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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.
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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).
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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 -
