TEFRON LTD.

Transcription

TEFRON LTD.

CROW TECHNOLOGIES 1977 LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2013
INDEX
Page
Report of Independent Auditors
2
3–4
Consolidated Balance Sheets
Consolidated Statements of Income
5
Statements of Changes in Shareholders' Equity
6
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Appendix to Consolidated Financial Statements - List of Group Companies
-----------------------
7-9
10 - 54
55
Kost Forer Gabbay & Kasierer
3 Aminadav St.
Tel-Aviv 6706703, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
CROW TECHNOLOGIES 1977 LTD.
We have audited the accompanying consolidated balance sheets of Crow Technologies 1977 Ltd. ("the
Company") and its subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements
of income, changes in shareholders' equity and cash flows for each of the three years in the period ended
December 31, 2013. These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We did not audit the financial statements of certain subsidiaries whose assets constitute approximately
5.39% and 7.95% of total consolidated assets as of December 31, 2013 and 2012, respectively, and whose
revenues constitute approximately 6.03%, 5.17% and 6.58% of total consolidated revenues for each of the
three years in the period ended December 31, 2013. The financial statements of those companies were
audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for those companies, is based on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards in Israel, including
those prescribed by the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the board of directors and management, as well
as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the financial statements
referred to above present fairly, in all material respects, the consolidated financial position of the Company
and its subsidiaries as of December 31, 2013 and 2012, and the consolidated results of their operations,
changes in their equity and their cash flows for each of the three years in the period ended December 31,
2013, in conformity with generally accepted accounting principles in Israel ("Israeli GAAP") which differ in
certain respects from U.S. generally accepted accounting principles, as described in Note 21 to the
consolidated financial statements.
Tel-Aviv, Israel
May 20, 2014
-2-
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2012
2013
Reported NIS
In thousands
Convenience
translation
(Note 2b)
December 31,
2013
U.S. $
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables, net (Note 3)
Other accounts receivable and prepaid expenses (Note 4)
Inventories (Note 5)
Total current assets
Other long term receivables (Note 4)
LONG-TERM INVESTMENTS:
Investment in an affiliate and other (Note 6)
PROPERTY AND EQUIPMENT, NET (Note 7)
INTANGIBLE ASSETS AND GOODWILL, NET (Note 8)
Total assets
2,305
47,551
11,645
39,693
560
44,931
7,475
43,308
161
12,945
2,153
12,477
101,194
96,274
27,736
4,977
3,702
1,067
871
652
188
45,286
42,588
12,270
2,760
2,688
774
155,088
145,904
42,035
The accompanying notes are an integral part of the consolidated financial statements.
-3-
CONSOLIDATED BALANCE SHEETS
Convenience
translation
(Note 2b)
December 31,
2013
U.S. $
December 31,
2012
2013
Reported NIS
In thousands,
(except share and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans and bank credit (Note 9)
Current maturities of long-term loans from banks (Note
11)
Trade payables
Other accounts payable and accrued expenses (Note 10)
30,347
41,666
12,004
8,509
30,290
28,524
384
24,927
22,102
111
7,181
6,368
97,670
89,079
25,664
2,099
1,906
549
521
4,246
71
485
3,856
594
140
1,111
171
Total long-term liabilities
6,937
6,841
1,971
MINORITY INTEREST IN SUBSIDIARIES
1,330
1,487
428
SHAREHOLDERS' EQUITY:
Share capital Ordinary shares of NIS 0.25 par value each Authorized: 60,000,000 shares as of December 31,
2012 and 2013; Issued and outstanding: 4,372,275
shares at December 31, 2012 and 2013 (Note 16)
Additional paid-in capital
Capital reserve from hedging transactions
Foreign currency translation adjustments
Retained earnings
15,355
21,244
1,126
445
10,981
15,355
21,244
321
223
11,354
4,424
6,120
93
64
3,271
Total shareholders' equity
49,151
48,497
13,972
155,088
145,904
42,035
Total current liabilities
LONG-TERM LIABILITIES:
Long-term loans from banks (Note 11)
Long-term loans from minority interest in subsidiaries
(Note 12)
Accrued severance pay, net (Note 13)
Deferred taxes (Note 17)
COMMITMENTS AND CONTINGENT LIABILITIES
(Note 15)
Total liabilities and shareholders' equity
-4-
CONSOLIDATED STATEMENTS OF INCOME
Convenience
translation
(Note 2b)
Year ended
Year ended
December 31,
December 31,
2011
2012
2013
2013
Reported NIS
U.S. $
In thousands, except share and per share data
Sales (Note 19)
Cost of sales (Note 20a)
222,895
168,957
254,756
209,516
258,662
210,376
74,521
60,610
Gross profit
53,938
45,240
48,286
13,911
Research and development expenses (Note 20b)
Selling and marketing expenses (Note 20c)
General and administrative expenses (Note 20d)
17,248
10,530
14,043
17,642
9,244
14,476
17,960
8,245
14,374
5,174
2,375
4,142
Operating income
Financial expenses, net (Note 20f)
Other expenses, net (Note 20e)
12,117
2,678
1,599
3,878
3,167
495
7,707
1,996
4,498
2,220
575
1,296
1,213
576
349
166
Income before taxes on income
Tax on income (tax benefit) (Note 17)
7,840
(417)
216
(1,170)
Income before minority interest in earnings of
subsidiaries
Minority interest in earnings of subsidiaries
8,257
691
1,386
75
637
264
183
76
Net income
7,566
1,311
373
107
Basic and diluted net earnings per share
Weighted average number of shares used in
computation of net earnings per share
1.73
4,372,275
0.30
4,372,275
0.09
4,372,275
-5-
0.02
4,372,275
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Share
capital
Balance as of January 1, 2011
Capital reserve from
hedging transactions
Foreign currency translation
adjustments
Net Income
Balance as of December 31,
2011
adjustments
Net Income
2012
adjustments
Net Income
2013
Capital
Foreign
Additional reserve from
currency
paid-in
hedging
translation
capital
transactions adjustments
Reported NIS
In thousands
Retained
earnings
Total
shareholders'
equity
15,355
21,244
476
350
2,104
39,529
-
-
281
-
-
281
-
-
-
96
-
7,566
96
7,566
15,355
21,244
757
446
9,670
47,472
-
-
369
-
-
369
-
-
-
15,355
21,244
1,126
-
-
-
-
-
15,355
21,244
321
(805)
(1)
-
1,311
(1)
1,311
445
10,981
-
-
(805)
373
(222)
373
(222)
223
11,354
49,151
48,497
Convenience translation into U.S. $ (Note 2b)
In thousands
Balance as of January 1, 2013
adjustments
Net Income
2013
4,424
6,120
325
-
-
-
-
-
4,424
6,120
93
(232)
128
3,164
-
-
(232)
107
(64)
107
(64)
64
*
-6-
3,271
14,161
13,972
CONSOLIDATED STATEMENTS OF CASH FLOWS
2011
Convenience
translation
(Note 2b)
Year ended
December 31,
2013
U.S. $
Year ended
December 31,
2012
2013
Reported NIS
In thousands
Cash flows from (used in) operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization
Impairment of investments in other companies
Foreign currency translation differences
charges to the statements of income upon
disposal of foreign operation
Minority interest in earnings of subsidiaries
Loss (gain) from sale of property and
equipment
Loss from marketable securities, net
Accrued severance pay, net
Deferred taxes on income, net
Revaluation of long-term loans from banks,
net
Decrease (increase) in trade receivables, net
Decrease (increase) in other accounts
receivable and prepaid expenses
Decrease (increase) in other long term
receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Increase (decrease) in other accounts payable
and accrued expenses
Equity in losses of jointly controlled entities
attributed to the other partners
Loss from sale of investment in initially
consolidated subsidiary (b)
Net cash provided by (used in) operating
activities
7,566
1,311
373
107
6,787
1,124
7,114
-
8,793
-
2,533
-
75
264
76
(29)
691
(77)
2
506
79
(12)
643
(1,528)
3,851
(387)
819
1,110
(111)
236
(3,263)
75
(3,542)
2,470
712
3,018
869
(4,147)
74
(2,548)
4,790
3,198
(2,429)
(1,514)
2,526
1,275
(3,910)
(5,257)
367
(1,126)
(1,515)
1,980
15,446
(6,384)
(1,839)
18
1,107
294
85
512
-
-
-
17,189
19,346
5,219
1,504
-7-
Convenience
translation
(Note 2b)
Year ended
December 31,
2013
U.S. $
Year ended
December 31,
2012
2013
Reported NIS
In thousands
2011
Cash flows used in investing activities:
Acquisition of majority holding in wholly owned
subsidiaries **)
Proceeds from sale of investment in initially
consolidated subsidiary (b)
Purchase of property and equipment
Proceeds from sale of property and equipment
Grant of long-term loan to jointly controlled entity
Investment in other companies
Realization of marketable securities
Receipts from payment for the acquisition of
majority holding in wholly owned subsidiary (a)
(326)
(3,836)
268
(2,050)
(298)
(9)
Net cash used in investing activities
(10,734)
32
(10)
1
1
(10,987)
772
-
-
-
*)
(3,165)
222
-
(6,251)
(10,711)
(10,214)
(2,943)
Short-term bank credit and loans, net
Repayment of long-term loans from banks, net
(3,534)
(4,786)
(6,441)
(4,410)
11,415
(8,142)
3,982
(9,343)
Net cash provided by (used in) financing activities
(8,320)
(10,851)
3,273
Cash flows from (used in) financing activities:
Effect of exchange rate changes of cash balance
7
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2,625
1,866
(2,186)
4,491
Cash and cash equivalents at end of year
4,491
2,305
*)
**)
30
Represents an amount lower than thousand.
See notes 1e & 1f.
-8-
943
(23)
(7)
(1,745)
2,305
(503)
664
560
161
Convenience
translation
(Note 2b)
Year ended
December 31,
2013
U.S. $
Year ended
December 31,
2012
2013
Reported NIS
In thousands
2011
(a) Acquisition of holding in wholly owned
subsidiary and other company
Fair value of assets acquired and liabilities
assumed at the acquisition date:
Working capital (excluding cash and cash
equivalents)
(b)
(9)
-
-
-
(9)
-
-
-
Proceeds from sale of investments in
previously consolidated subsidiary:
The subsidiaries' assets and liabilities at
date of sale:
Working capital (excluding cash and cash
equivalents)
Property, plant and equipment, net
Non-current liabilities
Non-controlling interests
Loss from sale of subsidiaries
1,383
432
(1,288)
(341)
(512)
-
-
-
(326)
-
-
-
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:- GENERAL
a.
Crow Technologies 1977 Ltd. (the "Company" or "Crow Technologies") designs,
develops, manufactures, sells and distributes a broad range of sophisticated security
detection and alarm systems for use in commercial and industrial facilities, residential
homes and open areas.
The Company operates mainly through its subsidiaries, Crow Electronic Engineering Ltd.
("Orev"), Arrow Head Alarm Products Limited, Crow Latin America, Freelink Ltd. and
Video Domain Technologies Ltd. The Company also operates through various controlled
corporations.
b.
In August 2011, the Company signed a binding agreement with the minority shareholders
of Crow Australia, the Company's subsidiary, of selling the whole of the Company's
holdings in the subsidiary (60% of Crow Australia issued and outstanding shares) for an
amount of AUD 2. According to the agreement the Company waived on a shareholder's
loan previously granted to the subsidiary in a total amount of AUD 535 thousand
(approximately NIS 1,950 thousand).
c.
In October 2011, Orev through its subsidiary Video Domain Technologies Ltd ("Video
Domain") established jointly with Bluecell AB ("Bluecell") and Cabs Digital AB ("Cabs
Digital") Mikrodust AB ("Mikrodust") a Swedish private company with a paid- in share
capital of 51,000 Swedish kronor (approximately NIS 28 thousand) with a nominal value
per share of 1 SEK, and each party to the agreement was granted approximately 33% of
Mikrodust's share capital.
According to the agreement, Video Domain furnished Mikrodust with a conditional
shareholder's contribution in the amount of EURO 600 thousand (approximately NIS
3,000 thousand). The said shareholders' contribution is conditional in the sense that it
may be repaid to Video Domain in the event that Mikrodust will generate accumulated
profits after December 31, 2013 which may be distributed as dividends in accordance
with law. Such repayment shall however not exceed 50% of the available profits
distributable as dividends, unless otherwise agreed in writing between the parties to this
agreement.
d.
In January 2012, Orev through its subsidiary Freelink LTD ("Freelink") established
Freelink Italia SRL ("Freelink IT") an Italian private company with a paid- in share
capital of 100,000 EURO with a nominal value per share of 1 EURO.
Until December 16, 2013, Freelink IT leased a production site from an Italian company.
On February 6, 2014 Freelink transferred its entire holdings (100%) in Freelink IT to a
third party. The transfer was made on an AS IS basis. According to the sale agreement,
Freelink paid the sum of EURO 316,000 to Freelink IT for settlement of outstanding
debts of Freelink IT to employees, suppliers and service providers. Moreover, Freelink
waived on a shareholder's loan, previously granted to Freelink IT, at the amount of EURO
1.6 million (approximately NIS 7.6 million) as of December 31, 2013.
- 10 -
NOTE 1:- GENERAL (Cont.)
e.
In 2013, the Company acquired additional 50% of the share capital of Actech Access
Technologies Ltd. (hereafter - Actech) and 52% of the share capital of Scan Vision
Technologies Ltd. (hereafter - Scanvision).
f.
From January 1, 2013 the financial statements of Actech and Scanvison were initially
consolidated due to the increase in the holding percentage (the investment in these
companies was presented on the basis of proportionate consolidation until the date on
which it was fully consolidated).
Since the Company guaranteed to all of Actech and Scanvison losses, the Company
included all of their losses in the Company's consolidated financial statements before the
additional increase in holdings and no material effect was recorded at the date of the
Company increased its holding percentage.
g.
The Company has two major customers which generate a significant portion of its
revenues. The deferral or loss of sales to such customers could have a material adverse
effect on the Company's business and operating results.
h.
Definitions:
Group
- The Company and its subsidiaries (as stated in the Appendix to
consolidated financial statements)
Related parties
- As defined in Opinion No. 29 of the Institute of Certified Public
Accountants in Israel ("the Israeli Institute").
Subsidiaries
- Companies over which the Company has control (as defined in
Opinion 57 of the Israeli Institute) and whose accounts are
consolidated with those of the Company.
Jointly controlled
entities
- Companies owned by various entities that have a contractual
arrangement for joint control, and whose accounts are
consolidated with those of the Company using the proportionate
consolidation method.
Affiliates
- Companies over which the Company has significant influence
and that are not subsidiaries. The Company's investment therein
is included in the consolidated financial statements of the
Company using the equity method.
Other company
- A company in which the Company is invested which is not an
affiliate.
Included in the consolidated financial statements of the
Company at cost.
- 11 -
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with generally accepted
accounting principles in Israel, which differ in certain aspects from those followed in the United
States (see also Note 21).
The significant accounting policies applied in the preparation of the financial statements on a
consistent basis, are as follows:
a.
b.
Reporting basis of the financial statements:
1.
In the past, the Company prepared its financial statements based on the historical
cost convention adjusted for the changes in the Israeli Consumer Price Index
("Israeli CPI"). The adjusted amounts, as included in the balance sheet as of
December 31, 2003, served as a starting point for nominal financial reporting
beginning January 1, 2004. Additions made after the transition date are included at
nominal values.
2.
In accordance with Accounting Standard No. 12 with respect to the discontinuance
of the adjustment of financial statements, the adjustment of financial statements for
the effects of inflation was discontinued on December 31, 2003 and, as of that date,
the Company began preparing its financial statements in reported amounts.
3.
The amounts for non-monetary assets do not necessarily represent realizable value
or current economic value, but only the reported amounts for those assets.
4.
Cost in these financial statements represents cost in the reported amount.
Functional and foreign currencies:
1.
Functional and presentation currencies:
The financial statements are presented in New Israeli Shekels ("NIS"), which is the
Company's functional currency.
The functional currency, which is the currency that best reflects the economic
environment in which the Company operates and conducts its transactions, is
separately determined for each Group entity, including an associate presented using
equity accounting, and is used to measure its financial position and operating
results.
When a Group's entity functional currency differs from the presentation currency,
that entity represents a foreign operation whose financial statements are translated
so that they can be included in the consolidated financial statements as follows:
a)
Assets and liabilities for each balance sheet presented (including
comparative data) are translated at the closing rate at the date of that balance
sheet.
- 12 -
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b)
Income and expenses for each period presented in the statement of income
(including comparative data) are translated at average exchange rates for the
presented periods; however, if exchange rates fluctuate significantly, income
and expenses are translated at the exchange rates at the date of the
transactions.
c)
Share capital, capital reserves and other changes in capital are translated at
the exchange rate prevailing at the date of incurrence.
d)
Retained earnings are translated based on the opening balance translated at
the exchange rate at that date and other relevant transactions (such as
dividends) during the period are translated as described in b) and c) above.
e)
All resulting translation differences are recognized as a separate component
of capital reserve in equity "foreign currency translation adjustments".
On full or partial disposal of a foreign operation, the amount in the capital reserve
relating to that foreign operation is recognized in the statement of income.
Intergroup loans for which settlement is neither planned nor likely to occur in the
foreseeable future are, in substance, a part of the investment in that foreign
operation and are accounted for as part of the investment and the exchange
differences arising in these loans (net of income taxes) are recognized in the same
component of equity as discussed in e) above.
Exchange differences in respect of a loan in foreign currency that constitutes a net
investment hedge are recorded net of income taxes in the same component of
equity as discussed in e) above. On disposal of the net investment, these translation
differences are recognized in the statement of income.
2.
Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign currency (other than the functional currency)
are recorded on initial recognition at the exchange rate at the date of the
transaction. After initial recognition, monetary assets and liabilities denominated in
foreign currency are translated at each balance sheet date into the functional
currency at the exchange rate at that date. Exchange rate differences, other than
those capitalized to qualifying assets or carried directly to equity in hedging
transactions, are recognized in the statement of income. Non-monetary assets and
liabilities denominated in foreign currency and measured at fair value are
retranslated into the functional currency using the exchange rate prevailing at the
date when the fair value was determined.
- 13 -
3.
Convenience translation into U.S. dollars ("U.S. dollars" or "U.S. $"):
The financial statements as of December 31, 2013 and for the year then ended have
been translated into U.S. dollars using the representative exchange rate as that date
(U.S.$ 1 = NIS 3.471). The translation was 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 U.S. dollars or convertible
into U.S. dollars, unless otherwise indicated in these statements.
c.
Consolidated financial statements:
The consolidated financial statements include the accounts of companies over which the
Company exercises control. Jointly controlled entities are included by the proportionate
consolidation method. Significant intercompany balances and transactions between the
Group companies have been eliminated in the consolidated financial statements.
d.
Cash and cash equivalents:
The Company considers all highly liquid investments, including unrestricted short-term
bank deposits purchased with original maturities of three months or less, to be cash
equivalents.
e.
Allowance for doubtful accounts:
The allowance for doubtful accounts is determined in respect of specific debts whose
collection, in the opinion of the Company's management, is doubtful. The Company also
recognizes a provision for groups of customers that are collectively assessed for
impairment based on their credit risk characteristics. Impaired debts are derecognized
when they are assessed as uncollectible.
f.
Inventories:
Inventories are measured at the lower of cost and net realizable value. The cost of
inventories comprises costs of purchase and costs incurred in bringing the inventories to
their present location and condition. Net realizable value is the estimated selling price in
the ordinary course of business less the estimated costs of completion and the estimated
selling costs. Inventory write-offs are provided to cover risks arising from slow-moving
items, excess inventories, discontinued products, new products introduction and for
market prices lower than cost. Any write-off is recognized in the consolidated statement
of income as cost of sales.
- 14 -
Cost of inventories is assigned as follows:
Raw materials - by the moving weighted average method.
Work in progress and finished goods - on the basis of average costs which take into
account materials, labor and other direct and indirect manufacturing costs.
The Company periodically evaluates the condition and age of inventories and makes
provisions for slow moving inventories accordingly.
g.
Investment in affiliate:
The investment in an affiliate over which the Company can exercise significant influence
(generally entities in which the Company holds 20%-50%, except for jointly controlled
entities) is presented using the equity method of accounting.
In an affiliate where the affiliate has incurred losses in amounts above its book value, the
Company has written its share in the affiliate's losses as aforesaid up to the level of its
investment in the affiliate, plus the loss the Company might incur subsequent of a
guaranty given for that affiliate.
The Company evaluates, every reporting period, the need to record impairment in
accordance with Accounting Standard No. 15 (see Note 2j hereunder).
h.
Property and equipment:
Items of property and equipment are measured at cost with the addition of direct
acquisition costs, less accumulated depreciation, less accumulated impairment losses and
excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary
equipment that can be used only in connection with the machinery and equipment.
Depreciation is calculated on a straight-line basis over the useful life of the assets at
annual rates as follows:
%
Machinery and equipment
Motor vehicles
Computers, office furniture and equipment
Leasehold improvements
10%
15%
6% - 33%
See below
Average %
25%
Leasehold improvements are depreciated on a straight-line basis over the shorter of the
lease term (including the extension option held by the Group and intended to be
exercised) and the expected life of the assets.
- 15 -
The residual value and useful life of an asset are reviewed at least each year-end and the
changes are accounted for as a prospective change in accounting estimate. As for testing
the impairment of property and equipment (see Note 2j below).
i.
Other assets:
Intangible assets acquired in a business combination are included at the fair value at the
acquisition date. After initial recognition, intangible assets are carried at their cost less
any accumulated amortization and any accumulated impairment losses.
According to management's assessment, intangible assets have a finite useful life. The
assets are amortized over their useful life using the straight-line method and reviewed for
Impairment whenever there is an indication that the asset may be impaired. The
amortization period and the amortization method for an intangible asset with a finite
useful life are reviewed at least at each financial year end. Changes in the expected useful
life or the expected pattern of consumption of future economic benefits embodied in the
asset are accounted for as prospective changes in accounting estimates. The amortization
charge on intangible assets with finite useful life is recognized in the statement of income.
The useful life of intangible assets are as follows:
Years
Acquired technology
Customer relationships
Trade name
j.
5.25
5.25
8.25
Impairment of assets:
1.
Impairment of non-financial assets:
The Company evaluates the need to record an impairment of the carrying amount
of non-financial assets whenever events or changes in circumstances indicate that
the carrying amount is not recoverable. If the carrying amount of non-financial
assets exceeds their recoverable amount, the assets are reduced to their recoverable
amount. The recoverable amount is the higher of the net selling price and value in
use. In measuring value in use, the estimated future cash flows are discounted
using a pre-tax discount rate that reflects the risks specific to the asset. The
recoverable amount of an asset that does not generate independent cash flows is
determined for the cash-generating unit to which the asset belongs.
The following criteria are applied in assessing impairment of the following specific
asset:
- 16 -
Goodwill regarding consolidated companies:
The Company reviews goodwill for impairment once a year on December 31 or
more frequently if events or changes in circumstances indicate that there is
impairment.
Impairment for goodwill is recognized by assessing the recoverable amount of the
cash-generating unit (or group of cash-generating units), to which the goodwill
belongs. If the recoverable amount of the cash-generating unit (or group of cashgenerating units) is less than the carrying amount of the cash-generating unit (or
group of cash-generating units) to which goodwill has been allocated, an
impairment loss is recognized. Impairment losses recognized for goodwill cannot
be reversed.
As of December 31, 2012 and 2013, no impairment losses have been identified.
2.
Impairment of investments in other companies:
The Company generally evaluates the fair value of its investments in each reporting
period and whenever changes in circumstances or occurrence of other events
indicate a decline in value that is other than temporary.
The evaluation of the fair value takes into consideration, among others, the market
value of the investments (in respect of investments in marketable securities),
estimates of analysts and valuations of the investments, the conditions of the
industry in which the portfolio company is operating, the portfolio company's
business condition, off-market transactions in the portfolio company's securities,
prices of equity transactions in the portfolio company and additional information
that the portfolio company presents to its Board of Directors (if the Company is
represented on the board) or to its shareholders.
Based on the results of the above evaluation, the Company, if necessary,
recognizes an impairment loss that is other than temporary in the statement of
income.
The Company's investments in other companies are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an investment may not be recoverable. As of December 31, 2011, based on
management most recent analysis, and available information, impairment losses
have been identified in the amount of NIS 454 thousand (approximately USD 200
thousand) related to the investment in Btendo and NIS 370 thousand
(approximately USD 100 thousand) related to the investment in SPO. Accordingly,
an impairment of NIS 1,124 thousand was recognized, as a separate line, in other
expense at the consolidated statements of income. As of December 31, 2013, based
on management most recent analysis and available information, no any impairment
loss has been identified.
- 17 -
k.
Taxes on income:
Taxes on income in the statement of income comprise current and deferred taxes. The tax
results in respect of current or deferred taxes are carried to the statement of income except
to the extent that the tax arises from items which are recognized directly in equity. In such
cases, the tax effect is also carried to the relevant item in equity.
1.
Current taxes:
The current tax liability is measured using the tax rates and tax laws that have been
enacted or substantively enacted by the balance sheet date as well as adjustments
required in connection with the tax liability in respect of previous years.
2.
Deferred taxes:
Deferred taxes are computed in respect of temporary differences between the
carrying amounts in the financial statements and the amounts attributed for tax
purposes, except in a limited number of exceptions. Deferred taxes are carried
directly to equity if the tax relates to items that are taken to equity.
Deferred tax balances are measured at the tax rates that are expected to apply to the
period when the taxes are taken to the statement of income or to equity, based on
tax laws that have been enacted or substantively enacted by the balance sheet date.
The amount for deferred taxes in the statement of income represents the changes in
those balances during the reported period, excluding changes attributable to items
carried directly to equity.
Taxes that would apply in the event of the sale of investments in investees have not
been taken into account in computing the deferred taxes, as long as the sale of the
investments in investees is not expected in the foreseeable future. Also, deferred
taxes that would apply in the event of distribution of earnings by investees as
dividends have not been taken into account in computing the deferred taxes, since
the distribution of dividends does not involve an additional tax liability or since it
is the Company's policy not to initiate distribution of dividends that triggers an
additional tax liability.
Deferred taxes are offset if there is a legally enforceable right to set off a current
tax asset against a current tax liability and the deferred taxes relate to the same
taxpayer and the same taxation authority.
- 18 -
l.
Severance pay:
The Company's liability for severance pay for its Israeli employees is calculated pursuant
to the Israeli Severance Pay Law based on the most recent salary of the employees
multiplied by the number of years of employment, as of the balance sheet date.
Employees whose employment is terminated by the Company are entitled to one month's
salary for each year of employment or a portion thereof in accordance with Israeli law or
labor agreements. The Company's liability for most of its Israeli employees is partly
provided by monthly deposits for insurance policies. The value of these policies is
recorded in the Company's consolidated balance sheet net of any related accrued
severance pay.
Starting May 2008 (the "transition date"), several employees are included under Section
14 of the Severance Pay Law, 1963 ("Section 14") for severance pay accumulated in
periods of employment subsequent to the transition date. In accordance with Section 14,
upon termination, the release of the contributed amounts from the fund to the employee
shall relieve the Company from any further severance liability and no additional
payments shall be made by the Company to the employee. As a result, the related
obligation and amounts deposited on behalf of such obligation are not stated on the
balance sheet, as the Company is legally released from severance obligation to employees
once the amounts have been deposited, and the Company has no further legal ownership
of the amounts deposited.
The deposited funds for the Company's employees include profits accumulated up to the
balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of
the obligation pursuant to the Israeli Severance Pay Law or labor agreements. The value
of the deposited funds is based on the cash surrendered value of these policies, and
includes immaterial profits or losses.
The amounts accrued in several managers' insurance policies and provident funds on
behalf of the employees and the related liabilities are not reflected in the balance sheet
since the funds are not under the control and management of the Company.
m.
Presentation of transactions between the Company and the controlling shareholder
therein:
The Accounting Standard No. 23 of the Israel Accounting Standards Board ("the
Standard") provides that the assets and liabilities involved in a transaction between a
company and its controlling shareholder or between companies under common control be
recognized at their fair value on the date of the transaction. The difference between the
fair value and the consideration stipulated in the transaction is to be recorded in
shareholders' equity, net of any tax effect. A charge to equity essentially constitutes a
dividend, consequently resulting in a reduction in retained earnings. A credit to equity
essentially constitutes an investment by shareholders and, consequently, is presented as a
separate component of shareholders' equity, "Capital reserve from transactions with a
controlling shareholder".
- 19 -
If the company is not wholly owned by the controlling shareholder, the minority's share
of the difference, whether a charge or credit, is recorded in "minority interest" in the
statement of income.
The amount recorded in shareholders' equity will not be transferred to the statement of
income, even if in subsequent periods, the items that were the subject of the transactions
are derecognized from the financial statements.
n.
Revenue recognition:
Revenues are recognized in the statement on income when they can be measured reliably,
the economic benefits associated with the transaction are expected to flow to the
Company and the costs incurred or to be incurred in respect of the transaction can be
measured reliably. Revenues are measured at the fair value of the consideration in the
transaction less commercial rebates, volume discounts and returns.
Hereunder the specific criterions to revenue recognition for the following type of
revenues:
1.
Revenues from the sale of goods:
Revenue from the sale of goods is recognized when all the significant risks and
rewards of ownership of the goods have passed to the buyer and the seller no
longer retains continuing managerial involvement. The delivery date is usually the
date on which ownership passes.
2.
Revenues from the rendering of services:
Revenues from the rendering of services are recognized by reference to the stage of
completion at the reporting date. The stage of completion is measured based on the
proportion of actual labor hours incurred to the estimated total labor hours for the
entire service contract. Where the contract outcome cannot be measured reliably,
revenue is recognized only to the extent that the expenses incurred are recoverable.
3.
Interest income:
Interest income on financial assets is recognized as it accrues using the effective
interest method.
4.
Deferred revenue:
Deferred revenue represents amounts received by the Company when the criteria
for revenue recognition as described above are not met and are included in "Other
accounts payable and accrued expenses".
- 20 -
o.
Research and development costs:
Research and development costs are charged to the statement of income as incurred.
p.
Earnings (loss) per share:
The Company applies the provisions of Israel Accounting Standard No. 21, "Earnings per
Share" ("Standard No. 21"). The computation of basic net income per share is generally
based on earnings available for distribution to holders of ordinary shares, divided by the
weighted average number of ordinary shares outstanding during the period.
In computing diluted net income per share, the weighted average number of shares to be
issued, assuming that all dilutive potential shares are converted into shares is to be added
to the average number of ordinary shares used in the computation of the basic income per
share. Potential shares are taken into account, as above, only when their effect is dilutive
(reducing net income or increasing loss per share from continuing activities).
q.
Provision for warranty:
The Company generally provides one to five years warranty for all of its products
depending on commercial arrangements with customers.
A provision is recorded for estimated warranty at the time revenues are recognized based
on the Company's experience (see also Note 15).
r.
Fair value of financial instruments:
The following methods and assumptions were used by the Company and its subsidiaries
in estimating their fair value disclosures for financial instruments:
The carrying amount reported for cash and cash equivalents, trade receivables, net, other
accounts receivable and prepaid expenses, short-term bank loans and bank credit, trade
payables and other accounts payable and accrued expenses approximate their fair values,
due to the short-term maturity of these instruments.
The carrying amount of loans to jointly controlled entities and to an affiliate approximates
their fair value.
The carrying amount of the Company's long-term loans from banks and current maturities
of long-term loans from banks approximates its fair value. The fair value was estimated
using discounted cash flow analysis, based on the Company's incremental loans rates for
similar type of loans arrangement.
- 21 -
s.
Concentrations of credit risk:
Financial instruments that potentially subject the Company and its subsidiaries to
concentrations of credit risk consist primarily of cash and cash equivalents, trade
receivables and loans from minority interest in subsidiaries.
The majority of the Company's cash and cash equivalents are invested in major Israeli
banks. Generally, these cash and cash equivalents may be redeemed upon demand and
therefore management believes that it bears lower risk.
The Company's trade receivables are mainly derived from sales to customers located
primarily in Europe, America, Australia and New Zealand, Asia and Israel. The Company
performs ongoing credit evaluations of its customers. The allowance for doubtful
accounts is determined with respect to amounts that are doubtful of collection.
t.
Use of estimates for the preparation of financial statements:
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates, judgments and assumptions. The
Company's management believes that the estimates, judgments and assumptions are
reasonable based upon information available at the time they are made. These estimates,
judgments and assumptions can affect the amounts reported and disclosed in the financial
statements. Actual results could differ from those estimates. The changes in the
estimations are erected in the reporting period in which the change in the estimation was
made.
u.
Derivatives and hedging activities:
Derivatives that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives are either offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in shareholders' equity as
"Capital reserve from hedging transactions" until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value is immediately
recognized in earnings. The Company uses derivatives to hedge certain cash flow foreign
currency exposures in order to reduce the Company's exposure to foreign currency risks.
v.
Reclassification:
Certain figures have been reclassified to conform to the 2013 presentation. The
reclassification had no effect on previously reported net income (loss), equity or cash
flows.
- 22 -
NOTE 3:- TRADE RECEIVABLES, NET
December 31,
2012
2013
Reported NIS
In thousands
Convenience
translation
December 31,
2013
U.S. $
Foreign open accounts
Domestic open accounts
Postdated checks receivable
48,441
2,128
1,789
43,454
9,939
234
43,383
343
948
Less - allowance for doubtful accounts
52,358
4,807
42,344
4,443
44,304
4,352
47,551
44,234
49,245
NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31,
2012
2013
Reported NIS
In thousands
Advances to suppliers *)
Government authorities
Deferred taxes on income
Hedging Instruments **)
Prepaid expenses and others
*)
**)
Convenience
Translation
December 31,
2013
U.S. $
2,334
4,385
2,497
1,450
979
9,090
4,492
9,904
762
433
582
498
634
942
990
11,645
4,445
2,453
Long term advances to suppliers at the amount of NIS 3,702 thousand (approximately
USD 1,067 thousand) are recorded as other long term receivables.
See also Note 2u and Note 14b.
- 23 -
NOTE 5:- INVENTORIES
Inventories are comprised of the following:
December 31,
2012
2013
Reported NIS
In thousands
Raw materials
Work in progress
Finished products
Convenience
translation
December 31,
2013
U.S. $
25,906
4,841
8,946
25,039
8,507
9,762
7,214
2,451
2,812
39,693
43,308
12,477
NOTE 6:- INVESTMENT IN AN AFFILIATE AND OTHER
Company's holdings in affiliate and other as of December 31, 2012 and 2013 are comprised as
follows:
December 31,
2012
2013
Reported NIS
In thousands
Long-term investments
871
359
Convenience
translation
December 31,
2013
U.S. $
488
As of December 31, 2013, based on management most recent analysis and available
information, no impairment loss has been identified (see also Note 1c).
- 24 -
NOTE 7:- PROPERTY AND EQUIPMENT, NET
Composition of assets and the accumulated depreciation thereon, grouped by major
classification and changes therein in 2012 and 2013 are as follows:
December 31,
2012
2013
Reported NIS
In thousands
Cost:
Leasehold improvements and building
Motor vehicles
Accumulated depreciation:
Leasehold improvements and building
Motor vehicles
Depreciated cost
Convenience
translation
December 31,
2013
U.S. $
66,132
28,715
13,361
1,445
68,944
25,284
14,425
1,485
19,863
7,284
4,156
428
109,653
110,138
31,731
42,696
10,800
9,754
1,117
43,230
12,041
11,326
953
12,455
3,469
3,263
274
64,367
67,550
19,461
45,286
42,588
12,270
Depreciation expenses for the years ended December 31, 2011, 2012 and 2013, amount to
NIS 6,487 thousand, NIS 6,814 thousand and NIS 8,143 thousand (USD 2,346 thousand),
respectively.
- 25 -
NOTE 8:- INTANGIBLE ASSETS AND GOODWILL, NET
Composition of intangible assets, and the accumulated amortization thereon, grouped by major
classification and changes therein in 2012 and 2013 are as follows:
December 31,
2012
2013
Reported NIS
In thousands
Convenience
translation
December 31,
2013
U.S. $
Cost:
Technology-based intangible assets
Customer-related intangible assets
Trade name
Non-Compete provision
Goodwill (1)
6,249
3,956
633
1,499
2,544
6,249
3,956
633
1,499
2,544
1,800
1,140
182
432
733
14,881
14,881
4,287
6,249
3,956
417
1,499
6,249
3,956
489
1,499
1,800
1,140
141
432
12,121
12,193
3,513
2,760
2,688
774
Accumulated amortization:
Technology-based intangible assets
Customer-related intangible assets
Trade name
Non-Compete provision
Amortized cost (2)
(1)
Deriving from Video Domain Ltd. that was fully acquired in 2007.
(2)
Amortization expenses for the years ended December 31, 2011, 2012 and 2013, amounted
to NIS 300 thousand, NIS 300 thousand and NIS 72 thousand (U.S. $ 21 thousand),
respectively.
- 26 -
NOTE 9:- SHORT-TERM LOANS AND BANK CREDIT
a.
Composed as follows:
Linkage
Basis
(December 31,
2013)
Short-term loans
Short-term bank credit
b.
Mainly in USD
Mainly in USD
Convenience
translation
December 31,
December 31,
2012
2013
2013
Reported NIS
U.S. $
In thousands
23,496
6,851
21,055
20,611
6,066
5,938
30,347
41,666
12,004
As of December 31, 2013, the Company and Orev have an authorized total line of credit
(including long-term loans) in the amount of up to NIS 68,000 thousand. The line of
credit bears average interest at an annual rate of 3.6%.
As for compliance with bank covenants, see Note 11d.
As of December 31, 2013, the Company and Orev have an unutilized amount of
approximately NIS 28,400 thousand (U.S. $ 8,182 thousand) of the line of credit.
NOTE 10:- OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31,
2012
2013
Reported NIS
In thousands
Accrued expenses *)
Government authorities
Employees and payroll accruals
Advances from customers
Deferred income
Others
*)
See also Note 15 below.
- 27 -
Convenience
translation
December 31,
2013
U.S. $
15,479
983
7,454
669
3,237
702
10,337
406
8,024
1,469
1,596
270
2,978
117
2,312
423
460
78
28,524
22,102
6,368
NOTE 11:- LONG-TERM LOANS FROM BANKS
a.
Composed as follows:
December 31,
2012
2013
Reported NIS
In thousands
Loans from banks
Less - current maturities
b.
Convenience
Translation
December 31,
2013
U.S. $
10,608
8,509
2,290
384
660
111
2,099
1,906
549
Classified by currency, the total amount of the liabilities (before deduction of current
maturities) is as follows:
December 31,
2012
2013
Reported NIS
In thousands
In New Zealand dollar
In NIS
Convenience
translation
December 31,
2013
U.S. $
2,421
8,187
2,290
-
660
-
10,608
2,290
660
As for an authorized line of credit, see Note 9b.
c.
The aggregate annual maturities for loans after December 31, 2013 are as follows:
Convenience
translation
Reported NIS
U.S. $
In thousands
Year ended December 31,
2014
2015
2016
2017
2018 and thereafter
- 28 -
384
361
341
293
911
111
104
98
84
263
2,290
660
NOTE 11:- LONG-TERM LOANS FROM BANKS (Cont.)
d.
Pursuant to the terms with a bank, the Company is required to comply with certain
covenants as long as any amount is outstanding. The significant covenants are to continue
to hold 100% of the shares of Orev, not to invest in any kind of investment more than
U.S. $ 1,250 thousand in any continuous 12 months without the prior consent of the bank,
to avoid certain changes in the Company's financial condition and maintain a ratio of 19%
shareholders' equity to total assets and total equity not less than NIS 25,000 thousand.
Additional covenants imposed by the bank prohibit, among other things, advancement of
loans to the Company's shareholders, payment of management fees which exceed the
amounts currently paid, restructuring or change of control without the prior consent of the
bank and reporting financial statements within a defined period from the balance sheet
date. As of December 31, 2013 the Company complied with all the covenants as
instructed by the bank.
NOTE 12:- LONG-TERM LOANS FROM MINORITY INTEREST IN SUBSIDIARIES
As of December 31, 2013 the loans are in New Zealand dollars, do not bear interest and have no
maturity date.
NOTE 13:- ACCRUED SEVERANCE PAY, NET
The balance sheet liability for employee rights upon retirement, and the amounts funded with
severance pay funds, are composed as follows:
December 31,
2012
2013
Reported NIS
In thousands
Amount of severance pay liability
Amounts funded
Unfunded balance, net
Convenience
translation
December 31,
2013
U.S. $
17,361
(13,115)
18,714
14,858
5,392
4,281
4,246
3,856
1,111
The Company may only make withdrawals from the severance pay funds for the purpose of
paying severance pay.
- 29 -
NOTE 14:- FINANCIAL INSTRUMENTS
Financial risks factors:
The Group's activities expose it to various financial risks. Decisions regarding the Group's
comprehensive risk management focus on activities that aim to reduce possible adverse effects
on the Group's financial performance.
Risk management is performed by the Company's management, which identifies and assesses
the Group's financial risks. Decisions regarding the management of market risks as above and
regarding the investment of liquid means are made on an ongoing basis by the Company's
management and are occasionally brought before the Board of Directors for its discussion and
resolution.
a.
Market risks:
Foreign currency risk:
The Group operates in a large number of countries and is exposed to foreign currency risk
resulting from the exposure to different currencies, mainly the U.S. dollar and the Euro.
Foreign currency risk arises from recognized assets and liabilities denominated in a
different currency from the functional currency and net investments in foreign operations.
In addition, the majority of the Group's income is denominated in U.S. dollars and Euro
or in a currency linked thereto whereas most of the Group's inputs are purchased at prices
linked to the U.S. dollar exchange rate.
b.
Derivatives and hedging:
The Company has closed some transactions for the future sales of Euro and Future
purchase of U.S dollars to be carried out at pre-determined exchange rates. The purpose
of the transaction is to hedge against the exposure of financial expenses to fluctuations in
the U.S. dollar and Euro exchange rates. Most of the future sale transactions designated as
a cash flow hedge. Parts of the derivatives are considered a hedge instruments for
accounting purposes.
The foreign currency derivatives were measured at fair value through profit or loss at the
amount of NIS 561 thousand.
- 30 -
NOTE 15:- COMMITMENTS AND CONTINGENT LIABILITIES
Commitments:
a.
The Company and its subsidiaries have non-cancelable operating lease agreements for
periods through 2022 (including extension options).
Future payments under non-cancelable operating leases (including extension options) for
the years subsequent to December 31, 2013, are as follows:
Convenience
translation
NIS
U.S. $
In thousands
9014
2015
2016
2017
2018 and thereafter
2,224
2,267
2,272
2,246
8,950
641
653
654
647
2,579
17,959
5,174
Out of the total amount of NIS 17,959 thousand, the amount of NIS 11,625 thousand
(USD 3,349 thousand) is due to the extension options.
b.
As for agreements transactions with related parties, see Note 18.
Guarantees:
a.
Orev is a guarantor in favor of a major Israeli bank ("Bank Hapoalim") to secure all of the
debts and liabilities of its subsidiary, Freelink Ltd., up to an amount of U.S. $ 250
thousand.
b.
The Company and Orev granted Bank Hapoalim mutual guarantees to secure credit lines
and loans of each other.
c.
To ensure compliance with the terms of governmental grants, Orev provided the State of
Israel with a bank guarantee in the amount of NIS 41 thousand.
d.
Orev provided the State of Israel with bank guarantees in the amount of NIS 1,800
thousand for Custom compliance purposes. As of the date of the approval of the financial
statements, the outstanding guarantees are NIS 10 thousand.
e.
To secure the lease agreements between Orev and its facilities owners, Orev provided the
facilities owners with a bank guarantee in the amount of NIS 493 thousand.
- 31 -
NOTE 15:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
f.
Orev and the other shareholders in its subsidiary Arrow Head Alarm Products Limited
("Arrow Head") guarantee a bank loan of Arrow Head in the amount of NZD 266
thousands (approximately NIS 757 thousand) and NZD 256 thousands (approximately
NIS 728 thousands), respectively. Moreover, a lien was placed on the building in favor of
the New Zealand bank.
Charges:
The Company and Orev placed a floating charge on their entire assets, in favor of a bank to
secure total credit and loans received by the Company and Orev.
Litigation:
From time to time, the Company becomes involved in legal proceedings and claims, in the
ordinary course of business. The Company does not consider the ultimate liability with respect
to any currently known action likely to materially affect the business, financial position, results
of operations or cash flows of the Company.
Contingent liabilities:
Following a request for compensation by one of its customers, the Company recorded a
provision of NIS 8.4 million. The amounts that the Company may be required to pay to said
customer may be higher than the provision made by the Company. In respect of such
compensation request, the Company is undergoing proceeding to reclaim such amounts from its
insurance company
NOTE 16:- SHAREHOLDERS' EQUITY
Composition of share capital:
December 31, 2012 and 2013
Issued and
Authorized
outstanding
Number of shares
Ordinary shares of NIS 0.25 par value each
60,000,000
4,372,275
The Ordinary shares confer upon the holders the right to receive notice to participate and vote in
shareholders meetings of the Company and to receive dividends, if declared.
- 32 -
NOTE 17:- TAXES ON INCOME
a.
Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments)
Law, 1985 ("the inflationary adjustments law").
Under the inflationary adjustments law, until the end of 2007 results for tax purposes
were measured in real terms, adjusted to the changes in the CPI.
In February 2008, the "Knesset" (Israeli parliament) passed an amendment to the Income
Tax (Inflationary Adjustments) Law, 1985, which limits the scope of the law starting
2008 and thereafter. Starting 2008, the results for tax purposes are measured in nominal
values, excluding certain adjustments for changes in the Consumer Price Index carried
out in the period up to December 31, 2007. The amended law includes, inter alia, the
elimination of the inflationary additions and deductions and the additional deduction for
depreciation starting 2008.
b.
Tax rates:
The Israeli corporate tax rate was 24% in 2011, 25% in 2012 and 2013. From January 1,
2014 and onwards the tax rate increased to 26.5%.
On December 5, 2011, the Israeli Parliament (the Knesset) passed the Law for Tax
Burden Reform (Legislative Amendments), 2011 ("the Law") which, among others,
cancels effective from 2012, the scheduled progressive reduction in the corporate tax rate.
The Law also increases the corporate tax rate to 25% in 2012. In view of this increase in
the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real
betterment tax rate were also increased accordingly.
On July 30, 2013, the Israeli Parliament (the Knesset) approved the second and third
readings of the Economic Plan for 2013-2014 ("Amended Budget Law") which consists,
among others, of fiscal changes whose main aim is to enhance long-term collection of
taxes.
These changes include, among others, raising the Israeli corporate tax rate from 25% to
26.5%, cancelling the lowering of the tax rates applicable to preferred enterprises (2% in
development area A and 13% in other areas), taxing revaluation gains and increasing the
tax rates on dividends within the scope of the Law for the Encouragement of Capital
Investments to 20% effective from January 1, 2014.
The Company estimates that the effect of the change in tax rates will lead to an increase
in deferred tax balances as of December 31, 2013 in a total of approximately NIS 460
thousand.
- 33 -
NOTE 17:- TAXES ON INCOME (Cont.)
c.
Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959
("the Law"):
The Company and Orev's production facilities in Israel have been granted an "Approved
Enterprise" status under the above law. Five programs have been granted the status of an
"Approved Enterprise" and two expansion programs have been granted the status of a
"Beneficiary Enterprise" (under the new amendment to the law). According to the
provisions of such Israeli law, the Company has been granted an "Alternative Benefit"
status, under which the main benefits are tax exemption and a reduced tax rate.
Consequently, the Company's income derived from the "Approved Enterprise" is tax
exempt for a period of two years and for an additional period of five to eight years is
subject to a reduced tax rate of 10% - 25% (based on the percentage of foreign ownership
in each taxable year). In the context of these benefits, on that part of its taxable income
deriving from the approved enterprise in development region A, Orev is entitled to tax
exemption over the benefit period, and on the part of its taxable income deriving from the
approved enterprise, which is not in development region A, Orev is entitled to a tax
exemption over the first two years of the benefit period and to an additional period of five
to eight years with reduced tax rates of 10%-25% (based on percentage of foreign
ownership).
Part of the taxable income deriving from the approved enterprise out of total taxable
income is determined as the rate of increase in turnover in each year of the tax benefits
compared to the base year, is linked to the Israeli Wholesale Price Index or linked to the
change in the rate of the U.S. dollar.
The period of tax benefits, detailed above, is subject to limits of the earlier of 12 years
from the commencement of production, or 14 years from the approval date.
If the retained tax-exempt profits are distributed, they would be taxed at the corporate tax
rate applicable to such profits as if the Company had not elected the alternative system of
benefits, currently between 20%-25% for an "Approved Enterprise" and "Beneficiary
Enterprise".
On April 1, 2005, an amendment to the Law came into effect ("the Amendment") and has
significantly changed the provisions of the Law. The Amendment limits the scope of
enterprises which may be approved by the Investment Center by setting criteria for the
approval of a facility as a "Beneficiary Enterprise" (rather than the previous terminology
of Approved Enterprise), such as a provision requiring that at least 25% of the
"Beneficiary Enterprise's" income will be derived from export to specific markets with a
population of at least 12 million.
- 34 -
Additionally, the Amendment enacted major changes in the manner in which tax benefits
are awarded under the Law so that companies no longer require Investment Center
approval in order to qualify for tax benefits. Rather, a company may claim the tax
benefits offered by the Investment Law directly in its tax returns, provided that its
facilities meet the criteria for tax benefits set out by the Amendment. A company is also
granted a right to approach the Israeli Tax Authorities for a pre-ruling regarding their
eligibility for benefits under the Amendment. The period of tax benefits for a new
"Beneficiary Enterprise" commences in the "Year of Commencement". This year is the
later of: (1) the year in which taxable income is first generated by the company, or (2) a
year selected by the company for commencement, on the condition that the company
meets certain provisions provided by the Law ("Year of Election").
However, the Law provides that terms and benefits included in any letter of approval
already granted will remain subject to the provisions of the Law as they were on the date
of such approval. Therefore, the Company's existing "Approved Enterprises" programs
will generally not be subject to the provisions of the Amendment. As a result of the
Amendment, tax-exempt income generated under the provisions of the new law, will
subject the Company to taxes upon distribution or liquidation and the Company may be
required in the future to record deferred tax liability with respect to such tax-exempt
income.
The tax-exempt income attributable to the "approved enterprise" and "beneficiary
enterprise" of Orev as of December 31, 2013, amounted to approximately NIS 93,541
thousand. Orev has decided not to declare dividends out of such tax-exempt income.
Accordingly, no deferred income tax liability has been provided on income attributable to
Orev's tax-exempt income. Assuming the Company will declare dividends out of such
tax-exempt income, it will be required to pay an amount of NIS 18,708 thousand (U.S.
$ 5,390 thousand) as of December 31, 2013.
In November 2012, the Knesset passed Amendment No. 69 to the Investment Law (the
"Trapped Earnings Law") which provides a temporary, partial, relief from taxation on a
distribution from exempt income for companies which elect the relief through November
2013. The Trapped Earnings Law allows a company to qualify a portion of its exempt
income ("Elected Earnings") for a reduced tax rate ranging between 17.5% and 6%.
While the reduced tax is payable within 30 days of election, an electing company is not
required to actually distribute the Elected Earnings within a certain period of time.
The applicable rate is based on a linear formula involving the portion of Elected Earnings
to exempt income and the applicable tax rate prescribed in the Investment Law. A
company electing to qualify its exempt income must undertake to make designated
investments in productive fixed assets, research and development, or wages of new
employees ("Designated Investment"). The Designated Investment amount is defined by a
formula which considers the portion of Elected Earnings to the exempt income and the
applicable tax rate prescribed by the Investment Law.
- 35 -
In addition to the reduced tax rate a distribution of Elected Earnings would be subject to a
15% withholding tax. The Trapped Earnings Law provides an exemption from the 15%
withholding tax for a distribution to an Israeli resident company from companies which
have elected the Privileged Enterprise status and waived their Approved Enterprise and
privileged Enterprise Status through June 2015.
The entitlement to the above benefits is conditional upon the Company's fulfilling the
conditions stipulated by the above law, regulations published thereunder and the letters of
approval for the specific investments in "Approved Enterprises" or "Beneficiary
Enterprise". In the event of failure to comply with these conditions, in whole or in part,
the Company may be required to pay additional taxes for the period in which it benefited
from the tax exemption and would likely be denied these benefits in the future.
In the event of a dividend distribution (including withdrawals and charges that are
deemed to be dividends) out of the income originating from the "Approved Enterprises",
income from such distributed dividend will be subject to the corporate tax rate applicable
to such profits as if the Company had not elected the alternative system of benefits.
Income from sources other than the "Approved Enterprise" or "Beneficiary Enterprise"
during the benefit period will be subject to tax at the regular rate.
Orev has two letters of approval under the Law, dated October 4, 1999, and an additional
letter of approval, under the Law, dated July 19, 2004. According to the letters of
approval, the attribution of taxable income between the activities and the several
development regions is computed on the basis of the following criteria:
a)
b)
c)
Increase in the number of employees in each of the regions.
Increase in the salary of the employees in each of the regions.
Investment in equipment in each of the regions.
In May 2004, a final performance approval from the Investment Center regarding these
investments under the letter of approval dated October 4, 1999 was received.
In July 2009, a final performance approval was obtained from the Investment Center
regarding these investments under the letter of approval dated July 19, 2004.
The Company elected the years 2007, 2009 and 2012 to be the years of election under the
new "Beneficiary Enterprise" (Green track).
In January 2011, the Knesset enacted a reform to the Investment Law, effective January
2011. According to the reform, a flat rate tax would apply to companies eligible for the
"Preferred Enterprise" status. In order to be eligible for Preferred Enterprise status, a
company must meet minimum requirements to establish that it contributes to the country's
economic growth and is a competitive factor for the Gross Domestic Product (a
competitive enterprise). Certain activities such as mining are excluded from the scope of
a Preferred Enterprise, as are government-owned businesses.
- 36 -
Israeli companies which currently benefit from an Approved or Beneficiary Enterprise
status and meet the criteria for qualification as a Preferred Enterprise can elect to apply
the new Preferred Enterprise benefits by waiving their benefits under the Approved and
Beneficiary Enterprise status.
Benefits granted to a Preferred Enterprise include reduced and gradually decreasing tax
rates. In peripheral regions (Development Area A) the reduced tax rate will be 10% in
2011 and 2012, 7% in 2013 and 2014 and 6% starting from 2015. In other regions the tax
rate will be 15% in 2011 and 2012, 12.5% in 2013 and 2014 and 12% starting from 2015.
Preferred Enterprises in peripheral regions will be eligible for Investment Center grants,
as well as the applicable reduced tax rates.
A distribution from a Preferred Enterprise out of the "Preferred Income" would be subject
to 15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject
to applicable treaty rates). A distribution from a Preferred Enterprise out of the "Preferred
Income" would be exempt from withholding tax for an Israeli-resident company. A
company electing to waive its Beneficiary Enterprise or Approved Enterprise status
through June 30, 2015 may distribute "Approved Income" or "Beneficiary Income"
subject to 15% withholding tax for Israeli resident individuals and non-Israeli residents
(subject to applicable treaty rates) and exempt from withholding tax for an Israeli-resident
company. Nonetheless, a distribution from income exempt under Beneficiary Enterprise
and Approved Enterprise programs will subject the exempt income to tax at the reduced
corporate income tax rates pertaining to the Beneficiary Enterprise and Approved
Enterprise programs upon distribution, or complete liquidation in the case of a
Beneficiary Enterprise's exempt income.
The Company has tested the influence of the amendment to the Law on its financial
statements, and as of the publication of the reports the Company estimates that it will not
move under the initiation of the Law as of the tax year of 2013, and according to that has
not updated the deferred taxes balances as of December 31, 2013.
This estimation of the Company might change in the future until the submission of the
final decision to the tax authorities, as stated in the amendment to the Law.
d.
Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:
An "Industrial Company", as defined by this law and, as such, is entitled to certain tax
benefits, mainly accelerated depreciation rates for machinery and equipment, as
prescribed by regulations published under the inflationary adjustments law.
Management believes that Orev is meeting the definition of "Industrial Company".
e.
The Company and Orev file a consolidated tax return under the Law for the
Encouragement of Industry (Taxation), 1969.
- 37 -
f.
Net operating losses carry forward:
As of December 31, 2013, the Company has accumulated losses for tax purposes of
approximately NIS 87,603 thousand. The carryforward tax losses are linked to the Israeli
CPI carried out in the period up to December 31, 2007. In Israel, carryforward losses may
be offset against taxable income in the future for an indefinite period.
As of December 31, 2013, the subsidiaries and the jointly controlled entities had
carryforward tax losses for tax purposes of approximately NIS 64,154 thousand, which
represent the Company's share in such losses.
g.
Tax assessments:
The Company has received final tax assessments up to and including the 2009 tax year.
Orev has received final tax assessments up to and including the 2009 tax year.
h.
Deferred taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes.
The deferred taxes are presented in the balance sheet as follows:
December 31,
2012
2013
Reported NIS
In thousands
Current assets (included in other accounts
receivable and prepaid expenses)
Long-term liabilities
Convenience
translation
December 31,
2013
U.S. $
2,497
(71)
9,904
)524(
634
)444(
2,426
4,304
463
The deferred taxes are calculated using a 14% weighted tax rate, which is the effective
tax rate expected to be in effect at the time of realization of such deferred taxes.
- 38 -
i.
A reconciliation of the theoretical tax expenses, assuming all income is taxable at the
statutory rate applicable in Israel, and the actual tax expenses (tax benefit), is as follows:
2011
Income (loss) before income
taxes, as reported in the
consolidated statements of
income
Statutory tax rate in Israel
Theoretical tax expense (benefit)
Decrease in taxes resulting from
"approved and beneficiary
enterprises"
Previous years taxes
Carryforward losses and other
temporary differences for which
deferred tax assets were not
recorded
Nondeductible expenses less tax
exempt income
Tax rate differences in respect of
deferred taxes
Other
Tax on income (tax benefit) in the
statements of income
*)
Reclassified.
- 39 -
Year ended
December 31,
2012
2013
Reported NIS
In thousands
Convenience
Translation
Year ended
December 31,
2013
U.S. $
7,840
216
1,213
349
24%
25%
25%
25%
1,882
54
303
87
(2,099)
(607)
(3,395)
(450)
(1,212)
(1,107)
(349)
(319)
118
1,182
1,619
466
326
143
178
51
(54)
*) 17
2,180
*) (884)
(686)
1,481
(198)
428
(417)
(1,170)
576
166
j.
Income (loss) before taxes on income is comprised as follows:
2011
Domestic
Foreign
6,010
1,830
7,840
k.
Year ended
December 31,
2012
2013
Reported NIS
In thousands
2,989
(2,773)
216
Convenience
Translation
Year ended
December 31,
2013
U.S. $
2,245
(1,032)
646
(297)
1,213
349
Tax on income (Tax benefits) included in the statements of income are comprised as
follows:
2011
Current
Previous years taxes
Deferred taxes
Year ended
December 31,
2012
2013
Reported NIS
In thousands
111
(607)
79
808
(450)
(1,528)
(417)
(1,170)
864
(1,107)
819
576
Convenience
Translation
Year ended
December 31,
2013
U.S. $
249
(319)
236
166
NOTE 18:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES
a.
During June 2003, effective as of June 1, 2003, the Company entered into an agreement
for a three years term with Mr. Meir Jacobson, pursuant to which Mr. Jacobson shall act
as an active chairman of the board, setting his monthly remuneration at $3 thousand. The
agreement was since then extended for additional terms of three years in November 2006
and again in July 2009. In July 2012, following the approval of the Company's audit
committee and board of directors, the general meeting of the Company's shareholders
approved an extension of the agreement for an additional term of 36 months, until June
30, 2015, for a monthly compensation of U.S. $4 thousand per month. As of December
31, 9043 and for the year then ended total liabilities for Mr. Jacobson amounted to NIS
908 thousand and total expenses (excluding some general expenses) amounted to NIS 167
thousand, respectively (approximately U.S. $ 30 thousand and U.S. $ 48 thousand
respectively by using convenience translation).
- 40 -
NOTE 18:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)
b.
During 2005, Orev and Mr. Shmuel Melman (director, CEO of the Company and Orev
and one of the controlling shareholders of the Company) entered into an employment
agreement for an initial term of five years ending on April 30, 2009 which was
automatically renewed for a further term of five years Following the approval of the audit
committee, board of directors and shareholders of the Company. As of January 1, 2012
Mr. Melman's terms of employment were changed to a monthly gross salary of
NIS 123,000 ,which shall be fixed and not linked to the Israeli CPI or increased as was
determined by the original agreement, as well as an entitlement to an annual bonus at the
rate of 1% of Orev's consolidated Earnings before Interest and Tax ("EBIT") capped at
NIS 250,000, with other terms of employment remaining unchanged.
As of December 31, 2013 and for the year then ended total liabilities for Mr. Melman
amounted to NIS 9,893 thousand and total expenses (excluding some general expenses)
amounted to NIS 9,034 thousand, respectively (approximately U.S. $ 843 thousand and
U.S. $ 524 thousand respectively by using convenience translation).
c.
During 2005, Orev entered into an employment agreement with Mrs. Monique Melman
(director in the Company and director of marketing and sales of Orev and wife of Mr.
Melman, one of the controlling shareholders of the Company) for a term of twelve
months commencing on August 1, 2004, automatically renewed for further terms of
twelve months each, unless non-renewal notice is given by either party at least sixty days
prior to the expiration of each twelve months term and terminable by either party by
providing the other party with a prior written notice of sixty days. Following the approval
of the audit committee, board of directors and general meeting of the shareholders in
2007, Mrs. Melman's remuneration package was changed and accordingly as from
February 2007 she was entitled to a monthly gross salary of NIS 28 thousand and sales
incentive as mentioned in the agreement. In January 2012 Mrs. Melman's terms of
employment were reapproved by the audit committee, board of directors and shareholders
of the Company, subject to changes to the remuneration package. The new remuneration
package was changed commencing as of January 1, 2012 to include a monthly gross
salary of NIS 40,000 and sales incentive bonus as mentioned in the agreement, provided
that the cost to the Company in respect of the annual salary and sales incentives shall not
exceed NIS 950,000 in each calendar year.
As of December 31, 2013 and for the year then ended total liabilities for Mrs. Melman
amounted to NIS 323 thousand and total expenses (excluding some general expenses)
amounted to NIS 299 thousand, respectively (approximately U.S. $ 444 thousand and
U.S. $ 933 thousand respectively by using convenience translation).
- 41 -
d.
During 2009, an agreement was signed between Orev and Mr. Jean Claude Bennoun
(brother of Mrs. Monique Bennoun - Melman, the wife of one of the Company's
controlling shareholders). Pursuant to the agreement, Mr. Bennoun was required to
promote and sell the products and services of the Company and introduce to the Company
new customers ("Approved Prospects") and maintain existing customers of the Company
(such existing customers are referred to in the Services Agreement as New Customers as
detailed in Exhibit B and Existing Customers as detailed in Exhibit A), including through
its subsidiary Video Domain Technologies Ltd. The agreement expired and a new
Services Agreement, effective as of January 7, 2013 was approved by the organs of the
Company pursuant to which Orev engages the services of Mr. Bennoun for a period
effective as of November 1, 2012 and until October 31, 2015, unless terminated earlier by
either party by a ninety (90) days prior written notice or by the Company in the event of
circumstances falling under the definition of "Cause" as defined in the Services
Agreement.
Under the Services Agreement, Mr. Bennoun shall be entitled to the same compensation
under the agreement previously approved by the general meeting until December 31,
2012.
Commencing as of January 1, 2013 - Mr. Bennoun shall be entitled to a fixed monthly
sum of NIS 20,000 ("Fixed Compensation"), a variable compensation at decreasing rates
calculated on the basis of the net consideration actually received from Approved
Prospects or New Customers, commencing as of the first invoice date of such Approved
Prospects or New Customers, respectively, as set out in the Services Agreement and an
increased sales compensation, at a rate of 3% on the difference between the relevant year
annual net consideration from all Existing Customers and the highest yearly net
consideration received from all Existing Customers in the prior calendar years
commencing as of January 1, 2012 ("High Water Mark Compensation").
In addition to the above, Mr. Bennoun shall be entitled to a fixed monthly reimbursement
of vehicle expenses and reimbursements of cellular phone and general expenses
according to Orev's reimbursement policy.
In any event, the Fixed Compensation, the Variable Compensation the High Water Mark
Compensation and the vehicle reimbursements in any calendar year shall not exceed NIS
706,400.
Mr. Bennoun shall be entitled to the Variable Compensation for an additional period of
two years following expiration or termination of the Services Agreement.
As of December 31, 2013 and for the year then ended total liabilities for Mr. Bennoun
amounted to NIS 523 thousand, respectively (approximately U.S. $ 26 thousand and U.S.
$ 151 thousand respectively by using convenience translation).
- 42 -
In April 2014, the company's compensation committee, board of directors and
shareholders approved a special one-time bonus to Mr. Bennoun for special contribution
and efforts pursuant to the Services Agreement, in the sum of NIS 45,000 (approximately
U.S. $ 13 thousand).
e.
The Company and Mr. Abram Silver (through CMZY LLC, a company controlled by
him) ("Consultant") entered into an agreement, effective as of October 1, 2011 (the
"Agreement") according to which the Company and its subsidiaries will receive
consulting services from the Consultant, including business development, market analysis
and development, handling investor relations, various actions in capital markets in Israel
and abroad and developing business relations as listed in the Agreement. The Agreement
is for a term of thirty six months commencing October 1, 2011 and ending September 30,
2014 subject to an early termination by either Party of six months prior written notice or
immediate termination in certain circumstances as detailed in the Agreement. Pursuant to
the Agreement, Mr. Silver will remain at all times during the term of the Agreement the
controlling shareholder of CMZY. It was further agreed that the Consultant will provide
the Company with up-to-date status report with respect to the ongoing negotiations with
customers and potential investors as required by its organs. In exchange for his services,
the Consultant will receive a monthly remuneration of NIS 33,333.
In addition, the Consultant will receive refund for reasonable expenses relating to his
undertakings according to the Agreement, provided that such refunds will not exceed NIS
60,000 per annum and preapproval of such expenses by the Company. The Consultant
approved full receipt of all compensation owed to him by the Company under an earlier
agreement effective 1.1.2005 that had expired.
As of December 31, 2013 and for the year then ended total liabilities for Mr. Silver
amounted to NIS 460 thousand, respectively (approximately U.S. $ 67 thousand and U.S.
$ 133 thousand respectively by using convenience translation).
f.
During 2009, the Company's audit committee, board of directors and shareholders
approved a series of agreements between Orev, Video Domain and Exatel Visual Systems
Ltd. (a company controlled by Mr. Shmuel Melman, one of the controlling shareholders
of the Company) relating to obtaining development services from Exatel in respect of two
OEM projects of the Company as well as a profit sharing scheme agreed upon between
the parties to such agreements.
- 43 -
NOTE 19:- SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION
a.
Segment information:
The Company and its subsidiaries operate in one operating segment.
b.
Geographic information:
The Company and its subsidiaries have five reportable geographic areas, based on
customers' location.
Year ended December 31, 2013
Europe
Australia
and New
Zealand
America
Sales to customers
Inter-area sales
483,983
-
45,154
1,062
43,345
760
7,720
-
5,044
1,159
1,113
-
(2,981)
258,662
-
Total sales
483,983
16,216
44,105
7,720
6,203
1,113
(2,981)
258,662
4,500
754
2,012
358
31
52
Operating income
Asia
Israel
Others
Reported NIS in thousands
Elimination Consolidated
-
Financial expenses, net
Other expenses, net
7,707
(1,996)
(4,498)
Tax on income
Minority interest in earnings of
subsidiaries
1,213
(576)
(264)
Net profit
373
34,494
9,489
8,422
1,326
25,392
1
4,094
6,586
17
428
86,238
44
Capital expenditures
454
492
-
-
40,404
-
-
40,284
533
482
-
-
8,044
-
-
8,793
Assets
Liabilities
- 44 -
(384)
-
145,904
97,407
NOTE 19:- SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
Europe
Australia
and New
Zealand
America
Asia
Israel
Others
Elimination
Convenience translation into U.S. $ in thousands
Consolidated
Sales to customers
Inter-area sales
53,669
-
4,366
306
12,488
219
2,224
-
1,453
334
321
-
(859)
74,521
-
Total sales
53,669
4,672
12,707
2,224
1,787
321
(859)
74,521
217
580
103
9
15
Operating income
1,296
-
Other expenses, net
2,220
(575)
(1,296)
Income before taxes on
income
Tax on income
Minority interest in
earnings of
subsidiaries
349
(166)
(76)
Net profit
107
Assets
2,432
2,734
2,426
382
27,434
*)
Liabilities
1,180
1,897
5
123
24,845
13
43
124
-
-
2,998
-
-
3,165
162
54
-
-
2,317
-
-
2,533
Depreciation and
amortization
*)
Represents an amount lower than thousand.
- 45 -
(110)
-
42,035
28,063
NOTE 19:- SEGMENTS, CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
Europe
Australia
and New
Zealand
Sales to customers
Inter-area sales
178,913
-
14,694
1,064
40,693
859
9,582
-
7,701
249
3,173
-
(2,172)
254,756
-
Total sales
178,913
15,758
41,552
9,582
7,950
3,173
(2,172)
254,756
2,325
152
972
229
124
76
Operating income
America
Asia
Israel
Others
-
Other expenses, net
3,878
(3,167)
(495)
Tax benefits
subsidiaries
216
1,170
Net profit
1,311
Assets
(75)
36,086
9,149
10,063
2,044
97,746
-
-
155,088
Liabilities
5,337
6,760
24
-
93,816
-
-
105,937
3,917
25
-
-
6,792
-
-
10,734
88
213
-
-
6,813
-
-
7,114
Europe
Australia
and New
Zealand
America
Sales to customers
Inter-area sales
149,063
-
19,150
1,365
36,213
810
8,115
-
8,148
804
2,206
-
(2,979)
222,895
-
Total sales
149,063
20,515
37,023
8,115
8,952
2,206
(2,979)
222,895
8,753
151
2,127
477
479
130
Operating income
Asia
Israel
Others
-
Other expenses, net
12,117
(2,678)
(1,599)
Tax benefits
subsidiaries
7,840
417
Net profit
7,566
Assets
(691)
23,462
8,679
12,552
2,757
98,166
56
-
145,672
Liabilities
-
6,551
-
-
91,649
-
-
98,200
-
245
-
-
3,591
-
-
3,836
-
261
-
-
7,650
-
-
7,911
- 46 -
NOTE 20:- SELECTED STATEMENTS OF INCOME DATA
2011
a.
Cost of sales:
Materials consumed
Salaries and related expenses
Other manufacturing costs
112,080
35,407
11,190
5,716
139,350
40,547
25,141
6,017
139,366
42,839
25,111
7,753
40,152
12,342
7,234
2,234
164,393
211,055
215,069
61,962
Decrease (increase) in inventory of
work in progress
Decrease (increase) in inventory of
finished products
b.
(845)
(3,665)
(1,056)
3,479
(694)
(1,028)
(296)
168,957
209,516
210,376
60,610
10,413
3,875
*) 7
*) 2,953
12,165
1,901
*) 23
*) 3,553
14,178
3,364
195
223
4,085
969
56
64
17,248
17,642
17,960
5,174
7,026
5,453
5,132
1,479
1,130
54
2,320
775
10
3,006
703
2,410
203
693
10,530
9,244
8,245
2,375
Selling and marketing expenses:
Exhibitions, commission and
advertising
Depreciation
Other
*)
1,085
Research and development
expenses:
Subcontractors
Depreciation
Other
c.
Year ended
December 31,
2012
2013
Reported NIS
In thousands
Convenience
translation
Year ended
December 31,
2013
U.S. $
Reclassified.
- 47 -
NOTE 20:- SELECTED STATEMENTS OF INCOME DATA (Cont.)
2011
d.
6,234
6,193
6,448
1,858
3,700
(11)
1,013
3,107
3,696
(60)
1,064
3,583
3,654
167
845
3,260
1,053
48
243
940
14,374
4,142
14,043
14,476
Other expenses, net:
Equity in losses of jointly
controlled entities attributed to
the other partners (1)
Loss from sales of investments
and subsidiaries
Gain (loss) from sale of property
and equipment
Impairment of investments in
other companies
Return from restitution from
previous years
Other
(119)
(512)
72
(1,124)
84
(1,599)
f.
Year ended
December 31,
2012
2013
Reported NIS
In thousands
General and administrative
expenses:
Management fees and consulting
expenses
Bad debts and doubtful accounts
Other
e.
Convenience
translation
Year ended
December 31,
2013
U.S. $
)4,403(
12
572
24
(495)
(239)
(3,851)
-
(69)
(1,110)
-
(408)
(117)
(4,498)
)1,296(
Financial expenses, net:
Erosion (revaluation) of
principal of long-term loans
Interest on long-term loans,
short-term loans and bank
credit
Revaluation of monetary items
and other
(72)
(2,872)
266
(2,678)
(1)
91
(3,010)
(248)
(3,167)
7
(2,879)
876
(1,996)
2
(829)
252
)575(
The Company recorded a provision for accrued losses of jointly controlled entities
due to guarantees and loans that the Company provided to those jointly controlled
entities.
- 48 -
NOTE 21:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S.
GAAP ON THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of the Company conform with generally accepted
accounting principles in Israel ("Israeli GAAP"), which differ in certain respects from those
followed in the United States ("U.S. GAAP"), as described below:
a.
Accrued severance pay:
According to U.S. GAAP, accrued severance pay and related funded amounts are
presented in the balance sheet separately as a liability and asset, respectively. Income
from earnings on amounts funded is added to severance pay funds.
According to Israeli GAAP, accrued severance pay is included in the balance sheet net of
any related funded amounts, including the income from earnings on amounts funded.
See Note 13 for the presentation in the Company's balance sheet in accordance with
Israeli GAAP.
b.
Taxes on income:
1.
Deferred tax liability
Under ASC 740, "Income Taxes" ("ASC 740"), a deferred tax liability normally
would be recorded relating to taxes that would be owed on the distribution of
profits even if management does not intend currently to declare dividends.
However, under Israeli tax law, a company could be liquidated and profits
distributed with no tax liability to the company; rather, the shareholders would
incur the tax liability. If the Company can represent that profits could be distributed
tax free in liquidation, and the undistributed earnings are essentially permanent in
duration, a deferred tax liability does not need to be recorded.
If the approved enterprise benefit relates to a domestic (Israeli) subsidiary, the
parent company would be liable for taxes upon distribution. Accordingly, a
deferred tax liability should be recorded unless the subsidiary could be merged
with the parent in a tax-free merger or if there is some other manner in which the
earnings could be distributed tax-free.
2.
Under Israeli GAAP, a deferred tax liability would not be recorded relating to taxes
that would be owed on the distribution of profits in case management does not
intend currently to declare dividends, which will trigger such tax liability.
Under U.S. GAAP, a deferred tax liability would be recorded relating to taxes that
would be owed on the distribution of profits although management does not intend
to declare dividends. Therefore, the Company recorded under U.S. GAAP a
deferred tax liability in the amounts of NIS 15,932 thousand, NIS 19,568 thousand
and NIS 18,708 thousand (U.S. $ 5,390 thousand) as of December 31, 2011, 2012
and 2013, respectively.
- 49 -
GAAP ON THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
c.
Variable interest entities:
Under U.S. GAAP, the Company applies the provisions of ASC 810, "Consolidation"
("ASC 810"). ASC 810 provides a framework for identifying variable interest entities
("VIE") and determining when a company should include the assets, liabilities,
noncontrolling interests and results of activities of a VIE in its consolidated financial
statements. Inter-company balances and transactions have been eliminated upon
consolidation.
In general, a VIE is a corporation, partnership, limited-liability corporation, trust, or any
other legal structure used to conduct activities or hold assets that either (1) has an
insufficient amount of equity to carry out its principal activities without additional
subordinated financial support, (2) has a group of equity owners that is unable to make
significant decisions about its activities, (3) has a group of equity owners that does not
have the obligation to absorb losses or the right to receive returns generated by its
operations or (4) the voting rights of some investors are not proportional to their
obligations to absorb the expected losses of the entity, their rights to receive the expected
residual returns of the entity, or both and substantially all of the entity's activities (for
example, providing financing or buying assets) either involve or are conducted on behalf
of an investor that has disproportionately few voting rights.
ASC 810 requires a VIE to be consolidated by the party with an ownership, contractual or
other financial interest in the VIE (a variable interest holder) that has both of the
following characteristics: a) the power to direct the activities of a VIE that most
significantly impact the VIE's economic performance b) the obligation to absorb losses of
the VIE that could potentially be significant to the VIE or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
A variable interest holder that consolidates the VIE is called the primary beneficiary.
Upon consolidation, the primary beneficiary generally must initially record all of the
VIE's assets, liabilities and noncontrolling interests at fair value and subsequently account
for the VIE as if it were consolidated based on a majority voting interest. ASC 810 also
requires disclosures about VIEs in which the variable interest holder is not required to
consolidate but in which it has a significant variable interest.
1.
During 2001, the Company formed a jointly controlled entity, Actech Access
Technologies Ltd. ("Actech") with Camden Trading Ltd. Inc., the other jointly
controlling shareholder. Actech was financed by the Company with approximately
U.S. $ 200 thousand in debt.
Actech develops, manufactures and markets electronic access control systems. In
2019, Actech's revenues were approximately NIS 55 thousand with a gross profit
of approximately NIS 22 thousand and a net loss of approximately NIS 10
thousand.
- 50 -
GAAP ON THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
In 2012, under Israeli GAAP, the Company records its proportional share (50%) in
Actech's balance sheets using the proportionate consolidation method while
recording 100% of Actech's losses.
In 2012, under U.S. GAAP, the Company has determined that it should consolidate
Actech according to ASC 810, as Actech is a VIE and the Company is its primary
beneficiary. As for the effects of the material differences on the financial
statements see e below.
In 2013, the Company acquired additional 50% of the share capital of Actech, See
notes 1e & 1f.
2.
During 2002, the Company formed a jointly controlled entity, ScanVision
Technologies Ltd. ("ScanVision") with other jointly controlling shareholder.
ScanVision was financed by the Company with approximately U.S. $ 200 thousand
in debt.
ScanVision develops technology for security and CCTV motion-less applications.
In 2019, ScanVision did not have any revenues and it incurred a loss of
approximately NIS 106 thousand.
In 2012, under Israeli GAAP, the Company records its proportional share (48%) in
ScanVision's balance sheets using the proportionate consolidation method while
recording 100% of ScanVision's losses.
In 2012, under U.S. GAAP, the Company has determined that it should consolidate
ScanVision according to ASC 810, as ScanVision is a VIE and the Company is its
primary beneficiary. As for the effects of the material differences on the financial
statements see e below.
In 2013, the Company acquired additional 52% of the share capital of ScanVision,
See notes 1e & 1f.
3.
During 2011, Orev through its subsidiary Video Domain Technologies Ltd ("Video
Domain") formed a jointly controlled entity, Mikrodust AB ("Mikrodust") with
other jointly controlling shareholders. Mikrodust was financed by Video Domain
with approximately EUR 600 thousand in debt.
Mikrodust develops technology for home security. In 2013, Mikrodust's revenues
were approximately NIS 3,216 thousand with a gross profit of approximately
NIS 1,512 thousand and a net loss of approximately NIS 358 thousand.
Under Israeli GAAP, the Company records its proportional share (33%) in
Mikrodust's balance sheets using the proportionate consolidation method while
recording 100% of Mikrodus'ts' losses.
- 51 -
NOTE 21:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON THE CONSOLIDATED FINANCIAL
STATEMENTS (Cont.)
Under U.S. GAAP, the Company has determined that it should consolidate Mikrodust according to ASC 810, as Mikrodust is a VIE and
the Company is its primary beneficiary. As for the effects of the material differences on the financial statements see e below.
e.
The effects of the material differences between Israeli GAAP and U.S. GAAP of the aforementioned items on the financial statements are as
follows:
1.
Consolidated statements of income:
Year ended
December 31,
2012
2011
As
reported
under
Israeli
GAAP
Effect of
U.S.
GAAP
222,895
214
223,109
254,756
351
Gross profit (1)
53,938
196
54,134
45,240
Operating expenses (1)
41,821
262
42,083
4,074
(4,074)
Sales (1)
Taxes on income (tax
benefits) (2)
Net income (loss) (2)
(1)
(2)
(417)
7,566
2013
As
reported
under
Israeli
GAAP
Effect of
U.S.
GAAP
255,107
258,662
2,144
260,806
75,139
65
45,305
48,286
1,008
49,294
14,202
41,362
1,263
42,625
40,579
1,195
41,774
12,035
3,657
(1,170)
3,636
2,466
576
(860)
3,492
1,311
(3,636)
(2,325)
373
860
Under
U.S.
GAAP
As
reported
under
Israeli
GAAP
Convenience
translation
Year ended
December 31,
2013
Effect of differences described in c. above.
Effect of differences described in b. above.
- 52 -
Effect of
Under
U.S.
U.S.
GAAP
GAAP
Reported NIS
In thousands
Under
U.S.
GAAP
(284)
1,233
Under
U.S.
GAAP
U.S. $
(82)
355
NOTE 21:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON THE CONSOLIDATED FINANCIAL
STATEMENTS (Cont.)
2.
Consolidated balance sheets:
Convenience
translation
December 31,
2013
December 31,
2012
As reported
under
Israeli
GAAP
Inventories (1)
Property and equipment, net (1)
Severance pay fund (2)
Total assets (1) (2)
Short-term loans and bank credit
Trade payables (1)
Other accounts payable and accrued expenses (1)
Accrued severance pay (2)
Deferred taxes (3)
Total liabilities (1) (2) (3)
Shareholders' equity (1) (3)
Effect of
U.S.
GAAP
2013
As reported
Under
under
U.S.
Israeli
GAAP
GAAP
Reported NIS
In thousands
Effect of
U.S.
GAAP
Under
U.S.
GAAP
Under
U.S.
GAAP
U.S. $
39,693
45,286
155,088
12
13,115
*) 13,282
39,693
45,298
13,115
*) 168,370
43,308
42,588
145,904
60
9
14,858
15,113
43,368
42,597
14,858
161,017
12,494
12,272
4,281
46,389
(30,347)
(30,290)
(28,524)
)4,943(
(71)
(105,937)
(9)
*) (158)
(13,115)
(19,568)
*) (31,520)
(30,347)
(30,299)
*) (28,682)
(17,361)
(19,639)
*) (137,457)
(41,666)
(24,927)
(22,102)
)3,853(
(594)
(97,407)
(47)
(208)
(14,858)
(18,708)
(32,334)
(41,666)
(24,974)
(22,310)
(18,714)
(19,302)
(129,741)
(12,004)
(7,195)
(6,428)
(5,392)
(5,561)
(37,379)
(30,913)
(48,497)
17,221
(31,276)
(9,010)
(49,151)
(1)
(2)
(3)
Effect of differences described in c. above.
Effect of differences described in a. above.
Effect of differences described in b. above.
*)
Reclassified.
- 53 -
18,238
NOTE 21:- EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP ON
THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
f.
Earnings per Ordinary share ("EPS")
The calculation of EPS under U.S. GAAP is as follows:
2011
2012
2013
Reported NIS
In thousands,
(except Ordinary share
and per Ordinary share data)
Net income (loss) under U.S. GAAP (see e(1)
above)
3,492
(2,325)
Basic and diluted earnings (loss) per Ordinary
share
0.8
(0.53)
Weighted average number of shares used in
computing basic and diluted (loss)earnings per
share
4,372,275
1,233
EPS under U.S. GAAP:
4,372,275
0.28
4,372,275
NOTE 22:- SUBSEQUENT EVENTS
For information concerning the sale of the Company's entire holdings in Freelink IT, please refer to
Note 1(d).
- 54 -
APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS
LIST OF SUBSIDIARIES, JOINTLY CONTROLLED ENTITIES, AFFILIATE
AND JOINT VENTURE
AS OF DECEMBER 31, 2012 AND 2013
Holding in shares
conferring rights to profits
and voting rights
As of December 31,
2012
2013
%
Subsidiaries:
Crow Electronic Engineering Ltd.
100
100
Crow Latin America (U.S.A.) Inc.
100
100
51
51
100
100
Freelink Ltd.
99
99
Freelink Italia SRL
99
99
Actech Access Technologies Ltd.
50
**) 100
*) 48
**) 100
33
33
51
51
Arrow Head Alarm Products Limited
Video Domain Technologies Ltd.
Scan Vision Technologies Ltd.
Jointly controlled entities:
Mikrodust AB
Joint venture:
C.J.M property group
*) 50% of the voting rights.
**) See notes 1e & 1f.
----------------------
- 55 -

TEFRON LTD.

Transcription

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