-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kfe5KFQGDJQqiXR3AbVfOTVU+kpuEW6ku657SeDvDmbw62yphhyVMWx0pzQpr/pb /b0zIYfV4WiyNQfXpFr4YQ== 0000950112-96-002811.txt : 19960816 0000950112-96-002811.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950112-96-002811 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEC ISRAEL ECONOMIC CORP ET AL CENTRAL INDEX KEY: 0000076888 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 131143528 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08707 FILM NUMBER: 96612208 BUSINESS ADDRESS: STREET 1: 511 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125518881 MAIL ADDRESS: STREET 1: 511 FIFTH AVENUE STREET 2: 511 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: PALESTINE ECONOMIC CORP DATE OF NAME CHANGE: 19660905 10-Q 1 PEC ISRAEL ECONOMIC CORPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number 2-1271 PEC Israel Economic Corporation (Exact name of registrant as specified in its charter) Maine 13-1143528 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 511 Fifth Avenue, New York, N.Y. 10017 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (212) 687-2400 Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO | |. As of August 13, 1996 there were outstanding 18,758,588 shares of Common Stock with par value of $1.00 per share. Page 1 of 15 pages PART I - FINANCIAL INFORMATION PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Six Months Ended: For the Three Months Ended: ---------------------------- ---------------------------- 6/30/96 6/30/95 6/30/96 6/30/95 ------------ ------------ ------------ ------------ (IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS) Revenues: Interest and dividends $ 558 $ 965 $ 248 $ 557 Equity in net income of Affiliated Companies 16,877 11,003 7,963 5,613 Net gain on issuance of shares by Affiliated Companies 1,304 -- -- -- Revenues of General Engineers Limited 4,286 2,934 2,281 1,518 Net gain on sales of investments 4,746 552 3,559 306 Change in market value of marketable securities 1,488 2,124 31 1,180 Other 573 267 199 280 ------------ ------------ ------------ ------------ 29,832 17,845 14,281 9,454 ------------ ------------ ------------ ------------ Expenses: General and administrative 1,743 1,690 841 886 Cost of sales and expenses of General Engineers Limited 4,267 3,116 2,282 1,759 ------------ ------------ ------------ ------------ 6,010 4,806 3,123 2,645 ------------ ------------ ------------ ------------ Income before income taxes and loss from discontinued operations 23,822 13,039 11,158 6,809 Income taxes 4,946 4,327 2,673 3,360 ------------ ------------ ------------ ------------ Income before loss from discontinued operations 18,876 8,712 8,485 3,449 Loss from discontinued operations of General Engineers Limited, net of income taxes -- (401) -- (179) ------------ ------------ ------------ ------------ Net income $ 18,876 $ 8,311 $ 8,485 $ 3,270 ============ ============ ============ ============ Earnings per common share before loss from discontinued operations $ 1.00 $ 0.46 $ 0.45 $ 0.18 Loss from discontinued operations of General Engineers Limited, net of income taxes -- (0.02) -- (0.01) ------------ ------------ ------------ ------------ Earnings per common share $ 1.00 $ 0.44 $ 0.45 $ 0.17 ============ ============ ============ ============ Number of shares outstanding 18,758,588 18,758,588 18,758,588 18,758,588 Dividend per share None None None None
See notes to consolidated financial statements. Page 2 of 15 pages PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 1996 1995 --------- --------- (Unaudited) (In thousands) Assets Cash and cash equivalents $ 6,542 $ 14,703 Investments 395,641 369,096 Assets of General Engineers Limited 4,930 5,229 Other assets 3,498 3,939 --------- --------- Total assets $ 410,611 $ 392,967 ========= ========= Liabilities and Shareholders' Equity Liabilities: Liabilities of General Engineers Limited $ 1,667 $ 1,922 Deferred income taxes 30,666 29,192 Other liabilities 5,679 4,566 --------- --------- Total liabilities 38,012 35,680 --------- --------- Shareholders' equity: Common stock, $1.00 par value 31,952 31,952 Additional paid-in capital 103,228 103,228 Unrealized gain on marketable securities, net 3,239 3,226 Cumulative translation adjustment (23,720) (20,143) Retained earnings 271,094 252,218 --------- --------- 385,793 370,481 Treasury stock (13,194) (13,194) --------- --------- Total shareholders' equity 372,599 357,287 --------- --------- Total liabilities and shareholders' equity $ 410,611 $ 392,967 ========= ========= See notes to consolidated financial statements. Page 3 of 15 pages PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1996 (Unaudited) (In Thousands)
Unrealized Gain on Cumulative Common Paid-in Marketable Translation Retained Treasury Stock Capital Securities Adjustment Earnings Stock Total --------- --------- ---------- ---------- --------- --------- --------- Balance, January 1, 1996 $ 31,952 $ 103,228 $ 3,226 ($ 20,143) $ 252,218 ($ 13,194) $ 357,287 Change in market value of available-for- sale equity securities, net of tax -- -- 13 -- -- -- 13 Change in cumulative translation adjustment -- -- -- (3,577) -- -- (3,577) Net income -- -- -- -- 18,876 -- 18,876 --------- --------- ---------- ---------- --------- --------- --------- Balance, June 30, 1996 $ 31,952 $ 103,228 $ 3,239 ($ 23,720) $ 271,094 ($ 13,194) $ 372,599 ========= ========= ========= ========= ========= ========= =========
See notes to consolidated financial statements. Page 4 of 15 pages PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended: ------------------------ 6/30/96 6/30/95 -------- -------- (In thousands) Cash Flows from Operating Activities: Net income $ 18,876 $ 8,311 Adjustments to reconcile net income to net cash provided by operating activities: Change in market value of marketable securities (1,488) (2,124) Purchase of marketable securities (6,599) (3,390) Proceeds from sale of marketable securities 6,344 5,733 Equity in net income of Affiliated Companies (16,877) (11,003) Gain on sales of investments (4,746) (552) Net loss on investment in partnerships 120 253 Income of consolidated subsidiaries (481) (116) Loss from discontinued operations, net of income taxes -- 401 Amortization of premiums on receivables, net -- 42 Net gain on issuance of shares by Affiliated Companies (1,304) -- Dividends and interest from Affiliated Companies 3,191 4,168 Decrease in other assets 1,786 577 Provision for deferred income taxes 1,946 3,027 Increase in other liabilities 912 83 -------- -------- Net cash provided by operating activities 1,680 5,410 -------- -------- Cash Flows from Investing Activities: Repayment of municipal bonds 3,015 -- Repayment of notes receivable 789 250 Purchase of notes receivable (2,668) (1,273) Proceeds from sale of equity interests 7,810 4,960 Purchase of equity interests (18,787) (7,270) -------- -------- Net cash used in investing activities (9,841) (3,333) -------- -------- Net (decrease) increase in Cash and Cash Equivalents (8,161) 2,077 Cash and Cash Equivalents, beginning of period 14,703 20,736 -------- -------- Cash and Cash Equivalents, end of period $ 6,542 $ 22,813 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid during period for income taxes $ 1,271 $ 922 See notes to consolidated statements. Page 5 of 15 pages PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1. The December 31, 1995 balance sheet presented herein was derived from the audited December 31, 1995 consolidated financial statements of the Company and Subsidiaries. 2. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The financial statements should be read in conjunction with the audited consolidated financial statements of the Company and Subsidiaries for the year ended December 31, 1995 for a description of the significant accounting policies, which have continued without change, and other footnote information. 3. All adjustments (recurring in nature) which are, in the opinion of management, necessary for a fair presentation of the results of the interim periods have been included. The results of the interim periods are not necessarily indicative of the results for the full year. Page 6 of 15 pages MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995 Consolidated net income for the three months ended June 30, 1996 rose to $8.5 million, up from $3.3 million for the three months ended June 30, 1995. The rise in consolidated net income reflected increases of $2.4 million in equity in net income of Affiliated Companies and $3.3 million in net gain on sales of investments and a decrease of $687,000 in the provision for income taxes. The increase attributable to these items was partially offset by decreases of $1.1 million in change in market value of marketable securities and $309,000 in interest and dividend income. Equity in net income of Affiliated Companies for the second quarter of 1996 rose to $8.0 million, up from $5.6 million for the corresponding 1995 period. The increase in equity in net income of Affiliated Companies reflected PEC's increased net income in respect of some of its Affiliated Companies, particularly DIC and PEC Cable TV Ltd. (the holding company for PEC's interest in Tevel), Delek (which was not accounted for on the equity method in the corresponding 1995 quarter) and Tefron, as well as PEC's reduced losses in respect of Cellcom (of which PEC's share was $866,000 of continued start up losses compared to $2.0 million of start up losses in the second quarter of 1995). This increase was partially offset by PEC's reduced net income in respect of some of its other Affiliated Companies and by losses in respect of Scitex compared to income in the second quarter of 1995. PEC realized a net gain on sales of investments of $3.6 million for the second quarter of 1996 compared to $306,000 for the second quarter of 1995. In the second quarter of 1996, PEC sold a 1.3% ownership interest in Nice, reducing its ownership Page 7 of 15 pages interest in Nice to 5.7% and realizing a net gain of $1.3 million, sold a 0.6% ownership interest in Super-Sol, reducing its ownership interest in Super-Sol to 17.7% and realizing a net gain of $900,000, and sold marketable securities of U.S. companies for a net gain of $1.4 million. PEC's net gain on sales of investments of $306,000 for the second quarter of 1995 resulted from PEC's sale of marketable securities of U.S. companies. PEC's interest and dividend income decreased to $248,000 for the second quarter of 1996 compared to $557,000 for the corresponding 1995 quarter primarily because of a decrease in the amount of PEC's liquid assets (consisting of cash, money market funds, short-term bank deposits, marketable securities of U.S. companies and marketable bonds) from approximately $40.2 million as of June 30, 1995 to approximately $30.1 million as of June 30, 1996. See "Liquidity and Capital Resources". The amount of liquid assets was reduced principally because of the net purchase of securities of new and existing Affiliated Companies and securities of other Israeli companies. Although PEC's income before income taxes and loss from discontinued operations increased to $11.2 million for the second quarter of 1996 from $6.8 million for the corresponding 1995 quarter, PEC's provision for income taxes for the second quarter of 1996 decreased to $2.7 million from $3.4 million for the corresponding 1995 quarter. PEC provided approximately $3.0 million of additional income taxes in the second quarter of 1995 as a result of PEC's sale to Israel Discount Bank of New York ("IDBNY") in July 1995 of all of PEC's nonvoting preferred shares of IDBNY, which sale did not result in a gain for financial statement purposes but did result in a gain for tax purposes. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Consolidated net income for the six months ended June 30, 1996 rose to $18.9 million, up from $8.3 million for the six months ended June 30, 1995. The rise in net income reflected Page 8 of 15 pages increases of $5.9 million in equity in net income of Affiliated Companies, $4.2 million in net gain on sales of investments, $1.3 million in net gain on issuance of shares by Affiliated Companies and $306,000 in other income. The increase in net income also reflected a loss from discontinued operations of General Engineers Limited, net of income taxes, of $401,000 in the first half of 1995. The rise attributable to these items was partially offset by decreases of $636,000 in change in market value of marketable securities and $407,000 in interest and dividend income and an increase of $619,000 in the provision for income taxes. Equity in net income of Affiliated Companies for the six months ended June 30, 1996 rose to $16.9 million, up from $11.0 million for the corresponding 1996 period. The increase in equity in net income of Affiliated Companies for the first half of 1996 reflected increased net income in respect of some of PEC's Affiliated Companies, principally Tefron, Tambour, Super-Sol and Caniel, and reduced losses in respect of Cellcom (approximately $1.1 million of continued start up losses in the first half of 1996 compared to $3.2 million of start up losses in the corresponding 1995 period). This increase was partially offset by losses in respect of Scitex compared to income in the first half of 1995. PEC realized a net gain on sales of investments of $4.7 million for the first half of 1996 compared to $552,000 for the corresponding 1995 period. During the first half of 1996, PEC realized a net gain of $1.7 million on the sale of a 1.1% ownership interest in Super-Sol, a net gain of $1.3 million on the sale of a 1.3% ownership interest in Nice, a net gain of $1.5 million on the sale of marketable securities of U.S. companies and a net gain of $210,000 on the sale of a 1.4% ownership interest in VocalTec. All of PEC's $552,000 net gain on sales of investments for the first half of 1995 resulted from PEC's sale of marketable securities of U.S. companies. PEC realized a net gain on issuance of shares by Affiliated Companies of $1.3 million for the six months ended June 30, 1996 while it did not realize any net gain for the corresponding 1995 period. In January 1996, Nice sold American Depositary Shares representing ordinary shares of Nice in a public offering in the Page 9 of 15 pages United States and PEC realized a net gain on issuance of shares by Nice of $800,000. In March 1996, Logal sold ordinary shares in an initial public offering in the United States and PEC realized a net gain on issuance of shares of Logal of $500,000. PEC's other income increased to $573,000 for the first half of 1996 compared to $267,000 for the first half of 1995. PEC's other income for the first half of 1996 reflected increased management fees while PEC's other income in the first half of 1995 reflected a loss with respect to PEC's interest in a limited partnership which PEC sold in January 1995. PEC's interest and dividend income decreased to $558,000 for the six months ended June 30, 1996 compared to $965,000 for the six months ended June 30, 1995 primarily because the amount of PEC's liquid assets decreased. The amount of liquid assets was reduced principally because of the net purchase of securities of new and existing Affiliated Companies and securities of other Israeli companies. Although PEC's income before income taxes and loss from discontinued operations increased to $23.8 million for the first half of 1996 from $13 million for the first half of 1995, PEC's provision for income taxes for the first half of 1996 was $4.9 million compared to $4.3 million for the first half of 1995. As discussed above, PEC provided approximately $3.0 million of additional income taxes in the first half of 1995 as a result of PEC's sale to IDBNY in July 1995 of all of PEC's nonvoting preferred shares of IDBNY. See "Results of Operations - Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995". SHAREHOLDERS' EQUITY As discussed in Note 2 of the Notes to the Consolidated Financial Statements for the year ended December 31, 1995, translation differences are reflected in shareholders' equity as a "Cumulative Translation Adjustment". The exchange rate of the New Israel Shekel depreciated approximately 2% against the U.S. dollar as of June 30, 1996 compared to December 31, 1995. As of June 30, 1996, the Cumulative Translation Adjustment reduced shareholders' equity by $23.7 million compared to $20.1 million at the end of 1995. Page 10 of 15 pages LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, PEC's liquid assets (consisting of cash, money market funds and marketable securities of U.S. companies) totaled approximately $30.1 million. For the six months ended June 30, 1996, PEC received cash dividends and interest totaling $4.6 million (including $3.2 million of cash dividends received from Affiliated Companies). During the first half of 1996, PEC received a total of $18 million of additional funds, of which $3 million was generated from the repayment at maturity of municipal bonds, $14.2 million was generated from the sale of securities and $789,000 was generated from the repayment of loans. During the same period, PEC purchased equity and debt securities of several Affiliated Companies for approximately $21.5 million, including $16.0 million of securities purchased during the second quarter of 1996. The Affiliated Companies in which PEC purchased securities during the second quarter of 1996 and the purchase price for such securities consisted primarily of Property & Building - $9 million (of which $8.2 million was to purchase ordinary shares pursuant to a rights offering and the balance was to purchase additional ordinary shares, increasing PEC's ownership interest in Property & Building by 0.4% to 37.6%), Scitex - $4.7 million (increasing PEC's ownership interest by 0.55% to 6.6%), Renaissance - $555,000 (reducing PEC's obligation to make additional capital contributions to Renaissance to $154,000) and Gemini and Advent Israel (capital contributions of $1 million and $175,000, respectively, completing PEC's capital commitments to these limited partnerships). During the first half of 1996, PEC also purchased marketable securities of U.S. companies for approximately $6.6 million. During July 1996, PEC purchased additional shares of Affiliated Companies for approximately $2.5 million of which $1.1 million was for additional ordinary shares of Delek (increasing PEC's ownership interest by 0.5% to 2.6%), $710,000 was for additional ordinary shares of Property & Building (increasing PEC's ownership interest by 0.4% to 38.0%), $262,000 was for additional ordinary shares of Tambour (increasing PEC's ownership interest by 0.2% to 42.8%) and $236,000 was for additional ordinary shares of Isrotel (increasing PEC's ownership interest by 0.2% to 2.0%). Page 11 of 15 pages PART II - OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to Item 1 of Part II of PEC's Quarterly Report on Form 10-Q for the quarterly period ended on March 31, 1996 in which PEC discloses that a shareholder derivative action on behalf of PEC has been instituted against the directors of PEC, PEC's Israeli parent companies and certain shareholders thereof. On May 8, 1996, Freyda Tavin ("Tavin") instituted a class action in the Supreme Court of New York State, County of New York, on behalf of the shareholders of Scitex (other than the defendant shareholders)(the "Tavin New York action") against Scitex, the directors of Scitex, certain officers of Scitex, the four largest shareholders of Scitex, including PEC, PEC's Israeli parent companies and certain shareholders thereof. In her complaint, which was served on PEC in June 1996, Tavin alleges that PEC and the three other largest shareholders of Scitex caused Scitex to (i) refuse to negotiate with Davidi Gilo ("Gilo") concerning Gilo's conditional proposals to take Scitex private by purchasing the outstanding ordinary shares of Scitex, first at $20 per share and then at $25 per share, and (ii) fail to explore any other bona fide offers by potential acquirors for the purchase of Scitex. Tavin claims that such alleged action, and the purchase of 1,090,000 ordinary shares of Scitex by PEC and the three other largest shareholders of Scitex after Gilo's announcement of his initial proposal, constituted a breach by PEC and the other defendants of their fiduciary duty to Scitex and its shareholders. The complaint requests that the Court (i) declare the action to be a proper class action, (ii) enjoin the defendants from taking any action to prevent a takeover of Scitex, (iii) order Scitex to take certain measures with respect to possible future transactions, and (iv) require the defendants to pay Tavin and the other members of the class damages and other monetary relief, including attorneys' and experts' fees, costs and expenses. On May 15, 1996, Tavin filed in Superior Court of the Commonwealth of Massachusetts, County of Middlesex, a substantially identical complaint against the same defendants as in the Tavin New York action, requesting the same relief from the Court. PEC believes it has meritorious defenses to both Tavin actions. Page 12 of 15 pages Item 4. Submission of Matters to a Vote of Security Holders. At the Annual Meeting of Shareholders on June 4, 1996, the shareholders elected twelve directors, each for a term of one year. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. A total of 16,821,896 shares were voted with respect to the election of directors, and there were no broker non-votes. The tabulation of the votes cast for each nominee for director was as follows: NUMBER OF SHARES --------------------------------- NAME OF NOMINEE WITHHELD AUTHORITY FOR DIRECTOR VOTED FOR TO VOTE - --------------- ---------- ------------------ Raphael Recanati 16,805,087 16,809 Frank J. Klein 16,795,599 26,297 Robert H. Arnow 16,798,435 23,461 Joseph Ciechanover 16,800,899 20,997 Eliahu Cohen 16,798,199 23,697 Roger Cukierman 16,420,424 401,472 Alan S. Jaffe 16,798,324 23,572 Hermann Merkin 16,801,887 20,009 Harvey M. Meyerhoff 16,805,487 16,409 Oudi Recanati 16,797,724 24,172 Alan S. Rosenberg 16,800,799 21,097 Richard S. Zeisler 16,801,787 20,109 Item 6. Exhibits and Reports on Form 8-K. Exhibit 27 Financial Data Schedule, which is page 15 of this report. Page 13 of 15 pages SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEC ISRAEL ECONOMIC CORPORATION (Registrant) /s/ James I. Edelson ----------------------------------- James I. Edelson Executive Vice President /s/ William Gold ----------------------------------- William Gold Treasurer, Principal Financial Officer and Principal Accounting Officer Date: August 14, 1996 Page 14 of 15 pages EX-27 2
5 This schedule contains summary financial information extracted from the consolidated balance sheet as of June 30, 1996 and the consolidated statement of income for the six months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 6,542 0 0 0 0 0 0 0 410,611 0 0 0 0 31,952 340,647 410,611 0 29,832 0 0 6,010 0 0 23,822 4,946 18,876 0 0 0 18,876 1.00 1.00
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