2002

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					CLAL INDUSTRIES AND INVESTMENTS LTD.


  MANAGEMENT DISCUSSION AND ANALYSIS

         AS OF DECEMBER 31, 2002
1.   Description of Company

     Clal Industries and Investments Ltd. (“CII”) is an investment company, whose
     principal holdings are in the manufacturing and high-technology industries. The
     Company is controlled by IDB Development Corporation Ltd.

     The Company is principally engaged in the acquisition, development, assistance
     and the incorporation of companies in various industries including formulation
     of their strategy, principally when the Company has a significant interest in the
     investee company. The Company has access to a variety of business
     opportunities, being constantly alert for investments with appropriate potential
     return. Simultaneously, the Company aspires to enhance the value of its
     existing investments, with a view to realizing those investments at the
     appropriate time.

     The CII group of companies is engaged in a variety of segments, which
     primarily include: cement, textiles, advanced technology and electronics, paper
     and cardboard, biotechnology, communications and venture capital funds.

     In May 2002, the Board of Directors of the Company approved the basic
     principles for a new long- term business plan for the Company that was
     formulated by management of the Company together with a strategy consulting
     company. The basic principles include emphasis on development of
     management resources, focus on a limited number of material holdings with
     realizable growth potential in respect of which the Company can exert a
     significant influence, focus on investments in a rapid growth sector including
     support and encouragement of long-term strategic processes in the investee
     companies. These processes will be examined and adapted on a continuing
     basis. Secondarily, the Company will adapt its operating profile through
     adoption of advanced management and business tools.

     As a result of adoption of the plan, the Company’s investments were classified
     into four groups: core holdings, venture capital, biotechnology and other real
     holdings.

     The Company’s operations are implemented through subsidiaries (companies in
     which the Group holds, either directly or indirectly, 50% or more of the rights in
     those companies), through associated companies (companies in which the Group
     exercises significant influence, and which are accounted for by the equity
     method), and through other companies wherein the Company does not exercise
     significant influence (the investment in which is reflected in the financial
     statements on the cost basis).

     The Company’s results of operations are affected, to a significant extent, by
     capital gains and write-downs. Accordingly, significant fluctuation is likely in
     the Company’s results of operations as between the various reporting periods.




                                         -1-
For information relating to the many external factors affecting the Group’s
operations, see Section 8 below.
The Group’s principal segments of operations are as follows(1):
Cement – the principal company in this segment is Nesher Israeli Cement
Enterprises Ltd. (“Nesher”). Nesher is wholly owned by Mashav Initiating and
Development Ltd. (“Mashav”), a holding company which is 75%-owned by the
Group.
Textiles – this segment includes Kitan Consolidated Ltd. (“Kitan”) (wholly-
owned) and Polgat Ltd. (“Polgat”) (71% owned).
High-Technology and Electronics – this segment includes ECI Telecom Ltd.
(“ECI”) (14% owned), Scitex Corporation Ltd. (“Scitex”) (22% owned),
Fundtech Ltd. (“Fundtech”) (36% owned), Applied Radiation – Jordan Valley
Ltd. (57% owned), Negevtech Ltd. (25% owned) and PowerDsine (15% owned).
Paper and Cardboard – this segment includes American-Israel Paper Mills
Ltd. (“AIPM”) (33% owned) and Kargal Ltd. (27% owned).
Biotechnology – operations in this segment are implemented through Clal
Biotechnology Industry Ltd. (“CBI”), a wholly-owned subsidiary whose
holdings include D-Pharm Ltd. (“D-Pharm”) (27% owned), Compugen Ltd.
(12% owned), Immuno Designed Molecules S.A. (7% owned), CDx
Laboratories (formerly Oralscan Laboratories Inc.) (10% owned) and
Mediwound Ltd. (80% owned).
Telecommunications – operations in this segment are implemented through
Clalcom Ltd. (72% owned), whose indirect holdings include Barak I.T.C.
(1995) – International Telecommunications Services Corp. Ltd. (“Barak”) (44%
owned), Med-1 Underwater Telecommunications Cables Ltd. (15% owned) and
Mediterranean Nautilus Ltd. (15% owned).
Venture Capital Funds – this segment includes venture capital funds, a
number of which are managed by the CII Group, some in the form of a
partnership with other Group companies, and some through others. The funds in
this segment include Clal Venture Capital Fund (67% owned), Infinity Israel
Venture Capital Fund and FBR Infinity Ventures (Israel) II (31% and 43%
owned, respectively), Millennium Fund and Millennium Fund II (50 and 14%
owned, respectively), Harvest Fund I (20% owned) and Carmel Fund (6%
owned).
Miscellaneous – this segment includes KBA Townbuilders Group Ltd.
(“KBA”) (53% owned), which operates in Ashdod in the construction and real
estate sector; Jaf-Ora Ltd. (“Jaf-Ora”) (30% owned), which is engaged in the
manufacture and marketing of soft drinks; Taavura Cement Containers Ltd.
(“Taavura”) (37% owned), which operates mainly in transportation,
infrastructure projects and import and marketing of trucks; and Ormat Industries
Ltd. (“Ormat”) (22% owned), which is engaged in establishment and operation
of power plants for the production of geothermic electricity.
(1)   The data relating to the ownership interests are as of December 31, 2002. Percentage shareholdings in this
      report have been rounded to the nearest whole number, unless otherwise indicated or unless figures are
      provided after the decimal point.


                                                -2-
2.   The financial position

     Te Company’s total assets in the consolidated balance sheet as of December 31,
     2002 amounted to NIS 5,429 million, as compared to NIS 5,972 million as of
     December 31, 2001. The decrease in assets is primarily attributable to
     investments. The decrease stems from the Company’s equity in the losses of
     associated companies and from write-downs in the values of investments.

     Group companies are engaged in extensive multinational operations. Most of the
     companies engage in hedging transactions with respect to their foreign currency
     balances, while some seek currency balancing by matching expenses to income
     in the same currency. The above notwithstanding, the Group is unable to obtain
     complete protection from currency exposure. See section 9 below.

     Most Group companies adjust their financial statements in order to reflect the
     changes in the Consumer Price Index. Certain investee companies adjust their
     financial statements by reference to the changes in the exchange rate of the U.S.
     dollar.


3.   Operating results

A.   Statement of operations

     The Company’s loss in 2002 amounted to NIS 426 million, as compared to a
     loss of NIS 712 million in the previous year and a loss of NIS 94 million in
     2000.

     As a result of decreases in the value of investments, certain investments were
     written down during the year. The write-downs were implemented mainly in
     respect of the Company’s investments in Scitex, ECI, Compugen, CDx, BVR
     Systems and Nexus. The write-downs for the year amounted to NIS 224 million
     (see Notes 8 and 9 to the financial statements).

     The loss for the year includes net negative non-recurring factors amounting to
     NIS 284 million, attributable principally to the write-downs referred to above,
     write-offs made in the financial statements of the investee companies – mainly
     in ECI (NIS 60 million) and Scitex (NIS 26 million). These negative effects
     were offset in part by gains from a change in the terms of the license from Barak
     (NIS 37 million) and from the sale of ITL offset (NIS 12 million) (prior year –
     non-recurring net negative effects of NIS 553 million).




                                        -3-
The decrease in the loss form regular operations this year is due mainly from a
decrease in financing expenses, an improvement in the results of ECI and of
Polgat, and from a decrease in amortization of goodwill. These effects were
offset in part by a decrease in the profits of Mashav and Kitan and an increase in
losses in biotechnology companies (due mainly to investments in research and
development in these companies). The net loss of ECI for the year (based on
generally accepted accounting principles in Israel) amounts to NIS 770 million.
This loss includes write-downs for decreases in the value of intangible assets in
the amount of NIS 252 million in the first quarter of 2002. These write-offs did
not affect the financial statements of the Company, taking into account the
negative goodwill in the Company’s books, attributed to intangible assets
written-down by ECI.

The Company’s loss in the fourth quarter amounted to NIS 152 million, as
compared to a loss of NIS 254 million in the corresponding period of the
previous year. The loss for the quarter includes net negative non-recurring
factors totaling NIS 113 million. Most of the negative effect was due to a write-
down of the value of the investments in Scitex (NIS 41 million), CDx (NIS 13
million), in other companies (NIS 20 million) and a write-down for a decrease in
the value of investments included in Scitex (NIS 27 million) (prior year - non-
recurring negative effects of NIS 218 million, net).

The loss for the quarter excluding non-recurring items was similar to the loss in
the corresponding period of the prior year. Improvement in KBA’s results and a
decrease in ECI’s losses were offset by a decrease in Kitan’s profits.

The loss per share in 2002 was NIS 2.71, as compared with a loss per share of
NIS 4.81 for 2001 and a loss per s hare of NIS 0.67 for 2000.

As of December 31, 2002, the Company’s shareholders’ equity totaled
NIS 2,555 million, as compared to NIS 3,014 million at the end of 2001. The
changes in shareholders’ equity during the year were attributable to the loss of
NIS 426 million, and the decrease of NIS 33 million in the amount of the
differences arising from the translation of the financial statements of investee
companies.




                                    -4-
           Following is an analysis of the operating results (in NIS millions):

                                         For the year ended                             For the year ended
                                         December 31, 2002                              December 31, 2001
                                                Non-                                           Non-
                                    Regular recurring       Total                 Regular    recurring     Total

     Core holdings                         9           (132)           (123)             (1)           (322)           (323)
     Venture capital                     (60)           (35)            (95)            (61)           (139)           (200)
     Biotechnology                       (61)           (63)           (124)            (32)             (1)            (33)
     Other real holdings                   2            (54)            (52)              6             (91)            (85)
     Company Headquarters                 (3)             -              (3)              2               -               2
     Financing                           (29)             -             (29)            (73)              -             (73)
     Net loss                           (142)          (284)           (426)           (159)           (553)           (712)

                                     For the three months ended                     For the three months ended
                                         December 31, 2002                              December 31, 2001
                                                Non-                                           Non-
                                   Regular    recurring     Total                 Regular    recurring     Total

     Core holdings                         3            (79)            (76)              (5)          (124)           (129)
     Venture capital                     (10)            (7)            (17)              (4)           (67)            (71)
     Biotechnology                       (20)           (15)            (35)              (8)            (1)             (9)
     Other real holdings                   6            (12)             (6)              (4)           (26)            (30)
     Company Headquarters                  2              -               2                -              -               -
     Financing                           (20)             -             (20)             (15)             -             (15)
     Net loss                            (39)          (113)           (152)             (36)          (218)           (254)


B.   Data of Principal Investee Companies(2)

     Following are data taken from the financial statements of the principal investee
     companies (in NIS millions):

                                         Sales                                                         Net income (loss) (1)
                        For the year               For the three                                 For the year       For the three
                           ended                  months ended                                      ended           months ended
                        December 31                December 31                                   December 31        December 31
                   2002    2001     Change     2002      2001 Change                            2002      2001     2002      2001

     Mashav        1,386       1,544         (9%)           346          361        (4%)            62         133           19      26
     ECI           3,061       4,223        (28%)           707          996       (29%)          (737)     (1,953)         (33)   (204)
     Scitex        1,150       1,214         (5%)           311          280        11%           (152)     (1,199)        (133)   (173)
     AIPM            493         508         (3%)           134          128         5%             41          37           10       9
     Kitan           806         859         (6%)           210          231        (9%)            11          33            1      10
     Polgat          760         680         12%            198          174        14%             21         (84)           1     (72)
     Barak           708         687          3%            171          173        (1%)            64         (72)          22     (10)
     Fundtech        189         213        (11%)            50           45        11%            (79)       (150)         (20)    (45)

     (1)   Net income (loss) includes non-recurring items.




     (2)   Relate to financial statements of ECI, Scitex and Fundtech based on generally accepted accounting principles in the
           United States.

                                                             -5-
C.   Review of operations of principal companies (2)

     Nesher – Decrease in revenues from sale of cement (10%) as compared to the
     prior year, which reduction was mainly as a result of erosion of selling prices
     together with a decrease in quantities sold (3%). The net income for the year
     excluding non-recurring items of companies in the cement sector totaled NIS 71
     million, as compared to NIS 111 million for the previous year.

     In the fourth quarter, the sales of cement were similar to those of the
     corresponding quarter of 2001, despite the 5% increase in sales volume. The net
     income of companies in the cement segment in the fourth quarter amounted to
     NIS 20 million, as compared to NIS 24 million in the corresponding quarter of
     2001.

     Nesher’s results were adversely affected in the last year, mainly due to the crisis
     in the construction industry, worsening of the security situation and the increase
     in imports of cement to Israel (at dumping prices). The restrictions placed on
     Nesher because of its monopoly in the cement sector reduce its flexibility and its
     ability to compete with imports. In 2001 Nesher submitted a complaint to the
     Supervisor of Trade Levies in the Foreign Trade Authority regarding the import
     dumping and the Supervisor commenced an investigation of this matter.

     In the middle of 2002 the Anti Dumping Supervisor in the Ministry of Industry
     and Trade accepted Nesher’s complaints regarding the import dumping,
     concurrently with the acceptance of a commitment from some of the cement
     importers to set import prices of cement in accordance with accepted prices in
     the Israeli market.

     Also, Nesher has taken actions in order to arrange with the AntiTrust Supervisor
     the terms of competition in the cement market in light of the implications of
     import dumping.

     ECI - ECI reported gross profit of NIS 1,189 million (gross profit margin –
     39%), a significant increase compared to NIS 739 million (gross profit margin –
     17%) reported in the prior year. The net loss excluding non-recurring items
     amounted to NIS 111 million, compared to NIS 425 million in the prior year.
     The principal non-recurring items include a loss from discontinued operations in
     the amount of NIS 365 million and an allowance in respect of a debt in the
     amount of NIS 161 million.




     (2)   The review of ECI, Scitex and Fundtech is based on financial statements prepared in accordance with
           accounting principles generally accepted in the United States.




                                                  -6-
In the fourth quarter, gross profit amounted to 317 million (gross profit margin -
45%), compared to NIS 278 million (gross profit margin - 28%) in the
corresponding period of the prior year. The net loss in the fourth quarter
excluding non-recurring items amounted to NIS 15 million, compared to NIS 44
million in the corresponding period of the prior year.
Upon signing the agreement for the merger of the subsidiary NGTS, and the
expected sale of Innowave, ECI has organized its core business around in two
divisions, Lightscape and Inovia, in order to focus its operations, leverage the
synergy between its products and reduce expenses.
Scitex – Operating income for the year amounted to NIS 10 million, compared
to a loss of NIS 80 million in the prior year. The operating loss in the fourth
quarter amounted to NIS 2 million, compared to a loss of NIS 96 million in the
corresponding period of the prior year. Most of the change is due to changes in
accounting principles for amortization of goodwill that was off set in part by a
decrease in sales. The net loss for the year includes a write-down in respect of a
decrease in value of the holding in Creo in the amount of NIS 106 million (prior
year – the loss includes NIS 1,037 million in respect of the investment in Creo).
In January 2003, the merger of Scitex Vision with Aprion Digital was
completed. After this merger, Scitex holds 75% of the merged company. The
merger is intended to integrate Scitex Vision’s existing marketing system and
the special products developed in Aprion Digital.
AIPM – Discontinued operations during the year resulted in a decrease of
NIS 28 million in sales. Excluding the effect of this item, the quantitative
increase in sales resulted in an increase in sales despite the erosion in selling
prices. Net income (before non-recurring items) amounted to NIS 40 million,
compared to NIS 33 million in the prior year. In the fourth quarter, net income
amounted to NIS 10 million, compared to NIS 9 million in the corresponding
period of the prior year. The efficiency measures taken by all of the AIPM
Group companies resulted in a decrease in salaries costs and other
manufacturing costs. The effects of these efficiency measures were off set
mainly by the change from financing income in the prior year to financing
expenses in the current year.
Kitan – Operating income for the year amounted to NIS 23 million, compared
to NIS 53 million in the prior year. Operating income in the fourth quarter
amounted to NIS 6 million, compared to NIS 15 million in the corresponding
period of the prior year. The decrease in operating results is due mainly to a
decrease in sales and a decrease in the gross profit margin in the retail sector,
while maintaining the profit margin in the manufacturing sector.
Polgat – Gross profit in the year amounted to NIS 173 million (gross profit
margin – 23%), compared to NIS 106 million (gross profit margin – 16%) in the
prior year. Gross profit in the fourth quarter amounted to NIS 48 million (gross
profit margin - 24%), compared to NIS 30 million (gross profit margin – 17%)
in the corresponding period of the prior year. The increase in gross profit is due
mainly to an increase in the production outside of Israel, improvement in
operating parameters and increased sales.

                                    -7-
Net income for the year amounted to NIS 21 million, compared to a net loss of
NIS 84 million in the prior year. Net income in the fourth quarter amounted to
NIS 1 million, compared to a loss of NIS 73 million in the corresponding
quarter of the prior year (the annual and fourth quarter results of the prior year
include restructuring expenses of NIS 65 million).
As a result of an agreement signed with the employees and the Histadrut labor
union during the year, Bagir reduced the personnel in its Israeli facilities by 750
employees. Toward the end of the first quarter of 2002, Polgat acquired
additional shares of Guney Polgat in Turkey such that after the acquisition
Polgat’s holdings in Guney Polgat reached 51%.
Barak – Barak recorded for the first time an annual profit of NIS 64 million,
compared to a loss of NIS 72 million in the prior year. Operating income
amounted to NIS 132 million, compared to NIS 68 million in the prior year, an
increase of 94%. Net income in the fourth quarter amounted to NIS 28 million,
an increase of 13% over the corresponding period of the prior year. Barak had
positive cash flows from operating activities in the amount of NIS 155 million
in 2002, compared to positive cash flows of NIS 85 million in 2001. In the
fourth quarter, Barak had positive cash flows from operating activities in the
amount of NIS 45 million, an increase of 43% over the corresponding period of
the prior year and in increase of 18% over the third quarter. The improvement in
Barak’s results enables it to improve its debt structure. During 2002 Barak
repaid long-term liabilities in the amount of NIS 202 million, solely from its
own resources.
Fundtech – The loss for the year amounted to NIS 79 million, compared to a
loss of NIS 128 million in the prior year. The loss for the fourth quarter, before
non-recurring expenses and write-downs of capitalized software costs amounted
to NIS 4 million, compared to NIS 20 million in the corresponding period of
2001.
During the fourth quarter, 35 new transactions were consummated, of which two
transactions were for the future generation of cash management, CASHPlus,
developed by Fundtech, and two banks joined its clientele became new
customers. Also, in the fourth quarter Fundtech integrated the development,
service and customer support departments in a central location. According to
management of Fundtech, this will result in an improvement in customer service
and a decrease in costs.
In general, the results of the Group companies in the reported year were affected
by the economic slowdown in world markets and the domestic market, the
security situation and the crisis in the capital markets, especially in the
technology and communications segments. In the domestic market, the decrease
in demand and the increase in competition resulted in an erosion of prices and a
decrease in profitability. Exporting Group companies with foreign sales were
affected mainly by a decrease in capital acquisitions by companies in various
segments. The effect of these factors was moderated in part due to restructurings
and efficiency measures taken by most of the Group companies.
As long as the recession continues, both in the domestic economy and in world
markets, will continue to have an adverse effect on the performance of Group
companies.
                                    -8-
D.    Evaluation of Investments

      The Company assesses the value of its investments in companies in accordance
      with generally accepted accounting principles. Based on the results of the
      assessment, the Company recorded, for some of its investments, write-downs for
      impairment.

      For a number of investee companies whose shares are listed for trading, there is
      a difference between the carrying values of the investment and its market value.
      The Company assessed its investment in these companies and believes that the
      carrying value of its investments is not more than the recoverable amount.

      Following are data regarding the investments in these companies (in NIS
      millions):

                                                       Difference                  Difference
                                                        between                     between
            Company’s                                   carrying                    carrying
              share of                                 value and                   value and
             investee’s                Market value   market value    Market         market
            equity as of                  as of           as of      value as of   value as of
            December 31    Carrying    December 31    December 31    March 18      March 18
                2002        value         2002            2002          2003          2003

ECI              445            372         149           223             156           216
Scitex           232            191          61           130              68           123
AIPM             232            226         190            36             210            16
Polgat           162            145          74            71              71            74
Fundtech         126            116         105            11              87            29
Total          1,197          1,050         579           471             592           458


      The Company believes that these companies have realizable growth potential
      and that the Company is able to significantly influence the processes in these
      companies. The Company’s holdings in these shares constitute a long-term
      investment. The companies themselves assess whether there has been an
      impairment in their assets and, when necessary, record write-downs that are
      reflected in the Company’s financial statements (see also Note 8 to the financial
      statements).

4.    Major Changes in Investments and in Investee Companies

4.1   In February 2002 the Company acquired additional shares of ECI in
      consideration for NIS 17 million. After the acquisition and private issuance of
      shares by ECI, the Company’s holdings in ECI are 14.4%.

4.2   During the reported year, the Company acquired additional shares of Fundtech
      in consideration for NIS 19 million. After this acquisition, the Company’s
      holdings in Fundtech are 36%.




                                         -9-
4.3   In April 2002, an agreement was consummated for sale of the Company’s
      holdings in International Laser Technologies Ltd. (“ITL”) to a group headed by
      the general manager of ITL. In consideration for the sale of its holdings, the
      Company received U.S.$ 7 million (“the initial consideration”) and under
      certain circumstances the consideration may reach U.S.$ 9.5 million. The net
      gain on sale of the Company’s holdings in ITL, taking into account only the
      initial consideration, amounted to NIS 12 million.

4.4   During the first half of 2002, the Company invested NIS 22 million in
      Negevtech in the framework of round of financing in the amount of U.S.$ 24
      million in Negevtech. After this investment, the round of financing Company’s
      holdings in Negevtech are 25%.

4.5   During the reported year, the Company acquired marketable debentures and
      options of Ormat in consideration for NIS 18 million. The debentures are
      convertible into shares of Ormat.

      In December 2002, the Company converted debentures into shares of Ormat and
      Beit Shemesh Engines Holdings (1997) Ltd. (“Beit Shemesh”) in the amount of
      NIS 47 million. After this conversion, the Company’s holdings in Ormat are
      22% and in Beit Shemesh - 21%.

4.6   During the reported year, the Company invested an additional NIS 13 million in
      shares and convertible debentures of Shellcase. After this investment, the
      Company’s holdings in Shellcase are 24%.

4.7   In September 2002, the Company sold all of its holdings in Mivtach Shamir in
      consideration for NIS 26 million. As a result of the sale, the Company recorded
      a loss of NIS 1 million.

4.8   During the reported year, the Company invested in other companies, directly and
      indirectly (through wholly owned subsidiaries), as follows (in millions of
      shekels):
                                                        Twelve       Three months
                                                    months ended         ended
                                                    December 31      December 31
                                                         2002             2002
      Core holdings                                              10                -
      Venture capital                                            39                4
      Biotechnology                                              38                2
      Other real holdings                                          5                2
      Total                                                       92                8




                                        - 10 -
5.   Liquidity

     The consolidated balance sheet reflects a working capital deficiency of NIS 167
     million. The working capital deficiency reflected in the Company’s balance
     sheet amounts to NIS 319 million. As of balance sheet date, short-term liquid
     assets reflected in the consolidated balance sheet amounted to NIS 187 million;
     these assets are included within short-term investments and cash and cash
     equivalents. The liquid ratio of consolidated Group companies is 0.46
     (2001 - 0.49). The principal sources of funds were from current operations (NIS
     280 million), the proceeds from realization of assets in the amount of NIS 121
     million, and the proceeds from an issuance of debentures in the amount of NIS
     109 million and receipt of long-term loans in the amount of NIS 204 million.
     Most of the cash was utilized for the repayment of short-term and long-term
     loans in the amount of NIS 282 million, acquisition of fixed and other assets in
     the amount of NIS 78 million and the acquisition of companies in the amount of
     NIS 165 million.

6.   Sources of Finance

     As of December 31, 2002, the Company’s shareholders’ equity amounted to
     NIS 2,555 million, as compared to NIS 3,014 million as of the end of the
     previous year. The minority interest was NIS 105 million (2001 – NIS 132
     million). There was a 15% decrease in the Company’s shareholders’ equity and
     a 20% decrease in the minority interest, which together constitute a source of
     finance for 49% of the Group’s assets.

     The Group’s external long-term sources of finance totaled NIS 1,176 million as
     of December 31, 2002 (2001 - NIS 1,134 million). Approximately 46% of these
     funds are repayable within the next two years. During the reported year, the
     Group obtained long-term loans totaling NIS 314 million (including proceeds of
     NIS 110 million from an issuance by the Company to institutions of non-
     marketable debentures in January 2002). During 2002, the Group repaid long-
     term loans, which combined with net changes in short-term bank credit,
     amounted to NIS 353 million.
     As of December 31, 2002, the balance of the Company’s net liabilities to wholly
     owned companies amounted to NIS 851 million (prior year NIS 905 million).




                                       - 11 -
7.   Subsequent events
     7.1   In January 2003 the Company sold its holding in shares and debentures of
           Orckit in consideration for NIS 72 million. The Company did not have a
           gain or loss from this sale.

     7.2   In February, the Company invested NIS 3 million in Shellcase and
           converted convertible loans in the amount of NIS 13 million. After this
           investment and conversion of the loans to shares, the Company’s holdings
           in Shellcase are 29%.
     7.3   During the period from December 31, 2002 until the date the financial
           statements were approved, the Company invested NIS 11 million, mainly
           in venture capital funds.

     7.4   In January 2003, the Company issued short-term commercial paper in the
           amount of NIS 50 million.

8.   Influence of external factors
     Various external risk factors, which are not susceptible to quantification, may
     have a significant effect on the Company’s commercial operations. These
     factors are described below:

     8.1   Technology segment - The Company has holdings, either direct or
           indirect, in technology-based companies, including ECI, Scitex, Fundtech,
           Shellcase, CBI and various venture capital funds. The technology segment
           has been characterized, in recent years, by rapid technological
           development, significant investment in research and development, and, in
           some cases, by short product lives. The operating results of investee
           companies operating in this segment are dependent upon the ability of
           those companies to adapt to rapidly-changing competitive market
           conditions, and to develop new generations of products and services which
           are compatible with consumer demand. There is no certainty that these
           companies will succeed in adapting to the changing market requirements.
           In addition, the Company’s ability to identify, at an early stage, those
           businesses employing technological innovations with commercial
           potential, constitutes an important factor with respect to the Company’s
           growth and its ability to be competitive.

           Some of these companies have limitations on their activities pursuant to
           grants and benefits received from various government agencies in Israel,
           including restrictions on the transfer of technology abroad and transfer of
           shares. Some of the companies have not yet commenced sale of their
           products and there is no certainty if, and when, they will reach this stage.
           Also, it is unclear if, and when, these companies will achieve profitability.




                                         - 12 -
8.2   Renewal of licenses and concessions

      A number of investee companies, including Nesher, Taavura, Maman –
      Cargo Terminals and Handling Ltd. (“Maman”) and Barak, operate by
      virtue of licenses or concessions awarded by due process of law. Some of
      the licenses and concessions are awarded for a limited period of time only,
      and must be renewed from time to time in accordance with the relevant
      legislation or the terms under which the concession was previously
      awarded. There is no certainty that the above licenses or concessions will
      be renewed. Non-renewal of a license or concession previously awarded to
      an investee company, might carry implications for the Company’s
      profitability.

8.3   Financial risks

      The Company is exposed to risk in respect of changes in prices of
      marketable securities held by the Company and by its investee companies.
      Also, the Company and the investee companies are exposed to changes in
      interest rates, rates of inflation and currency exchange rates that affect,
      directly and indirectly, the operating results of the Company and the
      investee companies and the value of their assets and liabilities. In some
      Group companies, a significant percentage of overall sales is directed
      towards the export market. In addition, some Group companies import raw
      materials required for their particular operations. Accordingly, the trading
      results of those companies may be affected by fluctuations in exchange
      rates and/or world prices of raw materials. Consequent the operating
      results of those companies might be affected by fluctuations in exchange
      rates and in 2002 material prices. The State of Israel policy of allowing
      increased imports in various segments in which investee companies
      operate, including, the cement and textile segments may adversely affect
      the operating results of companies in these sectors. (See also section 9
      below).

8.4   Restrictions on the disposal of holdings

      The Company and some of its investee companies are subject to
      contractual and legal restrictions which may restrict the Company’s ability
      to dispose of these holdings and convert them into a more liquid form.

8.5   Budgetary factors

      Governmental budgets affect the operations of some investee companies.
      Reductions in these budgets may have a significant effect on these
      companies’ operations.




                                   - 13 -
8.6   The Israel economy

      The Government’s monetary policies, and in particular, changes in the
      cost of capital, as well as the policy of devaluation, may affect the
      profitability of investee companies. The recession in the local economy is
      affecting companies operating in Israel. In addition, the operations of
      certain investee companies are affected by seasonal variations, either
      because of a dependence on agriculture or due to the seasons of the year
      (cement and textile).

8.7   AntiTrust Law

      Some investee companies, such as AIPM, Nesher and Maman, have been
      declared to be monopolies in certain fields by the AntiTrust Supervisor
      (“the Supervisor”). Other investee companies, such as Jaf-Ora, have
      reached various agreements with the Supervisor, thus avoiding being
      declared a monopoly. The imposition of restrictions on investee
      companies declared, or that will be declared, a monopoly, may adversely
      affect the Company’s operating results, in particular because of price
      controls and other restrictions.

      Nesher concluded an agreement with government departments on the price
      structure of cement for the period ending July 1, 2002. The agreement
      dictates a real decrease in prices at a rate of 13.7% for the period
      commencing July 1, 1998. Until December 31, 2002, prices declined, in
      real terms, at an aggregate rate pursuant to the agreement. This decline
      was made possible due to efficiency measures stemming from the setting-
      up of dry production lines and the passing-on to the consumer of some of
      the benefits derived from the implementation of these measures.
      Throughout the period, Nesher was not subject to supervision under the
      system that would have been customary had the above agreement not been
      concluded.

8.8   Mandatory Tender Law

      The Mandatory Tender Law, 1992 affects the revenues of some of the
      investee companies which sell to entities subject to this law.




                                  - 14 -
8.9   Changes in capital markets both in Israel and world-wide

      In recent years, there have been significant declines in share prices of
      publicly traded companies, mainly in the technology segment, in Israel and
      world-wide. In the prevailing state of the capital market, there may well be
      sharp fluctuations in the prices of shares of publicly traded investee
      companies. The continuing recession in the capital markets may have an
      adverse effect on the Company’s ability to realize capital gains on the
      disposal of its investments. Amongst the factors contributing to this
      situation are the difficulty in arranging the public issuance of shares of
      investee companies, the possible fall in the prices of securities of investee
      companies after a stock exchange flotation, and the difficulty of locating
      sources of finance for investee companies, in particular because of the
      possibility that investors, notably venture capital funds, will reduce the
      extent of their investments in technology-based companies.

8.10 Political and security situation

      The deterioration in the political and security situation in Israel and the
      world, and the economic recession in Israel and the areas of the
      Palestinian Authority, are adversely affecting the situation of investee
      companies operating in Israel, mainly because of the reluctance of foreign
      investors to invest in Israeli companies, and the reluctance of international
      companies to enter into contractual relations with Israeli companies. The
      closure in the areas of the Palestinian Authority has an adverse effect on
      the operations of certain investee companies, both from an operational
      point of view and from the standpoint of demand. Certain investee
      companies had transferred some of their production facilities to areas of
      the Palestinian Authority and to the territories of neighboring States; and
      therefore, the state of relations with the Palestinian Authority and the
      neighboring countries could affect these companies.

8.11 Construction industry

      Difficulties and changes with respect to the scope of operations within the
      construction industry may affect the operations of some investee
      companies – notably, Nesher and KBA, whose operations are closely tied
      to those of the construction industry, including public works and
      infrastructure.

8.12 Quality of the Environment

      Some of the investee companies are exposed to various requirements
      imposed by authorities that monitor the quality of the environment.




                                    - 15 -
     8.13 Salaries and employee relations
           A significant increase in the minimum wage may affect the profitability of
           Group companies. In view of the large numbers of workers employed by
           these companies, future changes in the minimum wage are likely to affect
           the operating results of the Group companies. In addition, strikes and
           industrial unrest in Group companies and at the country’s ports lead to
           delays in the receipt of raw materials, and adversely affect production and
           exports.

     8.14 Supervision of banks
           The directives of the Israel Supervisor of Banks contain restrictions with
           respect to credit lines to a group of borrowers from an Israel bank.
           According to these restrictions, such credit lines may not exceed a
           specified proportion of that bank’s capital. In light of the fact that CII, its
           subsidiaries and some of its investee companies are regarded as belonging
           to the “group of borrowers” of IDB Holdings Ltd., the above directives
           may affect the possibility of some of the banks institutions in Israel to
           materially increase the credit to the Group, or to reduce such credit.

     8.15 Major Customers
           A number of Group companies have major customers. The situation of the
           markets in which these customers operate, and the continuation of the
           agreements with these customers, may have a material effect on the results
           of the investee companies.

9.   Analysis of market risks to which the Group is exposed and the management
     of those risks
     The following relates to the Company and its wholly-owned subsidiaries,
     excluding those companies referred to in section 9.6 (“the Corporation”):
     9.1   The officer responsible for managing the financial risks to which the
           Corporation is exposed, is Mr. Gonen Biber, Deupty Managing Director,
           Finance (“the responsible officer”).
     9.2   Market risks(4) to which the Corporation is exposed
           The Corporation is exposed to a variety of market risks during the
           ordinary course of its business. Such risks relate to changes in the prices
           of marketable securities which may affect the market value of securities
           issued by the Corporation, and which could also affect its operating results
           and shareholders’ equity. In addition, the Corporation is also exposed to
           changes in interest rates, the rate of inflation and currency exchange rates,
           all of which affect, both directly and indirectly, its operating results and
           the value of its assets and liabilities.

     (4)   As the term is defined in the guidelines of the Securities Authority dated March 21, 2002



                                                      - 16 -
9.3   The Corporation’s policies with respect to the management of market risks
      The Corporation holds marketable securities in a wide range of investee
      companies. As a general rule, the Company does not hedge its investments
      in marketable securities, in view of, amongst other factors, the large extent
      to which the Company has invested in marketable securities, the spread of
      investments both in and outside of Israel, the spread of investments in
      different securities, the spread of investments in different segments, and
      also, the legal restrictions on the purchase of various derivative
      instruments.
      The Corporation attempts to match, as far as possible, the linkage bases of
      its financial assets with those of its liabilities, and the length of the
      average life of its financial assets with the length of the average life of its
      liabilities.
9.4   Methods of supervision and implementation of policies
      From time to time, generally once a year, the Board of Directors
      determines the extent of the hedging transactions permitted, and the
      authority of the Corporation managers. In accordance with a resolution of
      the Board of Directors, management is authorized:
      a)    to implement, from time to time, at its discretion, hedging
            transactions, including forward exchange transactions and
            transactions in options and other financial instruments (with respect
            to principal or interest), for the purpose of reducing or eliminating
            completely, such exposure as may arise from time to time in
            consequence of the financial structure of the Corporation;
      b)    to hold, from time to time, surplus liabilities or foreign currency-
            linked assets, to an extent that does not exceed U.S.$250 million.
      The transactions are implemented by the responsible officer, who is
      authorized to implement such hedging transactions as are required in order
      to comply with Corporation policy. The responsible officer reports to the
      General Manager on a regular basis with respect to the implementation of
      the hedging transactions. Management is required to report to the Board
      of Directors as necessary, and must, in any event, report at least once a
      year. During the reported year, the Corporation implemented hedging
      transactions which had a minimal effect on the statement of operations.




                                    - 17 -
9.5    Consolidated Schedule of Basis of Linkage (in NIS millions)

                          Linked to   Linked to      Linked to      Not       Non-      Total
                             the       the U.S.        other      linked     monetary
                          Consumer      dollar        foreign                balances
                            Price                    currency
                            Index

December 31, 2002
Current assets                  58         126             109        418        746     1,457
Non-current assets              36         103               -          1      3,832     3,972
Current liabilities           (354)       (386)           (144)      (715)       (25)   (1,624)
Non-current liabilities       (709)        (30)             (4)       (63)      (444)   (1,250)
Net balance sheet
 amounts                      (969)       (187)            (39)      (359)     4,109     2,555



                          Linked to   Linked to     Linked to       Not       Non-      Total
                             the       the U.S.       other       linked     monetary
                          Consumer      dollar       foreign                 balances
                            Price                   currency
                            Index

December 31, 2001
Current assets                  81         237             88         332        723     1,461
Non-current assets              44          74              -           9      4,384     4,511
Current liabilities           (243)       (197)           (91)     (1,027)       (15)   (1,573)
Non-current liabilities       (770)        (38)            (8)        (65)      (504)   (1,385)
Net balance sheet
 amounts                      (888)         76            (11)      (751)      4,588     3,014


9.6    Subsidiaries

       Nesher, Polgat, Kitan and Taavura are exposed to fluctuations in prices of raw
       materials, energy and changes in exchange and interest rates that affect the
       income and expenses of these companies.

       Nesher, Polgat, Kitan and Taavura adjust their sources of income and expenses
       to the reporting currency. Polgat and Kitan enters into hedging transactions in
       foreign currency derivatives in order to decrease exposures. Nesher utilizes
       contracts for periods up to one year in various goods and energy products in
       order to hedge unexpected increases in prices in world markets.




                                                 - 18 -
9.7   Derivatives

      Following are data regarding derivatives utilized by the Company, Polgat, Kitan
      and Taavura as of December 31, 2002 (Nesher did not utilize derivatives as of
      that date) in NIS millions:

                                                                U.S. dollar/NIS
                                                 Par value                           Fair value
                                                        More than one                       More than one
                                     Up to one year          year         Up to one year         year
                                     Short    Long      Short    Long     Short    Long     Short    Long

      Options
      For hedging – not recognized
       for accounting purposes
      Acquisition of call options                 33                                    *

      Forward transactions
      For hedging – not recognized
       for accounting purposes            2        2                           *        *

                                                                   Euro/NIS
                                                 Par value                          Fair value
                                                        More than one                      More than one
                                     Up to one year          year        Up to one year         year
                                     Short    Long      Short    Long    Short    Long     Short    Long

      Options
      For hedging – not recognized
       for accounting purposes
      Acquisition of call options                 34                                    1


                                                                U.S. dollar/Euro
                                                 Par value                            Fair value
                                                        More than one                        More than one
                                     Up to one year          year          Up to one year         year
                                     Short    Long      Short    Long      Short    Long     Short    Long

      Forward transactions
      For hedging – recognized
      for accounting purposes                      8                                    *
      Not recognized for
      accounting purposes                          3                                    *

      Options
      For hedging – recognized
      for accounting purposes
      Acquisition of call options                121                                    3
      Acquisition of put options       121                                     1
      Not recognized for
      accounting purposes –
      acquisition of call options                  2
      Writing of put options                       4                                    *




                                                - 19 -
                                                   British Pound/U.S. dollar
                                         Par value                           Fair value
                                                More than one                       More than one
                             Up to one year          year        Up to one year          year
                             Short    Long      Short    Long    Short     Long     Short    Long

Options
For hedging – recognized
for accounting purposes
Acquisition of put options       37                                   *

Forward transactions
For hedging – recognized
for accounting purposes           4                                   *

                                                      British Pound/Euro
                                         Par value                           Fair value
                                                More than one                       More than one
                             Up to one year          year         Up to one year         year
                             Short    Long      Short    Long     Short    Long     Short    Long

Options
For hedging – recognized
for accounting purposes
Acquisition of put options        4                                   *

                                                       British Pound/NIS
                                         Par value                           Fair value
                                                More than one                       More than one
                             Up to one year          year         Up to one year         year
                             Short    Long      Short    Long     Short    Long     Short    Long

Options
For hedging – recognized
for accounting purposes
Acquisition of put options       15                                   *

                                                   British Pound/U.S. dollar
                                         Par value                           Fair value
                                                More than one                       More than one
                             Up to one year          year        Up to one year          year
                             Short    Long      Short    Long    Short     Long     Short    Long

Options
For hedging – recognized
 for accounting purposes
Acquisition of put options        9                                   *


(*)    Less than NIS 1 million.

Highest value during the year of all acquisition transactions in derivatives was
NIS 325 million.
Highest value during the year of all sale transactions in derivatives was NIS 311
million.
(Combined data of all of the above companies).




                                        - 20 -
      9.8   Subsequent Events

            There were no material events were recorded in respect of market risks
            subsequent to balance sheet date.

10.   Indemnification

      In April 2002 the shareholders of the Company approved the granting of letters
      of indemnification according to which the Company undertook to indemnify the
      directors and other position holders (including legal counsel and the secretary of
      the Company). The total indemnification payable by the Company will not
      exceed 25% of the Company’s shareholders’ equity in the year of the actual
      payment (see also Note 31E to the financial statements).

11.   Remuneration of Senior Employees

      In determining salaries, bonuses and the granting of options, the Board of
      Directors is guided, among others, by considerations relating to the position and
      function of each senior officer, his contribution to the operations and
      advancement of the Company, and the scale of the operations of the Company.
      With respect to option plans, which vest over extended periods, the primary
      objective of the plans is to foster a long-term relationship with the senior
      employees of the Company by allowing them to participate in the Company’s
      equity, and thus in the benefits of the initiatives, development and management
      carried out by the Company.

      In March 2002, the Board of Directors of the Company approved the addition of
      two employees to the option plan from August 2001. The employees were
      issued options to purchase a maximum of 154,287 shares.

      In April 2002, the Board of Directors of the Company approved an amendment
      to the terms of the Company’s option plans from January 2001. According to the
      amendment, the exercise prices of the options were changed (see also Note 32 to
      the financial statements).

      In August 2002, the Board of Directors of the Company approved an option plan
      according to which options to purchase a maximum of 205,724 shares will be
      granted to officers of the Company.




                                        - 21 -
12.   Contributions and donations

      The CII Group views contributing to, and assisting, the community in Israel as a
      central plank in its business vision. This outlook is expressed in the code of
      business ethics of the IDB Group, as follows: “The Group values its
      contribution to the State of Israel – in the economic, employment and
      technology fields. The Group is proud of its commitment to the preservation of
      the environment and the attainment of goals for the benefit of the community”.

      The Group actively encourages Group companies to expand their activities in
      relation to community-oriented projects carried out in conjunction with the
      “Zionism 2000” scheme. Through the medium of these projects, the Company
      accords priority to contributions in the fields of education, culture and health, by
      assisting distressed communities in Israel, with special emphases being given to
      underprivileged neighborhoods, development towns and minority settlements.

      The IDB Group, together with the Company and its subsidiaries, has established
      an Amuta, known as Tapuach – the Foundation for the Advancement of
      Information in Israel. The aims of the Amuta are to train the wider public in the
      use of the Internet and provide information-technology skills. The scheme
      focuses on underprivileged neighborhoods, development towns and minority
      communities. At the present time, the Tapuach Foundation operates 40
      community centers.

      During the course of 2002, the Group made donations totaling approximately
      NIS 1.4 million, as follows:

                                                                          In thousands
                                                                            of shekels


      Tapuach Foundation                                                             306
      Clal IDB Fund                                                                  200
      Education                                                                      271
      Sciences                                                                       244
      Health                                                                          89
      Cultural, social and miscellaneous purposes                                    283

We wish to thank the Group’s directors and employees for their contribution to the
advancement and development of the Group.




   LEON RECANTI                                                  MEIR SHANNIE
  Chairman of the Board                                          General Manager
       of Directors



                                          - 22 -
fced0576-2169-441d-a3f9-af0541cf5db1.doc
CLAL INDUSTRIES AND INVESTMENTS LTD.


        FINANCIAL STATEMENTS
          As of December 31, 2002
            CLAL INDUSTRIES AND INVESTMENTS LTD.


                             FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2002


                                    CONTENTS

                                                                 Page

    FINANCIAL STATEMENTS

      Consolidated Balance Sheets                                 2-3

      Balance Sheets - Company                                    4-5

      Consolidated Statements of Operations                        6

      Statements of Operations - Company                           7

      Statements of Changes in Shareholders' Equity                8

      Consolidated Statements of Cash Flows                      9 - 10

      Statements of Cash Flows - Company                         11 - 12

      Notes to the Financial Statements                          13 - 88

    APPENDICES TO THE FINANCIAL STATEMENTS

      Appendix A - Company Financial Statement Data in Nominal
       Values                                                    89-90

      Appendix B - Schedule of Principal Investee Companies      91-93




                                   # # # # # # #




fced0576-2169-441d-a3f9-af0541cf5db1.doc
           CLAL INDUSTRIES AND INVESTMENTS LTD.

                      CONSOLIDATED BALANCE SHEETS
                         In millions of shekels of December 2002




                                                                     December 31
                                                   Note            2002       2001

CURRENT ASSETS
 Cash and cash equivalents                                              60         78
 Short-term investments                             (3)                127         94
 Trade receivables                                  (4)                467        471
 Other receivables                                  (5)                 89        122
 Inventories                                        (6)                714        696
                                                                     1,457      1,461

LONG-TERM DEPOSITS, LOANS AND
 RECEIVABLES                                        (7)                43            47


INVESTMENTS
 Investee companies                                 (8)              1,352      1,470
 Other                                              (9)                570        818
                                                                     1,922      2,288

FIXED ASSETS                                       (10)
 Cost                                                                5,798      5,786
 Less - accumulated depreciation                                     4,005      3,847
                                                                     1,793      1,939

OTHER ASSETS AND DEFERRED
 CHARGES                                           (11)               214        237


                                                                     5,429      5,972




                                           - 2 -
                                                                       December 31
                                                      Note           2002       2001

CURRENT LIABILITIES
 Banks                                                (12)                919                 862
 Trade payables                                       (13)                309                 276
 Other payables                                       (14)                326                 384
 Other current liabilities                            (15)                 70                  51
                                                                        1,624               1,573

LONG-TERM LIABILITIES
 Debentures                                           (16)                474                 374
 Loans                                                (17)                317                 487
 Deferred taxes                                       (18)                220                 216
 Termination benefits                                 (19)                102                 105
 Other liabilities                                    (20)                 32                  71
                                                                        1,145               1,253

CONTINGENT LIABILITIES AND
 COMMITMENTS                                          (21)

MINORITY INTERESTS                                                        105                132


SHAREHOLDERS' EQUITY                                  (22)              2,555               3,014




                                                                        5,429               5,972




      The notes and appendices to the financial statements form an integral part thereof.

                                          - 3 -
          CLAL INDUSTRIES AND INVESTMENTS LTD.
                      BALANCE SHEETS - COMPANY
                        In millions of shekels of December 2002




                                                                     December 31
                                                  Note            2002        2001

CURRENT ASSETS
 Cash and cash equivalents                                             -              1
 Short-term investments                            (3)               210             48
 Other receivables                                 (5)                 8             28
                                                                     218             77

LONG-TERM DEPOSITS, LOANS AND
 RECEIVABLES                                       (7)                50             19



INVESTMENTS
 Investee companies                                (8)              3,673      3,970
 Other                                             (9)                108        213
                                                                    3,781      4,183



OTHER ASSETS AND DEFERRED
 CHARGES                                          (11)                40             42




                                                                    4,089      4,321




                                      - 4 -
                                                                       December 31
                                                      Note           2002       2001

CURRENT LIABILITIES
 Banks                                                (12)                466                376
 Other payables                                       (14)                 17                 13
 Other current liabilities                            (15)                 54                 48
                                                                          537                437

LONG-TERM LIABILITIES
 Debentures                                           (16)                474                374
 Loans                                                (17)                517                458
 Other liabilities                                    (20)                  6                 38
                                                                          997                870

CONTINGENT LIABILITIES AND
 COMMITMENTS                                          (21)


SHAREHOLDERS' EQUITY                                  (22)              2,555               3,014




                                                                        4,089               4,321




      The notes and appendices to the financial statements form an integral part thereof.

                                          - 5 -
                CLAL INDUSTRIES AND INVESTMENTS LTD.

                 CONSOLIDATED STATEMENTS OF OPERATIONS
                  In millions of shekels of December 2002, except earnings per share




                                                                For the year ended December 31
                                                      Note       2002         2001      2000

REVENUES, NET
 Sales and services                                                 2,741          3,206       3,481
 Equity in losses of investee companies                             (157)          (520)       (103)
                                                                    2,584          2,686       3,378

COSTS AND EXPENSES
 Cost of sales and services                           (25)          1,976          2,320       2,552
 Selling and marketing expenses                       (26)            396            398         363
 General and administrative expenses                  (27)            195            218         217
 Other expenses, net                                  (28)            272            460         209
 Financing expenses, net                              (29)             80            114         167
                                                                    2,919          3,510       3,508

     Loss before taxes on income                                      335              824      130

TAXES ON INCOME                                       (30)              70             121      104

     Loss after taxes on income                                       405              945`     234

MINORITY INTEREST                                                     (21)             233      140

     Net loss                                                         426              712       94


LOSS PER NIS 1 PAR VALUE OF
 SHARE CAPITAL (IN NIS)                               (34)            2.71             4.81     0.67




         The notes and appendices to the financial statements form an integral part thereof.

                                              - 6 -
                CLAL INDUSTRIES AND INVESTMENTS LTD.

                    STATEMENTS OF OPERATIONS - COMPANY
                               In millions of shekels of December 2002



                                                              For the year ended December 31
                                                  Note         2002         2001      2000

REVENUES, NET

 Equity in earnings (losses) of investee
  companies                                                        (326)          (692)         19


EXPENSES

 General and administrative expenses                 (27)                 7          6           6
 Other expenses (income), net                        (28)                59        (50)         25
 Financing expenses, net                             (29)                34         64          82

                                                                     100             20        113

     Net loss                                                        426           712          94




         The notes and appendices to the financial statements form an integral part thereof.

                                             - 7 -
                   CLAL INDUSTRIES AND INVESTMENTS LTD.

               STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   In millions of shekels of December 2002



                                                                         Capital
                                                           Share         reserves      Retained
                                                           capital          (*)        earnings     Total

Balance as of January 1, 2000                                 1,263              22        2,095      3,380
Differences arising from financial statements of
 certain investees adjusted to foreign currency                   -           (44)              -       (44)
Net loss                                                          -              -           (94)       (94)
Balance as of January 1, 2001                                 1,263           (22)         2,001      3,242

Issuance of shares                                               18           355              -        373
Differences arising from financial statements of
  certain investees adjusted to foreign currency                  -           111              -        111
Net loss                                                          -             -          (712)      (712)
Balance as of January 1, 2002                                 1,281           444          1,289      3,014

Differences arising from financial statements of
 certain investees adjusted to foreign currency                      -           11            -            11
Write-down of investment in investee company
 against capital reserves in respect of differences
 arising from financial statements adjusted to
 foreign currency                                                 -           (44)             -        (44)
Net loss                                                          -              -         (426)      (426)
Balance as of December 31, 2002                               1,281           411           863       2,555



      (*)    Composition:
                                                                                      December 31
                                                                          2002           2001       2000
             Capital reserves:
              Premium on shares                                               585            585        230
              Capitalized earnings                                             23             23         23
              Expired warrants of investee companies                           12             12         12
              Purchasing power gain on capital note issued to
               a company in the IDB Group                                       5              5          5
                                                                              625            625        270
             Differences arising from financial statements of
               certain investees adjusted to foreign currency                (214)         (181)       (292)
                                                                              411           444         (22)




             The notes and appendices to the financial statements form an integral part thereof.

                                                   - 8 -
                    CLAL INDUSTRIES AND INVESTMENTS LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    In millions of shekels of December 2002
                                                                         For the year ended December 31
                                                                          2002         2001       2000

CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                                     (426)     (712)        (94)
 Adjustments to reconcile net loss to net cash provided by
  operating activities (see Note A)                                           706        928         430
      Net cash provided by operating activities                               280        216         336

CASH FLOWS FROM INVESTING ACTIVITIES
 Acquisition of fixed and other assets                                         (78)     (152)       (226)
 Investment grant received                                                       -         1           7
 Acquisition of newly consolidated subsidiaries (see Note B)                   (20)       (5)       (951)
 Investments in associated and other companies                                (145)     (356)       (970)
 Decrease in marketable securities, net                                         11        15         167
 Proceeds from disposal of fixed assets                                         14        64          22
 Proceeds from disposal of investments                                          27       108         216
 Proceeds from sale of previously consolidated subsidiaries
   (see Note C)                                                                 34       599           -
 Decrease (increase) in short-term deposits and loans                          (82)        6         314
 Increase in deposits and long-term loans                                      (41)      (17)          4
 Changes in short-term loans to IDB Group companies                              -        17          65
 Collection of long-term loans to companies in the IDB Group                     2        14          55
 Collection of long-term loans and other receivables                            46        21          43
       Net cash provided by (used in) investing activities                    (232)      315      (1,262)

CASH FLOWS FROM FINANCING ACTIVITIES
 Issuance of shares to minority shareholders                                     -         -          12
 Receipt of loans and other long-term liabilities:
   Banks and others                                                           204        431         386
   Issuance of debentures                                                     110        360           2
 Repayment of loans and other long-term liabilities:
   Banks and others                                                           (267)     (279)       (191)
   Companies in the IDB Group                                                   (6)      (28)        (44)
   Redemption of debentures                                                    (10)      (10)        (21)
 Changes in short-term credit from banks, net                                  (71)   (1,014)        474
 Increase in other current liabilities, net                                     11        28           1
 Dividend paid to minority interest in subsidiaries                            (37)      (22)        (36)
       Net cash provided by (used in) financing activities                     (66)     (534)        583

TRANSLATION DIFFERENCES IN RESPECT OF CASH
 BALANCES HELD BY AUTONOMOUS INVESTEES                                           -         3          (6)

INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                                                   (18)        -        (349)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
 YEAR                                                                          78         78         427
CASH AND CASH EQUIVALENTS AT END OF YEAR                                       60         78          78




                                                  - 9 -
                        CLAL INDUSTRIES AND INVESTMENTS LTD.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont.)
                                         In millions of shekels of December 2002

                                                                                   For the year ended December 31
                                                                                   2002          2001       2000
A. ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED
    BY OPERATING ACTIVITIES
     Charges (credits) to income not affecting operating cash flows:
      Minority interest                                                                 21         (233)       (140)
      Equity in losses of associated companies, net (*)                                173          532         150
      Gain on sale of investments, net                                                 (15)        (330)       (216)
      Decrease in value of investments                                                 282          709         393
      Losses of partnerships                                                            12           12           3
      Depreciation and amortization                                                    255          327         330
      Gain on sale of fixed and other assets                                            (2)          (6)         (7)
      Deferred taxes                                                                     5           17           7
      Increase (decrease) in termination benefit obligations                            (3)         (12)         35
      Purchasing power loss (gain) on assets and liabilities, net                        1            8          (3)
     Changes in operating assets and liabilities:
      Decrease (increase) in receivables and prepayments                                19          (94)        (30)
      Decrease (increase) in inventories                                               (34)          51         (56)
      Decrease in payables                                                              (8)         (53)        (36)
                                                                                       706          928         430

      (*)    Dividends received                                                         16              12       47

B. ACQUISITION OF NEWLY CONSOLIDATED SUBSIDIARIES
    (INCLUDING ADDITIONAL INVESTMENT IN PROPORTIONATELY
    CONSOLIDATED SUBSIDIARY AND INCLUDING CHANGE FROM
    PROPORTIONATE CONSOLIDATION TO FULL CONSOLIDATION)
    Assets and liabilities of subsidiaries as of the date of acquisition:
      Deficiency in working capital (working capital), excluding cash                   (4)              -       222
      Investments in investee and other companies                                        -               -       (55)
      Fixed assets, other assets and deferred charges                                  (21)             (5)   (1,413)
      Long-term liabilities                                                              5               -       291
      Minority interest                                                                  -               -         4
                                                                                       (20)             (5)     (951)
C. PROCEEDS FROM SALE OF PREVIOUSLY CONSOLIDATED
    SUBSIDIARIES (INCLUDING TRANSITION FROM FULL TO
    PROPORTIONATE CONSOLIDATION)
     Assets and liabilities of subsidiaries as of the date of sale -
       Working capital (deficiency in working capital), excluding cash                  27         (171)            -
       Investments, fixed assets, other assets and deferred charges                      6          500             -
       Long-term liabilities                                                             -          (14)            -
       Minority interest                                                               (11)          (2)            -
       Gain on sale of investment                                                       12          286             -
                                                                                        34          599             -
D. NONCASH TRANSACTIONS
    Issuance of shares in exchange for shares of subsidiary                              -          373           -
    Investments in investee and other companies and purchase of assets on credit         8            1           6
    Proceeds from sale of company received in marketable shares                          -            -          12
    Sale of investment in companies for credit                                          13            -           -
    Sale of fixed assets for credit                                                      1            -           -
    Acquisition of fixed assets for credit                                               2            -           -




                  The notes and appendices to the financial statements form an integral part thereof.
                                                        - 10 -
                   CLAL INDUSTRIES AND INVESTMENTS LTD.

                        STATEMENTS OF CASH FLOWS - COMPANY
                                   In millions of shekels of December 2002




                                                                       For the year ended December 31
                                                                        2002         2001       2000

CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                                    (426)    (712)        (95)
 Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities (see Note A)                                 424      878          53
      Net cash provided by (used in) operating activities                      (2)     166         (41)

CASH FLOWS FROM INVESTING ACTIVITIES
 Granting of loans to investee companies                                     (192)    (454)        (314)
 Investments in investee and other companies                                  (43)     (63)      (1,241)
 Acquisition of real estate                                                      -     (50)            -
 Proceeds from disposal of investments                                         15      625          108
 Collection of loans to investee companies                                     85      106           13
 Grant of loans to others                                                        -     (19)            -
 Grant of short-term loan to investee companies                               (91)        -          (2)
 Investment in marketable securities, net                                       1         -          76
 Investment in deposit with financial institution in IDB Group                (23)        -            -
     Net cash provided by (used in) investing activities                     (248)     145       (1,361)

CASH FLOWS FROM FINANCING ACTIVITIES
 Changes in short-term credit from banks, net                                  35     (641)        773
 Receipt (repayment) of short-term loans from investee
  companies                                                                      -    (148)         178
 Receipt of long-term loan from banks                                          83      150          118
 Receipt of long-term loan from investee company                              174       70          240
 Issuance of debentures                                                       110      360             -
 Repayment of long-term loan from bank                                       (114)     (67)            -
 Repayment of loans from IDB Group companies                                   (4)      (5)          (6)
 Repayment of loans from investee company and from others                     (25)     (19)            -
 Redemption of debentures                                                     (10)     (10)         (19)
     Net cash provided by (used in) financing activities                      249     (310)       1,284


INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                                                   (1)       1        (118)

CASH AND CASH EQUIVALENTS AT BEGINNING OF
 YEAR                                                                           1         -        118

CASH AND CASH EQUIVALENTS AT END OF YEAR                                        -        1              -




                                                 - 11 -
                     CLAL INDUSTRIES AND INVESTMENTS LTD.

                      STATEMENTS OF CASH FLOWS - COMPANY (Cont.)
                                      In millions of shekels of December 2002



                                                                            For the year ended December 31
                                                                             2002         2001       2000

A. ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
    PROVIDED BY (USED IN) OPERATING
    ACTIVITIES
     Charges (credits) to income not affecting operating cash flows:
      Equity in losses of investee companies(*)                                  385            901          9
      Gain on sale of investments in investee and other companies
        and losses of partnerships                                                11           (265)      (24)
      Decrease in value of investments                                            53            225        69
      Depreciation and amortization                                                2              1         1
      Net purchasing power gain on assets and liabilities                        (57)             -        (1)
     Changes in operating assets and liabilities:
      Decrease (increase) in receivables and prepayments                          20              9       (1)
      Increase in payables                                                        10              7        -
                                                                                 424            878       53

   (*) Dividends received                                                         59            209       28

B. NONCASH TRANSACTIONS
    Sale of investment in associated company for credit                           11              -          -
    Issuance of shares in exchange for shares of subsidiary                        -            373          -
    Investment in capital notes of investee companies
      against loans, net                                                         717                  -      -




                The notes and appendices to the financial statements form an integral part thereof.

                                                    - 12 -
       CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS
                    In millions of shekels of December 2002



Note 1 - GENERAL

       A.   The Company is an investment company whose primary holdings
            are in the fields of manufacturing and high technology. For details
            of business segments, see Note 33. Items in the statement of
            operations are classified and presented in conformity with the nature
            of the operations of the Group.

       B.   The Company is a subsidiary of IDB Development Ltd. The term
            “IDB Group company” in these financial statements refers to an
            investee company of the parent company, except companies in the
            Clal Industries and Investments Ltd. Group itself (“investee
            companies”). The term “Group companies” in these financial
            statements refers to the Company and its investee companies.

       C.   The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make
            estimates and assumptions that affect the reported amounts of assets
            and liabilities and disclosure of contingent assets and liabilities at
            the date of the financial statements and the reported amounts of
            revenues and expenses during the reporting period. Actual results
            could differ from those estimates.


Note 2 - ACCOUNTING POLICIES

       The significant accounting policies followed in the preparation of the
       financial statements, applied on a consistent basis, are:

       A.   ADJUSTED FINANCIAL STATEMENTS
            The financial statements are presented on the basis of the historical
            cost convention adjusted for the changes in the general purchasing
            power of the Israeli currency.

            The investee companies in Israel maintain their accounts in nominal
            shekels. The nominal figures are adjusted to shekels of equivalent
            purchasing power (shekels of December 2002) in accordance with
            principles prescribed by Statements of the Institute of Certified
            Public Accountants in Israel, on the basis of changes in the
            Consumer Price Index. In the year ended December 31, 2002 the
            Consumer Price Index increased by 6.5% (2001 - increase of 1.4%;
            2000 - no change). Condensed financial statement data of the
            Company in nominal values are presented in Appendix “A”.



                                  - 13 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                     In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)

        A.   ADJUSTED FINANCIAL STATEMENTS (Cont.)

             BALANCE SHEET

             Nonmonetary items are adjusted in accordance with the changes in
             the Consumer Price Index (as published on the fifteenth of the
             following month).

             Monetary items are presented in the adjusted balance sheet at their
             nominal value. Comparative data were adjusted to shekels of
             December 2002.

             Investments at equity are based on the adjusted financial statements
             of the investee companies.

             The adjusted values of nonmonetary items should not be construed
             as a presentation of realizable values or real economic values but
             merely the original values adjusted for the changes in the general
             purchasing power of the currency.

             STATEMENT OF OPERATIONS

             Revenues from sales and services are adjusted in accordance with
             the change in the index from transaction date to balance sheet date.

             Expenses, other than financing expenses and those deriving from
             nonmonetary items, are adjusted for the changes in the index from
             transaction date to balance sheet date.

             Income and expenses deriving from nonmonetary items are adjusted
             in correspondence with the adjusted balance sheet item.
             Group equity in the results of the investee companies is based on
             their adjusted financial statements.
             The balance of the inflationary adjustment, not attributed to
             revenues and expenses as stated above, is included in financing
             expenses.




                                   - 14 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                      In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)
        A.   ADJUSTED FINANCIAL STATEMENTS (Cont.)
             ADJUSTMENT BASED ON RATE OF EXCHANGE AND
             FOREIGN INVESTEES
             The financial statements of foreign investees which are integral to
             the operations of the Group are translated into and adjusted for
             changes in the general purchasing power of the Israeli currency as
             follows: nonmonetary balance sheet items are translated at historical
             exchange rates; monetary items are translated at the rate of exchange
             at balance sheet date; items in the statement of operations are
             translated at average exchange rates as of the date of the transaction.
             Translation differences are included in financing income or
             expenses.
             Certain Israeli investee companies that operate autonomously
             receive most of their revenues and acquire most of their assets in
             foreign currency. These companies and Israeli investee companies,
             whose securities are traded on a foreign stock exchange and that
             operate autonomously, adjust their financial statements on the basis
             of the changes in the exchange rate of the U.S. dollar in relation to
             the shekel (in 2002 the exchange rate increased by 7.3%; 2001 -
             increase of 9.3%; 2000 - decrease of 2.7%). The holding companies
             adjust their investment in these investee companies on the basis of
             changes in the Consumer Price Index. The net equity of the
             investees is adjusted on the basis of changes in the exchange rate.
             The difference between the adjustments is included in a separate
             component of shareholders’ equity (“differences arising from
             financial statements of certain investees restated to foreign
             currency”).

        B.   CONSOLIDATION OF FINANCIAL STATEMENTS
             The financial statements of the Company are consolidated with
             those of its subsidiaries that are majority controlled and of its jointly
             controlled investee companies, which are consolidated according to
             the proportionate consolidation method (hereinafter - subsidiaries),
             as from a date close to their acquisition. Results of operations of
             subsidiaries sold or of companies in which the Company does not
             have de facto control, are included in the consolidated results until
             the date of sale or change of control.
             Material intercompany transactions and balances have been
             eliminated in the consolidated financial statements.


                                    - 15 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                     In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)

        C.   CASH AND CASH EQUIVALENTS

             Cash and cash equivalents include highly liquid investments
             including deposits in banks with original maturities of three months
             or less.

        D.   MARKETABLE SECURITIES

             Short-term investments in marketable securities are carried at market
             value as of balance sheet date. Changes in the value of the securities
             are recognized in the statement of operations.

        E.   ALLOWANCE FOR DOUBTFUL ACCOUNTS
             The allowance for doubtful accounts is computed partly for specific
             accounts the collectibility of which is doubtful and also includes a
             general provision, the amount of which is determined by
             management based on prior experience.

        F.   INVENTORIES
             Inventories are stated at the lower of cost or market, cost being
             determined partly by the average cost method and partly by the
             “first-in, first-out” method.

        G.   INVESTMENTS IN INVESTEE COMPANIES
             Investments in investee companies are accounted for in the financial
             statements by the equity method. The equity of the holding company
             is based on the outstanding share capital as of balance sheet date;
             rights for the acquisition of shares are not taken into account,
             although provisions for losses resulting from the possible exercise of
             warrants or conversion of convertible securities issued by investee
             companies have been made, where such exercise or conversion
             appears to be probable.
             Excess of cost arising on the acquisition of investee companies not
             attributed to specific assets (goodwill) is amortized at rates of 10%
             and 20% per annum (mainly 20%). The period of amortization is
             reassessed periodically based on the anticipated benefit that may be
             derived from the asset.
             In process research and development acquired upon the purchase of
             shares in investee companies is charged to operations on acquisition.


                                   - 16 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                       In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)

        H.     OTHER INVESTMENTS
               The investment in shares and in venture capital funds (mainly
               organized as partnerships) in which the Company exercises
               significant influence are accounted for in the financial statements by
               the equity basis.
               The above investment is presented net of any valuation allowance
               impairment other than temporary.
               Short-term investments in marketable securities are carried at market
               value as of balance sheet date. Changes in the value of the securities
               are recognized in the statement of operations.

               The investment in oil and gas exploration is accounted for by the
               “successful efforts” method, according to which costs in respect of
               exploration and surveys are charged to operations as incurred. The
               investment in oil and gas wells is included in the balance sheet at
               cost pending determination of whether the wells have found
               commercially producible proved reserves. If it is determined that the
               drilling sites are dry or insufficient for commercial purposes, the
               investments are written off and charged to operations. If it is
               determined that proved reserves of oil or gas exist, the investment
               will be amortized on the basis of the quantity produced in proportion
               to the total proved reserves.

        I.     FIXED ASSETS

               Fixed assets are presented at cost to the Group, after deduction of
               investment grants received. Improvements and betterments are
               charged to the cost of assets while maintenance and repairs are
               charged to operations as incurred.

               Depreciation is calculated by the straight-line method over the
               estimated useful lives of the assets.




                                     - 17 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                       In millions of shekels of December 2002

Note 2 - ACCOUNTING POLICIES (Cont.)

        J.     OTHER ASSETS

               Real Estate is included at cost. Depreciation is calculated by the
               straight line method over the estimated useful lives of the assets.
               Assets held for disposal are carried at the lower of cost or
               anticipated realizable value.

               Regarding goodwill on acquisition of investee companies - see G.
               above.

        K.     DEFERRED CHARGES

               Debentures issuance expenses and expenses in obtaining long-term
               loans are amortized over the terms of the debentures and loans on
               the basis of their outstanding balances.

        L.     IMPAIRMENT OF ASSETS
               In February 2003, Accounting Standard No. 15, “Impairment of
               Assets” was published. The Standard prescribes the accounting
               treatment and disclosure for impairment of assets. The Standard
               applies to all assets appearing in the balance sheet other than:
               inventories, assets arising from construction contracts, deferred tax
               assets and financial assets (except investments in investee
               companies that are not subsidiaries). According to the new Standard,
               if there is any indication that an asset may be impaired, the
               Company should determine if there has been an impairment of the
               asset by comparing the carrying amount of the asset to its
               recoverable amount. Recoverable amount is defined as the higher of
               an asset’s selling price and its value in use. Value in use is the
               present value of estimated future cash flows expected to arise from
               the continuing use of an asset and from its disposal at the end of its
               useful life. If the carrying amount of an asset in the balance sheet
               exceeds its recoverable amount, an impairment loss should be
               recognized for the amount by which the carrying amount of the asset
               exceeds its recoverable amount. An impairment loss previously
               recognized should be reversed only if there has been a change in the
               estimates used to determine the asset’s recoverable amount since the
               impairment loss was recognized.
               Standard No. 15 is effective for financial statements for periods
               commencing on or after January 1, 2003. The Standard encourages
               early adoption. The Company elected to adopt the Standard in those
               financial statements commencing from the fourth quarter of 2002.


                                     - 18 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                     In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)

        L.   IMPAIRMENT OF ASSETS (Cont.)

             IMPAIRMENT          OF      INVESTMENTS           IN   ASSOCIATED
             COMPANIES

             The Company assesses the fair value of its investments in associated
             companies in each reporting period upon the occurrence of unussual
             events or other indications of an impairment that is other than
             temporary. Early adoption of Standard No. 15 did not have a
             material effect on the assessment of the fair value of investments in
             associated companies. The effect of adoption of this Standard in the
             fourth quarter of 2002 was reflected such that the impairment loss
             for an investee company that reduced the investment below the
             Company’s share of the investee’s shareholders’ equity was charged
             in full to operations without taking into account differences arising
             from financial statements of that investee adjusted to foreign
             currency, in the amount of NIS 22, that were previously recorded in
             shareholders’ equity.

             The assessment of fair value takes into account, among others, the
             market value of the investments (with respect to investments in
             marketable securities), estimates of analysts and valuations of the
             investments, the situation in the industry in which the investee
             operates, the business situation of the investee and material adverse
             changes, non-stock exchange transactions in the investee’s
             securities, cost of raising capital for the investee, goodwill and
             additional information furnished by the investee to its Board of
             Directors (in cases in which the Company is represented on the
             Board of Directors) or to its shareholders.

             In the event that the carrying amount of an investment exceeds its
             recoverable amount, the Company records impairment loss for the
             difference between the carrying amount of the investment and its
             recoverable amount.




                                   - 19 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                      In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)
        L.   IMPAIRMENT OF ASSETS (Cont.)

             IMPAIRMENT OF OTHER ASSETS
             The Company assesses whether fixed and other assets have been
             impaired when there are indications of such impairment. The
             impairment is determined by comparing the carrying amount of the
             asset to its recoverable amount.

        M.   REVENUE RECOGNITION

             Revenue from sales is recognized upon shipment of goods to
             customers. Revenue from services is recognized as the services are
             provided. Revenue from rental of assets is included according to the
             rental period and revenue from construction projects is recognized
             by the “Percentage of Completion” method. According to the
             “Percentage of Completion” method, revenue from sales is
             recognized by multiplication of the proceeds from the sale by the
             percentage of completion, but not before the sale proceeds constitute
             at least 50% of the total expected revenues therefrom and the
             percentage of completion of the project is at least 25%.

        N.   RESEARCH AND DEVELOPMENT COSTS

             Costs of research and development, net of grants and participations,
             are charged to operations as incurred.

        O.   TAXES ON INCOME

             Deferred taxes are provided for temporary differences between the
             carrying value of assets and liabilities in the balance sheet and their
             basis for tax purposes (except such differences in respect of land and
             in respect of adjustment of buildings depreciated over a period
             exceeding 20 years). The deferred taxes are calculated at the tax
             rates that will be in effect at the time of utilization based on tax laws
             in effect as of balance sheet date. Deferred taxes are not provided
             with respect to taxes that would be incurred if investments in
             investee companies were realized, as long as it is probable that sale
             of the investment in the investee company is not expected in the
             foreseeable future and dividends from investee companies are to be
             distributed in a way that will not result in any additional taxes.




                                    - 20 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                     In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)

        P.   EARNINGS PER SHARE

             Primary earnings per share are computed on the basis of the
             weighted average of paid-up share capital outstanding during the
             year, retroactively adjusted for bonus shares. The computation
             assumes the exercise of options and warrants as of the beginning of
             the year or, if later, the date of issuance, if conversion or exercise
             appears probable.

             Fully diluted earnings per share are computed as above and also
             include the effect of the assumed exercise of options that was not
             included in the computation of primary earnings per share.
             Securities derived from the exercise of options for which the effect
             of the assumed exercise would be antidilutive are excluded from the
             computation.

        Q.   LINKED BALANCES                AND      BALANCES     IN    FOREIGN
             CURRENCY

             Balances in or linked to foreign currency are stated in the financial
             statements at the representative exchange rate at balance sheet date.
             The representative exchange rate of the U.S. dollar on balance sheet
             date - NIS 4.737 (2001 – NIS 4.416; 2000 - NIS 4.041).

             Balances linked to the Consumer Price Index are based on the
             appropriate index for each linked asset or liability.

        R.   DERIVATIVE FINANCIAL INSTRUMENTS

             Results of forward exchange transactions intended to hedge export
             proceeds and costs of assets against changes in currency exchange
             rates, are reflected in the statement of operations concurrently with
             recording the results of the transactions which they were intended to
             hedge. The results of other derivative transactions are reflected
             currently in the statement of operations.




                                   - 21 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                      In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)

        S.   EFFECT  OF  RECENTLY                        ISSUED     ACCOUNTING
             PRONOUNCEMENTS

             Effect of Accounting Standard No. 12 on the Financial
             Statements

             In 2001, the Israel Accounting Standards Board issued Accounting
             Standard No. 12, “Cessation of Adjustment of Financial
             Statements”. Under the provisions of this Standard, financial
             statements will cease to be adjusted for the effect of changes in the
             general purchasing power of the Israeli currency. As a result of the
             issuance of Accounting Standard No. 17 in December 2002,
             implementation of Accounting Standard No. 12 has been deferred
             until periods commencing after December 31 2003. Until December
             31, 2003, the Company will continue to prepare adjusted financial
             statements in accordance with the provisions of Opinion No. 36 of
             the Institute of Certified Public Accountants in Israel. The adjusted
             amounts in the financial statements as of December 31, 2003, will
             serve as the basis for nominal financial reporting as of January 1,
             2004.

             The adoption of Standard No. 12 commencing in 2004 could have a
             material effect on the reported results of operations of the Company.
             The extent of the effect is dependent on the rate of inflation and the
             composition of the assets and sources of financing of the Company.


             Effect of Accounting Standard No. 13 on the Financial
             Statements

             Concurrently with the issuance of Accounting Standard No. 12, the
             Israel Accounting Standards Board issued Accounting Standard No.
             13, “Effects of Changes in Foreign Exchange Rates”. The Standard
             establishes the accounting treatment for foreign currency
             transactions, and for the translation of financial statements of
             investee companies with foreign operations. In addition, the
             Standard provides guidance as to how to determine whether a
             foreign investee is integral to the operations of the reporting entity or
             an autonomous unit, and as to the manner in which the financial
             statements of the aforementioned investee companies should be
             translated.




                                    - 22 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                     In millions of shekels of December 2002



Note 2 - ACCOUNTING POLICIES (Cont.)

        S.   EFFECT  OF  RECENTLY                       ISSUED     ACCOUNTING
             PRONOUNCEMENTS (Cont.)

             Effect of Accounting Standard No. 13 on the Financial
             Statements (Cont.)

             Subsequent to adoption of this Standard, goodwill arising on the
             acquisition of foreign autonomous units will be translated by using
             the closing exchange rate, and not the exchange rate on the date of
             the acquisition, as is presently being done. In addition, items in the
             statement of income of these units will be translated by using the
             average exchange rate for the period and not by the closing exchange
             rate, as is currently being done.

             As a result of the issuance of Accounting Standard No. 17 in
             December 2002, implementation of Accounting Standard No. 13 has
             been deferred until periods commencing after December 31 2003.

             The Company is evaluating the impact of adopting the new
             Standard, however it is not presently possible to estimate its effect
             on the financial statements.

             Effect of Accounting Standard No. 14 on the Financial
             Statements

             In August 2002, the Israel Accounting Standards Board issued
             Accounting Standard No. 14, “Interim Financial Reporting”. This
             Standard prescribes the financial statements that should be included
             in an interim financial report, including the disclosures required in
             notes to these financial statements. The Standard also establishes
             accounting principles for recognition and measurement applicable to
             interim financial reporting. In accordance with the new Standard,
             notes to interim financial statements are required to include certain
             minimum information, including disclosures regarding segment
             revenues and results. The recognition and measurement principles
             applied in the interim financial statements should be identical to
             those applied in the annual financial statements. Therefore, it will be
             permissible to allocate certain costs over a number of interim
             periods only if it is possible to accrue or to defer such costs
             according to accounting principles applicable to annual financial
             statements. The new Standard is effective for financial statements
             for interim periods beginning on or after January 1, 2003.


                                   - 23 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                         In millions of shekels of December 2002

Note 2 - ACCOUNTING POLICIES (Cont.)
           S.    EFFECT  OF  RECENTLY                       ISSUED       ACCOUNTING
                 PRONOUNCEMENTS (Cont.)

                 Effect of Accounting Standard No. 14 on the Financial
                 Statements (Cont.)

                 Management of the Company believes that the effect of the new
                 Standard on its interim financial reporting is not expected to be
                 material, except for the inclusion of segment information which was
                 not previously reported in interim financial statements.


Note 3 - SHORT-TERM INVESTMENTS

                                          CONSOLIDATED       COMPANY
                                                   December 31
                                           2002   2001     2002   2001

Marketable securities                              4               4          -        1
Short-term loans and deposits:
 Loans to investee companies                      23               -         91        -
 Deposits in IDB Group company                    58               1         23        -
 Current maturities of long-term
  loans and deposits                             42            89         96          47
                                                127            94        210          48


Note 4 - TRADE RECEIVABLES - CONSOLIDATED

                                                                     December 31
                                                                   2002       2001

Open accounts                                                          359           361
Credit card companies                                                   62            70
Checks receivable                                                       61            52
                                                                       482           483
Less - allowance for doubtful accounts                                  15            12
                                                                       467           471




                                       - 24 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                         In millions of shekels of December 2002



Note 5 - OTHER RECEIVABLES AND PREPAYMENTS

                                          CONSOLIDATED       COMPANY
                                                   December 31
                                           2002   2001     2002   2001

Institutes                                       26            52           -          -
Dividend receivable from investee
 companies                                        -            -            -         25
Investee companies                                5            1            5          1
Employees                                         2            3            -          -
Deferred taxes (see Note 18)                      9           11            -          -
Prepaid expenses                                 20           14            3          -
Other                                            27           42            -          2
                                                 89          122            8         28

Note 6 - INVENTORIES - CONSOLIDATED

                                                                     December 31
                                                                   2002       2001

Finished goods                                                        173            169
Merchandise                                                           111            133
Work-in-process                                                       154            144
Raw and auxiliary materials                                           251            235
Buildings and stores for sale                                           8             11
Merchandise and materials in transit and payments on
 account of inventories                                                17              4
                                                                      714            696




                                       - 25 -
                 CLAL INDUSTRIES AND INVESTMENTS LTD.

                   NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                   In millions of shekels of December 2002



     Note 7 - LONG-TERM DEPOSITS, LOANS AND RECEIVABLES
     A.    COMPOSITION
                                                    CONSOLIDATED       COMPANY
                                                             December 31
                                                     2002   2001     2002   2001
     Deposits and loans:
      Banks                                                 -            32           -          -
      IDB Group companies                                   1             1           -          -
      Investee companies                                   48            18         133         17
      Other                                                31            34          12          1
                                                           80            85         145         18
     Less - current maturities                             41            42          96          -
                                                           39            43          49         18
     Deposits in excess of accrued
      termination benefits (see Note 19)                    4             4          1           1
                                                           43            47         50          19

     B.    LINKAGE TERMS AND INTEREST RATES
                                          CONSOLIDATED               COMPANY
                                                      December 31
                                     Annual                 Annual
                                     interest               interest
                                     rate (*)               rate (*)
                                        %     2002   2001      %       2002  2001
Banks and others:
 Linked to the Consumer Price
   Index                                4.7               15           34     4.5          12         1
 In or linked to the U.S. dollar        3.3               16           18      -            -         -
 Not linked                              -                 -           14      -            -         -
                                                          31           66                  12        18
Investee companies:
  Balances linked to the
   Consumer Price Index                 4.5               48           18     4.1         133        17

IDB Group companies:
 Linked to the Consumer Price
  Index                                  4                  1           1      -            -         -

                                                          80           85                 145        18

     (*)   Weighted average rate as of December 31, 2002.



                                                 - 26 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

               NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                            In millions of shekels of December 2002



Note 7 - LONG-TERM DEPOSITS, LOANS AND RECEIVABLES (Cont.)

C.     MATURITIES AS OF DECEMBER 31, 2002

Year                                                CONSOLIDATED               COMPANY

2003 - current maturities                                      41                   96
2004                                                           15                   32
2005                                                            1                    -
2006                                                            1                    -
2007                                                            1                    -
2013 and thereafter                                            17                    -
Not yet determined                                              4                   17
                                                               80                  145


D.     CLASSIFICATION OF BALANCES OF LOANS                                  AND   OTHER
       RECEIVABLES BY SIZE AS OF DECEMBER 31, 2002.

       The balance due from any single borrower does not exceed 5% of shareholders’
       equity.

                                       CONSOLIDATED                        COMPANY
Size of balances                       Number   Total                  Number   Total
                                          of                              of
                                      borrowers                       borrowers

Up to 1                                        2              1            -         -
From 1 to 10                                   3              7            1         1
More than 10                                   2             23            1        11
                                               7             31            2        12




                                          - 27 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002

Note 8 - INVESTMENTS IN INVESTEE COMPANIES

A.    COMPOSITION

                                           CONSOLIDATED       COMPANY
                                                    December 31
                                            2002   2001     2002   2001

Shares
 Subsidiaries                                            -           -    1,852    2,185
 Proportionately consolidated
  subsidiaries                                       -            -         452      461
 Associated companies                            1,304        1,409         535      468
    Total (1)                                    1,304        1,409       2,839    3,114

Convertible debentures of
 associated company (2)                             33            9          22        -
Convertible capital notes (3)                        -            -         717        -
Loans and other receivables (4)                      3            2          93      818
                                                 1,340        1,420       3,671    3,932

Investments are percented as follows:
  In investments                                 1,352        1,470       3,673    3,970
  In other long-term liabilities                  (12)         (50)          (2)    (38)
                                                 1,340        1,420       3,671    3,932

(1)   Composition of investment in shares

                                           CONSOLIDATED       COMPANY
                                                    December 31
                                            2002   2001     2002   2001
Cost and accumulated earnings to
 January 1, 1992                                 2,050       1,894       3,920     3,851
Earnings (losses), net, accumulated
 from 1992                                       (702)        (475)      (1,204)   (833)
Capital reserves accumulated
 subsequent to 1992:
 Differences arising from financial
   statements of certain investees
   adjusted to foreign currency                    (54)        (20)         (6)       29
 Other reserves                                     10          10         129        67
                                                 1,304       1,409       2,839     3,114




                                        - 28 -
                  CLAL INDUSTRIES AND INVESTMENTS LTD.

                    NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                  In millions of shekels of December 2002


      Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)
                   A.    COMPOSITION (Cont.)
                         (2)    Investments in convertible debentures of associated companies
                                are linked to the U.S. dollar and bear interest at a weighted
                                average rate of 6% per annum (Company - 3% per annum).
                         (3)    Convertible capital notes are not linked, do not bear interest
                                and are included after the offset of a capital note from a
                                subsidiary that is not linked, does not bear interest and is not
                                convertible in the amount of NIS 400. Repayment dates of the
                                said capital notes have note yet been determined.
                         (4)    Terms of loans and other receivables

                                         CONSOLIDATED                                COMPANY
                                       (Associated companies)                       (Subsidiaries)
                                                                December 31
                                    Number                                   Number
                                       of                                       of
                                   borrowers                                borrowers
                                      (*)         2002        2001             (*)       2002        2001
Loans in shekels – not
 linked:
 Bearing interest at the rate
   of increase in the
   Consumer Price Index                -                  -          -         6             41        766
 Non-interest bearing                  -                  -          1         -              -          -
Capital note and loans
 linked to the Consumer
 Price Index:
   Interest bearing                    -                 -           -         1             51         51
   Non-interest bearing                3                 3           -         -              -          -
 Not linked and
   non-interest bearing
   capital notes                       -                 -           1          -             1          1
                                                         3           2                       93        818

            Consolidated - The maturities of the loans have not yet been determined.
            Company - Maturity dates of shekel loans that are not linked have not yet been
            determined. The loan that is linked to the Consumer Price Index, bears interest
            at the rate of 5% per annum and is repayable in nine annual installments
            commencing in 2006.
            (*)    As of December 31, 2002.


                                                - 29 -
                         CLAL INDUSTRIES AND INVESTMENTS LTD.

                          NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                   In millions of shekels of December 2002



            Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

            B.    MOVEMENT OF INVESTMENTS IN 2002 IS AS FOLLOWS:

                                CONSOLIDATED                                 COMPANY
                                  Associated          Subsidiaries     Proportionately Associated    Total
                                  companies                             consolidated   companies
                                                                         subsidiaries

Balance at beginning of year           1,420                  2,952          512            468      3,932

Movement during the year:
 Investments:
   In shares                              67                       -           -             20        20
   In loans and current
     accounts, net                         1                   (725)           -              -       (725)
   In convertible debentures              30                       -           -             22         22
   In capital notes                        -                    717            -              -        717
   Sale of investments                   (27)                      -           -            (27)       (27)
   Losses on changes in
     holdings in investee
     companies, net                       (2)                      -           -              (1)       (1)
   Group’s equity in earnings
     (losses), net                      (157)                  (324)          14            (16)      (326)
   Provision for impairment
     of investments                      (66)                      -           -               -         -
   Dividends                             (16)                   (28)         (23)             (8)      (59)
   Translation differences               (34)                   (37)           -               4       (33)
    Investment previously
      included at cost                   121                       -           -             94        94
   Differences in respect of
     erosion of capital notes              -                     56            -              -        56
   Other changes                           3                      -            -              1         1

Balance at end of year                 1,340                  2,611            503             557   3,671




                                                 - 30 -
               CLAL INDUSTRIES AND INVESTMENTS LTD.

                 NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                              In millions of shekels of December 2002

   Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)
   C.    INVESTMENTS IN LISTED COMPANIES
         CONSOLIDATED
                                                           December 31, 2002
                                                                                         Market
                                                                                         value as
                                                                                            of
                                     Impairment        Carrying                          March 18
                                       in 2002          value           Market value     2003 (*)

Associated companies
 American Israeli Paper Mills Ltd.             -              226            190               210
 Fundtech Ltd.                                 -              117            105                87
 Ormat Industries Ltd.                         -              105            122               148
 Beit Shemesh Engine Holdings
   (1997) Ltd.                                -                16             11                10
 ECI Telecom Ltd.                            67               372            149               156
 Scitex Corporation Ltd.                     41               191             61                67
 Nova Measuring Instruments Ltd.              -                33             22                32
 Shellcase Ltd .                              -                 7             18                21
 Maman-Cargo Terminals and
   Handling Ltd.                              2                27             19                18
 Gold-Bond Group Ltd.                         -                 8              7                 8
                                            110             1,102            704               757

   COMPANY
                                                                    December 31, 2002
                                                                                         Market
                                                                                        value as of
                                                       Carrying           Market        March 18
                                                        value              value         2003 (*)

   Subsidiaries
    Polgat Ltd.                                             145               74                71
   Associated companies
    American Israeli Paper Mills Ltd.                       226              190              210
    Fundtech Ltd.                                           117              105               87
    Gold-Bond Group Ltd.                                      8                7                8
    Ormat Industries Ltd.                                    87               95              115
    Beith Shemesh Engine Holdings (1997) Ltd.                 7                6                6
                                                            445              403              426
                                                            590              477              497

         (*)   Based on the number of shares held by the Company and Group
               companies as of December 31, 2002.




                                            - 31 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

C.   INVESTMENTS IN LISTED COMPANIES (Cont.)

     CONSOLIDATED
                                                        December 31, 2001
                                            Impairment in   Carrying
                                                2001         valued      Market value

     Associated companies
      American Israeli Paper Mills Ltd.                 -            217      243
      Fundtech Ltd.                                    97            122      102
      Mivtach Shamir Holdings Ltd.                     10             27       26
      Cargal Ltd.                                       -             35       20
      ECI Telecom Ltd.                                 97            494       30
      Scitex Corporation Ltd.                          64            268      204
      Nova Measuring Instruments Ltd.                   3             44       62
      Shellcase Ltd.                                    -             16       46
      Maman-Cargo Terminals and
       Handling Ltd.                                 -                 32      30
      Gold-Bond Group Ltd.                           -                  7       5
                                                   271              1,262   1,108

     COMPANY
                                                        December 31, 2001
                                                                         Market value
                                                                            as of
                                            Impairment in   Carrying     December 31
                                                2001         value          2001

     Subsidiaries
      Polgat Ltd.                                  -                128      47

     Associated companies
      American Israeli Paper Mills Ltd.              -               217      243
      Fundtech Ltd.                                 97               122      102
      Mivtach Shamir Holdings Ltd.                  10                27       26
      Gold-Bond Group Ltd.                           -                 7        5
                                                   107               501      423




                                          - 32 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)
D.    GOODWILL ON ACQUISITION OF INVESTEE COMPANIES

      CONSOLIDATED (relates to associated companies)

                                                                      December 31
                                                                    2002       2001
Goodwill (excess of cost of investments over fair value
 on acquisition)                                                         130          131
Less - accumulated amortization                                           69           53
    Unamortized balance                                                   61           78

Excess of fair value on acquisition over cost of
 investments (negative goodwill)                                          77           46
Less - accumulated amortization                                           50           10
    Unamortized balance                                                   27           36

      COMPANY
                                                          December 31
                                                         2002                       2001
                                     Subsidiaries       Associated  Total           Total
                                                        companies
Goodwill (excess of cost of
 investments over fair value
 on acquisition)                                   22               52         74       68
Less - accumulated amortization                     9               38         47       37
    Unamortized balance                            13               14         27       31

Excess of fair value on
 acquisition over cost of
 investments (negative goodwill)                   60               32         92       75
Less - accumulated amortization                    27               12         39       31
    Unamortized balance                            33               20         53       44




                                        - 33 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                        In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

E.    COMPANY’S SHARE OF FINANCIAL STATEMENT ITEMS OF
      PROPORTIONATELY CONSOLIDATED JOINTLY CONTROLLED
      COMPANIES

                                                                    December 31
                                                                  2002       2001

Current assets                                                       266        432

Non-current assets                                                 1,282       1,384

Current liabilities                                                  414        489

Long-term liabilities                                                438        562

Minority interests                                                     8            7


                                                   For the year ended December 31
                                                    2002         2001      2000

Revenues, net                                           1,051        1,376          18

Costs and expenses                                      1,008        1,265          15




                                      - 34 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

F.    PRINCIPAL CHANGES IN 2002

(1)   Investment in ECI Telecom Ltd. (“ECI”)

      In December 2001, an agreement was entered into between ECI and a group of
      investors (“the Group”) according to which the Group invested U.S.$ 50 million
      in ECI in consideration for the issuance of shares, the sale of which are
      restricted for one year, representing a 12.5% interest in ECI (“the transaction”).
      The agreement establishes guidelines with respect to the appointment of the
      Group’s representatives on the Board of Directors of ECI. The transaction was
      finalized on February 12, 2002. As a result of the issuance of these shares, the
      holding of Clal Electornics Industries Ltd. (“CEI”), a wholly owned subsidiary,
      in ECI decreased. In 2002 no loss was recorded in respect of the transaction in
      addition to the loss already recorded in 2001 in the amount of NIS 31.

      In February 2002, CEI acquired, in the course of trading on the Nasdaq,
      additional shares of ECI in the amount of NIS 17. The acquisition of the
      additional shares includes an excess of book value over the cost of the
      investment of approximately NIS 14 that was attributed to and offset from
      intangible assets of ECI. After this acquisition, CEI’s holdings in ECI is
      approximately 14.4%.

      In November 2002 the Company received a valuation from an independent
      assessor. According to the valuation, the fair value of ECI was estimated to be
      between U.S.$ 501 million and U.S.$ 555 million (range of U.S.$ 4.7 and U.S.$
      5.2 per share).

      In light of the valuation received, the Company recorded an allowance for
      impairment of its investment in ECI in the amount of NIS 67. Taking into
      account differences arising from translation of the financial statements of ECI,
      NIS 23 of the aforementioned amount was charged to operations in the third
      quarter of 2002.

(2)   In January 2002, a bank guarantee issued to secure liabilities of Barak I.T.C.
      (1995) - The International Telecommunications Services Corp. Ltd. (“Barak”),
      according to the terms of the license received by Barak from the Ministry of
      Communications, was decreased from U.S.$ 20 million to U.S.$ 2 million. The
      share of Clalcom Ltd., a subsidiary, in this guarantee was decreased accordingly
      to U.S.$ 0.9 million (in proportion to Clalcom’s equity interest in Barak). As a
      result of the decrease in the amount of the guarantee, the provision for losses of
      Barak recorded in Clalcom was reduced and the Company recorded a gain of
      NIS 37.


                                        - 35 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

F.    PRINCIPAL CHANGES IN 2002 (Cont.)

(3)   During 2002, the Company acquired, in the course of trading on the Nasdaq,
      additional shares of Fundtech Ltd. (“Fundtech”) in the amount of NIS 19. The
      excess of book value over the cost of the investment in the amount of NIS 11
      resulting from the acquisition of the additional shares was attributed to and
      offset from intangible assets of Fundtech. After this acquisition, the Company’s
      holdings in Fundtech are approximately 36%.

(4)   In April 2002 the Company sold all its holdings (74%) in International
      Technologies (Lasers) Ltd. (“ITL”) that were held through CEI, to a group
      headed by the general manager of ITL in consideration for U.S.$ 7 million (“the
      initial consideration”). The consideration may reach up to U.S.$ 9.5 million
      under certain circumstances. The net gain recorded by the Company as a result
      of the sale of ITL, taking into account only the initial consideration, is NIS 12.

(5)   In September 2002 the Company sold all its holdings (15%) in Mivtach Shamir
      Holdings Ltd. in consideration for NIS 26. As a result of the sale, the Company
      recorded a loss of approximately NIS 1.

(6)   In the first half of 2002, CEI invested an additional NIS 23 in shares of
      Negevtech Ltd. (“Negevtech”), in the framework of an offering of shares of
      Negevtech. The Company recorded the gain of approximately NIS 6 which
      resulted from the issuance as deferred income. The deferred income will be
      credited to operations over a period of three years or in amounts equivalent to
      the Company’s equity in losses of Negevtech in the said period-based on the
      higher of the two amounts on a cumulative basis.

      After the above investment and issuance, CEI’s holdings in Negevtech are 25%.

      Negevtech is engaged in design and development of a system based on advanced
      imaging equipment.

(7)   In 2002, CEI invested an additional NIS 11 in shares and convertible debentures
      of Shellcase Ltd. (“Shellcase”).
      After this investment, CEI’s holdings in Shellcase are 24%.




                                        - 36 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)
F.    PRINCIPAL CHANGES IN 2002 (Cont.)
(8)   Ormat Industries Ltd. (“Ormat”)
      (a)   In 2002, the Company acquired convertible debentures (series G) of Ormat
            in consideration for NIS 18. The debentures are linked to the representative
            exchange rate of the U.S. dollar and bear interest at the rate of 3% per
            annum. The debentures are convertible into ordinary shares of Ormat such
            that each NIS 11 par value of debentures is convertible into NIS 1 par
            value of ordinary shares. Any debentures not converted are redeemable in
            five equal annual installments commencing from February 2005.
            A premium on the acquisition in the amount of NIS 4 will be amortized
            over the period to redemption based on the outstanding balances of
            debentures.

      (b)   In December 2002 the Company converted debentures (series F) of Ormat
            in the amount of NIS 47 to shares of Ormat and of Beit Shemesh Engine
            Holdings (1997) Ltd. (“BSE”)
            After this conversion, the investment in Ormat reached NIS 105. The
            excess of book value over the cost of the investment, in the amount of
            NIS 4, was attributed to and offset from nonmonetary assets of Ormat.

            As of December 31, 2002, the Company holds 21.8% of Ormat. Assuming
            conversion of all convertible securities of Ormat, the Company’s holdings
            in Ormat would be 17.8%.

            Also, after the above conversion, the investment in BSE reached NIS 16.
            The excess of book value over the cost of the investment, in the amount of
            NIS 2, was attributed to and offset from nonmonetary assets of BSE.

            As of December 31, 2002 the Company holds 21.1% of BSE.




                                        - 37 -
             CLAL INDUSTRIES AND INVESTMENTS LTD.

               NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                             In millions of shekels of December 2002


Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)
G.    CONVERTIBLE SECURITIES AND OPTIONS
      (1)    Options to senior employees - certain Group companies granted non-
             marketable options to their senior employees. See Note 32.
      (2)    In respect of certain convertible debentures of investee companies and of
             options granted to employees for which conversion or exercises is
             probable, a provision for loss in the amount of NIS 13 (2001 - NIS 21)
             was recorded due an expected decrease in the rate of holdings.

H.    FINANCIAL STATEMENTS OF CERTAIN INVESTEE COMPANIES
      WHICH ARE NOT PRESENTED IN ACCORDANCE WITH GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL (PRESENTED IN
      ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES IN THE UNITED STATES)
      Following are the effects of the adjustment of the financial statements of certain
      companies from generally accepted accounting principles in the U.S. to
      generally accepted accounting principles in Israel.

SHAREHOLDERS’ EQUITY
                                                            December 31
                                                2002                             2001
                                          ECI (1)        Scitex (2)         ECI           Scitex
                                           U.S.$           U.S.$            U.S.$         U.S.$
                                         thousand        thousand         thousand      thousand

As reported by the associated company      646,399          221,179        754,856       260,162
Net adjustments to generally accepted
 accounting principles in Israel             6,596             (204)         9,861        (3,590)
Adjusted amount                            652,995          220,975        764,717       256,572

LOSS FOR THE YEAR:
                                                    For the year ended December 31
                                                  2002                          2001
                                          ECI (1)      Scitex (2)        ECI           Scitex
                                           U.S.$         U.S.$           U.S.$         U.S.$
                                         thousand      thousand        thousand      thousand
As reported by the associated company     (155,685)         (32,030)       (412,376)     (253,020)
Net adjustments to generally accepted
 accounting principles in Israel            (6,897)          (3,567)        (22,842)      118,165
Adjusted amount                           (162,582)         (35,597)       (435,218)     (134,855)




                                           - 38 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                           In millions of shekels of December 2002

Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

H.    FINANCIAL STATEMENTS OF CERTAIN INVESTEE COMPANIES
      WHICH ARE NOT PRESENTED IN ACCORDANCE WITH GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL (PRESENTED IN
      ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES IN THE UNITED STATES) (Cont.):

(1)   ECI

(a)   Marketable Securities

      According to generally accepted accounting principles in the United States,
      marketable securities classified as “available – for-sale” are presented at market
      value. Changes in value are included as a separate component of shareholders’
      equity, except in the event of a decrease in value that is other than temporary.
      According to generally accepted accounting principles in Israel, marketable
      securities that meet the criteria for a “short-term investment” are presented at
      market value and changes in value are recognized in the statement of operations.
      Marketable securities that do not meet the aforementioned criteria are presented
      at cost, except in the event of a decrease in value that is other than temporary.

(b)   Deferred Taxes

      According to generally accepted accounting principles in the United States,
      deferred taxes are not recorded in respect of differences between the rate of the
      change in the Consumer Price Index (measurement basis for tax purposes) and
      the change in the exchange rate of the U.S. dollar in relation to the shekel.
      According to generally accepted accounting principles in Israel, deferred taxes
      are recorded for these differences.

(c)   Derivative Instruments
      As of January 1, 2001 ECI adopted U.S. Statement of Financial Accounting
      Standards No. 133, “Accounting for Derivative Instruments and Hedging
      Activities”. This Standard requires all derivatives in the balance sheet to be
      recognized as assets or liabilities of their fair value. Changes in the fair value of
      a derivative financial instrument is recognized in the statement of operations or
      in the statement of changes in shareholders’ equity, as other comprehensive
      income, depending on how the use of the instrument is designated. According to
      generally accepted accounting principles in Israel, results of transactions in
      derivative financial instruments used for hedging purposes are recognized
      concurrently with the recognition of the hedged item in the financial statements,
      based on the changes in the exchange rate in the reporting period.



                                         - 39 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002




Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

H.    FINANCIAL STATEMENTS OF CERTAIN INVESTEE COMPANIES
      WHICH ARE NOT PRESENTED IN ACCORDANCE WITH GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL (PRESENTED IN
      ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES IN THE UNITED STATES) (Cont.):

(1)   ECI (Cont.)

(d)   Intangible Assets

      In July 2001 the U.S. Financial Accounting Standards Board issued SFAS No.
      141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other
      Intangible Assets”. SFAS No. 141 replaced APB 16 and eliminated the “pooling
      of interests” method. Also, the Standard provides guidelines for the
      implementation of the purchase method in all matters relating to the recording of
      intangible assets and negative goodwill. SFAS No. 142 eliminates the periodic
      amortization of goodwill and provides that goodwill should be tested for
      impairment at least annually or when there are indications of impairment. In the
      event of impairment of goodwill, the loss should be recorded and presented as a
      separate item in the statement of operations before operating income. However,
      when the Standard is initially implemented, the impairment of goodwill should
      be presented as the effect of a change in accounting principle. SFAS No. 141
      was adopted in the third quarter of 2001 and SFAS No. 142 was adopted by ECI
      in the first quarter of 2002.

(e)   Revenue Recognition

      In the fourth quarter of 2000, SAB 101, “Revenue Recognition in Financial
      Statements” (“SAB 101”), issued by the staff of the Securities and Exchange
      Commission, became effective in the United States.

      According to SAB 101, the method of accounting for revenues was changed in
      connection with certain transactions, mainly in connection with transactions for
      which customer acceptance is required and/or proceeds for a sale is contingent
      on installation at the customer’s facility, as defined in the sale agreement.




                                        - 40 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

               NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                           In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

H.    FINANCIAL STATEMENTS OF CERTAIN INVESTEE COMPANIES
      WHICH ARE NOT PRESENTED IN ACCORDANCE WITH GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL (PRESENTED IN
      ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES IN THE UNITED STATES) (Cont.):

(1)   ECI (Cont.)

(e)   Revenue Recognition (Cont.)

      As SAB 101 come into effect only in the fourth quarter of 2000, after issuance
      of the interim financial statements for the first three quarters, the provisions of
      SAB 101 were implemented retroactively as of the beginning of 2000 and the
      data for the first three quarters were restated.

      According to generally accepted accounting principles in Israel, SAB 101 was
      adopted as of the beginning of the first period in respect of which no financial
      statements had been issued, that is, the fourth quarter of 2000, without
      restatement of prior data, since management believed that the revenue
      recognition criteria in SAB 101 were appropriate for the prevailing economic
      and commercial environment.

(2)   Scitex

(a)   Marketable Securities

      In December 2001, Scitex sold 7,000,000 out of 13,250,000 shares that it held in
      Creo Products Inc. (“Creo”) After this sale, Scitex no longer exercises
      significant influence in Creo and the investment is classified, according to
      generally accepted accounting principles in the United States, as available-for-
      sale securities.




                                         - 41 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                           In millions of shekels of December 2002



Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)

H.    FINANCIAL STATEMENTS OF CERTAIN INVESTEE COMPANIES
      WHICH ARE NOT PRESENTED IN ACCORDANCE WITH GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL (PRESENTED IN
      ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES IN THE UNITED STATES) (Cont.):

(2)   Scitex (Cont.)

(a)   Marketable Securities (Cont.)

      According to SFAS No. 115, securities available-for-sale are presented in the
      financial statements at their market value and changes in value are recorded as
      other comprehensive income or loss in shareholders’ equity, except for a
      decrease in value that is other than temporary. In such a case, the accumulated
      loss is recognized in the statement of operations. According to generally
      accepted accounting principles in Israel, these marketable securities should be
      presented as a non-current investment (as defined in Opinion 44 of the Institute
      of Certified Public Accountants in Israel) at historical cost, less a provision for
      any decrease in value that is other than temporary. The cost of the investment in
      Creo was determined based on the balance of the investment in Creo on the date
      of the sale.

      In 2002, due to an extended decline in the market value of Creo’s shares, it was
      determined by management of Scitex that the impairment in value of the
      investment was other than temporary. As of December 31, 2002 Scitex recorded
      a loss of U.S.$ 22.3 million in its financial statements prepared according to
      generally accepted accounting principles in the United States. After recording
      this loss, the amount of the investment in Creo, as included according to
      generally accepted accounting principles in the United States, is identical to the
      amount of the investment in Creo as included according to generally accepted
      accounting principles in Israel.




                                         - 42 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002




Note 8 - INVESTMENTS IN INVESTEE COMPANIES (Cont.)
H.    FINANCIAL STATEMENTS OF CERTAIN INVESTEE COMPANIES
      WHICH ARE NOT PRESENTED IN ACCORDANCE WITH GENERALLY
      ACCEPTED ACCOUNTING PRINCIPLES IN ISRAEL (PRESENTED IN
      ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES IN THE UNITED STATES) (Cont.):

(2)   Scitex (Cont.)

(b)   First Time Application of the Equity Method in Respect of an Investment
      Previously Accounted for by the Cost Method.

      During the two years ended December 31, 2001, Scitex acquired 17.4% of the
      shares of Objet Geometries Ltd. (“Objet”). The investment was accounted for at
      cost. Commencing in January 2002, Scitex exercises significant influence in
      Objet. Accordingly, Scitex began to account for the investment in Objet by the
      equity method.

      According to generally accepted accounting principles in the United States, the
      financial statements should be adjusted retroactively to reflect the adoption of
      the equity method as from the first date of acquisition of the investment.
      According to generally accepted accounting principles in Israel, the investment
      is accounted for by the equity method as from the date on which the significant
      influence is first exercised.

(c)   Goodwill

      According to SFAS No. 142, as of January 1, 2002, amortization of goodwill
      ceased and goodwill is subject to periodic assessment of impairment that is
      other than temporary. According to generally accepted accounting principles in
      Israel, goodwill continues to be amortized.




                                        - 43 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                           In millions of shekels of December 2002



Note 9 - OTHER INVESTMENTS
A.    COMPOSITION
                                            CONSOLIDATED       COMPANY
                                                     December 31
                                             2002   2001     2002   2001
Investments in other entities
  (nonmarketable):
    Shares, loans and participation
     units in venture capital funds (1)            169         226        67      81
    Other companies: (2)
     Shares                                        273         276         28    37
     Convertible debentures (3)                     66          52          -     2
     Loans (4)                                      11          12          -     -
Marketable securities - shares                      51         252         13    93
                                                   570         818        108   213

After write-down in the reported
 year for impairment that is other
 than temporary                                    172         436        53      78


(1)   Consolidated - includes loans NIS 1 (2001 - NIS 6).

(2)   Mainly in high-tech and electronics fields.

(3)   Debentures are linked to the U.S. dollar and bear interest at a weighted average
      rate of 5.6% per annum.

(4)
                                                  CONSOLIDATED
          Size of balances                    Number of     Total
                                              borrowers

From 1 to 2                                          1                1
More than 2                                          1               10
                                                     2               11




                                          - 44 -
                                                CLAL INDUSTRIES AND INVESTMENTS LTD.

                                                  NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                                                 In millions of shekels of December 2002
 Note 9 - OTHER INVESTMENTS (Cont.)

 B.     INVESTMENT IN LISTED COMPANIES

        In 2002

                                                            CONSOLIDATED                                                       COMPANY
                                                          Carrying      Market              Market                       Carrying      Market        Market
                                                            value        value               value                         value        value         value
                                                             as of        as of              as of                          as of        as of        as of
                                        Impairment       December 31, December 31,         March 18,       Impairment   December 31, December 31,   March 18,
                                          in 2002            2002       2002 (*)            2003 (1)         in 2002        2002         2002        2003 (1)

Investments for which impairment
  is other than temporary
    Orckit Communications Ltd. (2)                   9              12               10             -               -            -             -           -
    Variant Ltd.                                     8               1                1             1               2            1             -           -
    B.V.R. Systems (1999) Ltd.                      20               5                5             9              14            3             3           6
    B.V.R. Technologies Ltd.                         4               3                1             1               2            2             1           1
    Compugen Ltd.                                   39              23               26            26               -            -             -           -
    Other companies                                 13               7                8             7              15            7             8           7
                                                    93              51               51            44              33           13            12          14

 (1)    Based on the number of shares held by the Company and Group companies as of December 31, 2002.

 (2)    The investment in the company was sold in January 2003, see also Note 9E below.




                                                                               - 45 -
                                        CLAL INDUSTRIES AND INVESTMENTS LTD.

                                          NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                                  In millions of shekels of December 2002

Note 9 - OTHER INVESTMENTS (Cont.)

B.    INVESTMENT IN LISTED COMPANIES (Cont.)

      In 2001

                                                              CONSOLIDATED                                      COMPANY



                                                                 Carrying         Market                         Carrying       Market
                                                                value as of      value as of                    value as of    value as of
                                                 Impairment    December 31,     December 31,      Impairment   December 31,   December 31,
                                                   in 2001         2001             2001            in 2001        2001           2001
     Investments for which impairment is other
       than temporary
         Orckit Communication Ltd.                       -                37                 45           -              -              -
         Toyoga Technologies Ltd.                       26                 3                  3           -              -              -
         Vocaltec Communications Ltd.                   17                 4                  7           -              -              -
         Variant Ltd.                                   48                 9                  5          19              3              3
         B.V.R. Systems (1999) Ltd.                     14                25                 23           9             17             15
         B.V.R. Technologies Ltd.                       21                10                  5          19              7              4
                                                       126                88                 88          47             27             22

     Investments in other companies
        Compugen Ltd.
        Ormat Industries Ltd.                            -                62                 67           -              -              -
        Other companies                                  -                61                 80           -             42             51
                                                         -                41                 34           -             24             26
                                                         -               164                181           -             66             77
                                                       126               252                269          47             93             99



                                                                - 46 -
        CLAL INDUSTRIES AND INVESTMENTS LTD.

         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                     In millions of shekels of December 2002



Note 9 - OTHER INVESTMENTS (Cont.)

        C.   PRINCIPAL CHANGES IN 2002

             In 2002, Group companies invested an additional NIS 15 (total
             investment - NIS 54) in shares of PowerDsine Ltd.

             After this investment, Group companies hold 14.8% of PowerDsine
             Ltd.

        D.   COMMITMENTS FOR INVESTMENT IN VENTURE CAPITAL
             FUNDS

             The Group has made commitments for additional investments in
             venture capital funds of U.S.$ 48 million (Company - U.S.$ 29
             million).

        E.   EVENT SUBSEQUENT TO BALANCE SHEET DATE

             In January 2003, the Company sold the holdings in shares and
             debentures of Orckit Communications Ltd. held by CEI. After taking
             into account previous write-downs for impairments, the Company
             did not have a gain or loss as a result of the sale.




                                   - 47 -
                 CLAL INDUSTRIES AND INVESTMENTS LTD.

                   NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                  In millions of shekels of December 2002



     Note 10 - FIXED ASSETS - CONSOLIDATED
     A.    COMPOSITION AND MOVEMENT
                                   Land and         Machinery,        Motor            Office    Total
                                   buildings          plant          vehicles        furniture
                                                       and             and              and
                                                    equipment        trailers       equipment
COST -
As of January 1, 2002                    1,232              4,031           346           177      5,786
 Adjustment of balance at
   beginning of year (*)                     9                75            (105)          18            (3)
 Acquisitions                               24                23              15           16            78
 Additions in respect of
   additional investment in
   proportionately consolidated
   subsidiary                                  -              35                -           1            36
 Disposals in respect of
   previously consolidated
   subsidiary                               (2)                (7)           (2)           (4)       (15)
 Disposals                                  (7)               (35)          (25)          (17)       (84)
As of December 31, 2002                  1,256              4,122           229           191      5,798

ACCUMULATED
 DEPRECIATION -
As of January 1, 2002                      638              2,819           255           135      3,847
 Adjustment of balance at
   beginning of year (*)                     4                88            (100)           9            1
 Provision                                  23               162              21           19          225
 Adjustments in respect of
   additional investment in
   proportionately consolidated
   subsidiary                                  -              16                -            -           16
 Adjustments in respect of
   previously consolidated
   subsidiary                               (1)                (6)           (1)           (2)       (10)
 Disposals                                  (6)               (34)          (18)          (15)       (73)
 Provision for impairment                   (1)                  -            -             -         (1)
As of December 31, 2002                    657              3,045           157           146      4,005

NET BOOK VALUE -
 As of December 31, 2002                   599              1,077             72           45      1,793

     (*)   In respect of differences arising from financial statements of certain investees adjusted
           to foreign currency (see Note 2A) and in respect of reclassification by subsidiary.




                                                   - 48 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                            In millions of shekels of December 2002



Note 10 - FIXED ASSETS - CONSOLIDATED (Cont.)

B.    SUPPLEMENTARY INFORMATION

(1)   Land and buildings include:

                                                                                      Total

      Freehold land                                                                         885
      Leasehold land (leasehold rights are for various periods ending
       in 2030)                                                                              10
      Excess cost attributed to property                                                    261
                                                                                          1,156
      Leasehold rights and improvements                                                     100
                                                                                          1,256

      Land costing NIS 214 is not yet registered in the name of subsidiaries in the
      Land Registry. Because of arrangements relating to the property and its
      reparcellation, the registration process has not yet been completed.

(2)   Investment grants deducted from the cost of assets - NIS 99 (2001 - NIS 177).

(3)   Fully-depreciated equipment and still in use - NIS 360.

C.    DEPRECIATION

      Depreciation rates:

                                                                                 %

      Buildings                                                        2.0 - 20.0 (Mainly 2-4)
      Machinery, plant and equipment                                   4.5 - 33.3 (Mainly 5-10)
      Motor vehicles and trailers                                     10.0 - 20.0
      Office furniture and equipment                                   6.0 - 33.3




                                          - 49 -
               CLAL INDUSTRIES AND INVESTMENTS LTD.

                 NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                               In millions of shekels of December 2002



   Note 11 - OTHER ASSETS AND DEFERRED CHARGES

                                                                December 31
                                                              2002                    2001
                                               Cost        Accumulated Net book      Net book
                                                           depreciation   value       value
                                                               or
                                                           amortization
CONSOLIDATED
 Goodwill arising on acquisition of
  subsidiaries:
 Excess of cost over fair value                       86                 54    32         44
 Excess of fair value over cost                       78                 36    42         51
                                                       8                 18   (10)        (7)
  Real estate (includes buildings for
   rental) (*)                                     260                   63   197        216
  Know-how, patents and goodwill
   acquired                                          8                 2        6          6
  Deferred taxes                                     1                 -        1          -
  Deferred charges                                  22                20        2          2
                                                   299               103      196        217
  Property held for disposal                                                   18         20
                                                                              214        237

COMPANY
 Real estate (including buildings for
  rental) (*)                                         48                  9    39         40
 Deferred charges                                     20                 19     1          2
                                                      68                 28    40         42

   (*)   The annual rate of depreciation in respect of buildings for rental is 4%.




                                             - 50 -
                 CLAL INDUSTRIES AND INVESTMENTS LTD.

                   NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                              In millions of shekels of December 2002



     Note 12 - CURRENT LIABILITIES TO BANKS

                              Annual       CONSOLIDATED                 Annual        COMPANY
                              interest       December 31                interest      December 31
                              rate (*)                                  rate (*)
                                 %           2002         2001             %          2002      2001
Short-term borrowings:
 Not linked                      9.5             291          525         9.6           168         257
 In or linked to foreign
  currency                       3.7             273          108         3.3           124            -
 Linked to the Consumer
      Price Index                6.7               5            4           -             -           -
                                                 569          637                       292         257
Current maturities of
 long-term debt                                  350          225                       174         119
                                                 919          862                       466         376

     (*)   Average rate as of December 31, 2002

     COLLATERAL - see Note 23.


     Note 13 - TRADE PAYABLES - CONSOLIDATED

                                                                          December 31
                                                                        2002       2001

     Open accounts                                                              280           256
     Checks payable                                                              29            20
                                                                                309           276




                                            - 51 -
                    CLAL INDUSTRIES AND INVESTMENTS LTD.

                      NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                  In millions of shekels of December 2002



        Note 14 - OTHER PAYABLES

                                                   CONSOLIDATED       COMPANY
                                                            December 31
                                                    2002   2001     2002   2001

        Payroll and related expenses                      123          165          -           -
        Advances from customers                             5           10          -           -
        Institutes                                         32           28          3           -
        Accrued income taxes, net of advances              25           16          1           1
        Accrued interest                                   16           15         11          11
        Other payables and accrued expenses               125          150          2           1
                                                          326          384         17          13


        Note 15 - OTHER CURRENT LIABILITIES

        A.    COMPOSITION

                                             CONSOLIDATED                          COMPANY
                                                                  December 31
                                    Annual                              Annual
                                    interest                            interest
                                    rate (*)       2002          2001   rate (*)        2002        2001

Investee companies:
 Not linked                             -                  -            7     -                -           7
 Linked to the Consumer Price
  Index                                 -                 -             -     -                -        7
 Linked to the U.S. dollar              -                 8            16     -                -       17
Loans from provident funds:
 Not linked                            9.8               41             -    9.8           41           -
                                                         49            23                  41          31
Current maturities of long-term
 liabilities                                             21            28                  13          17
                                                         70            51                  54          48

        (*)   Average rate as of December 31, 2002.

        B.    COLLATERAL - see Note 23.




                                                - 52 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002



Note 15 - OTHER CURRENT LIABILITIES (Cont.)

C.    Subsequent to balance sheet date, in January 2003 the Company issued, in a
      private offering, commercial paper (non-marketable promissory notes) in the
      amount of NIS 50. The notes are not linked, bear interest at the rate of 9.7% per
      annum and are repayable on demand.


Note 16 - DEBENTURES (CONSOLIDATED AND COMPANY)

A.    COMPOSITION
                                                 Interest             December 31
                                                 rate (1)           2002       2001

Linked to the Consumer Price Index:

 Quoted on the stock exchange (2)                    5.5               10         20
 Not quoted on the stock exchange
  Series I                                           5.7              200        200
  Series J                                           5.6              164        164
  Series J1                                          4.5              110          -
                                                                      484        384
Less current maturities                                                10         10
                                                                      474        374

(1)   Average rate as of December 31, 2002.

(2)   Debentures (Series 7), quoted on the Tel Aviv Stock Exchange. The market
      value of the debentures as of December 31, 2002 was NIS 9.

COLLATERAL - see Note 23.




                                        - 53 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                            In millions of shekels of December 2002



Note 16 - DEBENTURES (CONSOLIDATED AND COMPANY)

B.    MATURITIES SUBSEQUENT TO BALANCE SHEET DATE
      2003 - current maturities                                              10

      2004                                                                    -
      2005                                                                  274
      2006                                                                   29
      2007                                                                   29
      2008 to 2013                                                          142
                                                                            474

                                                                            484


Note 17 - LONG-TERM LOANS

A.    COMPOSITION

                                            CONSOLIDATED       COMPANY
                                                     December 31
                                             2002   2001     2002   2001

Banks                                              648          676   240    271
IDB Group companies                                 22           28     9     13
Subsidiaries                                         -            -   445    296
Other                                                4           15     -      -
                                                   674          719   694    580
Less - current maturities                          357          232   177    122
                                                   317          487   517    458




                                          - 54 -
                       CLAL INDUSTRIES AND INVESTMENTS LTD.

                         NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                      In millions of shekels of December 2002



           Note 17 - LONG-TERM LOANS (Cont.)

           B.    LINKAGE TERMS AND INTEREST RATES

                                            CONSOLIDATED                                   COMPANY
                                     Annual       December 31                   Annual       December 31
                                     interest                                   interest
                                       rate                                       rate
Terms of linkage or currency          % (*)     2002      2001                   % (*)      2002       2001

Linked to the Consumer Price
 Index -
   Banks and others                    5.4              532            583        5.3          240         271
   IDB Group companies                 6.2               15             19        7.6            9          13
   Subsidiaries                         -                 -              -         -           291         296
                                                        547            602                     540         580
In or linked to foreign currency -
  U.S. dollar
   Banks and others                    3.1                58            51         -               -          -

 Other currencies
  Banks and others                     3.6                11            13         -               -          -
                                                          69            64                         -          -

Not linked
 Banks and others                      9.0                51            44         -             -            -
 Subsidiary                                                -             -         -           154            -
 Capital notes to IDB Group
  companies                             -                  7             9         -             -            -
                                                          58            53                     154            -

                                                        674            719                     694         580

           (*)   Average rate as of December 31, 2002.




                                                    - 55 -
                     CLAL INDUSTRIES AND INVESTMENTS LTD.

                      NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                 In millions of shekels of December 2002



        Note 17 - LONG-TERM LOANS (Cont.)

        C.    MATURITIES AS OF DECEMBER 31, 2002

                            CONSOLIDATED                                    COMPANY
                       Banks Companies Total               Banks      Companies Subsidiaries       Total
                        and      in the                     and         in the
                       others     IDB                      others        IDB
Year                            Group                                  Group

2003 - current
 maturities               353              4        357       174              3               -    177
2004                      162              5        167        22              3             291    316
2005                      118              5        123        44              3               -     47
2006                       15              -         15         -              -               -      -
2007                        3              -          3         -              -               -      -
Not yet determined          1              8          9         -              -             154    154

                          652             22        674       240              9             445    694

        D.    COLLATERAL - See Note 23.

        Note 18 - DEFERRED TAXES - CONSOLIDATED

        A.    COMPOSITION



                                                                             December 31
                                                                           2002       2001

        Deferred taxes in respect of:
         Depreciable assets                                                  253         274
         Adjustment of inventories                                            16           1
         Temporary differences in recognition of income
          and expenses                                                       (50)        (59)
         Loss carryforwards (1)                                               (9)        (11)
                                                                             210         205

        (1)   In respect of losses for tax purposes of subsidiaries in the amount of NIS 27.
              Additionally, the Company has losses for tax purposes amounting to NIS 142
              and other subsidiaries have losses for tax purposes amounting to NIS 513, the
              tax benefits in respect of which will be included upon realization.



                                               - 56 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                          In millions of shekels of December 2002



Note 18 - DEFERRED TAXES - CONSOLIDATED (Cont.)

A.    COMPOSITION (Cont.):

(2)   Deferred taxes are computed at average tax rates of between 32% and 36%
      (2001 - same) and are presented in the balance sheet as follows:

                                                                      December 31
                                                                    2002       2001

Long-term liabilities                                                  220          216
In current assets (*)                                                   (9)         (11)
In other assets                                                         (1)           -
                                                                       210          205

(*)   Realization of the tax benefits is dependent upon future taxable income.

B.    NET MOVEMENT IN DEFERRED TAXES

                                                                    For the year ended
                                                                      December 31
                                                                    2002          2001

Balance at beginning of year                                           205          244
Reduction in respect of company which ceased to be
 consolidated                                                            -          (58)
Amount recognized in statement of operations                             5           19
Balance at end of year                                                 210          205




                                        - 57 -
          CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                         In millions of shekels of December 2002



Note 19 - TERMINATION BENEFITS - CONSOLIDATED

A.   Substantially all Group employees have joined comprehensive pension or
     management insurance plans. In respect of some Group companies, the
     payments to the pension funds fulfill their obligation to employees as required
     by the Severance Pay Law. Accumulated amounts in the pension funds and with
     the insurance companies are not under the control or administration of the
     Group companies, and accordingly, neither those amounts nor the corresponding
     accruals for pension and severance pay are reflected in the balance sheet. The
     obligations of Group companies, under law and labor agreements, for
     termination benefits to employees not participating in pension or insurance
     plans, including compensation for unutilized sick leave and various
     supplementary payments, are included in the balance sheet according to the law
     and labor agreements.
     Amounts deposited with severance pay funds include profits accumulated to
     balance sheet date. The amounts deposited may be withdrawn only after
     fulfillment of the obligations under the Severance Pay Law and labor
     agreements.

B.   COMPOSITION OF AMOUNTS IN BALANCE SHEET

                                                                     December 31
                                                                   2002      2001

     Termination benefit obligation                                   120       133
     Less - deposits with severance pay funds                          18        28
                                                                      102       105

     The above does not include deposits in excess of the obligation. Such excess is
     included in the consolidated balance sheet under "long-term deposits, loans and
     receivables" (Note 7) and are comprised of:

                                                                     December 31
                                                                   2002      2001
     Deposits with severance pay funds
      (includes NIS 5 in a severance pay fund
      managed by the IDB Group; 2001 – NIS 4)                          15           4
     Less - termination benefit obligation                             11           -
                                                                        4           4




                                       - 58 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                            In millions of shekels of December 2002



Note 20 - OTHER LONG-TERM LIABILITIES

                                              CONSOLIDATED      COMPANY
                                                       December 31
                                               2002   2001     2002  2001

Excess of Company’s share of
 losses of investee companies
 over investments therein                             12              50   2         38

Net liabilities with respect to
 real estate development                              14              21   -          -

Deferred revenues                                      6               -   4          -

                                                      32              71   6         38


Note 21 - CONTINGENT LIABILITIES AND COMMITMENTS

Data relating to subsidiaries consolidated by the proportionate consolidation method
are stated at their full amounts.

(1)   CONSOLIDATED

A.    CONTINGENT LIABILITIES

Guarantees provided as of December 31, 2002, for -

      Subsidiaries                                                              79
      IDB group companies                                                        4

-     Various claims arising in the ordinary course of business have been filed against
      Group companies. Appropriate accruals for some of these claims have been
      made. Managements of the companies’ believe, on the basis of opinions of
      legal advisers, that these accruals are adequate to cover the anticipated losses
      arising from the claims.




                                          - 59 -
          CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                        In millions of shekels of December 2002



Note 21 - CONTINGENT LIABILITIES AND COMMITMENTS (CONT.)

(1)   CONSOLIDATED (Cont.)

A.    CONTINGENT LIABILITIES (Cont.)

      -   Certain subsidiaries have committed to pay royalties to the Government of
          Israel and to the Bi-national Fund for Industrial Research and
          Development of Israel - U.S.A. in return for their participation, in the form
          of grants, in research, development and marketing activities of
          subsidiaries. The royalty commitment as of December 31, 2002, amounts
          to NIS 11.

      -   Under the Law for the Encouragement of Capital Investments, 1959,
          certain subsidiaries received grants from the State of Israel in respect of
          their investments in the building or expansion of their plants (see Note
          10). The grants are contingent upon fulfillment of certain conditions
          which, in the opinion of management, are being met. Should the
          subsidiaries fail to comply with these conditions, they will be required to
          refund the grants, together with interest from the dates on which they were
          received.

      -   In February 2002, a subsidiary received a warning in respect of
          cancellation of two letters of approval as an Approved Enterprise because
          of non-fulfillment of conditions. In May 2002 the Company was notified
          as to the cancellation of one of the letters of approval. The investment
          grants received in respect of the said letters of approval amount to NIS 18
          (including linkage and interest). Management of the subsidiary has
          appealed the cancellation of the letter of approval and has requested a
          reevaluation as to the fulfillment of the conditions of the second letter of
          approval that will consider the economic circumstances in which the
          subsidiary operates. In light of the above, management of the subsidiary
          believes that no material loss is expected in respect of this warning.




                                      - 60 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                         In millions of shekels of December 2002



Note 21 - CONTINGENT LIABILITIES AND COMMITMENTS (CONT.)

(1)   CONSOLIDATED (Cont.)

A.    CONTINGENT LIABILITIES (Cont.)

      -    Under the Law for the Encouragement of Capital Investments, 1959,
           certain subsidiaries received grants from the State of Israel in respect of
           past investments in expansion of their plants. Regarding investments in
           the amount of NIS 28, for which approval of completion of the
           investments was not received, the Investment Center notified the
           subsidiaries in October 1999 as to the cancellation of the letters of
           approval. In accordance with an agreement with the Investment Center,
           the subsidiaries will not be required to repay the grants provided that they
           fulfill the conditions of the letters of approval.

      LIENS – see Note 23.

B.    COMMITMENTS

      -    For the leasing of land and buildings for various periods through 2029.
           Future estimated lease payments for 2003 are approximately NIS 69.

      -    Commitments to invest in companies – see Notes 8 and 9.

(2)   COMPANY

CONTINGENT LIABILITIES

As of December 31, 2002, the Company has provided guarantees for subsidiaries in
the amount of NIS 5, of which NIS 4 are for the benefit of an IDB Group company
(2001 – NIS 5).




                                       - 61 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                           In millions of shekels of December 2002



Note 22 - SHARE CAPITAL

A.    COMPOSITION AS OF DECEMBER 31, 2002 AND 2001:

                                                            Number of shares

Authorized                                                       170,000,000
Issued and paid-up                                               156,862,252

Share capital comprises Ordinary shares of NIS 1 par value. All of the shares are
registered for trading on the Tel-Aviv Stock Exchange.

B.    EMPLOYEE STOCK OPTIONS - see Note 32.


Note 23 - LIENS

COLLATERALIZED LIABILITIES – ONLY OF SUBSIDIARIES

                                                                               December 31
                                                                                  2002

Current liabilities to banks                                                        205

Long-term liabilities to banks and others (including current maturities)             79

COLLATERAL

Fixed charges on fixed assets of subsidiaries, including a mortgage on some of the
assets of a subsidiary, which includes goodwill, uncalled share capital, documents for
collection, and cash, notes and checks receivable deposited with banks. Floating
charges on all of the assets of subsidiaries.

As collateral for the fulfillment of the requirements for the receipt of investment
grants (see Note 21A), subsidiaries have recorded fixed and floating charges on their
assets in an unlimited amount in favor of the State of Israel.




                                         - 62 -
            CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                           In millions of shekels of December 2002



Note 23 - LIENS (Cont.)

COLLATERAL (Cont.)

As of December 31, 2002, there are liabilities of the Company, enumerated below,
that are not collateralized, but regarding which the Company has undertaken to fulfill
certain conditions; one such condition is to refrain from recording any lien in favor of
others, or, failing this, to record a charge in favor of the lenders or the holders of its
debentures:

Long-term liabilities:
 Debentures (including current maturities)                                         10
 IDB Group company                                                                  9


Note 24 - FINANCIAL INSTRUMENTS - CONSOLIDATED

A.    CREDIT RISKS

      The sales of subsidiaries are mostly to customers in Israel, the United States and
      countries of the European Union. The subsidiaries have balances due from 7
      borrowers (which are not banks or IDB Group companies), none of which
      exceeds 5% of shareholders’ equity (see Note 7D). Receivables from certain
      foreign customers are insured through foreign trade risk insurance. The
      subsidiaries monitor their receivables on an ongoing basis and include an
      adequate allowance for doubtful accounts.

B.    DERIVATIVE OF FINANCIAL INSTRUMENTS

      As of December 31, 2002, the Company has options to purchase U.S. dollars
      against shekels in the amount of U.S.$ 25.5 million. Also, the Company has an
      option to sell U.S. dollars against shekels in the amount of U.S.$ 25.5 million.
      The said options are intended to bridge expected cash flows in U.S. dollars.

      As of December 31, 2002, a subsidiary has put options for the sale of British
      sterling against U.S. dollars, shekels and Euro in a nominal amount of
      approximately £ 7.2 million, for purposes of hedging expected cash flows in
      British sterling. Also, as of December 31, 2002, the subsidiary has forward
      exchange contracts for the sale of British sterling against U.S. dollars in the
      amount of £ 1.2 million.




                                         - 63 -
             CLAL INDUSTRIES AND INVESTMENTS LTD.

               NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                             In millions of shekels of December 2002



Note 24 - FINANCIAL INSTRUMENTS – CONSOLIDATED (Cont.)

C.    FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying value of most of the financial instruments approximates their fair
      value.

D.    CURRENCY RISKS

      Consolidated schedule of basis of linkage

                            Linked to
                               the                   Linked to
                            Consumer    Linked to      other                        Non-
                              Price      the U.S.     foreign            Not       monetary
                              Index       dollar     currency          linked      balances         Total

Current assets                   58          126          109             418             746        1,457
Non-current assets               36          103            -               1           3,832        3,972
Current liabilities            (354)        (386)        (144)           (715)            (25)      (1,624)
Non-current liabilities        (709)         (30)          (4)            (63)           (444)      (1,250)
Net balance sheet amounts      (969)        (187)         (39)           (359)          4,109        2,555



Note 25 - COST OF SALES AND SERVICES - CONSOLIDATED

                                                        For the year ended December 31
                                                         2002         2001      2000

Materials used and cost of merchandise sold                   957               1,031            1,158
Salaries and related expenses                                 357                 485              496
Contract work                                                 165                 155              258
Depreciation and amortization                                 188                 231              243
Research and development
 (net of participations – NIS 3;
 2001 - NIS 8; 2000 - NIS 9)                                   24                  30               26
Other manufacturing expenses                                  296                 416              416
                                                            1,987               2,348            2,597
Changes in finished goods and
 work-in-process inventories                                  (11)                (28)             (45)
                                                            1,976               2,320            2,552




                                           - 64 -
                  CLAL INDUSTRIES AND INVESTMENTS LTD.

                    NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                In millions of shekels of December 2002



      Note 26 - SELLING AND MARKETING EXPENSES - CONSOLIDATED

                                                           For the year ended December 31
                                                            2002         2001      2000

      Salaries and related expenses                               129      136           127
      Advertising                                                  27       28            30
      Depreciation                                                 17       17            14
      Rental and building maintenance                             104      108            99
      Commissions and royalties                                    21       32            27
      Other                                                        98       77            66
                                                                  396      398           363


      Note 27 - GENERAL AND ADMINISTRATIVE EXPENSES

                                   CONSOLIDATED                  COMPANY
                                         For the year ended December 31
                                2002   2001      2000       2002     2001                      2000

Salaries and related expenses       101           118           118        -         -                -
Participation in management
  expenses                             3             5            5        4         4                4
Depreciation                          13            13           13        1         1                1
Rental and building
  maintenance                        10            18            20        -         -                -
Professional fees                    23            17            19        1         -                -
Doubtful and bad debts                5             2             -        -         -                -
Other                                40            45            42        1         1                1
                                    195           218           217        7         6                6




                                              - 65 -
                      CLAL INDUSTRIES AND INVESTMENTS LTD.

                        NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                    In millions of shekels of December 2002



         Note 28 - OTHER INCOME (EXPENSES), NET

                                          CONSOLIDATED                  COMPANY
                                                For the year ended December 31
                                       2002   2001      2000       2002     2001            2000

Gain (loss) on disposal of
 investments, net (*) -
   Subsidiaries                           (12)        (286)           (4)      -    (285)       5
   Associated companies                      4           33          (45)      3       -       (4)
   Other companies                         (7)         (75)         (167)     (1)      1      (13)
Write-down of investments                 282          709           393      53     225       69
Disposal of other assets                   (5)          (6)           (7)      -       -        -
Amortization of goodwill in
 investee companies, net                    3              16         17       -       -           -
Losses on closure and
 curtailment of production
 lines and relocation of plants             -           65            42       -       -        -
Other (income) expenses                     7            6           (20)      4       9      (32)
                                          272          460           209      59     (50)      25

(*) Includes net gain (loss)
      from changes in holdings
      due to issuance of
      shares and conversion
      of convertible securities -
       Subsidiaries                         -               -         (4)      -       -           5
       Associated companies                 2              31        (37)      1       -           5




                                                  - 66 -
                   CLAL INDUSTRIES AND INVESTMENTS LTD.

                     NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                  In millions of shekels of December 2002

       Note 29 - FINANCING EXPENSES, NET
                                      CONSOLIDATED                  COMPANY
                                            For the year ended December 31
                                   2002   2001      2000       2002     2001                  2000
In respect of:
  Cash, loans, deposits and
    short-term liabilities              10           75          134          3         37       61
  Trade and other receivables
    and payables                         3            (7)          (1)       (1)         -        -
  Marketable securities                  5            (1)          20         1          -       12
  Long-term loans
    and deposits                      (14)            (6)          (3)      24          (7)      (2)
  Convertible debentures
  Debentures                            29           11            3         28         11        3
  Long-term loans                       45           41           14        (22)        23        8
  Forward transactions                   2            1            -          1          -        -
                                        80          114          167         34         64       82

       Note 30 - TAXES ON INCOME
       A.    TAX LAWS APPLICABLE TO THE GROUP
             The majority of Group companies in Israel are subject to the Income Tax Law
             (Inflationary Adjustments), 1985. The principal Group companies are industrial
             companies in conformity with the Law for the Encouragement of Industry
             (Taxes), 1969. The principal benefit under this law is accelerated depreciation.
             A number of industrial companies file consolidated tax returns.
             The investments in or expansion of a number of Group plants have been
             accorded the status of "approved enterprise" in conformity with the Law for the
             Encouragement of Capital Investments, 1959. The principal benefit under this
             law is a reduced tax rate of 25% for prescribed periods and some of the Group
             plants are afforded a period of full tax exemption during the first few years of
             the benefit period. The tax benefits are subject to the fulfillment of the
             conditions in the letters of approval.
       B.    TAX EXPENSE - CONSOLIDATED
                                               For the year ended December 31
                                                2002         2001      2000
       Current taxes                                     64          128           86
       Deferred taxes                                     5          (19)          17
                                                         69          109          103
       Taxes in respect of prior years, net               1           12            1
                                                         70          121          104


                                                - 67 -
                     CLAL INDUSTRIES AND INVESTMENTS LTD.

                       NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                      In millions of shekels of December 2002

         Note 30 - TAXES ON INCOME (Cont.)

         C.    EFFECTIVE TAX

               The difference between income taxes computed on income before taxes at
               regular tax rates and the income tax expense in the financial statements is
               explained as follows:

                                            CONSOLIDATED                  COMPANY
                                                  For the year ended December 31
                                         2002   2001      2000       2002     2001                    2000
Taxes computed at regular tax
 rate of 36%                               (121)        (297)          (47)     (153)     (256)         (34)

Increase (decrease) in tax
  liability due to:
    Losses and benefits for tax
      purposes in respect of
      which deferred taxes were
      not provided                           28              42         39       42         42           43
    Utilization of carryforward
      losses and tax benefits               (21)             (3)       (15)        -         -               -
    Income included net of tax,
      income exempt from tax,
      non-deductible expenses (*)
      or income subject to
      reduced tax rates                     127          374           141      111       214            (9)
    Reduced tax rate for
      approved enterprises                   (6)          (34)         (52)        -         -               -
    Differences in definition of
      capital and assets for tax
      purposes                               61           26            34         -         -               -
    Taxes in respect of prior years           1           12             1         -         -               -
    Other differences                         1            1             3         -         -               -
                                             70          121           104         -         -               -

         (*)   Primarily equity in net earnings (losses) of investee companies that are recorded
               net of related taxes, losses (gains) on the sale of marketable securities and write-
               downs with respect to impairment of investments.
         D.    FINAL TAX ASSESSMENTS
               The Company has a self-assessment which is deemed final through 1998.
               Principal subsidiaries have received final assessments (including self
               assessments which are deemed final) for years ranging from 1992 through 2000.


                                                    - 68 -
             CLAL INDUSTRIES AND INVESTMENTS LTD.

              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                           In millions of shekels of December 2002



Note 31 - RELATED PARTIES

A.    Group companies conduct transactions in the ordinary course of business with
      entities that are related parties. The Securities Authority has exempted the
      Company from providing a description of such transactions with related parties
      of the IDB Group and their investee companies in the ordinary course of
      business.

B.    Data on balances with related parties in the consolidated balance sheets are as
      follows (*):

                                                                       December 31
                                                                     2002       2001
(1) Banks

     Assets:
      Loans and deposits                                                  -         32
     Liabilities:
      Current liabilities                                              463         297
      Long-term liabilities (see Note 17)                              239         494


(2) Others

     Assets:
      Short-term investments -
      Short-term loans                                                  58             -
      Other receivables                                                  -             1
      Long-term deposits, loans and receivables -
        Long-term loans (see Note 7)                                     1             1
        Deposits with severance pay funds                                5             4
     Liabilities:
      Other current liabilities                                         15             1
      Long-term liabilities (see Note 17)
        Capital notes                                                    7           9
        Other                                                           15          19

             (*)   Data on highest balances during the year are not included since it is
                   impracticable to provide.

C.    A subsidiary participates in the expenses of an IDB Group company in the
      amount of NIS 2 (2001 - same).




                                         - 69 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 31 - RELATED PARTIES (Cont.)

D.   Remuneration of directors and General Manager (included in the consolidated
     and Company statements of operations):

                                                       For the year ended December 31
                                                        2002         2001      2000

Remuneration of directors (7 directors)                      454            580     510
Remuneration of General Manager                            1,833          1,874       -
Compensation of former General Manager                         -          1,797   7,839


     Regarding stock options granted to the General Manager and former General
     Manager, see Note 32.

E.   The Company's articles of association allow indemnification and insurance of
     Company officers as provided by law. The Company established an
     indemnification policy and provides insurance in respect of responsibilities of
     officers, subject to provisions of the law and additional restrictions.


Note 32 - EMPLOYEE STOCK OPTIONS

A.   OPTIONS GRANTED BY THE COMPANY

     (1)   August 1997 Plan

           In August 1997, the Board of Directors of the Company approved a plan
           whereby senior employees in the Group will be granted, without
           consideration, options to purchase up to 876,000 Ordinary shares of NIS 1
           par value of the Company (subject to adjustments). This includes 150,000
           options granted to the former General Manager. The number of options
           outstanding has decreased due to the termination of certain employees,
           whose options were forfeited. In addition, during 2000 options were
           exercised and as of December 31, 2002, there are 242,000 options from
           this plan that are outstanding. The options are exercisable at prices linked
           to the rate of exchange of the U.S. dollar.




                                         - 70 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

               NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                 In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

A.   OPTIONS GRANTED BY THE COMPANY (Cont.)

     (1)   August 1997 Plan (Cont.)

           -     The first portion of 292,000 options were granted on October 8,
                 1997, and are exercisable commencing October 8, 1999, for a period
                 of three years. The exercise price was determined based on the
                 average price of the Company’s shares on the Tel-Aviv Stock
                 Exchange during the 90 trading days preceding the date of approval
                 of the plan by the Board of Directors, less a discount of 10%.

           -     The second portion of 292,000 options were granted on October 8,
                 1998, and are exercisable commencing October 8, 2000, for a period
                 of three years. The exercise price was determined based on the
                 average price of the Company’s shares on the Tel-Aviv Stock
                 Exchange during the seven trading days preceding the date options
                 were granted.

           -     The third portion of 217,000 options were granted on October 8,
                 1999 and are exercisable commencing October 8, 2001 for a period
                 of three years. The exercise price was determined based on the
                 exercise price of the first portion.

           Upon exercise of the options, the option holders will not be granted the
           entire number of shares based on the options exercised, but rather shares
           reflecting the benefit component of the options exercised, as calculated at
           the exercise date. The benefit component will be determined based on the
           difference between the value of the shares which the Company would
           issue to the option holders at the time of exercise based on market price at
           that date, and the exercise price of the options as described in the
           preceding paragraph. In respect of options exercised, the Company will
           issue to the option holders shares whose value on the stock exchange at
           the date of exercise equals the benefit component, in consideration for
           their par value only.




                                          - 71 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

A.   OPTIONS GRANTED BY THE COMPANY (Cont.)

     (1)   August 1997 Plan (Cont.)

           The economic value of each option is NIS 11.03. This economic value
           was calculated using the Black-Scholes option-pricing model, taking into
           consideration the price of the Company's shares on the stock exchange on
           the date of the approval of the plan by the Board of Directors of the
           Company, and a weekly standard deviation of 3.7%.

           The aggregate economic value of the options (on the date the plan was
           approved) as described above, amounts to NIS 9. Of this, NIS 1.5 relates
           to options granted to a former General Manager of the Company.

           The plans are implemented in accordance with section 102 of the Income
           Tax Ordinance.

     (2)   January 2001 Plan

           On January 16, 2001, the Board of Directors of the Company approved a
           plan according to which senior employees in the Group will be granted,
           without consideration, options to purchase 1,370,134 Ordinary shares of
           NIS 1 par value of the Company (subject to adjustments), of which
           402,685 options were granted to the General Manager of the Company.
           The options were granted on May 20, 2001. The price of the Company’s
           shares on the stock exchange close to the date of the grant was NIS 27.36.
           The number of outstanding options decreased due to the termination of
           certain employees whose options were forfeited. As of December 31,
           2002, there are 1,298,322 options from the said plan that are outstanding.

           The options vest in four equal portions. The options in each of the
           portions may be exercised for a period of two years commencing as
           follows:

           first portion        -    two years after grant date;
           second portion       -    three years after grant date;
           third portion        -    four years after grant date;
           fourth portion       -    five years after grant date;




                                         - 72 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

A.   OPTIONS GRANTED BY THE COMPANY (Cont.)

     (2)   January 2001 Plan (Cont.)

           According to the plan, the exercise price of the first portion (“the basic
           exercise price”) will be the average closing price of the shares in the 30
           trading days preceding the date of approval of the plan by the board of
           directors, less 10%.
           Accordingly, the basic exercise price was set at NIS 33.92 per share.

           The exercise price of the second, third and fourth portions will be
           determined according to the lower of the average closing price of the
           shares in the 30 trading days preceding the end of the first, second and
           third year, respectively, from the date of the grant of the options, less 10%,
           or the basic exercise price linked to the Consumer Price Index.

           Regarding the method of calculating the number of shares to be issued -
           see paragraph A(1) above.

           Economic value of the options:

                     Portion                        NIS

           First                                   13.66
           Second                                  15.42
           Third                                   16.95
           Fourth                                  18.33

           The economic value was calculated using the Black-Scholes option
           pricing model, taking into account the price of the Company’s shares on
           the stock exchange on the date of approval of the plan by the Board of
           Directors of the Company and a weekly standard deviation of 6.14%.

           The aggregate economic value of the options (on the date the plan was
           approved), as described above, amounts to NIS 22, of which NIS 6 relates
           to options granted to the General Manager of the Company.




                                         - 73 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

A.   OPTIONS GRANTED BY THE COMPANY (Cont.)

     (2)   January 2001 Plan (Cont.)

           In April 2002, the exercise prices of the options in this option plan were
           changed. It was determined that the exercise prices of the options in the
           first, third and fourth portions will be the lower of the amounts described
           above or based on the exercise price of the second portion (NIS 18.05 per
           share), linked to the Consumer Price Index.

           After the above change, the economic value of the options granted to the
           General Manager of the Company is approximately NIS 3.5.

           The plan is implemented in accordance with section 102 of the Income
           Tax Ordinance.

     (3)   August 2001 Plan

           On August 22, 2001, the Board of Directors of the Company approved a
           plan according to which senior employees in the Group will be granted,
           without consideration, options to purchase up to 746,778 Ordinary shares
           of NIS 1 par value of the Company (subject to adjustments). The options
           may be exercised at prices linked to the Consumer Price Index known as
           of the date of the exercise. The number of outstanding options decreased
           due to the termination of certain employees whose options were forfeited.
           As of December 31, 2002, there are 575,341 options from this plan that
           are outstanding.




                                         - 74 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

A.   OPTIONS GRANTED BY THE COMPANY (Cont.)

     (3)   August 2001 Plan (Cont.)

           The options vest in four equal portions. The options in each of the
           portions may be exercised for a period of two years commencing as
           follows:

           first portion        -    two years after grant date;
           second portion       -    three years after grant date;
           third portion        -    four years after grant date;
           fourth portion       -    five years after grant date;

           According to the plan, the exercise price of the first portion (“the basic
           exercise price”) will be the average closing price of the shares in the 30
           trading days preceding the date of approval of the plan by the decision of
           the Board of Directors, less 10%. Accordingly, the basic exercise price
           was set at NIS 24.80 per share.

           The exercise price of the second, third and fourth portions will be
           determined according to the lower of the average closing price of the
           shares rate in the 30 trading days preceding the end of the first, second and
           third year, respectively, from the date of the grant of the options, less 10%,
           or the basic exercise price linked to the Consumer Price Index.

           Regarding the method of calculating of the number of shares to be issued -
           see paragraph A(1) above.

           The options were granted in January 2002.

           The plan is implemented in accordance with section 102 of the Income
           Tax Ordinance.




                                         - 75 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

A.   OPTIONS GRANTED BY THE COMPANY (Cont.)

     (3)   August 2001 Plan (Cont.)

           In March 2002, additional employees joined the Company’s option plan
           from August 2001. On August 8, 2002 (“grant date”) options to purchase
           up to 154,287 Ordinary shares of the Company were granted. The options
           may be exercised for a period of two years commencing at the end of the
           restriction period as follows:

           One fourth of the options are for two years from date of grant, the second
           quarter will be restricted until January 2005, the third quarter will be
           restricted until January 2006, and the fourth quarter will be restricted until
           January 2007.

           In August 2002, an additional employee joined the Company’s option plan
           from August 2001. In January 2003, the employee was without
           consideration, options to purchase up to 205,724 Ordinary shares of the
           Company. The options may be exercised for a period of two years
           commencing at the end of the restriction period as follows:

           One third of the options are restricted until January 2005, one third until
           January 2006, and one third until January 2007.

B.   OPTIONS GRANTED BY CEI

     As part of the process of the merger of the Company with CEI, which was
     implemented through on exchange of shares, options granted to employees by
     CEI were converted to options for the acquisition of shares of the Company
     (“the new options”) according to the conversion ratio established for purposes of
     the share exchange, such that all senior employees of CEI received 12 options of
     the Company in exchange for each option which they held according to the
     original plans. The exercise price of the new options, which replaced the options
     for which an exercise price was set prior to finalization of the merger process,
     will be 1/12 of the exercise price set for the exchanged options. The other terms
     of the new options will be substantially similar to the terms of the options for
     the shares of CEI. Accordingly, the exercise prices, and number of options and
     share prices of CEI are presented in these financial statements in accordance
     with the new conversion ratio.




                                         - 76 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

B.   OPTIONS GRANTED BY CEI (Cont.)

     (1)   Plan from 1997

           In September 1997, the shareholders of CEI approved a plan according to
           which options will be granted, without consideration, to senior employees
           of CEI to purchase up to 15,366 Ordinary shares of NIS 1 par value of CEI
           (subject to adjustments).

           The options were granted in three equal portions. The first portion was
           granted in November 1997; the second portion at the end of one year from
           the date of the grant of the first portion and the third portion at the end of
           two years from the same date. The options may be exercised for a period
           of three years commencing at the end of two years from the date of grant.

           According to the plan, the exercise price of the first portion will be 10%
           lower than the average share price of the company on the stock exchange
           in the period prior to the grant as described in the plan, linked to the U.S.
           dollar. The exercise price of the second and third portions will be the
           average share price of the Company on the stock exchange in the period
           prior to the grant of each portion as described in the plan, linked to the
           U.S. dollar, but not more than the exercise price of the first portion, linked
           to the U.S. dollar.

           The number options outstanding as of December 31, 2002 was 61,464
           options (after adjustments) which may be exercised to purchase 61,464
           Ordinary shares of NIS 1 par value of the Company for a period of three
           years commencing in November 2000, and 30,744 options (after
           adjustments) which may be exercised to purchase 30,744 Ordinary shares
           of the Company for a period of three years commencing from November
           2001.

           Regarding the method of calculating of the number of shares to be issued -
           see paragraph A(1) above.

           The plan is implemented in accordance with section 102 of the Income
           Tax Ordinance.




                                         - 77 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)
B.   OPTIONS GRANTED BY CEI (Cont.)

     (2)   Plan from 2001

           In February 2001, the shareholders of CEI approved a plan according to
           which options will be granted, without consideration, to senior employees
           of CEI to purchase, up to 41,192 Ordinary shares of NIS 1 par value of
           CEI (subject to adjustments). The options were granted in March 2001
           (“the date of grant”).

           After the merger with CEI, the number of options was adjusted to 575,208
           options which may be exercised to purchase up to 575,208 Ordinary
           shares of NIS 1 par value of the Company (after adjustments).
           The number of options outstanding decreased due to the termination of
           certain employees whose options were forfeited. As of December 31,
           2002, there are 423,480 options from this plan that are outstanding.

           The options vest in four equal portions. The options in each of the
           portions may be exercised for a period of two years commencing as
           follows:

           first portion        -    two years after grant date;
           second portion       -    three years after grant date;
           third portion        -    four years after grant date;
           fourth portion       -    five years after grant date;

           According to the plan, the exercise price of the first portion is linked to the
           Consumer Price Index (“the basic exercise price”) and was determined to
           be the average closing price of the shares in the 30 trading days preceding
           the date the plan was approved by the Board of Directors, less 10%.




                                         - 78 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

            NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

B.   OPTIONS GRANTED BY CEI (Cont.)

     (2)   Plan from 2001 (Cont.)

           The exercise price of the second, third and fourth portions will be
           determined according to the lower of the average closing price in the 30
           trading days preceding the date of the end of the first, second and third
           year, respectively, from the date of the grant of the options, less 10%, or
           the basic exercise price linked to the Consumer Price Index.

           As of December 31, 2002, there are outstanding 423,480 options (after
           adjustments) which may be exercised to purchase up to 423,480 Ordinary
           Shares of NIS 1 par value of the Company.

           Regarding the method of calculating the number of shares to be issued -
           see paragraph A(1) above.

           The average economic value of each option is NIS 18.49 (after
           adjustment). This economic value was calculated using the Black-Scholes
           option-pricing model, taking into consideration the price of CEI’s shares
           on the stock exchange on the date of the approval of the plan by the Board
           of Directors of CEI and a weekly standard deviation of 6.94%.

           The economic value of the options, as described above, which have been
           granted to the General Manager of CEI is approximately NIS 2.

           In April 2002, the exercise prices of the options included in this option
           plan were changed. It was determined that the exercise prices of the
           options in the first, third and fourth portions will be the lower of the
           amounts described above or based on the exercise price of the second
           portion (NIS 21.58 per share) linked to the Consumer Price Index.

           After the above change, the economic value of the options granted to the
           General Manager of CEI is approximately NIS 0.9.

           The plan is implemented in accordance with section 102 of the Income
           Tax Ordinance.




                                         - 79 -
              CLAL INDUSTRIES AND INVESTMENTS LTD.

                NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                     In millions of shekels of December 2002, except per share data



Note 32 - EMPLOYEE STOCK OPTIONS (Cont.)

C.     Data in respect of Company share prices on the Tel Aviv Stock Exchange on the
       dates relating to the abovementioned plans and the exercise prices of the shares
       granted in the context of the plans are as follows:

       Options granted by the Parent Company, Company and CEI

                                                          Company                                 CEI
                                                                                      Options for shares of CEI (*)
                                                         Plan from                             Plan from
                                             August       January        August        January         September
                                              2001          2001          1997           2001             1997

Share prices on the stock exchange:
 On date plan was approved by the
   Board of Directors                            27.28         32.45         24.61           37.09          49.34

 On date portions were granted:
  First portion                                  25.94         27.36         24.46           32.13          54.76
  Second portion                                   -             -           22.31            -             52.18
  Third portion                                    -             -           31.79            -             61.24

Exercise price of the options:
 First portion                                   24.85         18.05         22.26           21.58          48.69
 Second portion                                  12.66         18.05         20.70           21.58          48.69
 Third portion                                     -             -           22.26           11.53          48.69

(*)    During 2001, the terms of the options were changed such that they may be
       exercisable to purchase shares of the Company, and accordingly, all data are
       presented after adjustment (divided by 12) - see B. above.


Note 33 - SEGMENT INFORMATION (CONSOLIDATED)

Group companies engage in various business segments, primarily in the
manufacturing and marketing of industrial and high technology products. Part of the
operations is fully reflected in the consolidated financial statements, while another
part is carried out through associated companies which are presented in the financial
statements as investments and the Group’s equity in their activities. Segment
information is as follows:




                                              - 80 -
                                                 CLAL INDUSTRIES AND INVESTMENTS LTD.

                                                   NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                                              In millions of shekels of December 2002

Note 33 - SEGMENT INFORMATION (CONSOLIDATED) (Cont.)
A.     STATEMENT OF OPERATIONS DATA (Cont.)

(1)    Business Segments
                                                                                                For the year ended December 31, 2002
                                                                Cement       Textile        High        Venture        Bio-         Real        Other         Total
                                                                                         technology      capital    technology     estate
                                                                                             and          funds
                                                                                         electronics

Revenues from sales and service                                     782        1,563           15             -             -         113         268            2,741
Group’s equity in earnings (losses) of associated companies            -             -       (164)            -           (40)              -      47            (157)
Other income (expenses)                                              (1)             4       (132)          (73)          (58)          1          (17)          (276)

Segment results                                                      91           63         (310)          (77)        (125)          63          46            (249)
Unallocated expenses, net                                                                                                                                          (6)
Operating loss                                                                                                                                                   (255)
Unallocated financing expenses, net                                                                                                                               (80)
Income taxes                                                                                                                                                      (70)
Minority interest                                                                                                                                                 (21)
  Net loss                                                                                                                                                       (426)

(2)    Revenues from Sales and Services by Geographical Segments
                                                                                                                                                          For the year
                                                                                                                                                             ended
                                                                                                                                                          December 31
                                                                                                                                                              2002
Israel                                                                                                                                                         1,804
North America                                                                                                                                                    267
Europe                                                                                                                                                           443
Other countries                                                                                                                                                  227
  Total                                                                                                                                                        2,741




                                                                            - 81 -
                                                 CLAL INDUSTRIES AND INVESTMENTS LTD.

                                                   NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                                              In millions of shekels of December 2002

Note 33 - SEGMENT INFORMATION (CONSOLIDATED) (Cont.)
A.     STATEMENT OF OPERATIONS DATA (Cont.)

(1)    Business Segments
                                                                                               For the year ended December 31, 2001
                                                                Cement       Textile       High        Venture        Bio-         Real    Other       Total
                                                                                        technology      capital    technology     estate
                                                                                            and          funds
                                                                                        electronics

Revenues from sales and service                                    975        1,534           82            -              -        211     400         3,206
Group’s equity in earnings (losses) of associated companies          -            -         (517)           -            (29)         -      26          (520)
Other income (expenses)                                            285          (57)        (548)        (74)            48          (1)   (113)         (460)

Segment results                                                    441          (20)       (1,174)       (99)            23         110       7          (712)
Unallocated expenses, net                                                                                                                                   2
Operating loss                                                                                                                                           (710)
Unallocated financing expenses, net                                                                                                                      (114)
Income taxes                                                                                                                                             (121)
Minority interest                                                                                                                                         233
  Net loss                                                                                                                                               (712)

(2)    Revenues from Sales and Services by Geographical Segments
                                                                                                                                                   For the year
                                                                                                                                                      ended
                                                                                                                                                   December 31
                                                                                                                                                       2002
Israel                                                                                                                                                  2,321
North America                                                                                                                                             280
Europe                                                                                                                                                    481
Other countries                                                                                                                                           124
  Total                                                                                                                                                 3,206




                                                                            - 82 -
                                                 CLAL INDUSTRIES AND INVESTMENTS LTD.

                                                   NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                                              In millions of shekels of December 2002

Note 33 - SEGMENT INFORMATION (CONSOLIDATED) (Cont.)
A.     STATEMENT OF OPERATIONS DATA (Cont.)

(1)    Business Segments
                                                                                                         December 31, 2000
                                                                Cement       Textile       High         Venture       Bio-      Real    Other       Total
                                                                                        technology      capital   technology   estate
                                                                                            and          funds
                                                                                        electronics

Revenues from sales and service                                    1,351      1,327            93           -             -     144      566         3,481
Group’s equity in earnings (losses) of associated companies            -          -          (147)          -            (9)       -      53          (103)
Other income (expenses)                                               (7)       (14)         (328)         43             6       (6)     97          (209)

Segment results                                                     261         20           (479)         36           (13)      68     123            16
Unallocated expenses, net                                                                                                                               21
Operating loss                                                                                                                                          37
Unallocated financing expenses, net                                                                                                                   (167)
Income taxes                                                                                                                                          (104)
Minority interest                                                                                                                                      140
Net loss                                                                                                                                               (94)

(2)    Revenues from Sales and Services by Geographical Segments
                                                                                                                                                For the year
                                                                                                                                                   ended
                                                                                                                                                December 31
                                                                                                                                                    2002
Israel                                                                                                                                               2,771
North America                                                                                                                                          233
Europe                                                                                                                                                 433
Other countries                                                                                                                                         44
  Total                                                                                                                                              3,481




                                                                            - 83 -
                                             CLAL INDUSTRIES AND INVESTMENTS LTD.

                                              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                                      In millions of shekels of December 2002

Note 33 - SEGMENT INFORMATION (CONSOLIDATED) (Cont.)

B.     BALANCE SHEET DATA

                                                        Cement       Textile       High         Venture      Bio-       Real    Other   Total
                                                                                technology      capital   technology   estate
                                                                                    and          funds
                                                                                electronics

     December 31, 2002

     Segment assets:
       Investments in associated companies                   -            -          854            -           65        -      433    1,352
         Assets                                          1,665        1,110          139          183          136      147      421    3,801
         Unallocated assets                                                                                                               276
             Total assets                                                                                                               5,429

     Segment liabilities:                                  192         371              8           3            5        20      77      676
        Unallocated liabilities                                                                                                         2,093
           Total liabilities                                                                                                            2,769

     For the year ended December 31, 2002

     Capital expenditures                                    -           -             83          25            8         -      29     145
     Depreciation and amortization                         135          57              4           -            4        15      40     255




                                                                    - 84 -
                                             CLAL INDUSTRIES AND INVESTMENTS LTD.

                                              NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                                                      In millions of shekels of December 2002

Note 33 - SEGMENT INFORMATION (CONSOLIDATED) (Cont.)

B.     BALANCE SHEET DATA (Cont.)

                                                        Cement       Textile       High         Venture      Bio-       Real    Other   Total
                                                                                technology      capital   technology   estate
                                                                                    and          funds
                                                                                electronics

     December 31, 2001

     Segment assets:
       Investments in associated companies                                -           962           -           92        -       416   1,470
         Other assets                                    1,715        1,131           195         260          176      177       848   4,502
             Total assets                                1,715        1,131         1,157         260          268      177     1,264   5,972

     Segment liabilities:                                  188         449             29           -            7        77      72      822
        Unallocated liabilities                                                                                                         5,150
           Total liabilities                                                                                                            5,972

     For the year ended December 31, 2001

     Capital expenditures                                    -           -           125           63          134         -      34     356
     Depreciation and amortization                         154          81            41            -            -        20      31     327




                                                                    - 85 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

             NOTES TO THE FINANCIAL STATEMENTS (Cont.)
                         In millions of shekels of December 2002



Note 34 - EARNINGS PER SHARE

                                                    For the year ended December 31
                                                     2002         2001      2000
Number of shares and net income used in
 computing earnings per share:

  Weighted average number of shares
   used in calculation of earnings per share
   (in millions)                                           157      148        140

  Net loss used in computation                             426      712         95

Information as to fully diluted earnings per share was not provided, as there is no
material difference between primary and fully diluted earnings per share.




                                 # # # # # # #




                                       - 86 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

     COMPANY FINANCIAL STATEMENT DATA IN NOMINAL VALUES
                                   In millions of shekels

                                                                            Appendix A
                                                                    to the Financial Statements

A.    CONDENSED BALANCE SHEETS

                                                                       December 31
                                                                     2002       2001

      Investments in investee and other companies                      2,404            3,127
      Other assets and deferred charges                                   34               34
      Monetary items, net                                               (429)            (683)
      Shareholders' equity, see C below                                2,009            2,478

B.    STATEMENTS OF OPERATIONS

                                                      For the year ended December 31
                                                       2002         2001      2000
      REVENUES
       Equity in net earnings (losses) of
        investee companies                                  (303)           (512)           155
       Other income (expenses), net                          (50)            (45)             8
                                                            (353)           (557)           163

      COST AND EXPENSES
       General and administrative expenses                     6                5             6
       Financing expenses                                    110               78            81
                                                             116               83            87

            Net income (loss)                               (469)           (640)            76




                                        - 87 -
           CLAL INDUSTRIES AND INVESTMENTS LTD.

     COMPANY FINANCIAL STATEMENT DATA IN NOMINAL VALUES
                                  In millions of shekels

                                                                      Appendix A
                                                           to the Financial Statements (Cont.)



C.    STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                      Share          Capital         Retained         Total
                                      capital        reserves        earnings


Balance as of January 1, 2000               140              140         2,425          2,705
Net income                                    -                -            76             76

Balance as of January 1, 2001               140              140         2,501          2,781
Shares issued                                17              320             -            337
Net loss                                      -                -          (640)          (640)

Balance as of January 1, 2002               157              460         1,861          2,478

Net loss                                        -               -         (469)          (469)

Balance as of December 31, 2002             157              460         1,392          2,009




                                       - 88 -
               CLAL INDUSTRIES AND INVESTMENTS LTD.
                                                                         Appendix B
                                                                to the Financial Statements

                          IEINLIICC INTRPVRR LAPICNIRP


                                                                            Ownership
                                                                               and
                                                                             control
        Name of Company                   Holding Company (*)                   %

American Israeli Paper Mills Ltd.   Clal Industries and Investments Ltd.        33.0

Applied Radiation -                 Clal Electronics Industries Ltd.            57.1
 Jordan Valley Ltd.

Aprion Digital Ltd.                 Clal Electronics Industries Ltd.            14.0

Bagir (1961) Ltd.                   Polgat Ltd.                                100.0

Barak I.T.C. (1995) - The           Clalcom (1996) I.S. Ltd.                    44.0
 International Telecommunications
 Services Corp.

Beit Shemesh Engine Holdings        Clal Industries and Investments Ltd.        12.3
 (1997) Ltd.                        Clal Industries and Energy Ltd.              8.8

Cargal Ltd.                         Clal Industries and Investments Ltd.        27.4

Clal Biotechnology Industry Ltd.    Clal Industries and Investments Ltd.       100.0

Clal Central Industrial             Clal Industries and Investments Ltd.       100.0
 Financing (1962) Ltd.

Clalcom Ltd.                        Clal Industries and Investments Ltd.        71.5

Clal Electronics Industries Ltd.    Clal Industries and Investments Ltd.       100.0

Clal Venture Capital Fund -         Clal Industries and Investments Ltd.        33.0
 limited partnership                Clal Electronics Industries Ltd.            33.0




                                      - 89 -
               CLAL INDUSTRIES AND INVESTMENTS LTD.
                                                                            Appendix B
                                                            to the Financial Statements (cont.)

                          IEINLIICC INTRPVRR LAPICNIRP

                                                                                Ownership
                                                                                   and
                                                                                 control
        Name of Company                      Holding Company (*)                    %

D-Pharm Ltd.                           Clal Biotechnology Industry Ltd.             26.6

ECI Telecom Ltd.                       Clal Electronics Industries Ltd.             14.4

F.B.R. Infinity Ventures (Israel)      Clal Electronics Industries Ltd.             48.9
                                       Clal Industries and Investments Ltd.         48.9

Fundtech Ltd.                          Clal Industries and Investments Ltd.         36.0

Golf Kitan Fashion House Ltd.          Kitan Consolidated Ltd.                     100.0

Guney Polgat Sanayve Ticaret           Bagir (1961) Ltd.                            51.0
 Anonim Sirketi

Infinity Israel Venture Capital Fund   Clal Electronics Industries Ltd.             59.3
 (Israel) (limited partnership)        Clal Industries and Investments Ltd.         39.5

Jaf-Ora Ltd.                           Clal Industries and Investments Ltd.         30.4

K.B.A. Townbuilders Group Ltd.         Clal Industries and Investments Ltd.         52.9

Kitan Consolidated Ltd.                Clal Industries and Investments Ltd.        100.0

Maman-Cargo Terminals                  Taavura Cement Containers Ltd.               12.7
 and Handling Ltd.                     Multiples Investments and
                                        Developments Ltd.                           26.0




                                         - 90 -
              CLAL INDUSTRIES AND INVESTMENTS LTD.
                                                                         Appendix B
                                                         to the Financial Statements (cont.)

                           IEINLIICC INTRPVRR LAPICNIRP

                                                                             Ownership
                                                                                and
                                                                              control
        Name of Company                    Holding Company (*)                   %

Mashav Initiating and               Clal Industries and Investments Ltd.         75.0
 Development Ltd.
Millennium Materials                Clal Industries and Investments Ltd.         50.0
 Technologies Funds L.P.
Multiple Investments and            Taavura Cement Containers Ltd.               88.5
 Developing Ltd.
Negevtech Ltd.                      Clal Electronics Industries Ltd.             24.6

Nesher Israeli Cement               Mashav Initiating and
Enterprises Ltd.                    Development Ltd.                            100.0
Nova Measuring Instruments Ltd.     Clal Electronics Industries Ltd.             21.1
Ormat Industries Ltd.               Clal Industries and Investments Ltd.         16.9
                                    Clal Industries and Energy Ltd.               4.9
Polgat Ltd.                         Clal Industries and Investments Ltd.         70.8
Shellcase Ltd.                      Clal Electronics Industries Ltd.             24.4

Scitex Corporation Ltd.             Clal Electronics Industries Ltd.             22.2
Taavura Cement Containers Ltd.      Mashav Initiating and
                                    Development Ltd.                             50.0
Tango Ltd.                          Kitan Consolidated Ltd.                     100.0

(*)   Directly or indirectly. Holdings of a consolidated subsidiary reflect the entire
      interest.




                                      - 91 -

				
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