RNS Number:7440D
Kidron Industrial Holdings Ld
30 May 2006
KIDRON INDUSTRIAL HOLDINGS LTD.
CONDENSED FINANCIAL STATEMENTS
31st MARCH 2006
UNAUDITED
KIDRON INDUSTRIAL HOLDINGS LTD.
CONDENSED FINANCIAL STATEMENTS AS AT 31st MARCH 2006
TABLE OF CONTENTS
Page
Management Discussion and Analysis A-F
Auditor's Review Report 2
Condensed Consolidated Profit and Loss Account 3
Condensed Consolidated Statement of Recognised Gains and Losses 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Cash Flow Statement 5-6
Notes to the Financial Statements 7-13
Management Discussion and the Analysis
for the three month period ended 31st March 2006
We take pleasure in presenting the Report of the Board of Directors, in
accordance with Regulation 10 of the Securities Regulations (Periodic and
Immediate Reports) - 1970. This report relates to the consolidation of the
Company and its subsidiaries for the three month period ended 31st March 2006.
The Report of the Board of Directors should be read in conjunction with the
audited financial statements of the Company as at 31st December 2005 and the
accompanying notes, as well as with the periodic report for 2005.
A. The Company and its business environment
Kidron Industrial Holdings Ltd. (hereinafter - the "Company") and its
subsidiaries, Kidron Plastics Marketing Ltd., Kidron Plastics Ltd., and Kidron
Plastics Limited Partnership are referred to herein as the "Group". The terms "
Plastics Division" and "Division" refer to the Company together with its
subsidiaries, Kidron Plastics Marketing Ltd. and Kidron Plastics Limited
Partnership.
B. General
The improvement in the results of the reported quarter when compared with the
same period last year and with the previous quarters reflects the continuing
efficiency and reorganization process the Company has been undergoing in general
and the plastics division in particular. The steps taken by the Company during
2005 enabled it to increase its backlog of orders, and its sales and production
volumes. As a direct result, there was an improvement in both gross profit and
operating income. The Company has been continuing implementation of the
efficiency plan through, among other things, external factors, and devotes
resources to the development of new markets and customers.
C. Financial position
We present below a description of the Group's financial position as at 31 March
2006, together with the reasons for the changes in financial position which
occurred since December 31, 2005:
Total assets in the balance sheet as at 31 March 2006 amounted to NIS 81.5
million, compared with NIS 74.2 million as at 31 December 2005.
Current assets as at 31 March 2006 amounted to NIS 41,532 thousand, compared
with NIS 32,825 thousand as at 31 December 2005.
The increase derives mainly from an increase in trade debtors in an amount of
NIS 7,923 thousand, as a result of an increase in sales turnover, and an
increase in stocks in an amount of NIS 867 thousand.
Fixed assets as at 31 March 2006 amounted to NIS 38,816 thousand, compared with
NIS 39,479 thousand as at 31 December 2005. The decrease in fixed assets
derives from the gap between the investments of the Company in fixed assets and
the periodic depreciation recorded during the period, and from the writedown of
the allocation of the negative cost surplus as a result of the continued
implementation of the loan arrangement between the Company and its banks.
Other assets - As explained in Note 3B to the financial statements, in the first
quarter of the year, the Company implemented Israeli Accounting Standard No. 22
- "Financial Instruments, Disclosure and Presentation". As a result of the
implementation of this standard, the balance of deferred expenses in respect of
the raising of loans from investment funds, which prior to implementation,
amounted to NIS 762 thousand and was presented as "Other assets", was deducted
from the balance of the loans from the investment funds.
Goodwill as at 31 March 2005 derived from the goodwill generated by the merger
transaction with Kidron Plastics Ltd. in May 2004, which was erased as part of
the loan arrangement between the banks and the Company. (See also Note 1F to
the financial statements as at 31 December 2005.)
Current liabilities as at 31 March 2006 amounted to NIS 51,621 thousand,
compared with NIS 40,984 thousand as at 31 December 2005.
The increase in current liabilities derived mainly from an increase in
short-term credit from banking institutions in an amount of NIS 4.8 million and
from an increase in trade and other creditors in an amount of NIS 5.8 million.
Long-term liabilities as at 31 March 2006 amounted to NIS 53,199 thousand,
compared with NIS 55,605 thousand as at 31 December 2005.
The decrease in long-term liabilities derived mainly from the erasure of
liabilities to banking institutions in an amount of NIS 1.5 million, as part of
the implementation of the agreement between the Company and its banks regarding
the loans of the Company (see Note 1C to the financial statements), from
repayment of loans, and from the NIS 762 thousand writeoff of deferred expenses
relating to the loans from investment funds, as a result of the initial
implementation of Israeli Accounting Standard No. 22, as above.
The working capital deficit as at 31 March 2006 amounted to NIS 10.1 million,
compared with an amount of NIS 8.1 million as at 31 December 2005.
The deficit in the Company's shareholders' equity as at 31 March 2006 amounted
to NIS 25,051 thousand, compared with NIS 24,138 thousand as at 31 December
2005.
The increase in the deficit derived from the loss for the quarter which amounted
to NIS 0.9 million.
Liquidity ratios
31/3/06 31/3/05 31/12/05
Current assets / current liabilities (current ratio) 0.80 0.70 0.80
Current assets, less stocks / current liabilities (quick 0.66 0.57 0.64
ratio)
D. Results of operations
1-3/2006 1-3/2005 1-12/2005
NIS'000 NIS'000 NIS'000
Sales turnover 33,891 28,501 108,385
Gross profit 2,843 815 5,581
Operating loss (570) (3,653) (9,891)
Financing expenses, net (1,843) (1,616) (5,164)
Operating loss after financing (2,413) (5,269) (15,055)
Other income 112 76 598
Gain on erasure of liabilities to banking institutions 1,507 - 1,398
Taxes on income (220) (685) (1,785)
Share of Group in profits (losses) of associated 101 11 (149)
undertaking
Loss for the period (913) (5,867) (14,993)
Analysis of the results of operations
Turnover
The Group's turnover for the quarter amounted to NIS 33.9 million, compared with
NIS 28.5 million in the same quarter last year, an increase of 18.9%. The
increase in Group sales derived mainly from the increase in divisional sales
which amounted to NIS 28.9 million, compared with NIS 23.6 million in the same
quarter last year, an increase of 22.4%. The increase in divisional sales
derived from the increase in sales to existing customers, and mainly from new
customers.
Gross profit
The Group's gross profit for the quarter amounted to NIS 2.8 million, comprising
8.3% of Group sales, compared with NIS 0.8 million (2.8% of sales) in the same
quarter last year.
The improvement in the earnings and profitability of the Company derives from
the efficiency and reorganization steps which enabled the Company to increase
its production and sales turnover during the quarter and to increase it
production and sales capabilities in the future.
Selling and marketing expenses
The Group's selling expenses for the quarter amounted to NIS 1 million,
comprising 2.8% of Group sales, compared with NIS 1.8 million (6.1% of slaes) in
the same period last year, a decrease of NIS 0.8 million (45%), as a result of
the change in the Company's sales mix and the resultant efficiency steps.
General and administrative expenses
The Group's general and administrative expenses for the quarter amounted to NIS
2.4 million, comprising 7.2% of Group sales, compared with NIS 2.7 million (9.5%
of sales) in the same quarter last year.
Operating loss
The Group's operating loss for the quarter dropped to an amount of NIS 0.6
million, 1.7% of sales, compared with NIS 3.6 million (12.8% of sales) in the
same quarter last year.
The improvement in Company operations derived mainly from the efficiency
measures and the reorganization at the Company, as described above, as well as
from the change in the structure of selling and general and administrative
expenses, resulting from the change in the sales mix as part of the Company's
efficiency steps.
Financing expenses, net and the gain on the erasure of liabilities to banking
institutions
The Group's financing expenses amounted to NIS 1.8 million during the quarter,
comprising 5.4% of Group sales, similar to the amount of NIS 1.6 million (5.6%
of sales) in the same quarter last year. The financing expenses of the quarter
derived from exchange rate differentials of NIS 0.6 million as a result of the
valuation of long-term liabilities to banking institutions in view of the
erosion of the exchange rate of the shekel vs. the dollar in the quarter (1.3%),
and from accrued interest of NIS 1.1 million in respect of liabilities to
banking institutions and others.
In addition, the Company recorded a profit of NIS 1.5 million during the quarter
from the implementation of the loan arrangement between the Company and its
banks (see also Note 1C to the financial statements).
Taxes on income
The Group's tax expense for the quarter and the same quarter last year derive
from the provision for current taxes of the subsidiary, Kidron Plastics Ltd.
Cash flows from current operations
Group cash flows from operations for the period totalled an outflow of NIS 2.4
million, compared with a cash intflow from current operations of NIS 0.19
million during the same period last year. After neutralizing the Company's
working capital components, the cash flow from current operations for the
quarter was an inflow of NIS 1 million.
Cash flows from investment activity
Group cash flows from investment activity for the period (including investments
in assets) amounted to an outflow of NIS 0.7 million, compared with an inflow of
NIS 1.9 million during the same period last year (mainly the result of a
redemption of a bank deposit).
Cash flows from financing activity
Group cash flows from financing activity during the period under report amounted
to an inflow of approximately NIS 2.5 million, compared with an outflow of NIS 2
million in the same quarter last year. The inflow this year resulted mainly
from the NIS 3.2 million increase in credit lines from banks and from the NIS
0.7 million repayment of long-term loans. The outflow last year resulted mainly
from a decrease in short-term bank credit, net.
Sources of financing
The Company financed its operation during the quarter through supplier credit,
an increase in bank credit and from non-banking finance.
E. Exposure to market risks and risk management
The Group's activity in competitive international markets for consumer goods
exposes the Company to risks deriving from changes in exchange rates and prices
of raw materials, to the risks of granting credit to customers in Israel and
abroad, and to the risks of being dependent on major customers.
The Company's board of directors discusses market risks and the manner in which
they are handled, at its quarterly meetings.
The general manager is responsible for managing these risks.
During the period under report, except for the risks detailed below, no material
changes occurred in the exposure of the Company to market risks or in the manner
in which such risks are managed, in relation to the Company's 2005 reports on
these issues.
Exposure to raw material prices
According to the agreement signed between the Company and its major customers,
any change in raw material prices is immediately and entirely transferred to the
price of products.
During the reporting period, there was a 2.5% increase in the prices of raw
materials.
Dependency on major customers
The Company has a major customer named "ZAG", the sales to which during the
quarter comprised 42% of total Group sales, amounting to NIS 14.2 million,
compared with NIS 11.9 million (41% of sales) in the same period last year.
Another major customer is Hydrom Tinat Industries Ltd., sales to which during
the quarter amounted to NIS 6.1 million (18% of total Group sales), compared
with NIS 3.4 million (12% of sales) in the same quarter last year.
F. Peer review
Further to the instructions of the Israel Securities Authority, requiring
reporting companies to provide disclosure of their consent to participate in a
"peer review", the goal of which (as mentioned in the instructions) is to
advance a process of control pertaining to the work of the external auditors of
reporting companies, the board of directors of the Company, at its meeting on 23
May 2006, granted its consent to the performance of a peer review.
G. Directors having financial accounting expertise
The minimum number of qualified directors determined by the Company
The board of directors of the Company is comprised of directors having vast
business, financial, and professional experience. The composition of the board
enables it to meet its the responsibilities placed upon it both by law and by
its documents of incorporation, in connection with the monitoring of the
financial position of the Company and with the preparation and approval of the
financial statements of the Company.
In accordance with the directives of the Israeli Securities Authority pertaining
to reporting on directors having financial and accounting expertise and taking
into consideration the scope and nature of Company activity, it was decided that
the minimum number of directors having accounting and financial expertise would
be two.
The directors having accounting and financial expertise are as follows:
Bilha Sova - Holder of a BA in Economics and Statistics and a
Masters of Business Administration. VP - Finance of Bigilam Ltd., a director in
Pachmas Registered Partnership and in Matechet Mayan Agricultural Cooperative
Ltd.
David Ben-Zev- LLB, Hebrew University, external director and member of the
investment committee of Modlim Mutual Funds Ltd., director in the Herzliya
Municipal Tourism Development Company Ltd., chairman of the executive board of
the Beit Zinger Society which operates dormitories, foster care and various
other frameworks for handling youth at risk. He is a visiting lecturer at the
Faculty of Law, Hebrew University.
Michael Susz Yisrael Teiblum
General Manager and Director
Chairman of the Board
23 May 2006
The Board of Directors of 23 May 2006
Kidron Industrial Holdings Ltd.
Ramat Gan
Dear Sirs:
Re: Review of the Unaudited Condensed Interim Consolidated
Financial Statements for the three month period ended 31 March 2006
At your request, we have reviewed the condensed interim consolidated balance
sheet of KIDRON INDUSTRIAL HOLDINGS LIMITED and its subsidiaries as at 31 March
2006, the condensed consolidated profit and loss accounts, condensed statements
of recognised gains and losses, condensed statements of changes in shareholders'
equity and the condensed consolidated statements of cash flows for the three
month period then ended.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel and included, inter alia,
reading the said financial statements, reading the minutes of the shareholders'
meetings and of the meetings of the Board of Directors and its committees, as
well as making inquiries of persons responsible for financial and accounting
matters.
The data presented in the consolidated financial statements, which relate to the
equity of the Company in the investment in an associated undertaking and to the
Company's share in the results thereof are based on financial statements that
were reviewed by other auditors.
Since the review performed is limited in scope and does not constitute an audit
in accordance with generally accepted auditing standards, we do not express an
opinion on the condensed financial statements.
During the performance of our review, including reading review reports of other
auditors as stated above, nothing came to our attention that would necessitate
any material modifications to the condensed financial statements referred to
above in order for them to be in conformity with generally accepted accounting
principles and in accordance with Section D of the Securities Regulations
(Periodic and Immediate Reports), 1970.
Fahn Kanne & Co.
Certified Public Accountants (Isr.)
CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT
Convenience
translation
Year ended Three months ended Three months
31st December 31st March ended
31 March
2005 2005 2006 2006
NIS' 000 NIS' 000 NIS' 000 #' 000
(Audited) (Unaudited) (Unaudited) (Unaudited)
Turnover 108,385 28,501 33,891 4,170
Cost of sales 102,804 27,686 31,048 3,820
_______ ______ ______ ______
Gross profit 5,581 815 2,843 350
Selling, general and administrative expenses 15,472 4,468 3,413 420
_______ ______ ______ ______
Operating loss before other expenses (9,891) (3,653) (570) (70)
Other income, net 598 76 112 14
Profit from erasure of liabilities to banking 1,398 - 1,507(*) 185(*)
institutions
_______ ______ ______ ______
Profit (loss) on ordinary activities before (7,895) (3,577) 1,049 129
financial expenses
Net financial expenses (5,164) (1,616) (1,843) (227)
_______ ______ ______ ______
Loss on ordinary activities before taxation (13,059) (5,193) (794) (98)
Tax on profit on ordinary activities (1,785) (685) (220) (27)
_______ ______ ______ ______
Loss on ordinary activities after taxation (14,844) (5,878) (1,014) (125)
Net equity in earnings of associated undertaking (149) 11 101 12
_______ ______ ______ ______
Loss for the period (14,993) (5,867) (913) (113)
_______ ______ ______ ______
_______ ______ ______ ______
Loss per share (NIS/#)
Loss from continuing operation (0.08) (0.03) (0.01) (0.01)
_______ ______ ______ _____
_______ ______ ______ _____
(*) See Note 1C.
CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES
Convenience
translation
Year ended Three months ended Three months
31st December 31st March ended
31 March
2005 2005 2006 2006
NIS' 000 NIS' 000 NIS' 000 #' 000
(Audited) (Unaudited) (Unaudited) (Unaudited)
Total recognised losses for the period (14,993) (5,867) (913) (113)
_______ ______ ______ _____
_______ ______ ______ _____
The accompanying notes are an integral part of these condensed statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
Convenience
translation
31st December 31st March 31st March
2005 2005 2006 2006
NIS' 000 NIS' 000 NIS' 000 #' 000
(Audited) (Unaudited) (Unaudited) (Unaudited)
Fixed assets
Tangible assets 39,479 49,006 38,816 4,776
Investee company 879 1,039 980 121
Severance pay - redundancy provision 248 99 241 30
Other assets 820 4,885 - -
_______ _______ _______ _______
41,426 55,029 40,037 4,927
----------- ---------- ---------- ----------
Current assets
Stocks 6,368 6,932 7,235 890
Debtors 25,327 28,515(*) 33,544 4,127
Cash at bank and in hand 1,130 1,187 753 93
_______ _______ _______ _______
32,825 36,634 41,532 5,110
----------- ---------- ---------- ----------
_______ _______ _______ _______
Creditors: amounts falling due within one year
Bank loans and overdrafts 17,169 23,800 21,974 2,704
Creditors 23,815 28,379(*) 29,647 3,648
_______ _______ _______ _______
40,984 52,179 51,621 6,352
----------- ---------- ---------- ----------
_______ _______ _______ _______
Net current assets/liabilities (8,159) (15,545) (10,089) (1,242)
_______ _______ _______ _______
_______ _______ _______ _______
Total assets less current liabilities 33,267 39,484 29,948 3,685
_______ _______ _______ _______
_______ _______ _______ _______
Liabilities attributed to the discontinued 1,800 1,800 1,800 221
operation
----------- ---------- ---------- ----------
Creditors: amounts falling due after more than one
year
Non-convertible bank loans 24,012 24,697 23,599 2,904
Loans from investment fund 16,247 - 15,783 1,942
Creditors 890 1,190 890 110
Deferred taxes 22 24 22 3
Liabilities to be repaid out of future income 12,905 12,863 12,905 1,588
Liabilities to banking institutions, expected to 1,529 13,922 - -
be written-off
_______ _______ _______ _______
55,605 52,696 53,199 6,547
----------- ---------- ---------- ----------
_______ _______ _______ _______
Net assets (liabilities) (24,138) (15,012) (25,051) (3,083)
_______ _______ _______ _______
_______ _______ _______ _______
Capital and reserves (deficit) (24,138) (15,012) (25,051) (3,083)
_______ _______ _______ ______
_______ _______ _______ ______
(*) Reclassified.
Date of approval: 23 May 2006.
Michael Susz Yisrael Teiblum Eyal Shalmon
General Manager and Director CFO
Chairman of the Board
The accompanying notes are an integral part of these condensed statements.
CONSOLIDATED CASH FLOW STATEMENTS
Convenience
translation
Year ended Three months ended Three months
31st December 31st March ended
31 March
2005 2005 2006 2006
NIS' 000 NIS' 000 NIS' 000 #' 000
(Audited) (Unaudited) (Unaudited) (Unaudited)
Net cash flows from operating activities
(Appendix A)
Net cash inflow (outflow) from continuing operating (3,949) 95 (2,241) (276)
activities
--------- --------- --------- ---------
Investing activities
Payments to acquire tangible fixed assets (1,375) (189) (698) (86)
Proceeds from (investments in) deposits 2,159 2,159 - -
Receipts from sales of tangible fixed assets 171 - - -
______ ______ ______ ______
Net cash inflow (outflow) from continuing investing 955 1,970 (698) (86)
activities
______ ______ ______ ______
Financing activities
Receipt of long-term bank loans 145 - - -
Receipt of long-term loans from investment fund (*) 15,155 - - -
Repayment of long-term loans (1,813) (127) (721) (89)
Short-term bank loans and credit, net (10,502) (1,890) 3,283 404
______ ______ ______ ______
Net cash inflow (outflow) from continuing financing 2,985 (2,017) 2,562 315
activities
--------- --------- --------- ---------
______ ______ ______ ______
Increase (decrease) in cash and cash equivalents (9) 48 (377) (47)
Opening balance - from continuing operation 1,139 1,139 1,130 140
______ ______ ______ ______
Closing balance - from continuing operation 1,130 1,187 753 93
______ ______ ______ ______
______ ______ ______ ______
(*) Net of loan raising expenses.
The accompanying notes are an integral part of these condensed statements.
APPENDIX A
RECONCILIATION OF OPERATING PROFIT TO NET
CASH INFLOW FROM OPERATING ACTIVITIES
Convenience
translation
Year ended Three months ended Three months
31st December 31st March ended
31 March
2005 2005 2006 2006
NIS' 000 NIS' 000 NIS' 000 #' 000
(Audited) (Unaudited) (Unaudited) (Unaudited)
Loss for the period (14,993) (5,867) (913) (113)
Depreciation of tangible fixed assets and 6,967 1,851 1,419 175
intangible assets
Loss on sale of tangible fixed assets, net (9) - - -
Change in deferred taxes, net 16 2 - -
Increase (erosion) in the value of long-term 1,986 430 599 74
liabilities
Profit from erasure of liabilities to banking
institutions
Company's equity in profits (losses) of associated 149 (11) (101) (12)
undertakings, net
Decrease/(increase) in stocks 516 472 (867) (107)
Decrease/(increase) in trade debtors 789 (9,211)(*) (7,923) (975)
Increase in other debtors (248) (113) (294) (36)
Increase/(decrease) in trade creditors (1,022) 14,518(*) 7,918 974
Increase/(decrease) in other creditors 2,132 (1,893)(*) (2,086) (257)
Decrease/(increase) in redundancy provision (232) (83) 7 1
______ ______ ______ _____
Net cash inflow (outflow) from operating activities (3,949) 95 (2,241) (276)
______ ______ ______ _____
______ ______ ______ _____
(*) Reclassified.
The accompanying notes are an integral part of these condensed statements.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. Company activities
Kidron Industrial Holdings Limited (hereafter - the Company) is a public company
engaged primarily in the manufacture, importing, and marketing of plastic
products.
B. Compliance with the preservation rules of the Tel Aviv Stock Exchange
On 17th January 2005, the Company was given notice by the Tel Aviv
Stock Exchange as to its lack of compliance with the preservation rules set down
in the Stock Exchange's Regulations and in the guidelines enacted thereunder,
since the Company's shareholders' equity in the last four annual financial
statements was below NIS 2 million. The board of directors of the Tel Aviv
Stock Exchange, at its September 2005 meeting, decided to transfer the Company's
shares to the "Preservation List".
C. Creditor arrangement
In accordance with an agreement between the Company and a banking institution,
pertaining to the creditors arrangement from May 2004, the banking institution,
in the second quarter of 2006, erased the liability of the Company to the bank
in an amount of NIS 1.5 million.
As a result of the erasure, based on Opinion No. 57 of the Institute of
Certified Public Accountants in Israel, the Company recorded income of NIS 1.5
million in the first quarter of 2006, presented as a separate item in the Profit
and Loss Account.
NOTE 2 - GENERAL SIGNIFICANT ACCOUNTING POLICIES
A. The interim financial statements as at 31 March 2006 and for the three
month period then ended (hereinafter - the "Interim financial statements") are
presented in condensed format, in accordance with Standard No. 14 of the Israel
Accounting Standards Board and should be read in conjunction with the annual
financial statements of the Company as at 31 December 2005 and its accompanying
notes. In addition, the interim financial statements are presented in
accordance with the provisions of Chapter D of the Securities Regulations
(Periodic and Interim Reports) - 1970.
B. The accounting principles used in the presentation of the interim
financial statements are consistent with those used in presenting the annual
financial statements, except for the accounting treatment of various issues, as
indicated in Note 3 which details the accounting changes.
C. The measurement basis for the financial statements
The financial statements are presented in reported shekels.
Commencing on 1 January 2004, as required by Accounting Standards No. 12, "
Discontinuance of Adjusting Financial Statements to Inflation" of the Israeli
Accounting Standards Board, financial statements are no longer adjusted for the
effects of inflation. The adjusted amounts as at 31 December 2003 served as the
point of departure for nominal financial reporting as at 1 January 2004.
The percentage change in the Israeli Consumer Price Index ("CPI") and in the
representative foreign currency exchange rates are as follows:
Year ended 31 Three months ended
December 31 March
2005 2006 2005
% % %
Israeli Consumer Price Index 2.38 0.60 (0.6)
Representative exchange rate of US dollar 6.85 1.35 1.23
Representative exchange rate of the Euro (7.32) 3.96 (3.88)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (cont.)
NOTE 3 - CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
A. Initial implementation of Israeli Accounting Standard No. 20 (Amended) -
"The Accounting Treatment of Goodwill and Intangible Assets on the Acquisition
of Investee Companies"
Since January 1, 2006, the Company has been implementing Israeli
Accounting Standard No. 20 (Amended) - "The Accounting Treatment of Goodwill and
Intangible Assets on the Acquisition of Investee Companies" issued by the
Israeli Accounting Standards Board (hereinafter - "Standard No. 20 as Amended")
in March 2006, replacing Israeli Accounting Standard No. 20, "Amortization
Period of Goodwill". Standard No. 20 as Amended stipulates that Goodwill and
intangible assets having unlimited useful lives, generated upon acquisition of
an investee company, should not be amortized.
Standard No. 20 as Amended distinguishes between goodwill deriving
from the acquisition of a subsidiary and goodwill deriving from the acquisition
of an investee company that is not a subsidiary, and stipulates that regarding
goodwill that derived from the purchase of a subsidiary, a company must check
for impairment once a year, or even more frequently if there is any indication
that there was a decline in the value of the asset. Goodwill that derived from
the acquisition of an investee company that is not a subsidiary is included in
the book value of the investment in that company. Accordingly, the assessment
of a possible impairment in respect of the goodwill would be conducted as part
of the assessment of a possible impairment in the entire investment. Such an
assessment should be carried out in accordance with the provisions of Israeli
Accounting Standard No. 15, Decline in Asset Value.
The Standard stipulates that when allocating the acquisition cost,
fair value should be allocated to identifiable assets, including intangible
assets. Standard No. 20 as Amended also sets forth guidelines for the
accounting treatment of intangible assets that were identified, as above. The
Standard also sets forth the accounting treatment of the net excess of the fair
value of the assets over the acquisition cost of the investee company (negative
surplus cost).
Initial implementation of the provisions of the Standard did not have
a material impact on the interim financial statements.
B. Initial implementation of Accounting Standard No. 21 - "Earnings per
Share"
Since 1 January 2006, the Company has been implementing Accounting
Standard No. 21 - "Earnings Per Share" issued by the Israeli Accounting
Standards Board (hereinafter - "Standard No. 21") in January 2006, which sets
out the principles to be used in computing and presenting earnings (loss) per
share in the financial statements and which replaces Opinion No. 55 of the
Institute of Certified Public Accountants in Israel pertaining to this issue.
Standard No. 21 must be implemented in respect of financial statements of
periods commencing on or after 1 January 2006 (hereinafter - the "Effective
Date").
According to Standard No. 21, earnings per share data are computed on
the basis of the number of shares (and not in terns of NIS 1 par value as was
customary until the effective date). Among other things, the Standard sets
forth the treatment of option warrants and convertible debentures and their
possible impact on diluted earnings per share.
According to Standard No. 21, for purposes of computing basic earnings
per share, the number of ordinary shares should be the weighted average of the
number of ordinary shares in circulation during the period.
According to Standard No. 21, for purposes of computing diluted
earnings per share, the number of ordinary shares should be the number computed
for the basic earnings per share, plus the weighted average of the number of
ordinary shares that would have been issued as a result of the conversion of all
convertible securities into shares.
According to the Standard, option warrants should be included in
diluted earnings when their exercise would result in the issuance of shares for
a consideration that is less than the average market price of ordinary shares
during the period. The effect of such option warrants is solely on the number
of shares. For purposes of the calculation, the number of shares deriving from
the exercise of the warrants should be added to the denominator of the equation,
and the number of shares that could have been purchased with the consideration
that would have been received as a result of the conversion of the option
warrants into shares at the average market price of the shares during the period
should be deducted from the denominator (this amount includes the balance of the
fair value of goods or work not yet supplied in respect of share-based payment
arrangements to which Accounting Standard No. 24 applies).
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (cont.)
NOTE 3 - CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (cont.)
B. Initial implementation of Accounting Standard No. 21 - "Earnings per
Share" (cont.)
According to Standard No. 21, for purposes of computing consolidated
EPS, the share of a holding company in the earnings of its investees should be
deducted from the consolidated earnings of the reporting entity and the EPS of
the investee company multiplied by the weighted number of shares held by the
holding company should be added.
The Standard should be applied retrospectively by restating the
comparative data of the earnings per share relating to prior periods.
Initial implementation of the Standard had no material impact on the
earnings per share data presented in the past.
C. Initial implementation of Accounting Standard No 22 - Financial
Instruments - Disclosure and Presentation"
Since 1 January 2006, the Company has been implementing Accounting Standard No.
22 - "Financial Instruments - Disclosure and Presentation", that was issued in
July 2005, by the Israel Accounting Standards Board (IASB).
This standard sets down the presentation provisions for financial instruments
and the fair disclosure required thereof in the financial statements. The
presentation provisions address the rules for the break down and classification
of financial instruments into financial liabilities and equity, the
classification of interest, dividends, and losses and gains related thereto, and
the conditions that are required for the offset of financial assets against
financial liabilities. The Standard also sets forth the accounting treatment of
the issuance of a number of financial instruments as part of one package.
The Standard applies to the financial statements for periods commencing on or
after January 1, 2006. Accounting Standard No. 22 requires prospective
application of its provisions. Accordingly, comparative amounts presented in
the financial statements of periods commencing on the effective date of the
Standard will not be restated.
Upon the Standard's going into effect, Opinion No. 48 "the Accounting Treatment
of Option Warrants" and Opinion No. 53 "the Accounting Treatment of Convertible
Liabilities" of the Institute of Certified Public Accountants in Israel are
cancelled. According to those opinions, a holding company in required, under
certain circumstances, to set up in its books a provision for a loss expected to
derive as a result of a decrease in the percentage of an investee held,
following the conversion of convertible securities of the investee company.
Such a provision, if set up, would be cancelled as at the effective date and
presented as a cumulative effect of a change in accounting principles.
Initial implementation of the provisions of the Standard had the following
impact:
The balance of the costs incurred in raising loans from investment funds, which
prior to the effective date were presented as other assets, was deducted from
the balance of the loans from the investment funds.
D. Initial implementation of Accounting Standard No 24 - "Share-Based
Payments"
Since 1 January 2006, the Company has been implementing Accounting Standard No.
24, Share-Based Payment (hereinafter - Standard No. 24), issued in September
2005 by the Israeli Accounting Standards Board. Standard No. 24 requires an
entity to recognize share-based payment transactions in its financial
statements, including transactions with employees or other parties that have to
be settled in cash, other assets, or equity instruments.
The Standard sets forth the guidelines for recognition, measurement, and
disclosure in respect of share-based payment transactions and the guidelines for
handling any changes in the terms of such transactions, and the cancellation or
buy-back of equity instruments granted in the past.
The transition provisions pertaining to share-based payment transactions settled
with equity instruments stipulate that the provisions of the Standard must be
implemented in respect of grants made after March 15, 2005 and which have not
vested by January 1, 2006.
Adoption of the Standard had no material impact on the results of operations,
financial position and the cash flows of the Company.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (cont.)
NOTE 3 - CHANGES IN SIGNIFICANT ACCOUNTING POLICIES (cont.)
E. Initial implementation of Accounting Standard No. 25 - "Revenues"
Since 1 January 2006, the Company has been implementing Accounting
Standard No. 25 - "Revenues" (hereinafter - "Standard No. 25") which was issued
in February 2006 by the Israeli Accounting Standards Board. Standard No. 25
stipulates the required accounting treatment for recognition, measurement,
presentation, and disclosure of revenue recognition.
The provisions of the Standard must be implemented in respect of
revenues deriving from the following transactions or events: the sale of goods,
the supply of services or the use by others of assets of the Company that
generate interest, royalties or dividends.
The Standard stipulates the conditions for the recognition of such
revenues and indicates that a company shall measure its revenues based on the
fair value of the consideration received and/or the consideration the entity is
entitled to receive, taking into account the interest component of transactions
that contain a financing component
Initial implementation of the provisions of the Standard did not have
a material impact on the interim financial statements.
F. Convenience translation
The financial statements at 31st March 2006 (including the profit and loss
account and the balance sheet) have been translated into Sterling using the
representative exchange rate at that date (# 1 = NIS 8.1271). The translation
has been made solely for the convenience of the reader. The amounts presented
in these financial statements should not be construed to represent amounts
receivable or payable in Sterling or convertible into Sterling, unless otherwise
indicated in these statements.
NOTE 4 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
A. Three month period ended 31 March 2006 (unaudited)
Share Premium Capital Loss account Total
capital on shares funds
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balances at 1 January 2006 42,724 71,166 327 (138,355) (24,138)
Net loss for three months - - - (913) (913)
______ ______ ____ ______ ______
Balances at 31 March 2006 42,724 71,166 327 (139,268) (25,051)
______ ______ ____ ______ ______
______ ______ ____ ______ ______
B. Convenience Translation
Three month period ended 31 March 2006 (unaudited)
Share Premium Capital Loss account Total
capital on shares funds
# '000 # '000 NIS' 000 # '000 # '000
Balances at 1 January 2006 5,257 8,756 40 (17,023) (2,970)
Net loss for three months - - - (113) (113)
______ ______ ____ ______ _____
Balances at 31 March 2006 5,257 8,756 40 (17,136) (3,083)
_____ _____ ___ ______ _____
_____ _____ ___ ______ _____
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (cont.)
NOTE 4 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (cont.)
C. Three month period ended 31 March 2005 (unaudited)
Share Premium Capital Loss account Total
capital on shares funds
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balances at 1 January 2005 42,724 71,166 327 (123,362) (9,145)
Net loss for three months - - - (5,867) (5,867)
______ ______ ____ ______ ______
Balances at 31 March 2005 42,724 71,166 327 (129,229) (15,012)
______ ______ ____ ______ ______
______ ______ ____ ______ ______
D. Year ended 31 December 2005 (audited)
Share Premium Capital Profit Total
capital on shares funds and loss
account
NIS' 000 NIS' 000 NIS' 000 NIS' 000 NIS' 000
Balances at 1 January 2005 42,724 71,166 327 (123,362) (9,145)
Changes during 2005
Loss for the year - - - (14,993) (14,993)
______ ______ ___ _______ ______
Balances at 31 December 2005 42,724 71,166 327 (138,355) (24,138)
______ ______ ___ _______ ______
______ ______ ___ _______ ______
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (cont.)
NOTE 5 - BUSINESS SEGMENTS
A. General
Group companies are engaged in three main business segments:
Manufacturing and marketing as a subcontractor (including for Z.A.G.),
manufacturing self manufactured products, and importing and marketing raw
materials for the chemicals industry.
B. Business segments
Production of self Production & Import & Total
manufactured marketing - marketing of consolidated
products subcontracting raw materials
(including Z.A.G.) for chemical
industry
NIS'000 NIS'000 NIS'000 NIS'000
Three month period ended
31 March 2006 (unaudited)
Segmental turnover 3,563 25,340 4,988 33,891
______ ______ ______ ______
______ ______ ______ ______
Segmental results 17 (1,480) 893 (570)
______ ______ ______ ______
______ ______ ______ ______
Convenience translation
(unaudited)
Production of self Production & Import & Total
manufactured marketing - marketing of consolidated
products subcontracting raw materials
(including Z.A.G.) for chemical
industry
# '000 # '000 NIS'000 # '000
Three month period ended
31 March 2006 (unaudited)
Segmental turnover 438 3,118 614 4,170
______ ______ ______ ______
______ ______ ______ ______
Segmental results 2 (182) 110 (70)
_____ _____ _____ _____
_____ _____ _____ _____
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (cont.)
NOTE 5 - BUSINESS SEGMENTS (cont.)
B. Business segments (cont.)
Production of self Production & Import & Total
manufactured marketing - marketing of consolidated
products subcontracting raw materials
(including Z.A.G.) for chemical
industry
NIS'000 NIS'000 NIS'000 NIS'000
Three month period ended
31 March 2005 (unaudited)
Segmental turnover 7,714 15,635 5,152 28,501
______ ______ ______ ______
______ ______ ______ ______
Segmental results (3,007) (1,880) 1,234 (3,653)
______ ______ _____ ______
______ ______ _____ ______
Production of self Production & Import & Total
manufactured marketing - marketing of consolidated
products subcontracting raw materials
(including Z.A.G.) for chemical
industry
NIS'000 NIS'000 NIS'000 NIS'000
Year ended 31 December 2005
(audited)
Segmental turnover 20,991 67,489 19,905 108,385
______ ______ _____ _______
______ ______ _____ _______
Segmental results (726) (13,695) 4,530 (9,891)
______ ______ _____ _______
______ ______ _____ _______
===========================
=============
This information is provided by RNS
The company news service from the London Stock Exchange
END
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