceeds
from sale of Am-Hal(2),net
|
-- | -- | 27,715 | |||||||||
|
Proceeds
from sale of fixed assets
|
842 | 3,948 | 7,694 | |||||||||
|
Net
cash used in investing activities
|
(6,697 | ) | (171,170 | ) | (149,735 | ) | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
5
AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(U.S.
Dollars in thousands)
|
||||||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from notes and loans payable issued
|
$ | 31,658 | $ | 120,158 | $ | 103,131 | ||||||
|
Proceeds
from long term loan from partnership minority
|
-- | -- | 95,429 | |||||||||
|
Notes
and loans payable repaid
|
(17,375 | ) | (65,005 | ) | (37,000 | ) | ||||||
|
Proceeds
from exercise of stock options and warrants
|
-- | 290 | 17,997 | |||||||||
|
Debentures
repaid and shares repurchased (mainly debentures)
|
(11,681 | ) | (23,686 | ) | -- | |||||||
|
Distribution
to minority
|
(595 | ) | -- | -- | ||||||||
|
Proceeds
from issuance of debentures
|
-- | 166,856 | -- | |||||||||
|
Deferred
expense relating to issuance of debentures
|
-- | (2,575 | ) | -- | ||||||||
|
Contribution
(distribution) to partnership by minority interests
|
-- | (407 | ) | 130 | ||||||||
|
Net
cash provided by financing activities
|
2,007 | 195,631 | 179,687 | |||||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
6,268 | 897 | 1,348 | |||||||||
|
Net
increase in cash and cash equivalents
|
2,695 | 24,415 | 7,534 | |||||||||
|
Cash
and cash equivalents at beginning of year
|
68,682 | 44,267 | 36,733 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 71,377 | $ | 68,682 | $ | 44,267 | ||||||
|
Supplemental
Disclosure of Cash Flow Information:
|
||||||||||||
|
Interest
paid
|
23,136 | 20,278 | 9,468 | |||||||||
|
Income
taxes paid
|
$ | 30 | $ | 60 | $ | 68 | ||||||
|
Supplemental
Disclosure of Non-Cash investing and financing activity:
|
||||||||||||
|
Consideration
for sale of an investment recorded as other assets
|
-- | -- | 300 | |||||||||
|
Conversion
of promissory note to class A stock
|
-- | -- | 20,815 | |||||||||
|
Issuance
of shares for cash receipt on previous year
|
-- | -- | 40,000 | |||||||||
|
(1)
Assets and liabilities purchased in Gadot – see Note 3
|
||||
|
(2)
Assets and liabilities disposed of in the sale of Am-Hal
discontinued operation:
|
||||
|
Current
assets (net of cash and cash equivalents)
|
2,976 | |||
|
Fixed
assets
|
69,781 | |||
|
Deferred
tax
|
7,651 | |||
|
Debt
|
(15,295 | ) | ||
|
Deposits
from tenants
|
(53,711 | ) | ||
|
Current
liabilities
|
(2,974 | ) | ||
|
Minority
interest
|
(2,526 | ) | ||
|
Difference
from translation
|
52 | |||
|
Gain
on disposal of Am-Hal
|
21,761 | |||
|
Proceeds
from sale of Am-Hal
|
27,715 | |||
The
accompanying notes are an integral part of these consolidated financial
statements.
6
(U.S.
Dollars in thousands)
| Equity attributable to Ampal American Israel Corporation shareholders | ||||||||||||||||||||||||||||||||
|
Class
A stock
|
||||||||||||||||||||||||||||||||
|
Number
of
shares*
|
Amount
|
Additional
paid
in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive
income
(loss)
|
Treasury
stock
|
Non-controlling
interests
|
Total
equity
|
|||||||||||||||||||||||||
|
BALANCE
AT JANUARY 1, 2009
|
63,277 | 63,277 | 191,263 | 31,062 | (17,876 | ) | (28,500 | ) | 869 | 240,095 | ||||||||||||||||||||||
|
CHANGES
DURING 2009:
|
||||||||||||||||||||||||||||||||
|
Net
loss for the year
|
(20,802 | ) | (425 | ) | (21,227 | ) | ||||||||||||||||||||||||||
|
Unrealized
loss from marketable securities
|
880 | 880 | ||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
2,308 | (519 | ) | 1,789 | ||||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(18,558 | ) | ||||||||||||||||||||||||||||||
|
Purchase
of 292,103 shares
|
(263 | ) | (263 | ) | ||||||||||||||||||||||||||||
|
Share
based compensation expense
|
721 | 721 | ||||||||||||||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2009
|
63,277 | 63,277 | 191,984 | 10,260 | (14,688 | ) | (28,763 | ) | (75 | ) | 221,995 | |||||||||||||||||||||
*In
thousands
The
accompanying notes are an integral part of these consolidated financial
statements.
7
AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
(U.S.
Dollars in thousands)
|
Equity
attributable to Ampal American Israel Corporation
shareholders
|
||||||||||||||||||||||||||||||||
| Class A stock | ||||||||||||||||||||||||||||||||
|
Number
of
shares*
|
Amount
|
Additional
paid
in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive
income
(loss)
|
Treasury
stock
|
Non-controlling
interests
|
Total
equity
|
|||||||||||||||||||||||||
|
BALANCE
AT JANUARY 1, 2008
|
63,277 | 63,277 | 189,899 | 47,931 | (14,821 | ) | (27,874 | ) | 23,206 | ** | 281,618 | |||||||||||||||||||||
|
CHANGES
DURING 2008:
|
||||||||||||||||||||||||||||||||
|
Net
Loss for the year
|
(16,711 | ) | 1,400 | ** | (15,311 | ) | ||||||||||||||||||||||||||
|
Unrealized
gain from marketable securities
|
(1,379 | ) | (1,379 | ) | ||||||||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
(1,676 | ) | (23,737 | )** | (25,413 | ) | ||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(42,103 | ) | ||||||||||||||||||||||||||||||
|
Reissuance
of 89,750 treasury stock for exercise of stock option
|
(158 | ) | 449 | 291 | ||||||||||||||||||||||||||||
|
Reissuance
of 89,750 treasury
|
(1,075 | ) | (1,075 | ) | ||||||||||||||||||||||||||||
|
Share
based compensation expense
|
1,364 | 1,364 | ||||||||||||||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2008
|
63,277 | 63,277 | 191,263 | 31,062 | (17,876 | ) | (28,500 | ) | 869 | ** | 240,095 | |||||||||||||||||||||
*In
thousands
**
noncontrolling interests reclassification
8
AMPAL-AMERICAN
ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(U.S.
Dollars in thousands)
| Equity attributable to Ampal American Israel Corporation shareholders | ||||||||||||||||||||||||||||||||||||||||
|
Class
A stock
|
||||||||||||||||||||||||||||||||||||||||
|
Number
of
shares*
|
Amount
|
Receipt
on
account
of
unallocated
shares
|
Additional
paid
in
capital
|
Warrants
|
Retained
earnings
|
Accumulated
other
comprehensive
income
(loss)
|
Treasury
stock
|
Non-Controlling
interest
|
Total
shareholders'
equity
|
|||||||||||||||||||||||||||||||
|
BALANCE
AT JANUARY 1, 2007
|
46,328 | 46,328 | 40,000 | 126,945 | 308 | 40,165 | (17,059 | ) | (27,874 | ) | 2,764 | ** | 211,577 | |||||||||||||||||||||||||||
|
CHANGES
DURING 2007:
|
||||||||||||||||||||||||||||||||||||||||
|
Net
income for the year
|
7,766 | 1,576 | ** | 9,342 | ||||||||||||||||||||||||||||||||||||
|
Adjustment
upon adoption of FIN 48
|
(2,000 | ) | (2,000 | ) | ||||||||||||||||||||||||||||||||||||
|
Change
in deferred tax asset relating to adoption of FIN 48
|
2,000 | 2,000 | ||||||||||||||||||||||||||||||||||||||
|
Unrealized
gain from marketable securities
|
(43 | ) | (43 | ) | ||||||||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
710 | 18,866 | ** | 19,576 | ||||||||||||||||||||||||||||||||||||
|
Release
of foreign currency translation adjustment relating to disposal of
subsidiary and affiliates
|
1,571 | 1,571 | ||||||||||||||||||||||||||||||||||||||
|
Total
comprehensive income
|
30,446 | |||||||||||||||||||||||||||||||||||||||
|
Shares
issued for investment made
|
8,603 | 8,603 | (40,000 | ) | 31,397 | - | ||||||||||||||||||||||||||||||||||
|
Shares
issued upon conversion of convertible note
|
4,476 | 4,476 | 16,339 | 20,815 | ||||||||||||||||||||||||||||||||||||
|
Share
based compensation expense
|
783 | 783 | ||||||||||||||||||||||||||||||||||||||
|
Issuance
of shares for exercise of Warrants
|
3,870 | 3,870 | - | 14,435 | (308 | ) | 17,997 | |||||||||||||||||||||||||||||||||
|
BALANCE
AT DECEMBER 31, 2007
|
63,277 | 63,277 | - | 189,899 | - | 47,931 | (14,821 | ) | (27,874 | ) | 23,206 | ** | 281,618 | |||||||||||||||||||||||||||
*In
thousands
**
noncontrolling interests reclassification
The
accompanying notes are an integral part of these consolidated financial
statements.
9
Note
1 – Summary of Significant Accounting Policies
|
(a)
|
General
|
|
|
(1)
|
Ampal-American
Israel Corporation is a New York corporation founded in 1942. The Company
primarily acquires interests in businesses located in the State of Israel
or that are Israel-related.
|
|
|
(2)
|
As
used in these financial statements, the term “the Company” refers to
Ampal-American Israel Corporation (“Ampal”) and its consolidated
subsidiaries. As to segments information see Note
18.
|
|
|
(3)
|
The
consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
("U.S. GAAP"). In June 2009, the Financial Accounting Standards Board
(FASB) issued the FASB Accounting Standards Codification ("Codification”).
The Codification became the single authoritative source for U.S. GAAP and changed the
way in which the accounting literature is organized. As
applicable to the Company, the Codification became effective commencing in the
third quarter of 2009. The Codification does not change U.S. GAAP and does not
have an effect on our financial position or results of
operations.
|
|
|
(4)
|
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
|
|
(b)
|
Consolidation
|
The
consolidated financial statements include the accounts of Ampal and its
controlled and majority owned entities. Inter-company transactions and balances
are eliminated in consolidation.
In
December 2007, the FASB established new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. This guidance clarifies that a
noncontrolling interest in a subsidiary (minority interest) is an ownership interest
in the consolidated entity that should be reported as equity in the
consolidated financial statements and separate from the parent company’s equity.
Once a controlling interest has been acquired, any subsequent
acquisitions or dispositions of noncontrolling interests that do not result in a
change of control are accounted for as equity transactions. Assets and liabilities
acquired are measured at fair value only once, at the original acquisition
date, (i.e., the date at which the acquirer gained control). Among other
requirements, this guidance requires consolidated net income to be reported
at amounts that include the amounts attributable to both the parent and the
noncontrolling interest. It also requires disclosure, on the face of the
consolidated statements of operations of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. This guidance
was effective for the Company commencing January 1, 2009. The recognition and
measurement requirements are applicable prospectively upon adoption; the
presentation and disclosure requirements must be retrospectively applied. Accordingly, upon
adoption of this guidance, the Company changed the presentation of its
financial statements for prior periods to conform to the required
presentation, as follows: (1) noncontrolling interests are now presented on the
balance sheets within equity, separate from the Company's common
shareholders' equity; (2) the portion of net
income and
comprehensive income attributable to the Company's common shareholders and the noncontrolling
interests are presented separately on the consolidated statements of operations
and comprehensive income; (3) the consolidated statements of
shareholders' equity includes a reconciliation of the noncontrolling interests at the beginning
and end of each reporting period; and (4) net income used within the
consolidated statements of cash flows in order to derive to net cash
provided by operating activities was also adjusted, since net income related
to prior periods was adjusted pursuant to the requirements of this
guidance.
|
(c)
|
Translation of Financial
Statement in Foreign
Currencies
|
For those
subsidiaries and affiliates whose functional currency is other than the U.S.
Dollar, assets and liabilities are translated using year-end rates of exchange.
Revenues and expenses are translated at the average rates of exchange during the
year. Translation differences of those foreign companies’ financial statements
are reflected in the cumulative translation adjustment accounts which are
included in accumulated other comprehensive income (loss).
In
subsidiaries where the primary currency is the U.S. Dollar, accounts maintained
in currencies other than the U.S. Dollar are remeasured into U.S. Dollars using
the representative foreign exchange rate at the balance sheet date. Operational
accounts and nonmonetary balance sheet accounts are measured and recorded at the
rate in effect at the date of the transaction. The effects of foreign currency
remeasurement are reported in current operations.
10
|
(d)
|
Foreign Exchange
Derivative Contracts
|
The
Company’s derivative financial instruments consist of foreign currency forward
exchange contracts and SWAP contracts. These contracts are utilized by the
Company, from time to time, to manage risk exposure to movements in foreign
exchange rates. None of these contracts qualify for hedge accounting. These
contracts are recognized as assets or liabilities on the balance sheet at their
fair value, which is the estimated amount at which they could be settled, based
on market prices or dealer quotes, where available, or based on pricing models.
Changes in fair value are recognized currently in earnings.
As of
December 31, 2009, the Company had open foreign currency forward exchange
contracts to purchase U.S. dollars and sell Euros in the amount of $5.8 million,
to purchase Euro and sell U.S. dollars in the amount of $1.6 million and to
purchase U.S. dollars and sell NIS in the amount of $2.0 million.
On April
1, 2009, the Company signed a interest rate swap contract in order to convert
some of the Company's LIBOR interest rate denominated debt in the amount of
$43.7 million into fixed interest rate debt.
|
(e)
|
Investments
|
|
|
(i)
|
Investments
in Affiliates
|
Investments
in which the Company exercises significant influence, generally 20% to 50% owned
companies (“affiliates”), are accounted for by the equity method, whereby the
Company recognizes its proportionate share of such companies’ net income or loss
and in other comprehensive income its proportional share in translation
difference on net investments and in other comprehensive income (loss). The
Company reduces the carrying value of its investment in an affiliate if an
impairment in value of that investment is deemed to be other than
temporary.
|
|
(ii)
|
Cost
Basis Investments
|
Equity
investments of less than 20% in non-publicly traded companies are carried at
cost subject to impairment.
|
|
(iii)
|
Investments
in Marketable Securities
|
Marketable
equity securities, other than equity securities accounted for by the equity
method, are reported based upon quoted market prices of the securities. For
those securities, which are classified as trading securities, realized and
unrealized gains and losses are reported in the statements of operations.
Unrealized gains and losses net of taxes from those securities that are
classified as available-for-sale, are reported as a separate component
of equity and are included in accumulated other comprehensive income
(loss) until realized. Decreases in value determined to be other than temporary
on available-for-sale securities are included in the statements of
operations.
In April
2009, the FASB amended the existing guidance on
determining whether an impairment for investments in debt securities is
other-than-temporary. Effective in the second quarter of 2009, if an
other-than-temporary impairment exists for debt securities, we separate the
other-than-temporary impairment into the portion of the loss related to credit
factors, or the credit loss portion, and the portion of the loss that is not
related to credit factors, or the non-credit loss portion. The credit loss
portion is the difference between the amortized cost of the security and
our best estimate of the present value of the cash flows expected to be
collected from the debt security. The non-credit loss portion is the
residual amount of the other-than-temporary impairment. The credit loss portion is
recorded as a charge to earnings, and the non-credit loss portion is recorded
as a separate component of other comprehensive income
(loss).
|
(f)
|
Inventories
|
Inventories
– mainly chemicals and other materials intended for sale, are valued at the
lower of cost or market. Cost is determined based on the moving average
basis.
|
(g)
|
Risk
Factors and Concentrations
|
Financial
instruments that subject the Company to credit risk consist primarily of cash,
cash equivalents, bank deposits, marketable securities and notes and loans
receivable. The Company invests cash equivalents and short-term investments
through high-quality financial institutions. The Company’s management believes
that the credit risk in respect of these balances is not material.
The
Company evaluates its allowance for doubtful accounts by analyzing specifically
identified debts whose collection is doubtful.
|
(h)
|
Fixed
assets
|
(i) These
assets are stated at cost. Fixed assets of subsidiaries, which existed at the
time of the subsidiary’s acquisition by the Company, are included at their fair
value as of that date.
(ii)
Depreciation is computed by the straight-line method, on the basis of the
estimated useful life of the assets.
11
Annual
rates of depreciation are as follows:
|
|
%
|
|
|
Vessels
|
7
|
|
|
Trailers
|
10
- 33.3
|
|
|
Land
|
--
|
|
|
Real
estate
|
6
1/2
|
|
|
Storage
tankers
|
4 -
10
|
|
|
Vehicles
|
15
|
|
|
Equipment
|
4-33
|
|
|
Leasehold improvement
|
*
|
*Leasehold improvements are
amortized by the straight-line method over the remaining term of the lease,
which is shorter than the estimated useful life of the
improvements.
(iii)
Vessels are depreciated over their estimated economic lives. For the purpose of
computing the depreciation, an estimation of the salvage value was deducted from
the depreciable base of the ships.
(iv)
Vehicles leased by the companies under capital leases are presented as the
companies’ assets and are recorded, at the inception of the lease, at the lower
of the asset’s fair value or the present value of the minimum lease payments
(not including the financial component).
(v) Long-lived assets, to be held
and used by the Company,
are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. If the sum of the
expected future cash flows (undiscounted and without interest charges) of the
long-lived assets is less than the carrying amount of such assets, an
impairment loss is recognized, and the assets are written down to their
estimated fair values.
|
(i)
|
Goodwill
and Other Intangible Assets
|
|
Goodwill
is not amortized but is subject to impairment tests annually on December
31 or more often when events or circumstances indicate that the carrying
amount of goodwill may not be recoverable. A goodwill impairment loss is
recognized to the extent the carrying amount of goodwill exceeds the
implied fair value of goodwill. The Company assesses intangible assets
subject to amortization when events or circumstances indicate that the
carrying amount of those assets may not be
recoverable.
|
|
(j)
|
Income
Taxes
|
The
Company applies the asset and liability method of accounting for income taxes,
whereby deferred taxes are recognized for the tax consequences of “temporary
differences” by applying estimated future tax effects of differences between
financial statements carrying amounts and the tax bases of existing assets and
liabilities. Deferred tax assets are created to the extent management believes
that it is more likely than not that it will be utilized, otherwise a valuation
is provided for those assets that do not qualify under this term.
The
Company does not record deferred income taxes on undistributed earnings of
foreign subsidiaries adjusted for translation effect since such earnings are
currently expected to be permanently reinvested outside the United
States.
Income
taxes are provided on equity in earnings of affiliates, gains on issuance of
shares by affiliates and unrealized gains on investments. Ampal’s foreign
subsidiaries file separate tax returns and provide for taxes
accordingly.
As of
January 1, 2007, the Company adopted accounting guidance with respect to
accounting for uncertainty in income taxes. Tax benefits recognized in the
financial statements are at least more likely than not of being sustained, based
on technical merits. The amount of benefits recorded for these tax benefits is
measured as the largest benefit more likely than not to be
sustained.
(k) Revenue
Recognition
Revenue
is recognized when (a) the significant risks and rewards of ownership of the
goods have been transferred to the buyer; (b) the Company retains neither
continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold; (c) the amount of revenue
can be measured reliably; (d) it is probable that the economic benefits
associated with the transaction will flow to the Company; and (e) the costs
incurred or to be incurred in respect of the transaction can be measured
reliably.
12
Chemical
income derives from the following activities: sales of a wide range of liquid
chemicals, providing maritime shipping services of chemicals by ships and
providing other services which include logistics and storage services for
chemicals.
Revenue
for services is recognized as follows:
|
|
·
|
Revenues
arising from the provision of marine transport services proportionally
over the period of the marine transport services. As to voyages
uncompleted in which a loss is expected, a full provision is made in the
amount of the expected loss.
|
|
|
·
|
Revenues
from chemical brokerage commissions are recognized when the right to
receive them is created.
|
|
|
·
|
Rental
income is recorded over the rental period. Revenues from services provided
to tenants and country-club subscribers are recognized ratably over the
contractual period or as services are performed. Revenue from amortization
of tenant deposits (included in discontinued operation) was calculated at
a fixed periodic rate based on the specific terms in the occupancy
agreement signed with the tenants.
|
|
|
·
|
Income
from other services is recognized over the period during which those
services are preformed.
|
|
(l)
|
Cash and Cash
Equivalents
|
Cash
equivalents are short-term, highly liquid investments (bank accounts and bank
deposits) that have original maturity dates of three months or less and that are
readily convertible into cash.
Cash
equal to $2.1 million has been placed as a compensating balance for various
loans provided to the Company.
|
(m)
|
Earning
(loss) per share (EPS)
|
In 2009,
2008 and 2007, all outstanding stock options have been excluded from the
calculation of the diluted loss per share because all such securities are
anti-dilutive for these periods presented.
Basic and
diluted loss per share (“LPS”) are computed by dividing net loss by the weighted
average number of shares of Common Stock outstanding for each period. Shares of
restricted Common Stock and the shares of Common Stock underlying outstanding
options of the Company were not included in the computation of diluted LPS
because of the anti-dilutive effect of doing so.
|
(n)
|
Comprehensive
Income
|
The
Company’s components of comprehensive income (loss) are net income (losses), net
unrealized gains or losses on available for sale investments and foreign
currency translation adjustments, which are presented net of income
taxes.
|
(o)
|
Employee Stock Based
Compensation
|
The
Company accounts for stock based compensation to employees
in accordance with “Share-Based Payment” accounting standard. The Company
measures and
recognizes compensation expense for share-based awards based on estimated fair values on the date of
grant using the Black-Scholes option-pricing model. This option pricing
model requires that we make several estimates, including the option’s
expected life and the price volatility of the underlying stock. The Company recognizes the
estimated fair value of option-based awards, net of estimated
forfeitures, as stock-based compensation costs using the graded vesting
attribution method.
|
(p)
|
Treasury
stock
|
These
shares are presented as a reduction of shareholders’ equity at their cost to the
Company. Gains, net of losses and of the related tax, on the sale of these
shares are carried to “other capital surplus.” Losses, net of gains, on the sale
of these shares, are deducted from retained earnings.
The
Company records treasury shares repurchased at cost.
|
(q)
|
Classification
|
Certain
comparative figures have been reclassified to
conform to the current year presentation.
|
(r)
|
Recently
Issued Accounting Pronouncements
|
ASC
810 (formerly SFAS No. 167)
In June
2009, the FASB issued accounting guidance contained within ASC 810,
“Consolidation,” regarding the consolidation of variable interest entities
(formerly SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”). Amendments to FASB Interpretation No. 46(R), ASC 810 is
intended to improve financial reporting by providing additional guidance to
companies involved with variable interest entities and by requiring additional
disclosures about a company’s involvement with variable interest entities. This
standard is effective for interim and annual periods beginning after
November 15, 2009. The Company is currently assessing the potential
impacts, if any, on our consolidated financial statements.
13
Note
2 – Investments
a. Non-current
investments
| The balance of investments as of December 31, 2009 and 2008, are composed of the following items: | ||||||||
|
As
of December 31,
|
|
|||||||
|
2009
|
2008
|
|
||||||
|
(U.S.
Dollars in thousands)
|
|
|||||||
|
|
||||||||
|
*EMG
|
$
|
361,323
|
$
|
361,323
|
||||
|
Investment
in Affiliates
|
9,218
|
13,385
|
||||||
|
Other
Investments
|
764
|
904
|
||||||
|
$
|
371,305
|
$
|
375,612
|
|||||
* The
investment in East Mediterranean Gas Company S.A.E. ("EMG"), an Egyptian Joint
Stock Company, which holds the right to supply natural gas to Israel through a
pipeline from Egypt to Israel. The Company’s Financial Statements reflect a
16.8% interest in shares of EMG, with 8.2% held directly and 8.6% held through
the Joint Venture (of which Ampal owns 50%).
b.
Marketable securities
The
Company’s investments in Marketable securities are mainly in government
debentures and the
Company classifies such investments as trading securities or available-for-sale
securities.
|
|
(a)
|
Trading
Securities
|
The cost
and market values of Trading securities at December 31, 2009 and 2008 are as
follows:
|
Cost
|
Unrealized
Gains
|
Unrealized
(Loss)
|
Market
Value
|
||||||||||||||
| (U.S. Dollars in thousands) | |||||||||||||||||
|
Trading
stocks
|
2009
|
$ | 17 | $ | -- | $ | (2 | ) | $ | 15 | |||||||
|
Debentures
|
2009
|
$ | 1,945 | $ | 192 | $ | -- | $ | 2,137 | ||||||||
| 1,962 | 192 | (2 | ) | 2,152 | |||||||||||||
|
Trading
stocks
|
2008
|
$ | 17 | $ | -- | $ | (12 | ) | $ | 5 | |||||||
|
Debentures
|
2008
|
$ | 4,207 | $ | 314 | $ | (130 | ) | $ | 4,391 | |||||||
| 4,224 | 314 | (142 | ) | 4,396 | |||||||||||||
|
|
(b)
|
Available-For-Sale
Securities
|
|
Cost
|
Unrealized
Gains
|
Unrealized
(Loss)
|
Market
Value
|
||||||||||||||
|
(U.S.
Dollars in thousands)
|
|||||||||||||||||
|
Trading
stocks
|
2009
|
$ | -- | $ | -- | $ | -- | $ | -- | ||||||||
|
Debentures
|
2009
|
$ | 28,602 | $ | 393 | $ | (1,802 | ) | $ | 27,193 | |||||||
| 28,602 | 393 | (1,802 | ) | 27,193 | |||||||||||||
|
Trading
stocks
|
2008
|
$ | 734 | $ | -- | $ | -- | $ | 734 | ||||||||
|
Debentures
|
2008
|
$ | 48,657 | $ | 633 | $ | (1,561 | ) | $ | 47,729 | |||||||
| 49,391 | 633 | (1,561 | ) | 48,463 | |||||||||||||
14
Note
3 – Acquisitions and Dispositions
|
a)
|
During
2007 - 2009, the Company made the following
investments:
|
|
|
1.
|
Option Agreement for
Sugarcane Ethanol Project in
Colombia
|
|
|
On
December 25, 2007, Ampal and Merhav M.N.F. Ltd. ("Merhav") entered into an
Option Agreement ("Original Option Agreement") with Merhav providing Ampal
with the option (the "Option") to acquire up to a 35% equity interest in a
certain sugarcane ethanol production project (the "Project") being
developed by Merhav. Under the Original Option Agreement, the Option was
to expire on the earlier of December 25, 2008 or the date on which both
(i) Merhav has obtained third-party debt financing for the Project and
(ii) an unaffiliated third party holds at least a 25% equity interest in
the Project. The Original Option Agreement provided that the purchase
price for any interest in the Project purchased by Ampal would be (A) with
respect to any portion of such interest being purchased by conversion of
the outstanding balance of the Promissory Note (as defined below), the
lesser of (i) a price based on a currently agreed Valuation Model as
updated from time to time to reflect changes in the Project, financing and
other similar costs, as such updates are reviewed by Houlihan
Lokey Howard & Zukin Financial Advisors, Inc. at the time of the
option’s exercise or (ii) the lowest price paid by any unaffiliated third
party for an interest in the Project, or (B) with respect to any portion
of such interest in the Project being purchased in excess of the balance
of the Promissory Note, the lowest price paid by an unaffiliated third
party for its interest in the Project, unless no unaffiliated third party
has purchased an interest in the Project, in which case the purchase price
will be based on the Valuation
Model.
|
|
|
In
addition, Ampal loaned Merhav $10 million to fund the purchase of the
11,000 hectares of property in Colombia required for growing sugarcane and
the construction of an ethanol production facility for the Project,
pursuant to a certain promissory note, dated as of December 25, 2007, by
Merhav in favor of Ampal (the "Promissory Note"). Under the Promissory
Note, Ampal agreed to advance up to an additional $10 million to fund the
Project. Under the Promissory Note, the loan bore interest at an annual
rate equal to LIBOR plus 2.25%, and was convertible into all or a portion
of the equity interest purchased pursuant to the
Option.
|
|
|
As
security for the loan, Merhav has pledged to Ampal, pursuant to a pledge
agreement, dated December 25, 2007, between Merhav and Ampal (the "Pledge
Agreement"), all of the shares of Ampal’s Class A Stock, par value $1.00
per share, owned by Merhav.
|
On May
29, 2008, Ampal loaned Merhav $10.0 million, in addition to the then currently
outstanding $10.0 million that was loaned on December 25, 2007, to fund the
Project. The additional loan was made pursuant to the Promissory Note. The loan
will be convertible into all or a portion of the equity interest purchased
pursuant to the Original Option Agreement.
On
December 25, 2008, Ampal entered into an amendment (the “Option Amendment”) to
the Original Option Agreement. Under the Original Option Agreement, the Option
expired on the earlier of December 25, 2008 or the date (the “Financing Date”)
on which both (i) Merhav obtained third-party debt financing for the Project and
(ii) an unaffiliated third party holds at least a 25% equity interest in the
Project. The Option Amendment extended the expiration of the Option to the
earlier of December 31, 2009 or the Financing Date.
The
Option Amendment also provided that in determining the price to be paid by Ampal
for shares pursuant to the Option under the Valuation Model (as defined below),
the parties have agreed to review the discount rate set forth in the Valuation
Model to determine whether the discount rate should be increased, provided,
however, that the purchase price shall not exceed the amount Ampal would have
paid without giving effect to the Option Amendment. The maximum purchase price
for any interest in the Project purchased by Ampal pursuant to the Option would
be (A) with respect to any portion of such interest being purchased by
conversion of the outstanding balance of the Amended Promissory Note referred to
below, the lesser of (i) a price based on a currently agreed valuation model as
updated from time to time to reflect changes in project, financing and other
similar costs (the “Valuation Model”) as such updates are reviewed by Houlihan
Lokey Howard & Zukin at the time of the Option’s exercise or (ii) the lowest
price paid by any unaffiliated third party for an interest in the Project, or
(B) with respect to any portion of such interest in the Project being purchased
in excess of the balance of the Amended Promissory Note, the lowest price paid
by an unaffiliated third party for its interest in the Project, unless no
unaffiliated third party has purchased an interest in the Project, in which case
the purchase price will be based on the Valuation Model.
In
consideration for Merhav entering into the Option Amendment, Ampal agreed to
certain amendments to the Promissory Note reflected in an Amended and Restated
Promissory Note, dated December 25, 2008 (the “Amended Promissory Note”). The
Amended Promissory Note provides for (i) an increase in the annual interest rate
from LIBOR plus 2.25% to LIBOR plus 3.25% and (ii) an extension of the maturity
date of the Promissory Note to December 31, 2009. As a condition to amending and
restating the Promissory Note, Ampal received a personal guaranty dated as of
December 25, 2008, from Yosef A. Maiman personally guaranteeing the obligations
of Merhav under the Amended Promissory Note (the "Guaranty").
15
The loan
continued to be secured by Merhav’s pledge to Ampal, pursuant to the Pledge
Agreement.
|
|
On
December 31, 2009, Ampal signed an option exercise agreement (the
“Exercise Agreement”) with Merhav pursuant to which it exercised, subject
to certain conditions, the Option to convert Ampal’s existing loan to
Merhav (consisting of $20 million of principal plus accrued interest) into
a 25% equity interest in the
Project.
|
|
|
Pursuant
to the Exercise Agreement, the conversion of the Loan into a 25% equity
interest in the Project will take the form of the issuance to Ampal of 25%
of all of the issued and outstanding equity interests in Merhav Renewable
Energies Limited, a Cyprus corporation and subsidiary of Merhav (“Merhav
Energies”). The purchase price for the 25% equity stake in Merhav
Energies, to be paid at closing, is the outstanding balance of the Amended
Promissory Note on December 31, 2009, or approximately $22.27 million. The
closing of the purchase of the 25% equity stake and the conversion of the
Loan is subject to, among other things, (i) the initial disbursement of
(or other proof of) long term debt financing for the Project obtained from
Banco do Brasil or any other unaffiliated third party lender (the date
such financing is obtained, the “Qualified Financing Date”), (ii) the
payment in full of all outstanding amounts due and payable under the Note,
and (iii) the delivery at closing of the Shareholders’ Agreement (as
defined below) by Merhav and Ampal, setting forth certain agreements
relating to the governance of Merhav Energies. At closing, the Note and
the Guaranty shall be cancelled and the pledge of Merhav’s shares of Class
A Stock under the Pledge Agreement shall be released. The closing is to
occur on the Qualified Financing Date or as soon as practicable
thereafter, but no later than December 31, 2010. The Exercise Agreement
contains other customary closing conditions, as well as customary
representations and warranties.
|
|
|
Pursuant
to the Exercise Agreement, the Amended Promissory Note was amended to
extend its maturity date to the earlier of the Qualified Financing Date or
December 31, 2010. Additionally, Merhav and Ampal have agreed that, under
certain circumstances, each will arrange for loans to Merhav Energies from
to time to time through third parties, directly or indirectly, for up to
$15 million.
|
|
|
As
stated above, as a condition to closing of Ampal’s purchase of a 25%
equity stake in Merhav Energies, Merhav, Ampal and Merhav Energies will
enter into a Shareholders’ Agreement (the “Shareholders’ Agreement”), to
provide for, among other things, (i) restrictions on the transfer of
shares of Merhav Energies, (ii) a right of first refusal on transfers of
shares of Merhav Energies, (iii) tag-along and drag-along rights on the
transfer of shares of Merhav Energies, (iv) preemptive rights on the
issuance of new shares of capital stock (or other equity interest) by
Merhav Energies, subject to the anti-dilution rights of Ampal, and (v) the
right of Ampal to designate 25% of the directors of Merhav Energies. In
addition to preemptive rights under the Shareholders’ Agreement, Ampal has
been granted anti-dilution protection, which may result in the issuance of
additional shares of Merhav Energies to Ampal, in the event that, prior to
end of the 180 day period following the commencement of the Project’s
operations, Merhav sells, or Merhav Energies issues, shares of Merhav
Energies at a per share price that is less than the per share price paid
by Ampal under the Exercise
Agreement.
|
|
|
Merhav
is a multinational corporation with interests in a range of sectors,
including energy, infrastructure projects and agriculture. Merhav is a
significant shareholder of Ampal and is wholly owned by Mr. Yosef A.
Maiman, the President, CEO and member of the controlling shareholder group
of Ampal. Because of the foregoing relationship, a special committee of
the Board of Directors of Ampal composed of Ampal’s independent directors
negotiated and approved the transaction. Houlihan Lokey Howard & Zukin
Financial Advisors, Inc., which has been retained as financial advisor to
the special committee, advised the special committee on this
transaction.
|
|
|
2.
|
Gadot Chemical Tankers
and Terminals Ltd. (“Gadot”)
|
|
|
On
December 3, 2007, Ampal completed its acquisition of 65.5% of the control
and ownership (63.66% on a fully diluted basis) of Gadot through its
wholly owned subsidiary Merhav Ampal Energy Ltd. (“MAE”). The total
consideration including direct transaction expenses was $91.2 million. The
cash consideration was financed with Ampal’s own resources and with
borrowings in the amount of $60.7
million.
|
|
|
The
acquisition was accounted for by the purchase method. The results of
operations of Gadot were included in the consolidated financial statements
of Ampal commencing November 30, 2007. The consideration for the
acquisition was attributed to net assets on the basis of fair value of
assets acquired and liabilities assumed, based on an appraisal performed
by management, which included a number of factors, including the
assistance of independent appraisers. The following table summarizes the
final fair values of the assets acquired and liabilities assumed, with
reference to
|
16
Gadot balance sheet
data as of November 30, 2007:
|
U.S.
dollars in thousands
|
||||
|
Current
assets
|
$ | 166,365 | ||
|
Investments
and other non-current assets
|
31,145 | |||
|
Fixed
assets
|
74,430 | |||
|
Identifiable
intangible assets
|
9,503 | |||
|
Goodwill
|
50,406 | |||
|
Total
assets acquired
|
331,849 | |||
|
Current
liabilities
|
(94,703 | ) | ||
|
Long-term
liabilities, including deferred taxes
|
(124,523 | ) | ||
|
Minority
interest
|
(21,422 | ) | ||
|
Total
liabilities assumed
|
(240,648 | ) | ||
|
Net
assets acquired
|
$ | 91,201 | ||
Under the
purchase method of accounting, the total consideration of $91.2 million
allocated to Gadot’s identifiable tangible and intangible assets and liabilities
assumed based on their estimated fair values as of the date of the completion of
the transaction.
Below are
the unaudited pro forma combined statements of operations data for the year
ended December 31, 2007, as if the acquisition of Gadot had occurred on January
1, 2007, respectively, after giving effect to: (a) purchase accounting
adjustments, including amortization of identifiable intangible assets; and (b)
estimated additional interest expense due to the loan granted to Ampal in
connection with the acquisition. This pro forma financial information is not
necessarily indicative of the combined results that would have been attained had
the acquisition taken place at the beginning of 2007, nor is it necessarily
indicative of future results.
|
2007
|
||||
|
U.S. dollars in thousands
except earning per share (unaudited)
|
||||
|
Total
revenues
|
$ | 409,106 | ||
|
Income
(loss) from continuing operations
|
(3,224 | ) | ||
|
Basic
and diluted earning per share:
|
||||
|
Loss
income from continuing operations
|
(0.06 | ) | ||
|
|
On
June 3, 2008, Ampal completed its acquisition of an additional 14.98% of
the outstanding ordinary shares (14.71% on a fully diluted basis) of Gadot
. The total consideration was $17.7 million. The consideration was
financed with Ampal’s own resources and with borrowings in the amount of
$11.3 million.
|
The
acquisition was accounted for by the purchase method. The consideration for the
acquisition was attributed to net assets on the basis of fair value of assets
acquired and liabilities assumed, based on an appraisal performed by management,
which included a number of factors, including the assistance of independent
appraisers.
The
identified tangible and intangible assets acquired amounted to approximately
$5.8 million and $6.4 million, respectively. The main assets included are ships
and tankers and option to purchase and lease ships, of approximately $4.0
million and $4.5 million, respectively, to be amortized over an estimated useful
life of 12 and 5 years, respectively.
On August
12, 2008, Ampal completed its acquisition of an additional 20.6% of the
outstanding ordinary shares and 66.76% of the outstanding convertible debentures
of Gadot and now indirectly holds 100% of the outstanding ordinary shares
(99.99% on a fully diluted basis) of Gadot through MAE. The total consideration
was $23.3 million. The consideration was financed with Ampal’s own resources and
with borrowings in the amount of $15.4 million.
17
The
acquisition was accounted for by the purchase method. The consideration for the
acquisition was attributed to net assets on the basis of fair value of assets
acquired and liabilities assumed, based on an appraisal performed by management,
which included a number of factors, including the assistance of independent
appraisers.
The
identified tangible and intangible assets acquired amounted to approximately
$3.4 million and $4.3 million, respectively. The main assets acquired were ships
and tankers and option to purchase and lease ships of approximately $4.4 million
and $3.2 million, respectively, to be amortized over an estimated useful life of
12 and 5 years, respectively.
|
|
As
a result of these transactions, Gadot is now a wholly owned
subsidiary of the Company and its shares and debentures have been delisted
from the Tel Aviv Stock Exchange (the
“TASE”).
|
|
|
3.
|
East Mediterranean Gas
Company S.A.E.
|
|
|
On
June 4, 2007, EMG called for additional capital from its shareholders. As
a result, Ampal paid an additional $5.8 million in order to maintain its
pro rata beneficial interest in
EMG.
|
|
|
On
November 29, 2007, Ampal and the Israel Infrastructure Fund ("IIF"),
leading a group of institutional investors (the "Investors"), purchased a
4.3% interest in EMG, through Merhav Ampal Energy Holdings, LP, an Israeli
limited partnership (the “Joint Venture”), from Merhav for a purchase
price of approximately $95.4 million, using funds provided by the
Investors. In addition to the Joint Venture’s purchase from Merhav, Ampal
contributed into the Joint Venture an additional 4.3% interest in EMG
already held by Ampal. The Joint Venture now holds a total of 8.6% of the
outstanding shares of EMG. Ampal’s contribution was valued at the same
price per EMG share as the Joint Venture’s purchase. This amount is
equivalent to the purchase price (on a per share basis) paid by Ampal for
its December 2006 purchase of EMG shares from Merhav, which was accounted
for as a transfer of assets between entities under common control, which
resulted in Merhav transferring the investment in EMG to Ampal at carrying
value. Due to the nature of Merhav’s operations, Merhav would be treated
as an investment company under U.S. GAAP, and as such, the carrying value
of the investment in EMG would equal fair value. On this basis, the said
investment in EMG was transferred to Ampal at carrying value, which also
equals fair value. Based on the terms stipulated in the shareholders
agreement of the general partner of the Joint Venture, Ampal and Israel
Infrastructure G.P. Ltd. have equal rights in governing the affairs of the
Joint Venture. However, in certain events and under certain conditions,
matters relating to decisions on how to vote the EMG shares held by the
Joint Venture shall be decided by the directors of
the general partner of the Joint Venture appointed by Ampal. As such,
Ampal has consolidated the results of the Joint Venture
in its financial statements.
|
|
|
The
Company’s Financial Statements reflect a 16.8% interest in shares of EMG,
with 8.2% held directly and 8.6% held through the Joint Venture (of which
Ampal owns 50%).
|
|
|
Yosef
A. Maiman, the Chairman, President and CEO of the Company and a member of
the controlling shareholder group of the Company, is the sole owner of
Merhav.
|
|
|
4.
|
Global Wind Energy
("GWE")
|
|
|
Ampal
invested in GWE $2.1 million and $0.6 million in 2008 and 2009,
respectively.
|
|
|
5.
|
Bay Heart Ltd. ("Bay
Heart")
|
|
|
Ampal
loaned to Bay-Heart $3.6 million, $8.6 million and $1.2 million in 2007,
2008 and 2009, respectively.
|
|
|
6.
|
F.C.C. SHIPPING Ltd
("FCC")
|
|
|
In
March 2009 Gadot purchased a 39% stake in the shipping agency F.C.C.
SHIPPING Ltd. for the amount of $0.4 million. F.C.C. SHIPPING Ltd. was
nominated as the exclusive agent in Israel of Hanjin Shipping, a Korean
shipping company.
|
|
|
7.
|
Purchase of certain
activities from Milchen Communications Ltd.
("Milchen")
|
|
|
In
September 2008, Gadot purchased from Milchen a segment of its business
engaged in operating a sales agency in Israel representing well-known
manufacturers, selling a wide range of products, including chemicals and
polymers and other materials for the printing and press industry. Gadot
purchased this segment for approximately $1.3 million, out of which
approximately $0.4 million were paid for material inventory and
approximately $0.9 million for
goodwill.
|
|
|
8.
|
FIMI Opportunity Fund,
L.P. ("FIMI")
|
|
|
In
2007, the Company invested in FIMI an additional amount of $0.1
million.
|
18
b) During
2007 - 2009, Ampal made the following dispositions:
|
|
1.
|
The
Company received proceeds in the total amount of $0.8 million, $0.2
million and $0.3 million from the sales of certain investments by FIMI in
2007, 2008 and 2009, respectively.
|
|
|
2.
|
In
May, 2007, the Company completed the sale of its equity holdings in Carmel
Containers Limited ("Carmel"), a packaging manufacturer affiliate based in
Israel. Pursuant to this transaction, Ampal and its subsidiaries sold to
Carmel an aggregate of 522,350 ordinary shares of Carmel for an aggregate
price of approximately $4.6 million. The Company recorded no gain from
this sale due to an impairment that was recorded in the first quarter of
2007.
|
|
|
3.
|
In
August, 2007, the Company completed the sale of its holdings in Am-Hal
Ltd. ("Am-Hal") for an aggregate consideration of $29.3 million and
recorded a gain of approximately $29.4 million (approximately $21.7
million, net of taxes). The gain and Am-Hal’s results of operations until
June 30, 2007, were recorded as discontinued operations for all periods
presented.
|
|
|
4.
|
In
December 2007, Chem-Tankers C.V. sold a ship for $6.9 million (capital
gain of $3.4 million).
|
|
|
5.
|
During
2008, the Company received $0.6 million from the sale of certain assets by
Ophir Holdings Ltd.
|
|
|
6.
|
The
Company received $1.5 million and $0.5 million on 2008 and 2009,
respectively, from the sale of its 50% holdings of Country Club Hod
Hasharon Sport Center.
|
|
|
7.
|
In
March 2008, the Company received $0.3 million from the sale of certain
assets by PSINet Europe, one of the holdings of Telecom
Partners.
|
Note
4 – Derivatives and Other Financial Instruments
The
Company is exposed to certain risks relating to its ongoing business operations,
including financial, market, political, and economic risks. The following
discussion provides information regarding the Company's exposure to the risks of
changing commodity prices, interest rates, and foreign currency exchange
rates.
The
Company’s derivative activities are subject to management's
discretion.
The
interest rate and foreign exchange contracts are held for purposes other than
trading. They are used primarily to mitigate uncertainty and volatility, and in
order to cover underlying exposures. A swap contract was entered into to convert
some of the Company's New Israeli Shekel denominated debt in the amount of NIS
150 million ($43.9 million) into U.S. Dollar denominated debt and to convert
Israeli interest rates into LIBOR interest rates.
On April
1, 2009, the Company signed an interest rate swap contract in order to convert
some of the company's LIBOR interest rate denominated debt in the amount of
$43.7 million into fixed interest rate debt.
We use
foreign currency forward contracts to mitigate fluctuations in foreign currency
exchange rates due to variations in payment or receipt of currencies other than
the Company's functional currency. We use contracts to purchase U.S. Dollars and
sell Euros, contracts to purchase Euros and sell U.S. Dollars and contracts to
purchase U.S. Dollars and sell New Israeli Shekels ("NIS").
We report
the fair value of the derivatives on our balance sheet. The derivatives do not
qualify for hedge accounting. Changes in fair value are recognized in earnings
in the period of change.
The
following summarizes the gross fair market value of all derivative instruments
and their location in our consolidated balance sheet, and indicates what
instruments are in an asset or liability position.
Asset
Derivatives
________________________________________________________________________________
| (U.S. Dollars in thousands) |
|
Derivative
Instrument
|
Location
|
December
31, 2009
|
December
31, 2008
|
|
SWAP
contracts
|
Other
assets
|
3,123
|
-
|
|
Exchange
rate contracts
|
Other
assets
|
60
|
9,601
|
19
Liability
Derivatives
_________________________________________________________________________________
| (U.S. Dollars in thousands) |
|
Derivative
Instrument
|
Location
|
December
31, 2009
|
December
31, 2008
|
|
SWAP
contracts
|
Accounts
payable, accrued expenses and others
|
-
|
4,218
|
|
Exchange
rate contracts
|
Accounts
payable, accrued expenses and others
|
39
|
10,105
|
Statements
of Operations
_________________________________________________________________________________
| (U.S. Dollars in thousands) |
|
Fiscal
Year Ended December 31,
|
||||
|
Derivative
Instrument
|
Location
|
2009
|
2008
|
2007
|
|
SWAP
contracts
|
Translation
gain (loss)
|
376
|
(998)
|
-
|
|
Interest
rate SWAP contracts
|
Interest
gain (loss)
|
5,731
|
(4,333)
|
-
|
|
Exchange
rate contracts
|
Translation
income
|
728
|
802
|
871
|
Note
5 – Fair value measurement
Fair
value is defined as the price that would be received to sell an asset or paid to
transfer the liability (an exit price) in an orderly transaction between market
participants. The accounting standard also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The fair value
hierarchy distinguishes between three levels of inputs that may be utilized when
measuring fair value including level 1 inputs (using quoted prices in active
markets for identical assets or liabilities), level 2 inputs (using inputs other
than level 1 prices such as quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or liability) and
level 3 inputs (unobservable inputs supported by little or no market activity
based on the company's own assumptions used to measure assets and liabilities).
A financial asset's or liability’s classification within the above hierarchy is
determined based on the lowest level input that is significant to the fair value
measurement.
Financial
assets and liabilities measured at fair value on a recurring basis as of
December 31, 2009 consisted of the following (in thousands):
|
December
31, 2009
|
December
31, 2008
|
|||||||||||||||||||||||
|
Level
1
|
Level
2
|
Total
|
Level | Level |
Total
|
|||||||||||||||||||
|
Trading
securities *
|
$ | 2,152 | $ | - | $ | 2,152 | $ | 4,396 | $ | - | $ | 4,396 | ||||||||||||
|
Available
for sale securities *
|
27,193 | - | 27,193 | 48,463 | - | 48,463 | ||||||||||||||||||
|
Derivative
assets **
|
- | 3,183 | 3,183 | - | 9,601 | 9,601 | ||||||||||||||||||
|
Derivative
liabilities **
|
- | (39 | ) | (39 | ) | - | (14,323 | ) | (14,323 | ) | ||||||||||||||
|
Total
|
$ | 29,345 | $ | 3,144 | $ | 32,489 | $ | 52,859 | $ | (4,722 | ) | $ | 48,137 | |||||||||||
|
Marketable
securities that are classified in level 1 consist of available-for-sale
and trading securities for which market prices are readily available. The
fair value of derivative assets is determined based on inputs that can be
derived from information available in publicly quoted markets. Unrealized
gains or losses from available-for-sale securities are recorded in
accumulated other comprehensive
(loss) income.
|
* The
trading securities and available for sale securities are mainly traded
debentures.
** See
note 4.
20
The fair
value of notes and loans payable, deposits payable and debentures outstanding is
estimated by discounting the future cash flows using the current rates offered
by lenders for similar borrowings with similar credit ratings and for the same
remaining maturities. Capital notes in the amount of $97.1 million that were
issued to the limited partners, other than Ampal, in Merhav Ampal Energy Limited
Partnership, have no maturity date, bear no interest and are not linked to any
index. Assuming maturity dates of 5 and 10 years, the fair value of those
capital notes for such dates will be $79.8 million and $56.8 million,
respectively.
|
As
of December 31,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
|
(U.S.
Dollars in thousands)
|
||||||||||||||||
|
Financial
assets:
|
||||||||||||||||
|
Cash
and cash equivalents
|
$ | 71,377 | $ | 71,377 | $ | 68,682 | $ | 68,682 | ||||||||
|
Deposits,
notes and loans receivable
|
45,256 | 45,256 | 58,968 | 56,629 | ||||||||||||
|
Investments
|
29,345 | 29,345 | 52,859 | 52,859 | ||||||||||||
| $ | 145,978 | $ | 145,978 | $ | 180,509 | $ | 178,170 | |||||||||
|
Financial
liabilities:
|
||||||||||||||||
|
Notes
and loans payable
|
$ | 394,918 | $ | 384,173 | $ | 379,732 | $ | 367,521 | ||||||||
|
Debentures
outstanding
|
215,325 | 210,435 | 216,724 | 210,311 | ||||||||||||
| $ | 610,243 | $ | 594,608 | $ | 596,456 | $ | 577,831 | |||||||||
Note
6 – Intangible assets
The
following table presents the components of the Company’s acquired intangible
assets with definite lives:
|
Original
amount
|
Amortized
balance
|
|||
|
December
31,
|
December
31,
|
|||
|
Weighted
average
amortization
period
|
2009
|
2009
|
2008
|
|
|
Years
|
U.S.
Dollars in thousands
|
|||
|
Options
to purchase ships *
|
At
time of exercise
|
$ 4,653
|
$ 2,811
**
|
$ 4,653
|
|
Ships
leasing
|
2-4
|
6,192
|
3,037
|
4,512
|
|
Supplier
relation
|
8-9
|
4,882
|
2,993
|
3,839
|
|
Customer
relation
|
18-19
|
2,064
|
1,536
|
1,779
|
|
Identifiable
intangible assets
|
17,791
|
10,377
|
14,783
|
|
The
annual estimated amortization expense relating to Ampal’s amortizable intangible
assets existing as of December 31, 2009, for each of the four years in the
period ending December 31, 2013, is approximately $5.2 million.
* The
options expire in 2012.
** During
2009 one of the options to purchase ships was exercised and $1.9 million was
reclassified from intangible assets to fixed assets.
21
Note
7 – Goodwill
The
changes in the carrying amount of goodwill for the years ended December 31, 2009
and 2008 are as
follows:
(U.S.
Dollars in thousands)
|
Balance
as of January 1, 2008
|
$ | 50,406 | ||
|
Changes
during 2008:
|
||||
|
Goodwill
acquired during the year
|
$ | 906 | ||
|
Translation
differences
|
$ | 244 | ||
|
Balance
as of December 31,. 2008
|
$ | 51,556 | ||
|
Changes
during 2009:
|
||||
|
Translation
differences
|
$ | 634 | ||
|
Balance
as of December 31, 2009
|
$ | 51,878 |
The
Company recorded the goodwill as part of the purchase of Gadot, and as such it
is part of the chemical segment.
Note
8 – Fixed assets
The
balance of fixed assets as of December 31, 2009 and 2008 is comprised as
follows:
|
As
of December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cost:
|
(U.S.
Dollars in thousands)
|
|||||||
|
Vessels
|
$ | 108,289 | $ | 66,526 | ||||
|
Trailers
|
9,355 | 10,262 | ||||||
|
Land
|
3,455 | 2,843 | ||||||
|
Real
estate
|
19,624 | 17,629 | ||||||
|
Tankers
|
19,971 | 19,704 | ||||||
|
Motor
vehicles
|
724 | 1,866 | ||||||
|
Equipment
|
4,788 | 3,192 | ||||||
|
Leashold
improvement
|
3,570 | 3,348 | ||||||
| 169,776 | 125,370 | |||||||
|
Accumulated
depreciation
|
21,038 | 13,175 | ||||||
|
Fixed
assets, net
|
$ | 148,738 | $ | 112,195 | ||||
Depreciation
expenses amounted to approximately $7,863, $9,345and $417 (in thousands) for the
years ended December 31, 2009, 2008 and 2007, respectively.
Note
9 – Notes and Loans Payable
Notes
issued to institutional investors in Israel (in the amount of $97.1 million),
the convertible note issued to Merhav and other loans payable pursuant to bank
borrowings are either in U.S. dollars, linked to the CPI in Israel or in
unlinked New Israel Shekels, with interest rates varying depending upon their
linkage provision and mature between 2009-2019.
The
Company finances its general operations and other financial commitments through
bank loans from Bank Hapoalim, Union Bank of Israel and IDB. As of December 31,
2009, the outstanding indebtedness under these bank loans totaled $394.9 million
and the loans mature through 2009-2019.
As of
December 31, 2009, the Company has a $6.6 million loan with Union Bank of Israel
that bears interest at the rate of LIBOR plus 2% to be repaid in six annual
installments commencing on April 2, 2008 and various other loans with Union Bank
of Israel in the aggregate amount of $5.3 million bearing interest at rates
between 2.25% and 2.9% to be repaid until 2011.
22
As of
December 31, 2009, the Company has a $13.5 million loan with Bank Hapoalim as
part of a $27 million dollar loan facility. The funds borrowed under the loan
facility are due in six annual installments commencing on December 31, 2007 and
bear interest at an annual rate of LIBOR plus 2%. The related loan agreement
contains financial and other covenants including an acceleration of payment
upon the occurrence of certain changes in the ownership of the Company’s
Class A Stock. As of December 31, 2009, the Company is in compliance with its
debt covenants.
The
Company has a short term loan from Bank Hapoalim in the amount of $3.5 million,
bearing interest of 2.88%, which is to be repaid by June 2010 and a revolving
short term loan in the amount of $3.0 million bearing interest of 4.5
%.
As of
December 31, 2009, Gadot, a wholly owned subsidiary of Ampal, has short term
loans, including current maturities, payable in the amount of $98.8 million and
long term loans payable in the amount of $79.3 million. The various short term
loans payable are either unlinked or linked to the USD or Euro and bear interest
at rates between 3% to 7%. The various long term loans payable are either
unlinked or linked to the CPI in Israel or linked to the USD or Euro and bear
interest at rates between 4.4% to 9.1%.
As of
December 31, 2009, the Company has two equal loans of approximately $43.7
million between MAE and IDB. The first loan is a revolving loan that has no
principal payments and may be repaid in full or in part on December 31 of each
year until 2019, when a single balloon payment will become due. The second loan
also matures in 2019, has no principal payments for the first 1.5 years, and
shall thereafter be paid in equal installments over the remaining 9.5 years of
the term. Interest on both loans accrues at a floating rate equal to LIBOR plus
a percentage spread and is payable on a current basis. Ampal has guaranteed all
the obligations of MAE under the Credit Facility and Ampal’s interest in Gadot
has also been pledged to IDB as a security for the Credit Facility. Yosef
Maiman has agreed to maintain ownership of a certain amount of the Company’s
Class A Common Stock. The Credit Facility contains customary affirmative and
negative covenants for credit facilities of this type.
The
weighted average interest rates and the balances of these short-term borrowings
at December 31, 2009 and December 31, 2008 were 2.4% on $170.9 million and 5.1%
on $157.2 million, respectively.
Payments
due as of December 31, 2009:
|
(U.S.
Dollars in thousands)
|
||||||||||||
|
Short-Term
Debt
|
Long-Term
Debt
|
Total
|
||||||||||
|
2010
|
$ | 170,922 | $ | -- | $ | 170,922 | ||||||
|
2011
|
113,407 | 113,407 | ||||||||||
|
2012
|
25,795 | 25,795 | ||||||||||
|
2013
|
9,047 | 9,047 | ||||||||||
|
2014
|
6,658 | 6,658 | ||||||||||
|
After
year 2014
|
69,088 | 69,088 | ||||||||||
| $ | 170,922 | $ | 223,996 | $ | 394,917 | |||||||
Note
10 – Debentures
On April
29, 2008, Ampal completed a public offering in Israel of NIS 577.8 million
(approximately $166.8 million) aggregate principal amount of Series B Debentures
due 2017. The debentures are linked to the Israeli CPI and carry an annual
interest rate of 6.6%. The debentures rank pari passu with Ampal’s unsecured
indebtedness. The debentures will be repaid in five equal annual installments
commencing on January 31, 2012, and the interest will be paid semi-annually. As
of December 31, 2009, the outstanding debt under the debentures amounts to
$143.2 million, due to the change in valuation of the New Israeli Shekel as
compared to the U.S. dollar. Ampal deposited an amount of $44.6 million with
Clal Finance Trusties 2007 Ltd. in accordance with a trust agreement dated April
6, 2008, to secure the first three years worth of payments of interest on the
debentures. As of December 31, 2009, the outstanding amount of the deposit was
$25.3 million.
On
November 20, 2006, the Company entered into a trust agreement with Hermetic
Trust (1975) Ltd. pursuant to which the Company issued notes to institutional
investors in Israel in the principal aggregate amount of NIS 250.0 million
(approximately $58.0 million) with an interest rate of 5.75%, which is linked to
the Israeli CPI. The debentures were registered for trading on the TASE in
August 2007. The notes shall rank pari passu with the Company’s
unsecured indebtedness. The notes will be repaid in five equal annual
installments commencing on November 20, 2011, and the interest will be paid
semi-annually. As of December 31, 2009, the outstanding debt under the notes
amounts to $67.8 million, due to the change in valuation of the New Israeli
Shekel as compared to the U.S. dollar.
23
|
Series A Debentures
|
Series B Debentures
|
|||
|
par value in NIS in
thousands
|
U.S. Dollars in thousands
|
par value in NIS in
thousands
|
U.S. Dollars in
thousands
|
|
|
Date
of issuance
|
November
20, 2006
|
April
29, 2008
|
||
|
Linkage
|
Israeli
CPI
|
Israeli
CPI
|
||
|
Interest
|
5.75%
|
6.6%
|
||
|
Maturity
date
|
November
2015
|
January
2016
|
||
|
Issuance
|
250,000
|
57,978
|
577,823
|
166,856
|
|
Purchased
in 2008
|
5,074
|
1,403
|
68,724
|
19,003
|
|
Balance
as of December 31, 2008
|
244,926
|
68,995
|
509,099
|
138,661
|
|
Purchased
in 2009
|
15,039
|
3,795
|
7,929
|
1,936
|
|
Balance
as of December 31, 2009
|
229,887
|
67,772
|
501,170
|
143,167
|
As of
December 31, 2009, Gadot had $6.7 million outstanding under its other
debentures. These debentures are not convertible into shares and are repayable
in five equal annual installments on September 15, of each of the years
2008 through 2012. The unsettled balance of the principal of the debentures
bears annual interest at the rate of 5.3%. The principal and interest of the
debentures are linked to the CPI in Israel and the interest is payable in
semi-annual installments on March 15 and September 15 of each of the
years 2006 through 2012.
Note
11 – Accounts payable accrued expenses and others
|
(a)
|
The
balance of accounts payable accrued expenses and others as of December 31,
2009 and 2008 is comprised as
follows:
|
|
As
of December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
(U.S.
Dollars in thousands)
|
||||||||
|
Short
term:
|
||||||||
|
Deferred
income
|
$ | 1,836 | $ | 1,254 | ||||
|
Accrued
expenses
|
23,859 | 32,607 | ||||||
|
Trade
|
50,208 | 43,823 | ||||||
|
Others
|
389 | 6,241 | ||||||
| 76,292 | 83,925 | |||||||
|
Long
term:
|
||||||||
|
Others
|
9,137 | 9,476 | ||||||
| $ | 85,429 | $ | 93,401 | |||||
|
(b)
|
Accrued
severance liabilities
|
Israeli
labor laws and agreements require payment of severance pay upon dismissal of an
employee or upon termination of employment in certain other circumstances. Ampal
severance pay liability in Israel, which reflects the undiscounted amount of the
liability as if it was payable at each balance sheet date, is calculated based
upon length of service and the latest monthly salary (one month’s salary for
each year worked).
The
Company’s liability for severance pay pursuant to Israeli law is partly covered
by insurance policies. The accrued severance pay liability of $9.2 million is
included in accounts payable, accrued expenses and other liabilities -
others.
24
The
Company expects that the payments relating to future benefits to its employees
upon their retirement at normal retirement age in the next 10 years will be
immaterial. These payments are determined based on recent salary rates and do
not include amounts that might be paid to employees who will cease working with
the Company before their normal retirement age or amounts paid to employees
whose retirement age extends beyond the year 2017.
Note
12 – Shareholders’ Equity
Set forth
below is our treasury stock as of December 31, 2009, 2008 and 2007:
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(U.S.
Dollars in thousands)
|
||||||||||||
|
CLASS
A STOCK
|
||||||||||||
|
Balance,
beginning of year – 6,851,454, 5,574,789 and 5,574,789 shares, at
cost
|
$ | (28,500 | ) | $ | (27,874 | ) | $ | (27,874 | ) | |||
|
Shares
purchase 292,103 and 1,366,415
|
(263 | ) | (1,075 | ) | -- | |||||||
|
Issuance
of 89,750 shares
|
-- | 449 | -- | |||||||||
|
Balance,
end of year – 7,143,557, 6,851,454and 5,574,789 shares, at
cost
|
$ | (28,763 | ) | $ | (28,500 | ) | $ | (27,874 | ) | |||
|
Balance
end of year
|
$ | (28,763 | ) | $ | (28,500 | ) | $ | (27,874 | ) | |||
Note
13 – Stock Options
On
February 15, 2000, the Stock Option Committee approved a new Incentive Plan
(“2000 Plan”), under which the Company has reserved 4 million shares of Class A
Stock, permitting the granting of options to all employees, officers and
directors. The 2000 Plan was approved by the Board of Directors of Ampal (the
“Board”) at the meeting held on March 27, 2000, and was approved by a majority
of the Company’s shareholders at the June 29, 2000 annual meeting of
shareholders. The plan remains in effect for a period of ten years. As of
December 31, 2009, 3,053,000 options under the 2000 Plan are
outstanding.
The
option term is for a period of ten years from the grant date for the options
granted under the 2000 Plan. If the options are not exercised and the shares are
not paid for by such date, all interests and rights of any grantee shall expire.
These options were granted for no consideration.
The
options granted under the 2000 Plan may be either incentive stock options, at an
exercise price to be determined by the Stock Option Compensation Committee (the
“Committee”) but not less than 100% of the fair market value of the underlying
options on the date of grant, or non-incentive stock options, at an exercise
price to be determined by the Committee. The stock options granted under the
Plans were granted either at or above market value. Under the 2000 plan, the
Committee may also grant, at its discretion, “restricted stock,” “dividend
equivalent awards,” which entitle the recipient to receive dividends in the form
of Class A Stock, cash or a combination of both and “stock appreciation rights,”
which permit the recipient to receive an amount in the form of Class A Stock,
cash or a combination of both, equal to the number of shares of Class A Stock
with respect to which the rights are exercised, multiplied by the excess of the
fair market value of the Class A Stock on the exercise date over the exercise
price. During 2009, no such compensation instruments were granted by the
Committee.
Under
each of the 2000 plan, all granted but unvested options become immediately
exercisable upon the occurrence of a change in control of the
Company.
The
weighted average grant date fair value of options granted during
2009, 2008 and 2007 was 1.07, 0.477 and 2.273, respectively.
On
December 8, 2008, Ampal’s Committee and its Board approved the repricing of
outstanding options to purchase, in the aggregate, 2,270,000 shares of Ampal’s
Class A Stock, which were previously granted to ten of the Company’s current
employees, executive officers and directors pursuant to Ampal’s 2000 Plan. The
outstanding options had been originally issued with exercise prices ranging from
$3.12 to $5.35 per share, which represented the then current market prices of
Class A Stock on the dates of the original grants. The repricing was effected by
canceling the outstanding options, and granting to each holder of cancelled
outstanding options a new option, with a 10 year term, to purchase the total
number of shares of Class A Stock underlying such cancelled outstanding options,
at an exercise price equal to $1.17 per share, the closing price of Class A
Stock on NASDAQ on December 5, 2008, the most recent closing price prior to the
approval by the Board of and the Committee. The repriced options maintain the
vesting schedule of the cancelled outstanding options. The total expense for the
repricing was approximately 199 thousand dollars and would amortize in a period
of three years until 2011.
25
The
following table summarizes the activity of both Plans for the years 2009, 2008
and 2007 respectively:
|
Options
(in
thousands)
|
Weighted-
Average
Exercise
Price
(U.S.
Dollars)
|
Weighted-
Average
Remaining
Contractual
Term
(in
years)
|
Aggregate
Intrinsic
Value
(U.S.
Dollars in
thousands)
|
|||||||||||||
|
Outstanding
at January 1, 2009
|
2,921 | $ | 1.53 | |||||||||||||
|
Granted
at fair value
|
180 | $ | 2.35 | |||||||||||||
|
Exercised
|
-- | $ | -- | |||||||||||||
|
Forfeited
|
(48 | ) | $ | 1.17 | * | |||||||||||
|
Expired
|
-- | $ | -- | |||||||||||||
|
Outstanding
at December 31, 2009
|
3,053 | $ | 1.29 | 7.03 | 4,303 | |||||||||||
|
Exercisable
at December 31, 2009
|
2,211 | $ | 1.24 | 6.42 | 3,219 | |||||||||||
* After
repricing
|
Options
(in
thousands)
|
Weighted-
Average
Exercise
Price
(U.S.
Dollars)
|
Weighted-
Average
Remaining
Contractual
Term
(in
years)
|
Aggregate
Intrinsic
Value
(U.S.
Dollars in
thousands)
|
|||||||||||||
|
Outstanding
at January 1, 2008
|
2,434 | $ | 1.43 | * | ||||||||||||
|
Granted
at fair value
|
580 | $ | 1.17 | |||||||||||||
|
Exercised
|
(89 | ) | $ | 3.31 | ||||||||||||
|
Forfeited
|
(4 | ) | $ | 3.50 | ||||||||||||
|
Expired
|
-- | $ | -- | |||||||||||||
|
Outstanding
at December 31, 2008
|
2,921 | $ | 1.53 | 7.13 | -- | |||||||||||
|
Exercisable
at December 31, 2008
|
1,815 | $ | 1.26 | 5.57 | -- | |||||||||||
* After
repricing
|
Options
(in
thousands)
|
Weighted-
Average
Exercise
Price
(U.S.
Dollars)
|
Weighted-
Average
Remaining
Contractual
Term
(in
years)
|
Aggregate
Intrinsic
Value
(U.S.
Dollars in
thousands)
|
|||||||||||||
|
Outstanding
at January 1, 2007
|
2,164 | $ | 3.83 | |||||||||||||
|
Granted
at fair value
|
270 | $ | 5.35 | |||||||||||||
|
Exercised
|
-- | $ | -- | |||||||||||||
|
Forfeited
|
-- | $ | -- | |||||||||||||
|
Expired
|
-- | $ | -- | |||||||||||||
|
Outstanding
at December 31, 2007
|
2,434 | $ | 4.00 | 7.15 | 8,251 | |||||||||||
|
Exercisable
at December 31, 2007
|
1,433 | $ | 3.49 | 6.0 | 5,589 | |||||||||||
Valuation
and Expenses
The fair
value of each stock option is estimated on the date of grant using the
Black-Scholes option pricing model that uses the assumptions noted below. The
Company developed an expected option term assumption based on exercise patterns of the
company. Expected volatility is based on the historical volatility of the
Class A common stock. The risk free rate is based on the U.S. Treasury
yield curve for a term consistent with the expected life of the award in effect
at the date of grant.
The fair
value of options granted during the years ended December 31, 2009, 2008 and 2007
were estimated using the following weighted average assumptions: (1) expected
life of options of 5, 5 and 6 years, respectively; (2) dividend yield of 0%; (3)
volatility of 49.84%, 44.06% and 35.64%, respectively; and (4) risk free
interest of 2.31%, 1.86% and 4.30%, respectively.
26
Total
stock-based compensation expense recognized was approximately $719,742 and
$1,365,000 for the years 2009 and 2008, respectively. No share-based
compensation was capitalized in the consolidated financial
statements.
At
December 31, 2009, there was $2.52 million of total unrecognized, pre-tax
compensation cost related to non-vested stock options. This cost is expected to
be recognized over a weighted-average period of approximately four years. The
Company settles employee stock options exercises primarily with newly issued
common shares and occasionally with treasury shares.
Note
14 – Earnings (Loss) Per Class A Share
Basic net
earning (loss) per share is computed by dividing net income (loss) by the
weighted-average number of common stock shares outstanding for the period. In
2009, 2008 and 2007, all outstanding stock options and have been excluded from
the calculation of the diluted loss per share because all such securities are
anti-dilutive for these years presented. A reconciliation of the numerator and
denominator used in the calculation of basic and diluted net income per share
follows (in thousands, except per share amounts):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
loss attributable to Ampal's shareholders from continuing
operations
|
$ | (20,802 | ) | $ | (16,711 | ) | $ | (13,578 | ) | |||
|
Net
income from discontinued operations
|
-- | -- | 21,344 | |||||||||
|
Weighted
average class A shares outstanding
|
56,151 | 57,707 | 51,362 | |||||||||
|
Basic
and diluted net income (loss) per share:
|
||||||||||||
|
Loss
from continuing operations
|
(0.37 | ) | (0.29 | ) | (0.26 | ) | ||||||
|
Discontinued
operations
|
-- | -- | 0.42 | |||||||||
|
Basic
and diluted
|
$ | (0.37 | ) | $ | (0.29 | ) | $ | 0.16 | ||||
Options
and rights that were not included in the calculations of diluted earnings per
Class A shares for the years ended December 31, 2009, 2008 and 2007 because such
shares are anti-dilutive are as follows:
|
Year
ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(Shares
in thousands)
|
||||||||||||
|
Options
and Rights
|
3,053 | 2,921 | 2,434 | |||||||||
27
Note
15 – Income Taxes
|
Fiscal
Year Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(U.S.
Dollars in thousands)
|
||||||||||||
|
The
components of income tax expense (benefit) are:
|
||||||||||||
|
Continuing
operations
|
$ | (11,038 | ) | $ | (6,526 | ) | $ | (5,625 | ) | |||
|
Discontinued
operations
|
- | - | 7,651 | |||||||||
| (11,038 | ) | (6,526 | ) | 2,026 | ||||||||
|
The
components of current and deferred income tax expense (benefit)
are:
|
||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | - | $ | - | $ | - | ||||||
|
Foreign
|
(164 | ) | 269 | |||||||||
|
State
and local
|
3 | |||||||||||
|
Deferred:
|
||||||||||||
|
State
and local
|
- | - | - | |||||||||
|
Federal
|
(9,104 | ) | (4,333 | ) | (7,757 | ) | ||||||
|
Foreign
|
(1,937 | ) | (2,029 | ) | 1,863 | ) | ||||||
|
Total
|
$ | (11,038 | ) | $ | (6,526 | ) | $ | (5,625 | ) | |||
|
The
domestic and foreign components of income (loss) before income taxes and
minority are:
|
||||||||||||
|
Domestic
|
$ | (23,508 | ) | $ | (9,055 | ) | $ | 845 | ||||
|
Foreign
|
(5,567 | ) | (12,872 | ) | (18,472 | ) | ||||||
|
Total
|
$ | (29,075 | ) | $ | (21,927 | ) | $ | (17,627 | ) | |||
|
A
reconciliation of income taxes between the statutory and effective tax is
as follows:
|
||||||||||||
|
Federal
income tax (benefit) at 35%
|
$ | (10,176 | ) | $ | (7,424 | ) | $ | (5,993 | ) | |||
|
Taxes
on foreign Gain (Loss) below U.S. rate
|
(5,505 | ) | 2,569 | (873 | ) | |||||||
|
Change
in unrecognized tax benefits (expense)
|
- | (4,196 | ) | 2,803 | ||||||||
|
Changes
in valuation allowance
|
4,315 | 1,938 | (1,913 | ) | ||||||||
|
Other
|
328 | 586 | 351 | |||||||||
|
Total
effective tax: 38.0%; 29.8% and 31.9%
|
$ | (11,038 | ) | $ | (6,526 | ) | $ | (5,625 | ) | |||
|
As
of December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
The
components of deferred tax assets and liabilities are as
follows:
|
||||||||
|
Net
operating loss and capital loss carryforwards
|
$ | 56,755 | $ | 42,612 | ||||
|
Unrealized
losses on investments
|
700 | 700 | ||||||
|
Foreign
tax credits carryforwards
|
4,180 | 5,920 | ||||||
|
Total
deferred assets
|
61,635 | 49,232 | ||||||
|
Valuation
allowance
|
(30,728 | ) | (26,413 | ) | ||||
|
Net
deferred tax assets
|
30,907 | 22,819 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Unrealized
gain from securities
|
417 | 2,140 | ||||||
|
Depreciation
and amortization
|
2,516 | 3,825 | ||||||
|
Total
deferred tax liability
|
2,933 | 5,965 | ||||||
|
Net
deferred tax assets
|
$ | 27,974 | $ | 16,854 | ||||
28
As of
December 31, 2008, the Company recognized a tax liability of $607,000. During
2009 the company released ASC 740 liability at the amount of $25,000 due the
lapse of statute of limitations.
The following table summarizes the
activity related to the
Company’s unrecognized tax benefit liability:
|
U.S. dollars in thousands
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Balance
at the beginning of the year
|
$ | 607 | $ | 4,803 | $ | 2,000 | ||||||
|
Increases
related to previous years tax positions
|
-- | -- | 2,803 | |||||||||
|
Expiration
of the statute of limitations for the assessment of taxes
|
(25 | ) | (4,196 | ) | -- | |||||||
|
Balance
at the end of the year
|
$ | 582 | $ | 607 | $ | 4,803 | ||||||
All of
the Company’s unrecognized tax benefit liability would affect the
Company’s effective tax rate if recognized. Because of the existence of net
operating loss carryforwards, the resulting unfavorable resolution of any of the
Company’s uncertain tax positions would not result in the imposition of interest
or penalties. Accordingly, the Company did not record any interest or penalties
related to the unrecognized tax benefit liability. The Company does not expect
its unrecognized tax benefit liability to change significantly over the next
12 months.
A summary
of open tax years by major jurisdiction is presented
below:
|
Years:
|
Jurisdiction:
|
|
2006-2009
|
Israel
|
|
2007-2009
|
United
States (1)
|
(1) Includes federal, state, and
provincial (or similar
local jurisdictions) tax positions.
As of
December 31, 2009, valuation allowance is provided against tax benefits on
foreign net operating loss carryforwards of $30.7 million.
As of
December 31, 2009, the Company has foreign tax credits of $4.2 million that will
expire in the years 2014 through 2017.
As of
December 31, 2009, the Company has U.S. federal net operating loss carryforwards
of approximately $49.2 million that will expire in the years 2025 through 2029.
The utilization of net operating loss carryforwards may be subject to
substantial annual limitations if there has been a significant “change in
ownership.” Such a “change in ownership,” as described in Section 382 of the
Internal Revenue Code, may substantially limit the Company’s utilization of the
net operating loss carryforwards.
Note
16 – Discontinued operations
On August
5, 2007, the Company completed the sale of Am-Hal. Am-Hal was a wholly owned
subsidiary which owns and operates a chain of senior citizens facilities located
in Israel. Accordingly, Am-Hal has been reported as a discontinued operation for
all periods presented.
Note
17 – Investments in Affiliates
The
companies accounted for by the equity method and the Company’s share of equity
in those investees are:
|
As of December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
%
|
%
|
|||||||
|
Bay
Heart Ltd.
|
37 | 37 | ||||||
|
Conmart
Ltd.
|
50 | 50 | ||||||
|
Global
Wind Energy
|
50 | 50 | ||||||
|
Temco
International Ltd.
|
50 | 50 | ||||||
|
Gadko
Logistics Ltd.
|
50 | 50 | ||||||
|
Trinet
Investment in High-Tech Ltd.
|
37.5 | 37.5 | ||||||
|
Trinet
Venture Capital Ltd.
|
50 | 50 | ||||||
Affiliates'
assets and pre-tax income (loss) are not significant compared to the
consolidated total assets and pre-tax loss, respectively .
29
Note
18 – Operating Segments Information
Segment
information presented below results primarily from operations in
Israel.
The
chemical segment consists of the investment in Gadot, an Israeli Company, which
operate in distribution and marketing of liquid chemicals for raw materials used
in the chemical industry.
The
energy segment consists of the investment in EMG, an Egyptian Joint Stock
Company, which holds the right to supply natural gas to Israel through a
pipeline to be constructed from Egypt to Israel, and GWE, a joint venture that
focuses on the new development and acquisition of controlling interests in
renewable energy.
The real
estate rental segment consisted of rental property owned in Israel and the
United States leased to unrelated parties, and operations of Am-Hal Ltd. The
real estate owned by the Company was sold in September 2006, and on August 5,
2007, the Company sold all of its interest in Am-Hal (see “Note
3”).
The
leisure-time segment consists of Country Club Kfar Saba Ltd. ("Kfar Saba"), the
Company’s 51%-owned subsidiary located in Israel.
The
finance segment consists of all other activity which is not part of the above
segments.
| Ampal - Operating Segments Information | ||||||||||||||||||||||||||||||||
| (U.S. Dollars in thousands) | ||||||||||||||||||||||||||||||||
|
Chemical
|
Finance
|
Real
Estate
|
Energy
|
Leisure-Time
|
Inter-Company
Adj.
|
Other
Adj.
|
Total
|
|||||||||||||||||||||||||
|
2009
|
||||||||||||||||||||||||||||||||
|
Revenues
(*)
|
393,740 | 14,444 | 2,700 | (5,399 | ) | 405,485 | ||||||||||||||||||||||||||
|
Equity
in Earnings (losses) of Affiliates
|
1,239 | (639 | ) | (1,814 | ) | (1,214 | ) | |||||||||||||||||||||||||
|
Interest
Income
|
3,553 | 3,553 | ||||||||||||||||||||||||||||||
|
Interest
expense
|
6,751 | 25,924 | 194 | 32,869 | ||||||||||||||||||||||||||||
|
Pretax
Operating Income (loss)
|
(972 | ) | (30,241 | ) | 162 | (1,214 | ) | (32,265 | ) | |||||||||||||||||||||||
|
Income
(Benefit) Tax expense
|
535 | (11,579 | ) | 6 | (11,038 | ) | ||||||||||||||||||||||||||
|
Net
Income (loss) for the year
|
(268 | ) | (19,301 | ) | (1,814 | ) | 156 | (21,227 | ) | |||||||||||||||||||||||
|
Total
Assets for year end
|
382,403 | 509,237 | 361,323 | 3,396 | (335,759 | ) | 920,600 | |||||||||||||||||||||||||
|
Investment
in Affiliates for year end
|
1,576 | 19 | 5,894 | 7,489 | ||||||||||||||||||||||||||||
|
Capital
Expenditures
|
43,399 | 363 | 471 | 44,233 | ||||||||||||||||||||||||||||
|
Depreciation
and Amortization
|
14,741 | 1,003 | 174 | 15,918 | ||||||||||||||||||||||||||||
|
2008
|
||||||||||||||||||||||||||||||||
|
Revenues
(*)
|
535,424 | 19,852 | 2,770 | 558,046 | ||||||||||||||||||||||||||||
|
Equity
in Earnings (losses) of Affiliates
|
1,599 | (583 | ) | (2,501 | ) | 76 | (1,409 | ) | ||||||||||||||||||||||||
|
Interest
Income
|
4,522 | 4,522 | ||||||||||||||||||||||||||||||
|
Interest
expense
|
7,834 | 33,049 | 260 | 41,143 | ||||||||||||||||||||||||||||
|
Pretax
Operating Income (loss)
|
(1,844 | ) | (18,599 | ) | 15 | (1,409 | ) | (21,837 | ) | |||||||||||||||||||||||
|
Income
(Benefit) Tax expense
|
286 | (6,757 | ) | (55 | ) | (6,526 | ) | |||||||||||||||||||||||||
|
Net
Income (loss) for the year
|
(531 | ) | (12,424 | ) | (2,501 | ) | 145 | (15,311 | ) | |||||||||||||||||||||||
|
Total
Assets for year end
|
378,154 | 527,102 | 361,323 | 2,652 | (333,314 | ) | 935,917 | |||||||||||||||||||||||||
|
Investment
in Affiliates for year end
|
6,030 | 19 | 5,598 | 11,647 | ||||||||||||||||||||||||||||
|
Capital
Expenditures
|
39,256 | 3,050 | 103 | 42,409 | ||||||||||||||||||||||||||||
|
Depreciation
and Amortization
|
12,162 | 559 | 210 | 12,931 | ||||||||||||||||||||||||||||
30
|
Ampal
- Operating Segments Information
|
||||||||||||||||||||||||||||||||
|
(U.S.
Dollars in thousands)
|
||||||||||||||||||||||||||||||||
|
Chemical
|
Finance
|
Real
Estate
|
Energy
|
Leisure-Time
|
Inter-Company
Adj.
|
Other
Adj.
|
Total
|
|||||||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||||||
|
Revenues
(*)
|
31,922 | 4,867 | 2,531 | 39,320 | ||||||||||||||||||||||||||||
|
Equity
in Earnings (losses) of Affiliates
|
(258 | ) | 57 | (1,535 | ) | 213 | (1,523 | ) | ||||||||||||||||||||||||
|
Interest
Income
|
3,594 | 3,594 | ||||||||||||||||||||||||||||||
|
Interest
expense
|
148 | 9,783 | 191 | 10,122 | ||||||||||||||||||||||||||||
|
Pretax
Operating Income (loss)
|
4,134 | (20,349 | ) | 111 | (1,523 | ) | (17,627 | ) | ||||||||||||||||||||||||
|
Income
(Benefit) Tax expense
|
1,099 | (6,790 | ) | 66 | (5,625 | ) | ||||||||||||||||||||||||||
|
Net
Income (loss) for the year
|
2,777 | (13,502 | ) | (1,535 | ) | 258 | (12,002 | ) | ||||||||||||||||||||||||
|
Total
Assets for year end
|
336,024 | 404,016 | 361,323 | 2,964 | (329,538 | ) | 774,789 | |||||||||||||||||||||||||
|
Investment
in Affiliates for year end
|
8,924 | 19 | (325 | ) | 397 | 9,015 | ||||||||||||||||||||||||||
|
Capital
Expenditures
|
43 | 1,050 | 85 | 1,178 | ||||||||||||||||||||||||||||
|
Depreciation
and Amortization
|
269 | 810 | 340 | 1,419 | ||||||||||||||||||||||||||||
(*)
Including additional revenues line items that are specific to the relevant
segment.
Corporate
office expense is principally applicable to the financing operation and has been
charged to that segment above. Revenues and pretax operating gain above exclude
equity in earnings of affiliates.
Note
19– Commitments and Contingencies
|
|
(a)
|
The
combined minimum annual lease payments on Ampal’s corporate offices in New
York and in Israel and its subsidiary Kfar Saba in 2009 were $0.6 million.
The lease of the corporate office in New York expires in 2012, the lease
of the office in Herzelia Pituach expires in 2016 and the Kfar Saba lease
expires in 2038. In the years 2010-2014, the combined annual lease
payments on those premises will be in an aggregate amount of $2.4 million,
and thereafter, an amount totaling $5.7 million.
In
2009 the Company paid annual lease payments of $119.0 million. In the
years 2010-2014, the combined annual lease payments on those premises will
be in an aggregate amount of $64.9
million.
|
|
|
(b)
|
As
of December 31, 2009, Gadot leases six vessels, with an aggregate loading
capability of approximately 65,600 tons. The lease period for two of the
vessels is until the end of 2010. The lease period for additional two of
the vessels is until 2011, and the remaining two vessels lease period
shall expire during 2012 with an option to purchase. One of the seven
leased vessels was purchased in June 2009.
The
aggregate lease fees for the six leased vessels in 2009 amounted to $27.2
million. In 2010, the lease payments are expected to amount to
approximately $20.2 million and are expected to decrease to $11.5 million
for the year 2011 and thereafter are expected to decrease to $9.0
million.
Gadot
has contracted a shipyard for the construction of four additional vessels
built with a loading capability of 17,500 each, for a consideration of
approximately $29 million per vessel. These vessels will be delivered
during 2010 and 2012.
|
|
|
(c)
|
The
combined minimum annual lease payments for Gadot’s offices and other land
used in its operations is expected to amount to approximately $15.1
million.
|
|
|
(d)
|
Gadot
leases a 17,000 square meter storage tank facility located in the northern
bank of the Kishon port in Haifa from the port authority. The lease
expires in 2022. Gadot also leases an additional 56,000 square meter
storage tank area from the port authority located in the southern terminal
of the Kishon port in Haifa in connection with its storage and loading
services. This lease expires in 2014. Gadot also owns an additional 20,000
square meters area adjacent to the northern terminal, serving as its
Israeli logistics facility and analytical and quality assurance
laboratory. The lease payments for the land utilized by the northern and
southern terminals in 2009 were approximately $2.9 million. These lease
fees are calculated according to the amount of space utilized by Gadot and
by the amount and type of materials transported. Gadot has provided the
port authority with bank guarantees in the amount of approximately $1.9
million, linked to the Israeli CPI, in order to secure payments under
these leases.
|
31
|
|
(e)
|
Gadot
grants senior employees that are not interested parties performance
bonuses in addition to their monthly salary. These bonuses are calculated
as a percentage of profits, ranging between 5% and
8%.
|
|
|
(f)
|
One
of Gadot’s subsidiaries is party to an agreement from October 2005 to
receive consulting, management and operating services from a former
minority shareholder for a period of 5 years, in consideration of
approximately $62,400 per month. The agreement expires in October
2010.
|
|
|
(g)
|
The
Company has issued guarantees on certain outstanding loans to its
investees and subsidiaries in the aggregate principal amount
of $41.2 million, as
follows:
|
|
|
(1)
|
The
Company provided a $8.6 million guarantee on indebtedness incurred by Bay
Heart.
|
|
|
(2)
|
$32.6
million guarantees of Gadot for outstanding
loans.
|
|
|
(h)
|
The
Company made a commitment to invest $2.8 million in Star II (2000)
L.P.
|
|
|
(i)
|
Legal
Proceedings:
|
Claims Against Subsidiaries and
Affiliates
Legal
claims arising in the normal course of business have been filed against
subsidiaries and affiliates of the Company.
Gadot
Gadot has
received third party notices in a number of lawsuits regarding pollution of the
Kishon River in Israel. These lawsuits have been filed by various claimants who
claim harm by the polluted water of the river, including soldiers from various
units in the Israeli Defense Forces who trained in the river, fishermen who
fished in the river, the Haifa rowing club and industrial companies that use the
river. Some of the lawsuits are claims for monetary damages (some of the claims
are unlimited in amount; one is for approximately $6 million) and some are for
injunctions against further pollution of the river. Gadot denies liability in
all these claims and has filed statements of defense for each claim. Part of
Gadot’s storage tank facility is leased from the Haifa port authority. In 2001
the port authority requested that Gadot participate in an offer to find a
consultant to examine ground contamination in the area surrounding the facility.
Gadot has responded, denying the existence of ground contamination and, in any
case, that it is the source of such contamination. Gadot believes that if there
is contamination, its source is the contaminated waters of the Kishon River or
the Mediterranean Sea.
Note
20– Subsequent Events
Acquisition
of 012 Smile Communications Ltd.
On
January 31, 2010, Ampal, through its indirect wholly owned subsidiary Merhav
Ampal Energy Ltd. (“MAE”) and MAE's wholly owned subsidiary 012 Smile Telecom
Ltd. ("012 Smile," formerly Ampal Investments and Communications 2009 Ltd.),
closed the transaction to purchase the current on-going business of 012 Smile
Communications Ltd. (“012”), pursuant to an Asset Purchase Agreement (the "012
Agreement") between MAE (on behalf of 012 Smile) and 012, dated November 16,
2009, as amended on January 26, 2010 ("012 Acquisition") for 1.2 billion NIS, or
approximately $322 million. Ampal, through its subsidiaries, acquired
substantially all the assets and liabilities of 012, including all of its
customer and supplier agreements, management, employees, infrastructure,
equipment and other assets, but excluding (i) certain retained cash and other
customary excluded assets, (ii) the rights and obligations of 012 related to the
acquisition of Bezeq – The Israeli Telecommunications Corporation Ltd. and (iii)
certain indebtedness and other liabilities. Prior to closing of the
acquisition, 012 Smile received all required licenses for the conduct of the
business from the Israeli Ministry of Communications ("Ministry of
Communications").
As a
result of the 012 Acquisition, 012 Smile has become a leading provider of
communication services in Israel, offering a wide range of broadband and
traditional voice services. 012 Smile's broadband services include broadband
Internet access with a suite of value-added services, specialized data services
and server hosting, as well as new innovative services such as local telephony
via voice over broadband and a WiFi network of hotspots across Israel.
Traditional voice services include outgoing and incoming international
telephony, hubbing, roaming and signaling and calling card services. 012 Smile
services residential and business customers, as well as Israeli cellular
operators and international communication services providers through its
integrated multipurpose network, which allows 012 Smile to provide services to
almost all of the homes and businesses in Israel. For further information
regarding 012 Smile, see “Telecommunications – 012 Smile Telecom Ltd.” in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
2009.
Ampal
financed the 012 transaction with a combination of (i) available cash, (ii) the
proceeds of a new 012 Credit Facility, dated January 31, 2010 (the “012 Credit
Facility”), between 012 Smile, Bank Leumi Le'Israel B.M. ("Leumi") and Israel
Discount Bank Ltd. ("Discount," and together with Leumi, the "Bank Lenders"),
for 800 million NIS, (approximately $215 million) and (iii) a 012 Loan
Agreement, dated January 31, 2010 (the "012 Loan Agreement"), between MAE, 012
Smile, Harel Insurance Company Ltd. and its affiliates (collectively, "Harel")
and Menora Mivtachim Insurance Ltd. and its affiliates (collectively, "Menora,"
and together with Harel, the "Institutional Lenders"), for 220 million NIS
(approximately $59 million). Ampal has guaranteed the obligations of 012 Smile
under the 012 Credit Facility. For further information regarding the financing
of the 012 transaction, see "Item 7 - Management Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources
- Financing of the 012 Acquisition" in the Company's annual report on Form 10-K
for the fiscal year ended December 31, 2009.
* * * *
*
32
INDEPENDENT
AUDITORS’ REPORT
TO
THE SHAREHOLDERS OF
BAY
HEART LTD.
We
have audited the accompanying balance sheets of Bay Heart Ltd. (“the Company”)
as of December 31, 2009 and 2008, and the consolidated balance sheets as of
those dates, and the related statements of operations, changes in shareholders’
deficiency and cash flows - of the Company and on a consolidated basis - for
each of the three years in the period ended December 31, 2009. These financial
statements are the responsibility of the Company’s Board of Directors and
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis evidence supporting the amounts and
disclosures in the financial statements, 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, except for the omission of disclosures demanded by International
Financial Reporting Standard 7" Financial Instruments : disclosures" the
financial statements referred to above present fairly, in all material respects,
the financial position - of the Company and on a consolidated basis – as of
December 31, 2009 and 2008, and the results of operations, changes in
shareholders’ deficiency and cash flows - of the Company and on a consolidated
basis - for each of the three years in the period ended December 31, 2009, in
conformity with accounting principles generally accepted in Israel.
Accounting
principles generally accepted in Israel differ in certain respects from
accounting principles generally accepted in the United States. With
respect to these financial statements, the difference in the application of the
latter is described in Note 20 in the consolidated financial information in U.S.
dollars
The
condensed consolidated financial information in U.S. dollars presented in Note
20, prepared at the request of an investor, represents a translation of the
Company’s financial statements in nominal values, as stated in Note 20A. In our
opinion, such translation into U.S. dollars was appropriately performed on the
basis stated in Note 20A.
We
draw your attention to Note 1C to the financial statements regarding the
Company’s business condition.
The
Company has ongoing losses, a working-capital deficit and shareholders
deficiency. As stated in that note, the continuance of the Company’s operations
and its ability to satisfy its short-term liabilities is contingent upon the
attainment of financing from the shareholders and/or bank financing
arrangements.
Brightman
Almagor Zohar & Co.
Certified
Public Accountants
Member
firm of Deloitte Touche Tohmatsu
Haifa,
Israel, January 20, 2010.
To
the Board of directors of
Chemship
B.V.
Maarssen
AUDITOR’S
REPORT
INTRODUCTION
We
have audited the financial statements for consolidation purposes 2008 of
Chemship B.V., Maarssen, which comprise the balance sheet as at 31 December,
2008 and 2007, the profit and loss account, the statement of changes in equity
and the statement of cash flows for each of the two years in the period ended
December 31, 2008 and the notes.
MANAGEMENT’S
RESPONSIBILITY
Management
is responsible for the preparation and fair presentation of the financial
statements in question in accordance with accounting principles generally
accepted in the Netherlands. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and
fair presentation of the financial statements in question that are free from
material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
AUDITOR’S
RESPONSIBILITY
Our
responsibility is to express an opinion on the financial statements in question
based on our audit. We conducted our audit in accordance with Dutch law and the
audit standards generally accepted by the Public Company Accounting Oversight
Board (United States of America). This law and the regulations requires that we
plan and perform the audit to obtain reasonable assurance whether the financial
statements in question are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements in question. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of
the financial statements in question.
We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
OPINION
In
our opinion, the financial statements in question give a true and fair view of
the financial position of Chemship B.V. as at 31 December, 2008 and 2007
and of its results, statement of changes in equity and statement of cash flows
for each of the two years in the period ended December 31, 2008 in accordance
with accounting principles generally accepted in the Netherlands.
Rotterdam,
12 February 2009
MAZARS
PAARDEKOOPER HOFFMAN ACCOUNTANTS N.V.
Rivium
Promenade 200 - P.O. box 23123 - 3001 KC Rotterdam
Tel: +31 (0)10 27 71
304/214 - Fax: +31 (0)10 43 66 045 -
mpha.rotterdam@mazars.nl
Mazars
Paardekooper Hoffman Accountants N.V.
With
its registered office in Rotterdam (KvK Rotterdam nr. 24402415).
To
the Board of directors of
FinLog
B.V.
Pernis
AUDITOR’S
REPORT
INTRODUCTION
We
have audited the financial statements for consolidation purposes 2008 of FinLog
B.V., Pernis, which comprise the balance sheet as at 31 December, 2008 and 2007,
the profit and loss account, the statement of changes in equity and the
statement of cash flows for each of the two years in the period ended December
31, 2008 and the notes.
MANAGEMENT’S
RESPONSIBILITY
Management
is responsible for the preparation and fair presentation of the financial
statements in question in accordance with accounting principles generally
accepted in the Netherlands. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and
fair presentation of the financial statements in question that are free from
material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances.
AUDITOR’S
RESPONSIBILITY
Our
responsibility is to express an opinion on the financial statements in question
based on our audit. We conducted our audit in accordance with Dutch law and the
audit standards generally accepted by the Public Company Accounting Oversight
Board (United States of America). This law and the regulations requires that we
plan and perform the audit to obtain reasonable assurance whether the financial
statements in question are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements in question. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of
the financial statements in question.
We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
OPINION
In
our opinion, the financial statements in question give a true and fair view of
the financial position of FinLog B.V. as at 31 December, 2008 and 2007 and
of its results, statement of changes in equity and statement of cash flows for
each of the two years in the period ended December 31, 2008 in accordance with
accounting principles generally accepted in the Netherlands.
Rotterdam,
20 February 2009
MAZARS
PAARDEKOOPER HOFFMAN ACCOUNTANTS N.V.
Rivium
Promenade 200 - P.O. box 23123 - 3001 KC Rotterdam
Tel: +31 (0)10 27 71
304/214 - Fax: +31 (0)10 43 66 045 -
mpha.rotterdam@mazars.nl
Mazars
Paardekooper Hoffman Accountants N.V.
With
its registered office in Rotterdam (KvK Rotterdam nr. 24402415).
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the shareholders of
Hod
Hasharon Sport Center Limited
We
have audited the balance sheets of Hod Hasharon Sport Center Limited (the
“Company”) as of December 31, 2007 and 2006 and the related statements of
operations, changes in shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2007. These financial statements are
the responsibility of the Company’s Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America) and with auditing
standards generally accepted in Israel, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company’s Board
of Directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2007 and 2006 and the results of operations, changes in shareholders’ equity and
cash flows for each of the three years in the period ended December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.
|
Somekh
Chaikin
Certified
Public Accountants (Isr)
|
|
|
Tel
Aviv, Israel
|
|
|
February
26, 2008
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the shareholders of
Hod
Hasharon Sport Center (1992) Limited Partnership
We
have audited the balance sheets of Hod Hasharon Sport Center (1992) Limited
Partnership (the “Company”) as of December 31, 2007 and 2006 and the
related statements of operations, changes in shareholders’ equity and cash flows
for each of the three years in the period ended December 31, 2007. These
financial statements are the responsibility of the Company’s Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America) and with auditing
standards generally accepted in Israel, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company’s Board
of Directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2007 and 2006 and the results of operations, changes in shareholders’ equity and
cash flows for each of the three years in the period ended December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America.
|
Somekh
Chaikin
Certified
Public Accountants (Isr)
|
|
|
Tel
Aviv, Israel
|
|
|
February
26, 2008
|