mortgage refinance company

Jordan Mortgage Refinance Company, A public shareholding company with limited liability, established in pursuance to the Temporary Companies Law No. (1) for the year 1989, registered in the public shareholding Companies Register on 5/6/1996 under No. (314) with a capital of Jordanian Dinars (5) million, and licensed to operate as of 22/7/1996. Head Office : Amman,The Hashemite Kingdom of Jordan . Address : I5 Al - Mahdi Bin Baraka Street/ Western Shmeisani P.O.Box 940743 Amman 11194 Jordan, Tel: 5601417 Fax: 5601542 E-mail: jmrc@go.com.jo Web site: www.jmrc.com.jo 1 Contents Letter from the Chairman of the Board of Directors Economic activity indicators and housing finance market in Jordan during 2005 JMRC's incorporation, objectives, sources of funds, and operations mechanism. Benefits of borrowing from JMRC. Benefits of investing in JMRC bonds JMRC's activities and achievements during 2005. - In the area of refinancing of housing loans. - In the area of borrowing. - In the area of marketing. - In the area of training. Financial analysis of JMRC’s financial statements for the year 2005 JMRC's organizational chart and its human resources. Introductory Background about Executive Management Staff Projected action plan. Other information about JMRC. Agenda of the annual ordinary meeting of the general assembly. Recommendations of the Board of Directors concerning distribution of profits. Financial statements as of 31 December 2005 together with auditor's report. 12 14 16 18 19 20-25 26 28 30 32 33 37 38 39-54 11 HIS MAJESTY KING ABDULLAH II BIN AL HUSSEIN 3 The Board of Directors The Chairman H.E. Dr. Omayah Toukan: Vice Chairman Engineer Shehadeh Abu Hdaib : Members Mr. Ibrahim Daher Miss Malak Ghanim Mr. Jamal Ashoor Mr. Mohammed Mousa Mr. "Mohammed Mazen" AL- Khalha Mr. Zahie Fakhourri Mrs. Simona Sabilla Miss Ghada AL- Farhan Mr. Tawfiq Mukahal Representative, Central Bank of Jordan Representative, Central Bank of Jordan Representative, Social Security Corporation Representative, Arab Bank Representative, Housing Bank for Trade & Finance Representative, Jordan National Bank. Representative, Cairo- Amman Bank Representative, Jordan Commercial Bank Representative, Jordan Kuwait Bank Representative, Housing & Urban Development Corporation Representative, Central Bank of Jordan. Managing Director Mr. Ibrahim Daher Auditors Messrs./ Arab Professionals Member of Grant Thornton International Legal Consultant Advocate Mousa AL-Aaraj 5 * Dr. Umayya Salah Toukan: Chairman of the Board • Academic Qualification: - B.Sc. in in Busniess Administration/ American Univerisyt - Beirut. - Diploma in Economic Development/ Oxford University - London. - PHD in Monetary Economics (Money & Financial Markets)/ Columbia University - N. Y. USA. • Present Position: Governor of the Central Bank of Jordan from 1/1/2001 • Previous Experience: - Head of the Economic Research Department at the Centeral Bank of Jordan. - Economic advisor for the prime minister or Jordan. - Director General of the Stock Exchange in Jordan. - Senior Economist at the Arab monetary fund-Abu Dhabi. - Representative of Jordan in the United Nations - N. Y (Economic & Financial Committee). - Ambassador of Jordan in the Kingdom of Netherlands, the Kindgdom of Belgium, the grand Duch of Luxembourg. - Representative of Jordan in the European Union. * Engineer Shehadeh Abu Hdaib: Introductory Background about Members of the Board of Directors Representative, Housing & Urban Development Corporation • Academic Qualification: - B.Sc. in Civil Engineering/ Texas University/USA -1981 • Present Position: Director General, Housing & Urban Development Corporation since 5/12/2004 • Previous Experience: - Chairman of the Board of Petra Region Authority 1/1/2000-5/12/2004. - Director General, Petra Region Authority 1/9/1999-5/12/2004. - Consultant to Greater Amman Mayor and Director of Central Amman Development Project 1982-1999 - Member of Government Tenders Committee - Representative of the Social Security Corporation in the Board of the National Company for the Toursim Development. - Member of the Higher Organization Council. 7 * Mr. Ibrahim Daher Representative: Central Bank of Jordan • Academic Qualification: - BA in Business Administration/ University of Jordan,1974 - Higher Diploma in Education/ University of Jordan,1977 • Present Position: - Managing Director -JMRC • Previous Experience: - Worked in the Housing Bank for Trade & Finance 1/10/1974-8/3/2004 During his tenure, he held several administrative, financial and banking positions, including: Branch manager for (7) years, director of low-cost housing loans department, executive director of housing loans and due installments, executive director of credit risks management department, and executive director of property and administrative departments. - Member of the Board of Directors/ Housing & Urban Development Corporation. * Miss Malak Ghanim Representative, Central Bank of Jordan • Academic Qualification: - MBA in Banking & Finance Development-Finfrica Foundation Milan/ Italy 1987. - B.Sc. in Accounting/ University of Jordan 1976 • Present Position: - Executive Director- Banks Control Department/ Central Bank of Jordan • Previous Experience: - Holding several leading positions, Central Bank of Jordan since 1976. * Mr. Jamal Ashoor Representative, Social Security Corporation • Academic Qualification: - B.Sc. in Accounting-Arab Republic of Egypt- 1981 • Present Position: - Head of Internal Audit & Control Department - Social Security Corporation • Previous Experience: - Held several leading positions - Social Security Corporation since 1981. 8 * Mr. Mohammed Mousa Representative, Arab Bank • Academic Qualification: - B.Sc. in Mathematics/ Business Administration/ University of Jordan-1978 • Present Position: Corporate Credit Manager/ Corporate Sector Management/ Jordan and Palestine Branches-Arab Bank • Previous Experience: - Head of Guarantees Department-Arab National Bank/JeddahSaudi Arabia, Aug 1982 - Oct 1983. - Credit Facilities Departments/ General Management-Arab Bank Jordan since November 1978. * Mr. "Mohammad Mazen" AL- Khalha Representative, Housing Bank for Trade & Finance • Academic Qualification : B.Sc. in Economics & Commerce/ University of Jordan-1975 • Present Position: Risks Management Manager/Housing Bank for Trade & Finance • Previous Experience: - Worked at the Housing Bank for Trade & Finance 1975-1976 - Financial Controller with a contracting establishment 1976/1985. - Housing Bank for Trade & Finance since 1985-present. He gradually held several financial and banking positions including: controller, branch manager and facilities manager, authorized credit manager (ASCO), commercial credit center manager, regional manager. * Mr. Zahie Fakhourri Representative, Jordan National Bank. • Academic Qualification: - B.Sc. in Accounting • Present Position: - Assistant General Manager for Trade Facilities - Jordan National Bank • Previous Experience: - Since 1973 worked at Arab Bank, International Credit & Commerce Bank, Business Bank and Jordan National Bank. 9 * Mrs. Simona Sabilla Representative, Cairo-Amman Bank • Academic Qualification: - BA in Arts/ Major: English Language, Minor: Education University of Jordan-1977. • Present Position: Assistant General Manager, Risks Management Compliance Control- Cairo-Amman Bank and • Previous Experience: - Chase Manhattan Bank/Amman September 1977- March 1986 - Bank of Jordan/Amman, April 1986-August 1995. - Cairo-Amman Bank, August 1995- Present. * Miss Ghada AL- Farhan Representative, Jordan Commercial Bank • Academic Qualification: - Financial Investments & Capital Management / Hubert Humphrey Fellow Boston University, Boston M.A 1999-2000. - MBA in International Management/ East London University, United Kingdom 1995. - BA in Economics/ American University of Beirut 1983. • Present Position: - Deputy General Manager - Jordan Commercial Bank snice 1/9/2004. • Previous Experience: - Held various positions at the Social Security Corporation, the last of which was Assistant Manager of Projects & Shares Investment Department 1984-2004 * Mr. Tawfiq Mukahal Representative, Jordan Kuwait Bank • Academic Qualification: - BA in Business Administration/ University of Jordan-1974 • Present Position: - Assistant General Manager and Supervisor of Facilities Department/ General Management - Jordan Kuwait Bank. • Previous Experience: - Local Credit & Marketing Department The National Bank of Kuwait from 1974-1990. - Jordan Kuwait Bank, since 1991. - Member of the Board of Directors/ Trust Investment Company, representing Jordan Kuwait Bank. 10 Dear Shareholders, Letter From the Chairman Of the Board of Directors It is my pleasure to present to you the ninth annual report of the Company, which reflects JMRC's major achievements during 2005, its financial position as at the end of 2005 through its balance sheet and final accounts and briefly sheds light on its action plan for the future. JMRC's establishment, with joint efforts of the public and private sectors, represents one of the important aspects for restructuring the housing sector in the Kingdom, considered one of the main sectors of the national economy. JMRC also constitutes a new and important link between money market and capital market through its provision of medium and long term finance to local banks and financial institutions, which grant housing loans from its different financial resources, most important of which is the proceeds of JMRC corporate bonds issues in the local capital market. JMRC's work mechanism, through refinancing housing loans, provides banks and financial institutions with the opportunity to increase their participation in granting housing loans and subsequently expand housing loans base in the Kingdom. This mechanism helps to overcome the lack of medium and short- term financial resources for the housing sector in the banking sector institutions. Moreover, JMRC's loans enable banks and financial institutions to manage their assets and liabilities more efficiently through matching the terms of their resources and uses of funds. Dear Shareholders During 2005, JMRC continued to focus its efforts to deepen and develop the housing finance market in the Kingdom, through developing the primary market by increasing the volume of housing finance offered by local banks and developing housing loans programs introduced by these financial institutions offering such type of loans. JMRC also persist its effort to develop the secondary mortgage market by increasing the volume of refinance loans offered by JMRC to banks and developing the capital market by increasing JMRC issues of corporate bonds with the aim to provide the funds necessary for its refinance loans 12 activities in addition to increasing the number of financial institutions that invest in corporate bonds issued by the Company. In spite of the events which the region has witnessed and the high liquidity available in most local banks, yet the Company's efforts during the year 2005 - resulted in granting refinance loans to banks in the amount of JD (48) million, from which 6 financial institutions benefited so that the loans granted by the Company since its establishment reached approximately JD (153) million at the end of 2005. Moreover, the balance of refinance loans at the end of 2005 reached about JD (100) million covered about (6500) housing loans. During 2005 the Company issued corporate bonds in the amount of JD (48) million. The Company's efforts resulted also in promoting some banks to grant housing loans at constant interest rates. It is to be noted that JMRC's action plan for the future includes, introduction of new lending programs to cope with the developments in housing refinance market in consistent with the requirements of different banks, borrowers and investors in terms of investment in low risk financial instruments, in addition to increasing the volume of its operations in refinance loans and issuance of corporate bonds for different terms. JMRC is also considering the possibility of expanding purchasing loans portfolios and issuing mortgage-backed securities. Dear Shareholders, Before concluding this letter, let me express, on behalf of my colleague members of the Board, our most sincere gratitude and appreciation to our government and CBJ for their trenuous efforts to support the Company's march. We would also like to express our thanks to the Company's Managing Director and its entire staff for their sincere efforts. I hope that Almighty Allah will help us all in shouldering the responsibility, fulfilling the duties entrusted to us and serving our country under the leadership of his majesty our great King Abdullah the II Bin Al Hussein, Allah is the bestower of success Dr. Umayah Tuqan Chairman of the Board of Directors mortagage 13 Economic activity indicators and housing finance market in Jordan during 2005 During 2005, the Jordanian economy continued to realize positive achievements and improvement in performance at the macro level. which exceeded 7% in constant prices, compared with economic growth rates 7.5% in 2004, 3.4% in 2003 and 5.1% in 2002. On the monetary policy level, the Central Bank of Jordan continued its policy in 2005 to maintain monetary stability, reinforce the immunity of the banking system and provide a suitable interest rates structure that copes with local and international economic developments. The Central Bank of Jordan was able to maintain a convenient level of foreign reserves, which reached its highest level at the end of December 2005, about $ (4.8) billion. On the capital market level, Amman Stock Exchange witnessed an outstanding activity in 2005 where the trading volume until the end of December 2005 amounted to JD (16.9) billion, the highest since its establishment in 1978, compared to about JD 3.79 billion at the end of 2004. The capital market witnessed also a remarkable activity in the volume of bonds and bills issued or guaranteed by the Jordanian Government, in addition to private sector issues. Despite of the activity which the bonds market witnessed during 2005, yet the role of this market is still in need for reinforcing and enhancing its role in mobilizing national long term savings and finance resources including promoting trading therein. In this respect, it is worth mentioning that development of capital market is vital for JMRC's activity. It is also considered one of the most objectives for which the Company was founded. In the domain of real estate market, the construction sector continued to realize high growth rates during 2005 in view of the rise in infrastructure projects and the areas licensed for construction inside the Kingdom, However, Jordan, like other countries, is still facing the problem of providing housing units for low - income citizens. The housing sector is one of the important sectors in the national economy since it is related to providing the local community with suitable housing units and its link with other several economic activities. Therefore, activating this sector will 14 necessarily lead to activating the national economy and subsequently contribute to increasing the actual growth rates in the national economy. Regarding developments in the primary market for housing loans, a remarkable growth was noticed in the volume of housing loans and improvement of its conditions, and a decline in interest rates on housing loans more than the decline in the interest rates in the market on banking facilities for other purposes. Some local banks started to grant housing loans at constant interest rates, during interest periods, reaching (10) years from the life of a housing loan. In this respect, JMRC has played an outstanding role. 15 JMRC's incorporation, objectives, sources of funds and work mechanism Incorporation: Historic Background: JMRC is a public shareholding company. It was established in mid 1996 on direction of the Government, with the cooperation of the International Bank for Reconstruction and Development and the support of the Central Bank of Jordan for the purpose of providing medium and long-term financing for the Jordanian housing sector. Objectives: The following are the most important objectives, which JMRC is seeking to achieve: - Develop and improve housing finance market in the Kingdom by enabling banks and other financial institutions increase their participation in housing loans lending. - Promote and develop capital market in the Kingdom through issuing corporate bonds in the local capital market and thus contribute to increasing investment instruments in the market. - Provide middle and long- term finance for Islamic banks and financial institutions. JMRC sources of funds - Paid-up capital amounting JD (5) million - Subordinated loan in the amount of about JD (13.5) million, obtained from the Government for 20 years, originally a loan which the Government received from the International Bank for Reconstruction and Development in US$. The loan balance as at 31/12/ 2005 was JD (10.9) million. - Proceeds of JMRC's bonds. 16 JMRC's operation mechanism JMRC provides middle and long-term finance for banks operating in the Kingdom through refinancing housing loans granted by these institutions to citizens at a percentage not exceeding (83%) of the outstanding balances of housing loans. JMRC's policy has specified the principles and criteria that ought to be available in the borrowing financial institution and in the housing refinance loan. To guarantee the loan obtained by the bank from the Company, the bank transfers first preferred property mortgages pertaining to the housing loans granted by it in favor of the Company at a percentage of not less than (120%) of the value of JMRC's loan granted to the bank, provided that the housing loans granted by the bank shall not be under any installments due and that the bank undertakes to transfer alternative mortgage deeds throughout the life of JMRC's loan to the bank. Under JMRC's credit policy the bank was also permitted to provide temporary guarantees until it can provide the Company with necessary property mortgages. The most important of such temporary guarantees are the Jordanian Government bonds or bonds guaranteed by it, treasury bills, JMRC's Bonds. It is worth mentioning that JMRC grants its loans on the strength that the loan principal shall be repaid on its maturity date and payment of interest at the end of every (6) months until the expiry of its term. In special cases, JMRC grants housing refinance loans on the basis of settlement of the principal loan and loan interests periodically. Loans granted by JMRC to banks for refinancing housing loans enable these banks to increase its participation in the housing finance market and minimize the risks of mismatching between the sources and uses of its funds and encourage competition among these banks, which would eventually be in the interest of citizens. Benefits of borrowing from JMRC 17 Benefits of borrowing from JMRC Refinance by JMRC provides banks and financial institutions with the following benefits: -Sources of funds at a cost relatively lower than other banks' sources. - Improve the capital adequacy ratio as JMRC's loans are risk weighted at 20% on housing loans granted by the bank, not exceeding the refinance loans amounts borrowed from JMRC. - The bank is exempted to allocate provision for the good housing loans refinanced by JMRC. - Help the bank to improve assets and liabilities management, through better matching of sources and uses of its funds (ALM). - Enable the bank to avoid interest rates risks (IRR) on mortgage loans, by fixing interest rates on these loans through using JMRC's work mechanism. - Exclude the loans refinanced by JMRC from the loans granted for construction and purchase of real estates upon calculating the percentage determined under the Banks Law, which provides that the loans granted for construction and purchase of real estates purposes shall not exceed 20% from the total bank's deposits in Jordanian dinar. 18 Benefits of investing in JMRC bonds - JMRC's bonds are risk-weighted at (20%) for the purpose of calculating the capital adequacy ratios of banks. - JMRC's bonds have priority in repayment over the Company's obligations resulting from the loan granted to it by the Government. - JMRC's bonds are eligible to serve as liquidity reserve holding of banks for the purpose of calculating the legal liquidity ratios as required by the Central Bank of Jordan . - Interests derived from JMRC's bonds and profits generated from investment in these bonds are exempted from taxation in accordance with the Income Tax Law. - JMRC's bonds provide investors with stable periodical cash flow. - JMRC's bonds are easy to subscribe to, and they are tradable in the local capital market. Benefits of investing JMRC bonds 19 JMRC's activities & achievements during 2005 The following are the most important JMRC's activities during 2005: In the area of refinancing of housing loans JMRC continued its lending activity during 2005 and signed (8) refinance housing loan agreements for terms ranging between (1-10) in an amount of JD (48) million Therefore, the number of refinance loans agreements signed since JMRC inception until 31 December 2005 has been (70) agreements with a total amount of JD (153) million approximately. The balance of rifinance loans on 31/12/2005 was JD (100) million covering about 6500 housing laons, the appraisal value of collateral amounts to JD (246) million. The following table shows the current amounts of mortgage loans refinanced, as of 31/12/2005: Million (J.D) Borrowing Bank No. of Balances of Balance of Refinancing Appraised No of Housing housing refinancing loans value of Agreements loans loans loans collateralized collateral Housing Bank for Trade & Finance Egyptian Arab Land Bank Jordan Kuwait Bank Jordan National Bank Arab Banking Corporation Cairo Amman Bank Export & Finance Bank Societe General Bank Union Bank for Saving & Investment Total 5 10 2 4 4 1 7 2 3 38 811 722 1437 598 998 735 535 187 502 6525 9.5 10.7 17.1 11.4 12.9 18.1 25.9 4.1 11.1 120.8 4.5 13.2 11.3 8.4 9.5 15.0 25.1 3.0 10.0 100 9.5 17.6 19.0 11.4 12.9 18.1 30.9 4.1 15.9 139.4 19.3 23.2 40.8 26.2 27.9 31.5 44.5 8.6 24.6 246.6 20 It is clear that there has been an improvement in the distribution of refinance loans granted by JMRC, in terms of the number of institutions benefiting from refinance loans and volume of lending for each institution. The following chart shows the distribution of JMRC's refinance loan outstanding balances by bank as at the end of 2005: Distribution of refinance loan balances The following chart shows the growth in the outstanding balances of the refinancing loans granted by JMRC during the period from 1/1/1999 to 31/12/2005: Development of refinance loan balances million JD 21.66 23.75 48.71 58.29 63.94 73.84 100.02 21 In the area of borrowing During 2005 JMRC issued corporate bonds with a nominal value of JD (48) million. This brings the total amount of corporate bonds issued by JMRC since its establishment and until December 31, 2005 to JD (203.75) million, with (1) and (3) and (5) year terms. The volume of JMRC corporate bonds outstanding as at 31/12/2005 stood about (80.98) million JD. It is worth mentioning that JMRC has issued its corporate bonds through private and public subscription to investors. The interest rates on JMRC financial papers reflected the low risks associated with JMRC issues of these papers. It is also worth mentioning that the financial papers issued by JMRC are collateralized by the Company's assets, which include the refinance loan portfolio, which in turn is collateralized by mortgage deeds duly transferred to the order of JMRC whose value exceeds (120%) of the outstanding balance of the Company's loans at the end of each quarter through the life of these loans. - The data available with the Company indicate that the mortgage deeds value is equivalent to 176% of the refinance loan balances. - The total appraised value of mortgaged properties to the outstanding balances of the refinancing loans stood at 243%. - The outstanding balances of the refinanced mortgage loans to the outstanding balances of the refinancing loans stood at 137%. 22 The following table shows the outstanding JMRC's bonds as at 31/12/2005: Issue Nominal value Interest No Million JD Rate % 4 7 12 13 15 5.00 3.00 5.00 5.00 2.480 6.800 5.750 3.75 4.60 3.25 Issue Date Maturity Interests payment dates Bond value Date amortization option Market value 10000 10000 10000 1000 970 10000 14 17 3.00 2.00 3.75 4.35 16 19 25 26 18 27 28 29 30 31 32 3.00 4.00 4.00 3.00 5.00 5.00 5.00 5.00 1.500 5.00 15 5.413 4.75 4.00 4.185 5.4 4.50 4.822 4.93 4.93 5.58 9.07 31/5/2001 31/5/2006 Four equal installments every (3) months, on (31/8), (30/11), (28/2) and (31/5) throughout the issue life 19/9/2001 19/9/2006 Four equal installments every (3) months on (19/12), (19/3), (19/6) and (19/9) throughout the issue life. 3/3/2003 3/3/2006 Two equal installments every (6) months on (3/9) and (3/3) throughout the issue life. 11/5/2004 11/5/2009 Two equal installments every (6) months on (11/11), (11/05) throughout the issue life 3/6/2004 3/6/2007 Four equal installments every (3) months on (3/9), (3/12),(3/3) and (3/6) throughout the issue life Bonds shall be amortized every (3) months on interests payment dates 14/6/2004 14/6/2007 Two equal installments every (6) months on (14/12) and (14/6) throughout the issue life 20/7/2004 20/7/2007 Two equal installments every (6) months on (20/1) and (20/7) throughout the issue life Bonds shall be amortized every (6) months on interests payment dates at (6) installment 28/7/2004 28/7/2007 Two equal installments every (6) months on (28/1) and (28/7) throughout the issue life 5/12/2004 5/12/2007 Two installments every (6) months on (5/6) and (5/12) throughout the issue life 13/3/2005 13/3/2006 Interest and nominal value will be paid on maturity date 15/3/2005 15/3/2006 Interest and nominal value will be paid on maturity date 5/4/2005 5/4/2010 Two equal installments every (6) months on (5/10) and (5/4) throughout the issue life 24/4/2005 24/4/2006 Interest and nominal value will be paid on maturity date 22/5/2005 22/5/2006 Interest and nominal value will be paid on maturity date 5/6/2005 5/6/2006 Interest and nominal value will be paid on maturity date 3/7/2005 3/7/2006 Interest and nominal value will be paid on maturity date 25/9/2005 25/3/2006 Interest and nominal value will be paid on maturity date 10/11/2005 10/11/2010 Two equal installments every (6) months on (10/5) and (10/11) throughout the issue life JMRC may amortize the bonds partially and totally one year after issue on the interest rates payment dates. 10000 10000 10000 10000 10000 10000 1000 1000 10000 10000 10000 10000 1000 Total 80.98 23 The following chart shows the growth in JMRC's bonds issues during the period 1998 - 2005: Growth of JMRC issue of bonds NB: No trading transactions were carried out on JMRC outstanding corporate bonds during 2005 other than the thirteenth issue where two trading transactions were carried out at sale price of 970 JD per each bond. In the area of marketing During 2005 JMRC continued its efforts to market its different products in the lending side as well as in the borrowing side, through field visits for various management levels of concerned parties as well as through conducting several workshops for banks to explain the Company's objectives, the mechanism of its work, and the advantages to borrowers and to investors in its corporate bonds. The above-mentioned marketing activities contributed remarkably to increasing the volume of housing loans extended by banks and to improving in the terms of such loans. 24 The following table summarizes the components of the housing loan programs available in the market by local banks: Purposes of the Loan Financing residential house and/or purchasing house and/or residential apartment and/or completion of construction and/or maintenance of house and/or expanding an existing estate and/or purchasing land for the purpose of constructing a residential house. Interest rate Varies between 6% - 9%. Commission Varies between 0% - 1% annually. Loan duration Up to (20) years. Percentage of loan/ guarantee Up to 100% of the estimated value of property but often less than 80%. In the area of training Since its incorporation, JMRC continued its efforts to provide necessary training to its staff, through joining courses or through inviting experts to train employees and offer consultations. A number of staff members have participated, during 2005 in the following training courses: Training course Administrative Computer Languages Total No. of courses 1 2 7 10 No. of participants 2 2 5 9 The managing director participated in the Islamic Financial Markets Conference held in Manama/Bahrain during May 2005. 25 Financial analysis of JMRC financial statements for the year 2005: When comparing the JMRC's financial statements as at the end of 2005 with 2004 the following can be noticed: 1- The outstanding balance of refinance loans with banks has increased by JD (26.2) million at 35.4% to reach JD (100) million from JD (73.8) million at the end of the previous year. It is worth mentioning that the total amount of refinance loans granted during 2005 stood at JD (48) million, of which JD (43) million are new loans and JD (5) million renewed loans. The total amount of repaid loans and installments during the year was JD (16.8) million. 2- The total amount of assets has increased by JD (17.2) million at 18.6% to reach JD (109.6) million from JD (92.4) million at the end of the preceding year. 3- The outstanding balance of corporate bonds issued by JMRC has increased by JD (7.4) million at 10% to reach JD (81) million compared to JD (73.6) million at the end of 2004. It is worth noting that the corporate bonds issued during the year amounted JD (48.5) million while the corporate bonds and financial papers repaid were JD (41.1) million. 4- Shareholders' equity has increased by JD (367.2) thousand compared to the previous year to reach JD (6.6) million, an increase of 5.9%. 5- The gross profits of the Company's operations have increased by JD (137.1) thousand compared to the previous year i.e. an increase of 13.6% to reach JD (1.15) million. 6- The net profits before taxes and provisions have increased by JD (123.4) thousand compared to the previous year at 21.3% to reach JD (702.2) thousand. 26 The following chart shows the growth of the Company's assets during the JMRC Assets 2005. Growth of years 1999million JD Growth of JMRC Assets 28.39 37.67 73.21 67.27 71.65 92.43 109.63 The following are the most important financial ratios for the year 2005 as compared with 2004: Description Shares allocation of net profit Cash in banks to total assets Refinance loans to total assets Returns on shareholders equity Borrowed money to shareholders equity/ once as compared with 2004 were as follows: 2005 % 8.8 5.3 91.2 6.7 15.7 2004 % 8.9 17.8 79.9 7.23 13.9 Percentages of collaterals related to JMRC's activities for 2005 Description Value of mortgage deeds to the balances of refinance loans Estimated value of mortgaged real estates to the balances of refinance loans Balances of refinanced housing loans to the balances to refinance loans Balances of refinance loans to the total nominal value of the outstanding JMRC corporate bonds Value of real estate mortgage deeds transferred to the Company to the total nominal value of the outstanding balance of JMRC corporate bonds. 2005 % 177.8 253.4 140.9 123.6 219.8 2004 % 194 273 148 126 195 27 JMRC Organizational Chart and Company's Structure and Human Resources 28 Human Resources of the Company: The number of JMRC staff members, including the managing director, reached (24) at the end of 2005 and two staff members were appointed during 2005. Staff members are appointed according to the Company's need. Grades and salaries of staff members are fixed in accordance with their qualifications and practical experience. The following is a list showing the Company's staff members and their academic qualification: Academic Qualification MA Higher Diploma BA General Secondary Education Below General Secondary Education Unclassified Total Number 2 1 14 4 2 1 24 The following is a list of the names of the higher management who have executive power with their functional ranks and academic qualifications: Name Mr. Saad AL- Bishtawi Mr. Bassam Abu Sahab Mr. Moh'd Rasoul Bayazidi Mr. Zuhair AL - Qudah Title Head of Bond Issuance Dept. Head of Mortage Refinance Dept. Educational qualifications (BA) Business Administration 1972 Master MBA/Finance 2003 (BA) Business Administration Sciences 1991; (BA) Accounting 1972 Ibrahim Daher Managing Director Representative Central Bank of Jordan Head of Finance Division Head of Administration (BA) Business Administration 1990 Division 29 Introductory Background about Executive Management Staff 1- Mr ÆSaad AL- Bishtawi • Academic Qualification: - B.Sc. Business Administration/ University of Jordan-1972 • Present Position: Head of Bonds Issuance Department JMRC since April 11, 1998. • Previous Experience: - The First National Bank of Chicago - Abu Dhabi,1975-1976 - Central Bank of the United Arab Emirates- Abu Dhabi 1976-1995: Leding Positions (i.e. General Accounting, Finance, Investment and Foreign Relations). - Arab Bank -Regional Management/ Ramallah Head of Treasury & Investments Department, 1995-1998. Member of the Bank's Assets & Liabilities Management Committee. 2- Mr. Bassam Abu Sahab • Academic Qualification: - MBA in Finance/ University of Jordan -2003 - BA in Administrative Science/ Muta' University 1991 • Present Position: - Head of Refinance Dep./ Jordan Mortage R. Co. since 27/6/2004-Present. • Previous Experience ∫ - Head of Loan Division - JMRC 16/8/1997-7/2/2004. - Assistant Manager/Bank of Jordan 8/2-24/6/2004. - Chief Accountant at the Supply Company 1991-1997. 30 2- Mr. Mohammad Rasoul Bayazidi∫ • Academic Qualification: - B.Sc. Accounting: Arab University of Beirut -1972 • Present Position: - Head of Finance Division JMRC since 3/1/1998. • Previous Experience∫ - Accountant at the Natural Resources Authority- 1965-1974 - Auditor at Badi & Abdel Jawad Office-Libya- 1974-1975. - Financial Manager at the Industrial Casting & Sanitary Materials Company- Saudi Arabia- 1975-1976. - Executive Manager then General Manager of Modern Company for Construction Materials Industry in Jordan 1976-1979. - Chief Accountant and Acting Financial Manager at the Arab Co. for Drug Industries & Medical Appliances (ACDIMA) in Jordan 1979-1995. - Financial and Administrative Manager at the United Glass Industries Company in Jordan, 1995-1997. 4- Mr. Zuhair AL - Qudah • Academic Qualification: - BA in Business Administration/ Yarmouk University,1990 • Present Position: - Head of Administration Division JMRC since 11/6/1997. • Previous Experience: - Different administrative and technical positions in the Royal Jordanian Air Force 1969-1989 - Director of Navigation & Air Traffic Control RJAF 1989-1992 - Director of RJAF Archives & Corespondence Department 1992-1995. 31 Projected action plan The Company has set up a general framework for its work plan for the next years. This plan aims at achieving the following: 1- Increase the volume of the Company's refinancing housing loans in the secondary market by introducing new refinance programs commensurate with the developments which the housing refinance market is witnessing and encourage banks to increase their participation in granting housing loans at constant interest rates. 2- Increase the Company's issues of bonds to provide funds required for refinancing loans and be proportionate to the volume of the Company's refinance activities and widen the base of investors in the Company's issues to include individuals by issuing bonds through public subscription. 3- Adopt a suitable mechanism to deal with financial institutions, which grant mortgage loans in accordance with Islamic Sharia law. 4Purchasing mortagage loans portfolios and issuing mortgage-backed securities. The company expects to grant housing loans in the amount of (55) million JD during 2006. The funds necessary for sucth transaction shall be provided by issuing corporate bonds in the capital market. it is expected also that the growth rates in the Comapany’s activities and turnover shall be within the range of the rates realized during the year 2005. 32 The following information about the Company is disclosed in accordance with the requirements of the law: a. The Company enjoys the following privileges: 1- In mid November 1997, The Company was exempted from the fees of transferring mortgage deeds in favor of the Company or in favor of the borrowing banks, on a case by case basis. 2- The Central Bank of Jordan has agreed to risk weigh-housing loans at 20% for the purpose of computing the capital adequacy ratio only to the total of borrowed amounts from the Company. 3- The Central Bank of Jordan has agreed to exempt the borrowing banks from JMRC from the required general provisions on the refinanced housing loans to the total of the outstanding balance of the refinance loans. 4- The Central Bank of Jordan has agreed to consider the holding of JMRC bonds and short-term financial papers (less than one year) as part of the liquid assets in the balance sheet of banks and financial institutions for the purpose of computing the applicable legal liquidity ratio. 5- The Central Bank of Jordan has agreed to risk weigh JMRC's bonds and short-term financial papers (less than one year) at 20% for the purpose of computing the capital adequacy ratio. 6- Interests and profits realized from investing in JMRC's bonds and short-term financial papers (less than one year) shall be exempted from taxes in accordance with the applicable Income Tax Law. 7- The Central Bank of Jordan has permitted banks to deduct the amounts of loans refinanced by the Company from the total loans granted by financial institutions from the ratio determined in the Banks Law, which prevents that the value of loans for construction or purchase of real estates from exceeding 20% from total bank's deposit in Jordan dinar. b. Others: 1- The Company shares have been listed in Amman Stock Exchange/Securities Market (Second Market) since August 20, 2002 and the book value for each share is one JD but no trading transactions were carried out on the Company's shares since its establishment. 2- JMRC's corporate bonds are listed in Amman Stock Exchange/Securities Market as per the conditions indicated in each issue's prospectus. 3- Company's contribution to the environment and society: The Company grants refinance loans with the aim to expand the housing refinance base and improve the opportunities for citizens with different incomes to obtain housing loans. Therefore the Company's role in this respect is indirect. In Other information about JMRC 33 2005 JMRC contributed by JD (1848) in the Institute of Banking Studies expenses (scientific research allocation). 4- Amounts paid in 2005 to the Chairman and members of the Board of Directors totaled JD (39600), as transportation allowances, JD (33000) as an annual remuneration, JD (1863) as travel expenses for the Managing Director and JD (148631) as salaries, allowances, transportation allowances and remuneration for the executive department staff. 5- The fees of the external auditors (The Arab Professionals) in 2005 amounted to JD (4988), including the sales tax. 6- The fees of the legal advisor, Mr. Nabel Law Office for the period 1/1/2005 to 31/3/2005 amounted to JD (1015), including sales tax. 7- The fees of the Company's legal advisor, advocate Musa Al Araj for the period from 1/4/2005 to 31/12/2005 amounted to JD (2250). including sales tax. 8- The Company does not depend on specified suppliers and/or major local or foreign clients. 9- In 2005, no operations were recorded of repetitious nature, which are not part of the Company's main activities. 10- The Company's previous managing director Dr. Zuhair Khalifeh, has filed a legal action against the Company claiming it to pay JD (390746) as compensations up to the date of terminating his service on 9/3/2004. The Company calculated his entitlements up to the end of his service in the amount of JD (87253). These entitlements were calculated in accordance with the employment agreement concluded between the Company and him and pursuant to the Jordan Labor Law. Such entitlements were documented in the Company's records and the above amount was paid as per a certified cheque drawn on the Company's account with the Housing Bank for Trade & Finance to the order of the execution officer at Amman Court of First Instance on 10/8/2004. The legal action is still being considered by the court. Moreover, there are no other legal action or cases filed before courts or pending against the Company. 11- JMRC's has no subsidiaries or branches. 12- The Company has not concluded any contracts, projects or commitments with the Chairman of Board of directors or members of the Board or with any Company employee or their relatives. 13- The Company has not paid any donations or grants in 2005. 14- JMRC does not enjoy any government protection and has no patent or concession rights. 15- There are no decisions issued by the government or 34 international and other organizations, which have any material effect on JMRC's operations or products or on its competitiveness. JMRC also, applies the international accounting standards. 16- There are no competitors to JMRC in its sector or major markets. 17- Non of JMRC's Board members, executive managers and their relatives owns any financial papers issued by JMRC. Members of the Board of Directors represent the institutions members in the Board. 18- The following table shows JMRC's profits before taxes and provisions, distributed profits, and net equity for the year 1998 through 2005. Amount in Million JDs Year 1998 1999 2000 2001 2002 2003 2004 2005 Shareholder’s net Net profits before equity taxes and provision 5.49 5.43 5.59 5.89 5.96 6.05 6.19 6.6 0.05 0.21 0.18 0.25 0.57 0.58 0.58 0.70 Distributed profits 0.25 0.35 0.35 0.30 0.25 0.25 19- Risks to which the Company might be exposed: - Exchange rates fluctuation risks All Company's assets and liabilities are in Jordan dinar and the Company does not bear exchange rates fluctuation risks as a result of the loan which the Government received from the International Bank for Reconstruction and Development in United States Dollars and refinanced by the Government to the Company in Jordan dinar in accordance with the loan agreement concluded between the Government and the Company. - Interest Rates Risks Financial instruments are subject to interest rates fluctuation risks and nonconformity in assets and liabilities terms. The Company's assets and liabilities department manages these risks through harmonizing assets and liabilities maturity terms and continuous revision of interest rates on assets and liabilities. - Credit Risks The Company keeps balances and deposits with banking institutions of good solvency. 35 Shareholders owning 5% and more of the Company's shares: Shareholder’s List 1- Central Bank of Jordan 2- General Social Security Corporation 3- Housing & Urban Development Corporation 4- Housing Bank of Trade & Finance 5- Arab Bank 6- Jordan Loans Guarantee Company 7- Jordan National Bank 8- Cairo - Amman Bank 9- Jordan Commercial Bank Value/ No. Percentage of Shares % 900.000 500.000 500.000 500.000 500.000 300.000 250.000 250.000 250.000 18 10 10 10 10 6 5 5 5 No trading transactions were carried out since JMRC inception In accordance with the provisions of Paragraph (E) of Article (4) of the Instructions of the Disclosure and Accounting Standards, issued by The Board of Commissioners of Jordan Securities Commission, the Board of Directors of the Jordan Mortgage Refinance Company declares, according to its knowledge and belief, that there are no substantial issues that could affect the continuity of the Company's activities during the fiscal year 2006. The Board also admits its responsibility for the preparation of the financial statements, and that the Company operates an efficient Control system. It further admits that the information and data indicated in the Company's annual report for the year 2005 are accurate and complete. Moh'd Rasoul Bayazidi Head of Finance Division Ibrahim Daher Managing Director Dr. Omayah Toukan Chairman 36 In accordance with the provisions of the applicable Companies Law No. 22 of 1997 and the Company's Articles of Association, the Company's Board of Directors is pleased to invite you to attend the Ninth Ordinary Meeting of the General Assembly decided to be held at 12:00 noon of Sunday on 5/3/2006 at the Conference Hall of the Central Bank of Jordan to discuss the following items on the agenda: 1- To read and approve the minutes of the last meeting of the General Assembly. 2- To discuss and approve the Ninth Annual Report of the Board of Directors for the fiscal year 2005 and the Company's plan of action for the year 2006 for approval. 3- To read the report prepared by the Company's auditors for the fiscal year ending on December 31st 2005. 4- To review the Company's balance sheet, the profit and loss account, and the changes that have been introduced to the shareholders equity as well as the cash flows as at 31st of December 2005 and to discuss and approve it and release the Board of Directors from any responsibility pertaining to these matters. 5- To elect the Company's auditors for the fiscal year 2006 and to determine their fees. 6- To discuss and approve any other matters in accordance with the provisions of the Law. Agenda of the annual ordinary meeting of the general assembly The Board of Directors 37 Recommend ations of the Board of Directors concerning distribution of profits Whereas the distributable profits amounted to (707138), Jordan dinar, the Board recommends to the Ordinary General Assembly to distribute this amount as follows: Allocation Statutory Reserve Voluntary Reserve Provision for income tax Provision for supporting scientific research & vocational training Provision for supporting vocational education and technical training fund Provision for Jordanian universities fees Remuneration for Board Members 7% of the Capital to the Shareholders Amount (JDs) 70,222 67,879 167,820 7.022 4,171 7,022 33,000 350,000 The Board of Directors 38 JORDAN MORTGAGE REFINANCE COMPANY PUBLIC SHAREHOLDING COMPANY AMMAN - JORDAN FINANCIAL STATEMENTS AS OF DECEMBER 31, 2005 AND 2004 TOGETHER WITH AUDITORS' REPORT ARAB PROFESSIONALS (Member of Grant Thornton) 39 JORDAN MORTGAGE REFINANCE COMPANY PUBLIC SHAREHOLDING COMPANY AMMAN - JORDAN CONTENTS Page - Auditors' Report - Balance Sheets as of December 31, 2005 - Statement of Income for the years ended December 31, 2005 - Statement of Changes in Shareholders' Equity for the years ended December 31, 2005 Statement of Cash Flows for the years ended 45 44 41 42 43 December 31, 2005 - Notes to the Financial Statements 46-54 40 To The Shareholders of Jordan Mortgage Refinance Company Public Shareholding Company We have audited the accompanying balance sheets of Jordan Mortgage Refinance Company Ltd. (a public shareholding company) as of December 31, 2005 and the related statements of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jordan Mortgage Refinance Company as of December 31, 2005 and the results of its operations and its cash flows for the year then ended in accordance with the Law and International Financial Reporting Standards and we recommend its approval by the General Assembly. The Company maintains proper books of account and the accompanying financial statements and financial information presented by the Board of Directors' report are in agreement therewith. Auditors' Report Amman - Jordan January 19, 2006 Arab Professionals Amin Samara (License No. 481) 41 Balance Sheet as of December 31, 2005 ( In Jordanian Dinars) JORDAN MORTGAGE REFINANCE COMPANY PUBLIC SHAREHOLDING COMPANY ASSETS Current Assets Cash at banks Interest receivable Current portion of long-term refinance loans Other current assets Total Current Assets Available for sale investments Employees' housing loans Long-term refinance loans Fixed assets, net Total Assets Liabilities and Shareholders' Equity Current Liabilities Short-term bonds Short-term debt securities Accrued interest Current portion of Government's loan Other current liabilities Total Current Liabilities Long-term bonds Government's loan Central Bank of Jordan loan Total Liabilities Shareholders' Equity Common Stock, par value JD1, authorized and issued 5,000,000 Statutory Reserve Voluntary Reserve Proposed Dividends Accumulated fair market adjustment Retained earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity Note 2005 2004 3 4 5,758,560 1,614,419 26,513,449 88,767 33,975,195 1,398,754 209,853 73,490,209 552,010 109,626,021 16,485,919 1,261,278 21,810,971 51,160 39,609,328 125,000 96,090 52,024,844 578,814 92,434,076 5 6 7 9 8 44,180,000 1,845,901 736,391 343,951 47,106,243 36,800,000 10,159,568 9,000,000 103,065,811 26,130,000 15,000,000 827,684 695,992 211,402 42,865,078 32,480,000 10,895,959 86,241,037 7 9 10 14 15 5,000,000 369,674 666,782 350,000 173,754 6,560,210 109,626,021 5,000,000 299,452 598,903 250,000 44,684 6,193,039 92,434,076 "The accompanying notes are an integral part of this financial statements" 42 JORDAN MORTGAGE REFINANCE COMPANY PUBLIC SHAREHOLDING COMPANY Note Interest income Interest expense Gross operating Income General and administrative expenses Depreciation and amortization Other revenues Net income before income tax and provisions Provision for income tax Prior year's income tax Provision for professional & technical training fund Provision for scientific research and vocational training Provision for Jordanian Universities' fees Board of Directors' remuneration Net income for the year 11 12 13 2005 5,535,766 (4,387,317) 1,148,449 ( 416,058) ( 39,504) 9,335 702,222 ( 167,820) ( 39,770) ( 4,171) ( 7,022) ( 7,022) ( 33,000) 443,417 2004 4,736,414 (3,725,041) 1,011,373 ( 418,839) ( 42,020) 28,323 578,837 ( 80,998) ( 5,788) ( 5,788) ( 5,788) ( 33,000) 447,475 Statements of Income For The Year Ended December 31, 2005 (In Jordanian Dinars) Earnings per share Average number of shares outstanding 0.088 5,000,000 0.089 5,000,000 "The accompanying notes are an integral part of this financial statements" 43 Statements of Changes In Shareholders' Equity For The Year Ended December 31, 2005 ( In Jordanian Dinars ) JORDAN MORTGAGE REFINANCE COMPANY PUBLIC SHAREHOLDING COMPANY Paid-in Statutory Voluntary Proposed Revaluation Retained capital reserve reserve 483,136 115,767 598,903 67,879 Dividends reserves earnings 300,000 (300,000) 250,000 250,000 (250,000) (350,000) (350,000) 173,754 173,754 Total Dalance as of December 31, 2003 5,000,000 241,568 Net income for the year Paid dividends Proposed dividends Reserves 57,884 20,860 6,045,564 447,475 (250,000) (173,651) 447,475 (300,000) - Balance as of December 31, 2004 5,000,000 299,452 Net income for the year Paid dividends Proposed dividends Revaluation Reserves Reserves 70,222 44,684 6,193,039 443,417 (70,222) 443,417 (250,000) 173,754 - Balance as of December 31, 2005 5,000,000 369,674 666,782 417,879 6,560,210 "The accompanying notes are an integral part of this financial statements" 44 JORDAN MORTGAGE REFINANCE COMPANY PUBLIC SHAREHOLDING COMPANY 2005 Cash Flows From Operating Activities Net income for the year Depreciation and amortization (Increase) decrease in operating assets Interests receivable and other current assets Refinance loans Employees' housing loans Increase (decrease) in operating liabilities Accrued interests and other current liabilities Short-term debt securities Bonds Government's loan Central Bank of Jordan loan Cash flows from operating activities Cash Flows From Investing Activities Available for sale investments Fixed assets Cash flows from investing activities Cash Flows From Financing Activities Dividends paid Change in cash Cash at beginning of year Cash at end of year 443,417 39,505 2004 447,475 42,020 Statements of Cash Flows For The Year Ended December 31, 2005 (In Jordanian Dinars) ( 390,748) (26,167,843) ( 113,763) 63,590 ( 9,897,391) 3,318 1,150,766 (15,000,000) 22,370,000 (695,992) 9,000,000 ( 9,364,658) ( 218,883) 14,500,000 7,020,000 ( 655,609) 11,304,520 ( 1,100,000) (12,701) ( 1,112,701) ( ( 55,714) 55,714) (250,000) (10,727,359) 16,485,919 5,758,560 ( 300,000) 10,948,806 5,537,113 16,485,919 "The accompanying notes are an integral part of this financial statements" 45 Notes to the Financial Statements December 31, 2005 ( In Jordanian Dinars) JORDAN MORTGAGE REFINANCE COMPANY PUBLIC SHAREHOLDING COMPANY 1 - General Jordan Mortgage Refinance Company was established on June 5, 1996 as a public shareholding company and was granted the operating license on July 22, 1996. The Company's main objectives are: - Development and improvement of the housing finance market in Jordan by enabling licensed banks and other financial institutions to increase their participation in granting housing loans. - Enhancement and development of the capital market in Jordan by issuing medium and long-term bonds. The financial statements were authorized for issue by the Company's Board of Directors in their meeting held on February 7, 2006 and it is subject to the General Assembly approval. 2- Basis of Presentation and Significant Accounting Policies Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards as published by International Accounting Standards Board. The financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short- term highly liquid investments. Loans and bonds Interest on long-term loans and bonds are recorded using the accrual basis of accounting. Property, plant and equipment Property plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in 46 the Income Statement. The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to income in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment. Depreciation is computed on a straight- line basis over the following estimated useful lives: Buildings Vehicles Furniture & fixtures Air conditions Equipment Computers 2% 20% 15% 25% 20% 30% Land is not depreciated as it is deemed to have an indefinite life. The useful life and depreciation method are reviewed periodically to ensure that the method and period of deprecation are consistent with the expected pattern of economic benefits from items of property plant and equipment. Available for sale investments Available for sale investments are initially measured at cost, which is the fair value of the consideration given for them, including transaction costs. Available for sale investments are subsequently carried at fair value without any deduction for transaction costs by reference to their quoted market price at the balance sheet date. Investments for which fair value can not be reliably determined are stated at cost. Impairment loss is recognized in net profit or loss for the period. Gains or losses on measurement to fair value of available for sale investments are recognized directly in the fair value reserve in shareholders equity, until the investment is sold or otherwise disposed of, or until it is determined to be impaired, at which time the cumulative gain 47 or loss previously recognized in equity is included in net profit or loss for the period. Available-for-sale investments are classified as current assets if management intends to realize them within twelve months of the balance sheet date. End of service indemnity End of service indemnities are calculated and provided for in accordance with the Internal Company's regulations. The provision is based on the accumulated period of service for each employee at the balance sheet date. Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Income taxes The Company provides for income taxes in accordance with IAS 12. Deferred taxation is brought to account under the liability method in accordance with IAS 12, for the difference between the book and the tax bases for assets and liabilities. Under IAS 12 timing differences on provisions, give rise to a deferred tax asset, which due to its immateriality, has not been recognized in the financial statements. Revenues Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the company and the amount of revenue can be measured reliably. Interest is recognized on a time proportion basis that reflects the effective yield on the assets. Dividends are recognized when the shareholders ßright to receive payment is established. Other revenues are recognized on the accrual basis. Foreign currency Assets and liabilities denominated in foreign currencies are translated to Jordanian Dinars using the prevailing exchange rates at year end. Foreign currency transactions during the year are recorded using exchange rates that were in effect at the dates of the transactions. Foreign exchange gains or losses are reflected in the statement of income. 48 3 - Cash at banks 2005 Time deposits and current accounts Certificates of deposit maturing within a year Total 5,758,560 5,758,560 2004 7,215,919 9,270,000 16,485,919 4 - Other current assets 2005 Prepaid expenses Refundable deposits Others Total 64,972 1,473 22,322 88,767 2004 39,718 1,398 10,044 51,160 5 - Refinance loans This item represents loans granted to local banks for the purpose of financing housing loans. The aggregate amounts of annual principal maturities of refinance loans are as follows: Year 2006 2007 2008 2009-2023 JD 26,513,449 20,238,448 12,994,876 40,256,885 100,003,658 49 6 - Fixed assets Cost Lands Buildings Vehicles Furniture and Fixtures Air-conditioning units Equipment Computers Total 31/12/2004 176,400 389,758 73,817 74,733 20,632 17,475 56,104 808,919 Additions 12,701 12,701 31/12/2005 176,400 389,758 73,817 74,733 20,632 17,475 68,805 821,620 Accumulated Depreciation Buildings Vehicles Furniture and Fixtures Air-conditioning units Equipment Computers Total Net Book Value 31/12/2004 61,852 27,449 59,822 20,631 14,556 45,795 230,105 578,814 Additions 8,088 10,700 11,210 2,277 7,230 39,505 31/12/2005 69,940 38,149 71,032 20,631 16,833 53,025 269,610 552,010 50 7 - Bonds Issuance No. Value Rate % Issuance Date 6.800 5.750 3.750 4.600 3.750 3.250 5.413 4.350 5.400 4.750 4.000 4.185 4.500 4.822 4.930 4.930 5.580 9.070 31/05/2001 19/09/2001 03/03/2003 11/05/2004 14/06/2004 03/06/2004 28/07/2004 20/07/2004 05/04/2005 05/12/2004 13/03/2005 15/03/2005 24/04/2005 22/05/2005 05/06/2005 03/07/2005 25/09/2005 10/11/2005 Maturity Date 31/05/2006 19/09/2006 03/03/2006 11/05/2009 14/06/2007 03/06/2007 28/07/2007 20/07/2007 05/04/2010 05/12/2007 13/03/2006 16/03/2006 24/04/2006 22/05/2006 05/06/2006 03/07/2006 25/03/2006 10/11/2010 Period 5 years 5 years 3 years 5 years 3 years 3 years 3 years 3 years 5 years 3 years 1 year 1 year 1 year 1 year 1 year 1 year 1 year 5 years 4 5,000,000 7 3,000,000 12 5,000,000 13 5,000,000 14 3,000,000 15 2,480,000 16 3,000,000 17 2,000,000 18 5,000,000 19 4,000,000 25 4,000,000 26 3,000,000 27 5,000,000 28 5,000,000 29 5,000,000 30 1,500,000 31 5,000,000 32 15,000,000 Total 80,980,000 8 - Other current liabilities 2005 Accrued expenses Provision for income tax Provision for professional and technical training fund Employees medication Provision for employees' vacations Provision for end of services indemnity Provisions for scientific research and training Provision for Jordanian Universities' fees Board of Directors' remuneration Others Total 18,682 167,820 8,124 2,323 14,767 82,555 9,379 7,022 33,000 279 343,951 2004 5,677 81,447 5,788 36 10,579 63,168 5,788 5,788 33,000 131 211,402 51 9 - Government's loan This item represents the $19,600,000 loan granted to the Company by the Jordanian Government and financed by the World Bank. The original loan amount reduced during 2002 to $19,000,000. The carrying amount of the loan is payable as follows:- Year 2006 2007 2008 2009-2016 JOD 736,391 776,775 823,800 8,558,994 10,895,960 10- Central Bank of Jordan loan This item represents the present value of the debt instrument issued to the favor of Central Bank of Jordan. The instrument mature on 7/6/2035 and carry a fixed interest rate of 5.12% per annum payable on the instrument's maturity date. 11- Interest income 2005 Time deposits Interest on refinance loans Interest on reinvestment Total 12- Interest expense 2004 224,964 4,504,868 6,582 4,736,414 453,093 5,073,562 9,111 5,535,766 2005 Interest on bonds Interest on Government's loan Short-term debt securities Central Bank’s loan Others Total 3,393,018 549,614 146,715 262,691 35,279 4,387,317 2004 3,007,619 513,089 184,429 19,904 3,725,041 52 13- General and administrative expenses 2005 Salaries and benefits Employees' provident fund Social security End of service indemnity and paid vacations Employees bonus Health, life and accidents insurance Board of Directors' transportation Professional fees Fees and subscriptions Stationery and publications Entertainment Vehicles expenses Post and telephone Utilities Building expenses Advertisement Employees' training, studies & research Maintenance Traveling Miscellaneous Total 14- Statutory reserve 2004 236,544 15,835 22,095 17,661 9,608 10,896 39,242 18,060 5,744 4,509 1,948 4,108 4,444 3,419 4,493 4,580 1,518 3,634 10,102 399 418,839 216,811 23,690 17,235 23,574 14,686 21,034 39,600 8,353 5,716 4,623 1,318 4,227 4,593 3,237 5,743 3,305 12,760 3,163 1,818 572 416,058 As required by the Jordanian Companies' Law, 10% of the annual net income for the year before taxation is to be transferred to statutory reserve until it equals the paid in capital. However, the Company has the option to stop such transfer when the statutory reserve balance reaches 25% of the paid in capital. This reserve is not available for distribution to shareholders. 15- Voluntary reserve The accumulated amounts in this account represent cumulative appropriations not exceeding 20% of the income before taxation. This reserve is available for distribution to shareholders. 53 16- Income tax status - The company settled its tax liabilities with the Income Tax Department up to December 31, 2003. - The income tax return for year 2004 has been filed with the Income Tax Department but the department has not reviewed the Company's records till the date of this report. - The income tax liability for 2005 was computed in accordance with the Jordanian Income Tax Law. 17- Litigations The Company appears as a defendant in a law suit amounting to JD 390,746 of which JD 79,793 has been settled by the Company before December 31, 2004. The Company's legal advisor is of the opinion that the final outcome of this law suit should not exceed the settled amount. 18- Financial instruments Fair Value: The Company's financial instruments consist of cash, available for sale securities, refinancing loans, short-term debt securities, government loan and Bonds. The fair value of these financial instruments approximates their carrying values. Currency Risk: All of the Company's transactions are denominated in Jordanian Dinars and the Company is not exposed to any exchange risk relating to the Government's loan as per the loan agreement between the Government and the Company. Interest Rate Risk: Interest rate risk is the uncertainty of future earning from fluctuations in interest rates. The risk arises when there is mismatch in the assets, liabilities positions which are subject to interest rate adjustment within a specific period. The Company manages this risk by closely following the maturities and reprising opportunities of both assets and liabilities to reduce gaps in interest spreads. Credit Risk: The Company maintains its bank accounts and deposits in leading financial institutions. 19- Financial instruments Some of the 2004 balances were reclassified to correspond to the 2005 presentation. 54 PRINTED BY: AD-DUSTOUR COMMERCIAL PRINTING PRESS