SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of the Report: April 21, 2008
----------------------------------------
G. WILLI-FOOD INTERNATIONAL LTD.
(Translation of registrant's name into English)
4 NAHAL HARIF ST., YAVNE, ISRAEL 81106
(Address of principal executive offices)
----------------------------------------
Indicate by check mark whether registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
FORM 20-F [X] FORM 40-F [_]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): _____.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7): _____.
Indicate by check mark whether registrant by furnishing the information
contained in this Form, the registrant is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934:
YES [_] NO [X]
If "YES" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____.
EXPLANATORY NOTE
Attached hereto and incorporated by reference herein are the following:
ITEM 1 - Consolidated financial statements of G. Willi-Food International Ltd.
for the year ended December 31, 2007, prepared in conformity with
accounting principles generally accepted in Israel. As applicable to
these financial statements, these accounting principles are
substantially identical to U.S. GAAP (except as indicated in Note 14
to the consolidated Financial Statements). (these financial statements
are in addition to the year ended December 31, 2007 results that were
contained in a press release dated March 31, 2008 and filed under Form
6-K that day).
ITEM 2 - Operating and financial review and prospects.
This report on Form 6-K shall be deemed to be incorporated by reference in the
Registration Statement on Form F-3 (File No. 333-11848 and 333-138200) of the
Company.
SIGNATURES
In accordance with 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.
G. WILLI-FOOD INTERNATIONAL LTD.
By: /s/ Yaron Levy
------------------
Yaron Levy
Chief Financial Officer
Dated: April 21, 2008
ITEM 1
G. WILLI-FOOD INTERNATIONAL LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
G. WILLI-FOOD INTERNATIONAL LTD.
CONTENTS
PAGE
--------------
REPORT OF REGISTERED ACCOUNTING FIRM F - 2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F - 3
Statements of operations F - 4
Statements of shareholders' equity F - 5
Statements of cash flows F - 6 - F - 8
Notes to the financial statements F - 9 - F - 36
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Brightman Almagor 1 Azrieli Center Tel Aviv 67021 P.O.B. 16593, Tel Aviv 61164 Israel Tel: +972 (3) 608 5555 Fax: +972 (3) 609 4022 info@deloitte.co.il www.deloitte.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF G. WILLI-FOOD INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheets of G. WILLI-FOOD
INTERNATIONAL LTD. ("the Company") and its subsidiaries as of December 31, 2007
and 2006 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2007. These 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 conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. An audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, such the consolidated 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, 2007 and 2006 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2007, in conformity
with generally accepted accounting principles in Israel.
Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tomhatsu
Tel-Aviv, Israel
March 31, 2008
F - 2
G. WILLI-FOOD INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------------------
NOTE 2 0 0 7 2 0 0 6 2 0 0 7 (*)
-------- -------- -------- --------
NIS US DOLLARS
------------------------ --------
(IN THOUSANDS)
---------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 61,649 91,398 16,029
Marketable securities 31,267 13,945 8,130
Trade accounts receivable 63,728 48,163 16,570
Receivables and other current assets 3 4,630 4,499 1,204
Inventories 29,166 19,101 7,583
-------- -------- --------
Total current assets 190,440 177,106 49,516
-------- -------- --------
FIXED ASSETS 4
Cost 55,310 49,213 14,381
Less: accumulated depreciation and amortization 8,355 6,442 2,172
-------- -------- --------
46,955 42,771 12,209
-------- -------- --------
OTHER ASSETS, NET 5 2,221 94 577
======== ======== ========
239,616 219,971 62,302
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term bank credit 5,978 - 1,554
Trade accounts payable 33,961 20,137 8,830
Due to related parties 3,945 5,677 1,026
Payables and other current liabilities 6 3,367 6,969 875
-------- -------- --------
Total current liabilities 47,251 32,783 12,285
-------- -------- --------
Accrued severance pay, net 7 460 347 120
-------- -------- --------
COMMITMENTS AND CONTINGENT LIABILITIES 8
WARRANTS TO ISSUE SHARES OF SUBSIDIARY - 348 -
-------- -------- --------
MINORITY INTEREST 18,613 14,754 4,840
-------- -------- --------
SHAREHOLDERS' EQUITY 9
Share capital:
Ordinary shares NIS 0.10 par value
(authorized - 50,000,000 shares
and outstanding - 10,267,893 shares at December
31, 2007; 10,267,893 shares at December 31, 2006) 1,113 1,113 289
Foreign currency translation adjustment (414) - (107)
Additional paid-in capital 61,350 61,350 15,951
Retained earnings 111,243 109,276 28,924
-------- -------- --------
173,292 171,739 45,057
======== ======== ========
239,616 219,971 62,302
======== ======== ========
(*) Convenience translation into U.S. dollars.
The accompanying notes are an integral part of the financial statements.
F - 3
G. WILLI-FOOD INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
NOTE 2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
---------- ---------- ---------- ---------- ----------
NIS US DOLLARS
-------------------------------------------- ----------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
-------------------------------------------------------------
Sales 12A 249,693 191,460 166,282 64,923
Cost of sales 12B 198,827 143,581 128,215 51,697
---------- ---------- ---------- ----------
GROSS PROFIT 50,866 47,879 38,067 13,226
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing 12C 24,404 21,100 15,771 6,345
General and administrative 12D 18,963 14,151 13,544 4,931
Impairment of goodwill 3,054 - - 794
---------- ---------- ---------- ----------
Total operating expenses 46,421 35,251 29,315 12,070
========== ========== ========== ==========
OPERATING INCOME 4,445 12,628 8,752 1,156
Financing income, net 12E 1,856 4,925 2,501 482
Other income, net 470 18,248 35 122
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 6,771 35,801 11,288 1,760
Income taxes 10 2,517 5,379 3,567 654
---------- ---------- ---------- ----------
Income after taxes on income 4,254 30,422 7,721 1,106
Minority interest 2,287 1,807 - 595
---------- ---------- ---------- ----------
NET INCOME 1,967 28,615 7,721 511
========== ========== ========== ==========
EARNINGS PER SHARE (EPS)
Basic 0.19 3.17 0.9 0.05
========== ========== ========== ==========
Diluted 0.19 3.12 0.9 0.05
========== ========== ========== ==========
Shares used in computation
of basic and diluted EPS 10,267,893 9,028,223 8,615,000 10,267,893
========== ========== ========== ==========
(*) Convenience translation into U.S. dollars.
The accompanying notes are an integral part of the financial statements.
F - 4
G. WILLI-FOOD INTERNATIONAL LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
NUMBER FOREIGN
OF CURRENCY TOTAL
ORDINARY SHARE ADDITIONAL TRANSLATION RETAINED SHAREHOLDERS'
SHARES CAPITAL PAID-IN CAPITAL ADJUSTMENT EARNINGS EQUITY
---------- ---------- ---------- ---------- ---------- ----------
NIS
--------------------------------------------------------------------------------
(IN THOUSANDS)
--------------------------------------------------------------------------------
BALANCE - JANUARY 1, 2005 8,615,000 948 20,258 - 77,694 98,900
Declared dividend - - - - (4,754) (4,754)
Net income for the year - - - - 7,721 7,721
---------- ---------- ---------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 2005 8,615,000 948 20,258 - 80,661 101,867
Private placement 1,652,893 165 41,092 - - 41,257
Net income for the year - - - - 28,615 28,615
---------- ---------- ---------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 2006 10,267,893 1,113 61,350 - 109,276 171,739
Foreign currency translation
adjustment - - - (414) - (414)
Net income for the year - - - - 1,967 1,967
---------- ---------- ---------- ---------- ---------- ----------
BALANCE - DECEMBER 31, 2007 10,267,893 1,113 61,350 (414) 111,243 173,292
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F - 5
G. WILLI-FOOD INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------- ------- ------- -------
NIS US DOLLARS
------------------------------------- -------
(IN THOUSANDS)
----------------------------------------------------
CASH FLOWS - OPERATING ACTIVITIES
Net income 1,967 28,615 7,721 511
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Minority interest 2,287 1,807 - 595
Depreciation and amortization 5,440 1,207 1,252 1,414
Deferred income taxes (433) 322 34 (112)
Loss (gain) from sale of fixed assets (16) 50 (35) (4)
Unrealized loss (gain) on marketable securities 56 (1,316) (755) 14
Accrued severance pay, net 113 48 114 29
Gain on share issuance by subsidiary - (18,040) - -
CHANGES IN ASSETS AND LIABILITIES:
Decrease (Increase) in:
Trade accounts receivable (11,867) 233 (7,509) (3,085)
Receivables and other current assets 305 3,137 (6,523) 79
Inventory (2,628) 11,697 (3,659) (683)
Increase (decrease) in:
Trade accounts payable 18,271 (4,712) 872 4,750
Payables and other current liabilities (5,205) 1,941 1,195 (1,353)
Decrease in value of warrants to issue shares
of subsidiary (348) (1,067) - (90)
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 7,942 23,922 (7,293) 2,065
------- ------- ------- -------
(*) Convenience translation into U.S. dollars.
The accompanying notes are an integral part of the financial statements.
F - 6
G. WILLI-FOOD INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------- ------- ------- -------
NIS NIS NIS US DOLLARS
------- ------- ------- -------
(IN THOUSANDS)
----------------------------------------------------
CASH FLOWS - INVESTING ACTIVITIES
Long term deposit (131) - - (34)
Purchase of additional shares in subsidiary (182) - - (47)
Acquisition of subsidiary in a business combination (b) (15,400) - - (4,004)
Proceeds from realization (purchase) of marketable
securities, net (17,378) (9,400) (780) (4,519)
Additions to fixed assets (11,259) (22,971) (14,889) (2,927)
Proceeds from sale of fixed assets 16 511 51 4
------- ------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (44,334) (31,860) (15,618) (11,527)
------- ------- ------- -------
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from public listing of subsidiary - 32,402 - -
Cash dividend - (4,754) - -
Short-term bank borrowings, net 6,781 - (2,489) 1,763
Proceeds from private placement - 41,257 - -
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 6,781 68,905 (2,489) 1,763
------- ------- ------- -------
Effect of exchange rate changes on cash and cash equivalents
in subsidiary (138) - - (36)
======= ======= ======= =======
Net change in cash and cash equivalents (29,749) 60,967 (25,400) (7,735)
Cash and cash equivalents at beginning of year 91,398 30,431 55,831 23,764
------- ------- ------- -------
Cash and cash equivalents at end of year 61,649 91,398 30,431 16,029
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:
Interest - - 9 -
======= ======= ======= =======
Taxes 763 4,168 2,596 198
======= ======= ======= =======
(*) Convenience translation into U.S. dollars.
The accompanying notes are an integral part of the financial statements.
F - 7
G. WILLI-FOOD INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
YEAR ENDED DECEMBER 31,
-------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------- ------- ------- -------
NIS NIS NIS US DOLLARS
------- ------- ------- -------
(IN THOUSANDS)
-------------------------------------------
(B) ACQUISITION OF SUBSIDIARY IN A BUSINESS COMBINATION
Working capital (excluding cash and cash equivalents) 11,978 - - 3,114
Fixed assets, net 208 - - 54
Other assets, net 3,214 - - 836
------- ------- ------- -------
15,400 - - 4,004
======= ======= ======= =======
(C) SUPPLEMENTAL CASH FLOW INFORMATION:
Acquisition of fixed assets on credit - 6,219 - -
======= ======= ======= =======
(*) Convenience translation into U.S. dollars.
The accompanying notes are an integral part of the financial statements.
F - 8
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
G. Willi-Food International Ltd. ("the Company") was incorporated in Israel
in January 1994 and is engaged in the import, export, marketing and
distribution of food products.
The Company is a subsidiary of Willi-Food Investments Ltd. ("the parent
company"). The shares of the parent company are registered for trade on the
Tel-Aviv Stock Exchange.
ACQUISITION OF SUBSIDIARIES:
A. In January 19, 2007, the Company established a fully-owned subsidiary
in the US, WF Kosher Food Distributors LTD. ("WF") in order to acquire
the operations and assets (including inventory, account receivables,
and account payables) of Laish Israeli Food Products Ltd., a U.S.
importer and distributor of kosher food products for approximately NIS
15.4 million ($4 million) in cash. The sources for the purchase price
are a bank loan in the amount of NIS 6.6 million ($1.7 million) taken
by WF and cash on hand from the company. As a result of the
acquisition, the Company recorded goodwill in the amount of
approximately NIS 3.1 million.
In a routine check conducted in WF, it was discovered that certain
receivables might not be recoverable. As a result the Company
concluded that an allowance for those accounts, in the amount of NIS
2.2 million ($0.57 million) is required. In addition, it was
discovered that an inventory, in the amount of NIS 3.2 million ($0.83
million), may not be realizable and was written off.
The Company also checked for impairment of the goodwill assigned to WF
in the acquisition and determined that it has to be written off in its
entirety. The amount of goodwill written off was NIS 3.1 million
($0.81 million).
B. On February 13, 2007, the company signed an agreement with the Baron
family (an unrelated third party), kosher food exporters located in
Israel, to form a joint global kosher trade and export company ("Joint
Company"). The Company will hold a 50.1% interest, and the Baron
family will hold the remaining interest. In consideration for the
50.1% interest, the Company will pay up to $2 million in owner's
loans, as needed. Of this amount, an amount equal to two times net
profit before tax during the first four full consecutive quarters
(after closing) will be converted into equity, up to a maximum amount
of $1 million. The loan will be repaid prior to any dividend
distribution. As of December 31, 2007, the Company paid the Joint
Company the amount of $1 million. Under the terms of the agreement,
all of the current food export operations of the Baron family will be
executed under the new entity. Under the terms of the agreement, the
Joint Company will be engaged in the food export activities performed
until now by the Baron Family, which involved the export of kosher
products from more than 100 suppliers, predominantly from Israel, to
the U.S., Canada, England, Belgium, France, Switzerland, Australia,
South Africa, Mexico, Argentina and Chile. Product categories
currently exported include candies, preserves, cakes and cookies,
snacks, cereals, frozen pastries and ice creams, baby food and general
grocery items.
F - 9
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in Israel. As applicable
to these financial statements, these accounting principles are
substantially identical to U.S. GAAP, except as indicated in Note 14.
B. USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
C. CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE TO REPORTING IN
REPORTED AMOUNTS - STANDARD NO. 12
(1) DEFINITIONS
Adjusted Amount - historical nominal amount adjusted for changes
in the exchange rate of the U.S. dollar as of December 31, 2003,
in accordance with Opinion No. 36 of the Institute of Certified
Public Accountants in Israel.
Reported Amount - Adjusted Amount plus amounts in nominal terms
added subsequent to December 31, 2003, and less amounts
subtracted after that date.
(2) GENERAL
On January 1, 2004, Accounting Standard No. 12 of the Israel
Accounting Standards Board ("IASB") ("Standard 12") came into
force and effect. In accordance with the provisions of Standard
12, adjustment of financial statements to the inflation shall
cease commencing January 1, 2004, with adjusted amounts of
non-monetary items which were included in the balance sheet as of
December 31, 2003, used as basis for the nominal financial
reporting as and from January 1, 2004. Amounts presented in the
financial statements for all periods were, therefore, included in
values to be hereinafter referred to as - "Reported amounts".
The Company maintains its accounting records on a current basis
in nominal NIS. Nominal amounts were adjusted to their respective
reported amounts herein, based on the principles detailed in
section 2 below, in accordance with the provisions of Standard
12.
The term "cost" in the financial statements indicates cost in
reported amounts, unless otherwise stated.
(3) PRINCIPLES OF ADJUSTMENT APPLICABLE FOR FINANCIAL STATEMENTS IN
REPORTING AMOUNTS
a. BALANCE SHEET ITEMS
Non-monetary items (items whose balances reflect historical
value at acquisition or upon establishment) are presented at
their Adjusted Amounts as of December 31, 2003 plus
additions and dispositions occurring subsequent to such
date.
Monetary items (items whose balance sheet amount reflects
their current value or realization value at the balance
sheet date) are presented at their nominal value as of the
balance sheet date.
Investments in Subsidiaries are presented based on the
financial statements of these companies prepared in
accordance with the guidance of Standard No. 12.
F - 10
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
C. CESSATION OF FINANCIAL STATEMENT ADJUSTMENT AND CHANGE TO REPORTING IN
REPORTED AMOUNTS - STANDARD NO. 12 (CONT.)
(3) PRINCIPLES OF ADJUSTMENT APPLICABLE FOR FINANCIAL STATEMENTS IN
REPORTING AMOUNTS (CONT.)
b. STATEMENT OF OPERATIONS ITEMS
Income and expenses reflecting transactions, and financial
income and expenses, are presented at their nominal value.
Income and expenses deriving from non-monetary items (mainly
depreciation, amortization and changes in inventory) were
presented in a manner corresponding to the presentation of
the related non-monetary balance sheet item, as illustrated
above.
The Company's share in the results of Subsidiaries is
determined based on the financial statements of these
companies prepared in accordance with the guidance of
Standard No. 12.
c. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include consolidation
of the financial statements of all Subsidiaries. Material
inter-company balances and transactions of and between
Subsidiaries have been fully eliminated.
The unallocated excess cost due to investment in an investee
deriving from the difference between the fair value of the
investee's identifiable assets (including intangible assets)
over the fair value of its identifiable liabilities (after
deferred taxes) at the acquisition date is goodwill which is
being disclosed under other asset.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits, available for
immediate withdrawal, as well as unrestricted short-term deposits with
maturities of less than three months from the date of deposit.
E. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is computed on the specific
identification basis for accounts whose collectibility, on
management's estimation, is uncertain.
Financial statements in reported amounts.
F. EXCHANGE RATES AND LINKAGE BASIS
(1) Balances in foreign currency or linked thereto are included in
the financial statements based on the representative exchange
rates, as published by the Bank of Israel, that were prevailing
at the balance sheet date.
F - 11
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F. EXCHANGE RATES AND LINKAGE BASIS (CONT,)
(2) Following are the changes in the representative exchange rate of
the U.S. dollar vis-a-vis the NIS and in the Israeli CPI:
REPRESENTATIVE
EXCHANGE RATE
------------
OF THE DOLLAR CPI
------------ "IN RESPECT OF"
(NIS PER $1) (IN POINTS)
------------ -----------
AS OF:
December 31, 2007 3.846 191.15
December 31, 2006 4.225 184.87
December 31, 2005 4.603 185.05
% %
------------ -----------
INCREASE (DECREASE)
DURING THE YEAR ENDED:
December 31, 2007 (9.0) 3.4
December 31, 2006 (8.2) -
December 31, 2005 6.8 2.4
(3) Exchange-rate differences are charged to operations as incurred.
CPI-linked balances are stated using the specific index to which the
balances are linked.
G. CONVENIENCE TRANSLATION
The adjusted financial statements as of December 31, 2007 and for the
year then ended have been translated into United States dollars using
the representative exchange rate at December 31, 2007 as published by
the Bank of Israel (US$ 1.00 = NIS 3.846). The translation was made
solely for the convenience of readers in the United States.
It should not be construed that the translated dollar figures actually
represent, or could be converted into, US dollars.
H. MARKETABLE SECURITIES
Marketable securities are classified as "trading" and are stated at
fair market value.
I. INVENTORIES
Inventories are stated at the lower of cost or net realizable value.
Cost is determined for raw materials, auxiliary materials and finished
products on the basis of weighted moving average cost per unit method.
Net realizable value represents the estimated selling price for
inventories less all estimated costs of completion and costs necessary
to make the sale.
F - 12
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
J. FIXED ASSETS
Fixed assets are stated at cost, with depreciation computed by the
straight-line method over the assets' estimated useful lives, as
follows:
YEARS
-----
Mechanical equipment 10
Buildings 25
Motor vehicles 5
Office furniture and equipment 6.7-16
Computers and peripheral equipment 3-5
Leasehold improvements are amortized by the straight-line method over
the shorter of the term of the lease, or the estimated useful life of
the improvements.
The Company assesses the recoverability of the carrying amount of its
fixed assets, when circumstances exist, based on expected undiscounted
cash flows. If an asset's carrying amount is not expected to be
recoverable, the Company recognizes an impairment loss based upon the
difference between the carrying amount and the fair value of such
assets.
K. DEFERRED INCOME TAXES
The Company records deferred income taxes in accordance with Standard
No. 19 "INCOME TAXES" of the Israeli Accounting Standards Board, to
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and for tax purposes. Deferred taxes are computed based on
the tax rates anticipated (under applicable law as of the balance
sheet date) to be in effect when the deferred taxes are expected to be
paid or realized.
Deferred tax liabilities and assets are classified as current or
noncurrent based on the classification of the related asset or
liability for financial reporting, or according to the expected
reversal dates of the specific temporary differences, if not related
to an asset or liability for financial reporting. Deferred tax
liabilities are recognized for temporary differences that will result
in taxable amounts in future years. Deferred tax assets are
recognized, if it is probable that such assets would be realized, for
temporary differences, which will result in deductible amounts in
future years and for carryforwards. An allowance against such deferred
tax asset is recognized if it is probable that some portion or all of
the deferred tax assets will not be realized.
L. GOODWILL AND OTHER INTANGIBLES ASSETS
In January 2006, the company adopted Accounting Standard No. 20
(Revised) "Accounting Treatment of Goodwill and Other Intangibles upon
the Acquisition of an Investee", which applies to financial statements
covering periods beginning on January 1, 2006 ("the Effective Date".)
According to the standard, the excess of acquisition cost of an
investment in an investee over the share of the company holding the
fair value of the investee's identifiable assets, including
intangibles, net of the fair value of identifiable liabilities (after
tax allocation) at acquisition, constitutes goodwill. Recognition of
an intangible asset independently of goodwill should take place only
if the intangible asset is identifiable based on the criteria outlined
in the standard.
F - 13
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
L. GOODWILL AND OTHER INTANGIBLES ASSETS (CONT.)
Goodwill will not be amortized but will rather be examined once a year
or more frequently should signs indicate goodwill impairment.
Moreover, should a negative goodwill be created upon acquisition it
would be recognized as a gain and immediately allocated to operations
and not amortized. The standard distinguishes between intangible
assets which have defined useful lives and those that do not, stating
that the former should be amortized while the latter should not while
rather examined whether any signs indicate impairment.
Comparative figures covering periods before the effective date should
not be restated and starting on the Effective Date, the goodwill
presented in the 2005 annual financial statements will no longer be
amortized, with the Company periodically examining the goodwill's net
book value, as noted above.
For the purpose of impairment testing, goodwill is allocated to each
of the Group's cash-generating units expected to benefit from the
synergies of the combination. Cash-generating units to which goodwill
has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired.
If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or a jointly controlled entity, the
attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
In January 2007 the company adopted Accounting Standard No. 30
"Intangibles assets".
Intangible assets which have defined useful lives are depreciated by
the estimated economic lives, as follows:
YEARS
-----------------
Suppliers list 7
Backlog fully depreciated
M. REVENUE RECOGNITION
The Company recognizes revenue upon the shipment of its products to
the customer provided that persuasive evidence of an arrangement
exists, title has transferred, the price is fixed, collection of
resulting receivables is probable and there are no remaining
significant obligations.
The Company grants to certain customers a right to return the
products, with the corresponding provision recorded for the estimated
future product returns, based on the Company's experience.
F - 14
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
N. CUSTOMER INCENTIVES
The Company is obligated to pay incentives to certain customers based
on the volume of sales. The incentive is computed as a percentage of
the annual volume or as a percentage of the increase in volume of
sales to such customers in excess of a certain agreed amount, and is
generally paid at the beginning of each year in respect of the
previous year. The Company presents its revenues as net of such
incentives, calculated based on the volume of sales.
O. STOCK-BASED COMPENSATION
In January 2006, the company adopted Accounting Standard No. 24
"Share-Based Compensation" (the "Standard"), for the recognition in
the financial statements of share-based payments for employees and
directors. Costs associated with grants of shares and options to
employees and directors are expensed over the vesting period of each
grant. Said costs are determined based on the fair value of the grants
at each grant date.
As for the periods before the adoption of the Standard, the Company
accounted for employee and director stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and
authoritative interpretations thereof. Accordingly, the Company
accounted for share options granted to employees and directors based
on the intrinsic value of the options on the measurement date.
See Note 14C for pro forma disclosures required by SFAS 123.
P. EARNINGS PER SHARE
In January 2006, the company adopted Accounting Standard No. 21,
"Earnings Per Share" (the "Standard").
With the initial adoption of the Standard, Opinion No. 55 of the
Institute of Certified Public Accountants in Israel - Earnings per
share was cancelled.
Basic earnings per share is calculated by dividing profit or loss
attributable to ordinary equity holders of the entity (the numerator)
by the weighted average number of ordinary shares outstanding (the
denominator) during the reported period. Diluted earnings per share is
calculated by adjusting profit or loss attributable to ordinary equity
holders of the entity, and the weighted average number of shares
outstanding, for the effects of all dilutive potential ordinary
shares.
Q. TRANSACTIONS BETWEEN THE COMPANY AND ITS CONTROLLING SHAREHOLDER
In January 2007, the Company adopted Accounting Standard No. 23, "The
Accounting Treatment of Transactions between an Entity and its
Controlling Shareholder" (Standard 23). Standard 23 replaces the
Securities Regulations (Financial Statement Presentation of
Transactions between a Company and its Controlling Shareholder) - 1996
and provides that assets and liabilities included in a transaction
between the entity and its controlling shareholder shall be measured
on the date of the transaction at fair value and that the difference
between the fair value and the consideration from the transaction
shall be included in shareholders' equity including related income
taxes.
F - 15
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
R. RECLASSIFICATION
Certain prior years amounts have been reclassified in conformity with
current year's financial statements presentation.
S. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS
ISRAELI GAAP:
ACCOUNTING STANDARD NO. 29 "ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS"
In July 2006, the Israeli Accounting Standards Board published
Accounting Standard No. 29 - "Adoption of International Financial
Reporting Standards" - IFRS ("the Standard").
According to the Standard, an entity subject to the Israeli
Securities Law and authoritative Regulations thereunder
(including dual listed companies), excluding foreign corporations,
that do not prepare their financial statements in accordance
with Israeli GAAP, as defined by this Law will be required to
prepare financial statements in accordance with the IFRS and
related interpretations published by the International Accounting
Standards Board, for the reporting periods commencing January 1,
2008, including interim periods.
An entity adopting IFRS as of January 1, 2008 and electing to
report comparative figures in accordance with the IFRS for only
2007, will be required to prepare opening balance-sheet amounts
as of January 1, 2007 based on the IFRS.
Reporting in accordance with the IFRS will be carried out based
on the provisions of IFRS No. 1, "First-time Adoption of IFRS
Standards", which establishes guidance on implementing and
transitioning from financial reporting based on domestic national
accounting standards to reporting in accordance with IFRS. IFRS
No. 1 supersedes the transitional provisions established in other
IFRSs (including those established in former domestic national
accounting standards), stating that all IFRSs should be adopted
retroactively for the opening balance-sheet amounts.
Nevertheless, IFRS No. 1 grants exemptions on certain issues by
allowing the alternative of not applying the retroactive
application in respect thereof.
The Standard allows for earlier application in a manner by which
applicable entities may convert their financial statements
published subsequent to July 31, 2006 to the IFRS. Management has
decided to adopt the IFRS commencing January 1, 2008.
Since the requirements of the standard do not apply on the
Company this financial statements do not include opening
balance-sheet amounts as of January 1, 2007 based on the IFRS.
F - 16
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
S. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS (CONT.)
US GAAP:
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" (SFAS No. 157). The purpose of SFAS No. 157 is to
define fair value, establish a framework for measuring fair
value, and enhance disclosures about fair value measurements. The
measurement and disclosure requirements are effective for the
Company beginning in the first quarter of fiscal year 2008. The
Company does not expect the adoption of SFAS No. 157 to have a
material impact on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities" (SFAS No.
159). SFAS No. 159 permits companies to choose to measure certain
financial instruments and certain other items at fair value. The
standard requires that unrealized gains and losses on items for
which the fair value option has been elected be reported in
earnings.
A business entity will report unrealized gains and losses on
items for which the fair value option has been elected in
earnings (or another performance indicator if the business entity
does not report earnings) at each subsequent reporting date. The
fair value option: (a) may be applied instrument by instrument,
with a few exceptions, such as investments otherwise accounted
for by the equity method; (b) is irrevocable (unless a new
election date occurs); and (c) is applied only to entire
instruments and not to portions of instruments. SFAS No. 159 is
effective as of the beginning of an entity's first fiscal year
that begins after November 15, 2007, although earlier adoption is
permitted. The Company does not expect the adoption of SFAS No.
159 to have a material impact on its consolidated financial
statements.
In June 2007, the FASB ratified Emerging Issues Task Force (EITF)
Issue No. 07-3, "Accounting for Nonrefundable Advance Payments
for Goods or Services to Be Used in Future Research and
Development Activities" (EITF 07-3). EITF 07-3 requires
non-refundable advance payments for goods and services to be used
in future research and development activities to be recorded as
an asset and the payments to be expensed when the research and
development activities are performed. EITF 07-3 applies
prospectively for new contractual arrangements entered into
beginning in the first quarter of fiscal year 2008. We currently
recognize these non-refundable advanced payments as an expense
upon payment. The adoption of EITF 07-3 is not expected to have a
significant impact on the Company's consolidated financial
statements.
F - 17
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
S. IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS (CONT.)
US GAAP: (CONT.)
In December 2007, the FASB issued SFAS No. 141(Revised 2007)
"Business Combinations" ("SFAS 141(R)") and SFAS No 160,
"Non-controlling Interests in Consolidated Financial Statement"
("SFAS 160"). SFAS 141(R) requires the acquiring entity in a
business combination to record all assets acquired and
liabilities assumed at their respective acquisition-date fair
values and changes other practices under FAS 141, some of which
could have a material impact on how we account for business
combinations. SFAS 141(R) also requires additional disclosure of
information surrounding a business combination, such that users
of the entity's financial statements can fully understand the
nature and financial impact of the business combination. SFAS 160
requires entities to report non-controlling (minority) interests
in subsidiaries as equity in the consolidated financial
statements. We are required to adopt SFAS 141(R) and SFAS 160
simultaneously in our fiscal year beginning after December 15,
2008. The provisions of SFAS 141(R) will only impact the Company
if it is a party to a business combination after the
pronouncement has been adopted. The Company is currently
evaluating the effects, if any, that SFAS 160 may have on its
financial statements.
F - 18
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RECEIVABLES AND OTHER CURRENT ASSETS
COMPRISED AS FOLLOWS:
DECEMBER 31,
-----------------------------
2 0 0 7 2 0 0 6 2 0 0 7 (*)
----- ----- -----
NIS NIS US DOLLARS
----- ----- -----
(IN THOUSANDS)
-----------------------------
Tax authorities 908 1,556 236
Advances to suppliers 2,224 2,416 578
Value-added tax 554 133 144
Deferred income 41 - 11
Deferred income taxes 256 - 67
Prepaid expenses and others 647 394 168
----- ----- -----
4,630 4,499 1,204
===== ===== =====
(*) Convenience translation into U.S. dollars.
NOTE 4 - FIXED ASSETS
COMPRISED AS FOLLOWS:
DECEMBER 31,
--------------------------------
2 0 0 7 2 0 0 6 2 0 0 7 (*)
------ ------ ------
NIS NIS US DOLLARS
------ ------ ------
(IN THOUSANDS)
--------------------------------
Cost:
Land and building 42,031 (**)38,583 10,928
Motor vehicles 8,567 6,784 2,228
Mechanical equipment 653 (**) 398 170
Computers and peripheral equipment 2,771 2,349 720
Office furniture and equipment 1,288 788 335
Leasehold improvements - 311 -
------ ---------- ------
55,310 49,213 14,381
====== ========== ======
Accumulated depreciation and amortization:
Building 844 - 219
Motor vehicles 5,046 4,104 1,312
Mechanical equipment 64 - 16
Computers and peripheral equipment 1,722 1,403 448
Office furniture and equipment 679 628 177
Leasehold improvements - 307 -
------ ---------- ------
8,355 6,442 2,172
====== ========== ======
(*) Convenience translation into U.S. dollars.
(**) reclassified
NOTE 5 - OTHER ASSETS, NET
COMPRISED AS FOLLOWS:
DECEMBER 31,
-----------------------------
2 0 0 7 2 0 0 6 2 0 0 7 (*)
----- ----- -----
NIS NIS US DOLLARS
----- ----- -----
(IN THOUSANDS)
-----------------------------
Goodwill 1,795 - 467
Deferred tax 115 94 30
Suppliers list 103 - 26
Long term deposit 208 - 54
----- ----- -----
2,221 94 577
===== ===== =====
(*) Convenience translstion into U.S. dollars
F - 19
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PAYABLES AND OTHER CURRENT LIABILITIES
COMPRISED AS FOLLOWS:
DECEMBER 31,
----------------------------
2 0 0 7 2 0 0 6 2 0 0 7 (*)
----- ----- -----
NIS US DOLLARS
---------------- -----
(IN THOUSANDS)
----------------------------
Allowance for taxes 133 289 35
Tax authorities 174 3,825 45
Accrued expenses 1,099 947 285
Payroll-related amounts 1,208 1,131 314
Customer advances 188 655 49
Other 565 122 147
----- ----- -----
3,367 6,969 875
===== ===== =====
(*) Convenience translation into U.S. dollars.
NOTE 7 - ACCRUED SEVERANCE PAY, NET
The Company's obligation for severance pay is calculated in accordance with
the Israeli Severance Pay Law, 1963, and is based on the most recent
monthly salary and the length of employment in the Company. The obligation
is partially funded through insurance policies not under the Company's
custody, and the unfunded balance is accrued as a liability on the balance
sheet.
Severance pay expenses for 2007, 2006 and 2005 were NIS 664 thousand ($173
thousand), NIS 449 thousand and NIS 411 thousand, respectively.
The total value of the insurance policies at December 31, 2007 and 2006 and
2005 was NIS 1,098 thousand ($285 thousand), NIS 810 thousand and NIS 665
thousand, respectively.
The Company has no liability for pension expenses to its employees.
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES
A. CONTINGENT LIABILITIES AND GUARANTEES
The Company is contingently liable in respect of documentary letters
of credit from banks and suppliers' credit guaranteed by banks for the
import of food products totaling, at December 31, 2007, NIS 33,286
thousand ($8,655 million).
B. CREDIT RISK
Financial instruments that potentially subject the Company to credit
risk consist principally of trade receivables. A major portion of the
Company's sales was to a limited number of customers (see Note 12A).
The Company, which generally does not require security from those
customers, maintains an allowance for doubtful accounts, based upon
factors regarding the credit risk of specific customers, historical
trends and other information, which management believes adequately
covers all anticipated losses in respect of trade receivables.
F - 20
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
C. SUPPLY OF PRODUCTS
As of December 31, 2007, the Company was dependent on one supplier in
respect of some of its products. Purchases of products from this
supplier were approximately 13% and 20% of all the Company's purchases
of products for 2007 and 2006, respectively. The Company had a
contract with the supplier, according to which the Company is the
latter's exclusive agent and distributor in Israel in connection with
certain products for a five-year period starting March 2005. In July
2007 the agreement has been amended and the exclusivity period has
been extended to 10 years. Termination of the Company's business
relationships with this supplier and/or a material adverse change in
the terms at which it purchases products from him may have a material
adverse effect on the Company's financial results. There can be no
assurance that alternative source of supply, if required, will be
readily available nor can there be any assurance as to purchase terms.
D. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company consist mainly of cash and
cash equivalents, marketable securities, current accounts receivable,
short-term borrowings, accounts payable and accruals.
In view of their nature, the fair value of the financial instruments,
included in working capital, is usually identical or close to their
book value.
E. LEASE COMMITMENTS
The lease for the previous logistics center ended in April 2007.
Total rent expenses for 2007, 2006 and 2005 were NIS 1,037 thousand
($270 thousand), NIS 1,939 thousand and NIS 1,918 thousand,
respectively.
In August 2005 the Company acquired from a related party a plot of
land totaling 19,000 sq. m. for establishing a logistics center of
8,600 sq. m. The transaction has been ratified by the Company's Audit
Committee and Board of Directors on May 25, 2005 and by the
shareholders' General Meeting on July 20, 2005.
In April 2007 the company removed its warehouse and offices to the new
logistic center.
F. CLAIMS
1. A lawsuit was filed in December 2001 against 29
importers/producers of food products, including the Company, for
an amount totaling NIS 500 million (USD 130 million).
Concurrently, the plaintiffs filed a request for an exemption
from the court fee. Following the court's rejection of the
plaintiffs' request for the noted fee exemption and their failure
to pay such fee, the court dismissed the case.In January 2004 the
abovementioned plaintiffs filed a new lawsuit against the 29
noted importers/producers for NIS 1 billion (USD 260 million).
Again, a request was made concurrently for an exemption from the
court fee. This request was rejected by the registrar of the
court, and the action was dismissed without prejudice in November
2006.
The plaintiffs then filed an appeal with the District Court of
the registrar's November 2006 decision; however, before the
appeal was decided by the court, the plaintiffs filed a request
with the court to cancel the appeal due to the plaintiffs'
intention to file the appeal with the Israeli Supreme Court. The
plaintiffs then filed an appeal with the Supreme Court, and
requested an exemption from the court fee for the appeal and from
the requisite security deposit. The request for exemption of
court fee was granted by the Supreme Court on July 3, 2007, but
the plaintiffs were required to pay a deposit of NIS 20,000 as
security for the legal expenses of the respondents, which sum was
deposited with the Supreme Court on March 9, 2008. Although the
proceedings are still at a preliminary stage, the Company's
management and legal counsel believe that the plaintiffs'
likelihood of success in the proceedings is low.
F - 21
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
2. In or about October, 2005, Vitarroz Corp. commenced an action in
the Superior Court of the State of New Jersey, against Willi USA
Holdings, Inc. (a subsidiary of the Company), the Company and Zwi
Williger (collectively, the "Defendants") due to a dispute
concerning a press release announcing the termination of the
proposed acquisition of the Vitarroz business by the Company On
November 2005, the Company removed the matter from the Superior
Court of New Jersey to the United States District Court for the
District of New Jersey. The complaint was subsequently amended
and, as amended, alleged, inter alia, breach of contract,
defamation, breach of covenants of good faith and fair dealing,
fraudulent inducement and tortious interference with contractual
relations and prospective economic advantage. Defendants did not
respond to the complaint as an agreement was reached to arbitrate
all disputes between the parties and certain third parties. Not
only did the parties agree to submit the claims which are the
subject of the amended complaint to binding arbitration but they
agreed to submit to arbitration (i) claims that defendants have
against plaintiff and related third parties, and (ii) claims
which the Company asserted against Vitarroz in an action that was
then pending in Israel regarding the alleged breach of an
agreement executed by the Company and Vitarroz, pursuant to which
Vitarroz was to supply food products to the Company. Although
there was no discovery taken in the then pending Court matters,
Vitarroz claimed in correspondence to the District Court that it
sustained, inter alia, damage: to its financial reputation; that
suppliers refused to extend favorable credit and delivery terms;
that there were lost profits of approximately $500,000; and that
its sale to IDT realized a sales price of approximately $3
million less than what was expected; and that there are
additional damages resulting from defendants' actions which are
claimed to exceed $3.5 million. The discovery process in the
arbitration proceedings has commenced and is ongoing. During the
course of discovery, Vitarrozz submitted the reports of its
financial expert claiming damages in excess of $6.6 million. The
Company has submitted the report of its financial expert claiming
damages in excess of $10 million. Limited discovery remains to be
completed before the attributing hearing which is scheduled to
take place at the end of April. Defendants believe that
Vitarroz's allegations are without merit, and they intend to
vigorously defend against such claims.
F - 22
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
F. CLAIMS (CONT.)
3. Five lawsuits and motions to certify as class actions against
Willi-Food were filed in the Tel-Aviv Jaffa District Court, all
based on claims regarding reductions in the contents of
Willi-Food products. The Plaintiffs' claims in all of the motions
are similar: The consumers who purchased the products were
misled, since the contents of the packages were reduced without
notifying the consumer public and without reducing the prices of
the products in direct proportion. One of the lawsuits in the
amount of NIS 6.2 million was cancelled during 2007. The total
amount of the remaining class actions is approximately NIS 39.6
in millions.
At this point, given the preliminary stage of all the
abovementioned legal proceedings, the Company can not determine
the outcome of such law suite.
4. On February 21, 2007, a lawsuit was filed by Cukierman & Co.
Investment House Ltd. in the Tel Aviv-Jaffa Magistrates Court in
the amount of NIS 273,852, claiming non payment of fees for
professional services rendered. A statement of defense has not
yet been filed. Given the early stage of these proceedings, the
Company is unable at this point to assess the risks involved.
5. In September 2007, Thurgeman Construction Co. Ltd. ("Thurgeman")
filed a claim against the Company in the District Court of Tel
Aviv the amount of NIS 4,449,340 (plus VAT) regarding a dispute
in connection with the construction of the Company's logistics
center in Yavne (the "Project") pursuant to a contract between
the parties, dated as of September 9, 2005. Under the terms of
the contract, Thurgeman was to serve as the operating contractor
for the construction of the frame and the surrounding portions
for the construction of the Project.
During the course of construction on the Project, the parties
raised several claims against each other in connection with the
progress of construction on the Project. The Company claimed that
Thurgeman grossly violated the terms of the contract by
continuous delays in the completion of the Project, and by
performing the construction work in a negligent and
unprofessional manner and with inferior quality. Thurgeman
counterclaimed that it performed the construction work according
to the terms of the contract and that any delays in the work were
not caused through any fault of Thurgeman. Furthermore, Thurgeman
claimed that the Company withheld certain payments to which
Thurgeman was entitled for additional work on the Project,
causing Thurgeman damages.
At the end of November 2007, the Company filed a statement of
defense, which included a counterclaim against Thurgeman and its
executive, Dotan Thurgeman, which contained among other things, a
claim of defamation, a claim for damages caused by the delay in
delivery of the completed Project, and damages caused by
Thurgeman's poor and careless work on the Project. The sum of the
damages claimed by the Company in the counterclaim was NIS 5
million. In February 2008, Thurgeman filed a response to the
counter claim. As of the date of this Annual Report, a date for
the hearing has yet to be set.
At the current preliminary stage of the dispute, the Company's
management and legal counsel cannot assess the chances of the
parties.
F - 23
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
F. CLAIMS (CONT.)
6. On June 18, 2006, the Company filed a claim against Filiz and
Ash-Bar in the amount of NIS 4,473,878 for breach of contract.
The complaint was served on filiz and Ash-Bar through Ash-Bar's
chief executive officer. Filiz then filed a request to cancel the
complaint, claiming that Ash-Bar is not authorized to accept
service of process on its behalf. The request was denied by the
court's registrar.
On November 4, 2007, Filiz filed an appeal of the registrar's
decision and requested an extension for filing its defense to the
complaint pending a decision on the appeal. A hearing has been
set for April 24, 2008.
The Company's legal counsel believes that there is a substantial
chance that the service of process will be accepted by the court,
and notwithstanding the fact that the proceedings are still at a
preliminary stage, the Company's legal counsel believes that the
complaint is based on sound legal arguments, and that there is a
reasonable possibility that a not insignificant portion of the
arguments will be sustained by the court.
G. LIENS
The Company has registered fixed and floating liens in favor of banks
on its assets and insurance rights and a fixed lien, unlimited in
amount, on its share capital and goodwill.
H. RELATED PARTIES
1. As of June 1, 1998, the Company entered into certain management
services agreements with certain companies controlled by each of
Messrs. Joseph and Zvi Williger, respectively (collectively, the
"Williger Management Companies"), pursuant to which Messrs.
Joseph and Zvi Williger are to provide management services on
behalf of the Williger Management Companies to the Company (the
"Management Services Agreements").
The Management Services Agreements were for a period of four
years commencing on June 1, 1998 (the "Management Services
Period"), were automatically renewed on June 1, 2002 for two
years and were automatically renewed for an additional period of
two years in June 2004.
F - 24
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
H. RELATED PARTIES (CONT.)
1. (Cont.)
As of June 1, 1998, the Company entered into certain management
services agreements with certain companies controlled by each of
Messrs. Joseph and Zvi Williger, respectively (collectively, the
"Williger Management Companies"), pursuant to which Messrs.
Joseph and Zvi Williger are to provide management services on
behalf of the Williger Management Companies to the Company (the
"Management Services Agreements").
The Management Services Agreements were for a period of four
years commencing on June 1, 1998 (the "Management Services
Period"), were automatically renewed on June 1, 2002 for two
years and were automatically renewed for an additional period of
two years in June 2004.
Each of the Management Services Agreements provides for monthly
services fees equal to $24,500 (excluding VAT) and an annual
bonus at a rate of 3% of the Company's consolidated pre-tax
annual profits, if such profits are equal to or less than NIS 3.0
million (approximately USD 0.8 million), or at a rate of 5% if
such profits exceed such level.
On May 4, 2005 the Company's Audit Committee and Board of
Directors decided to amend the terms of the abovementioned
agreements, mainly extending the management services period for
an unlimited period, with an option to terminate them by the
Company's advance notice of 18 months and the management
companies' advanced notice of 180 days. The General Meeting of
the Company's shareholders ratified these amendments on July 20,
2005.
On February 15, 2006 the Company's board of directors resolved,
in light of the expressed position of the Israeli Securities
Authority, to set those agreements for a five-year period
following ratification by the Company's shareholders General
Meeting, i.e., until July 19, 2010.
For amendments of the abovementioned agreement after the balance
sheet date, see Note 15.
2. On April 1, 1997, the Company entered into an agreement to
provide the Parent Company administrative services pursuant to
which the Company may provide office facilities leased by the
parent company for a monthly fee of NIS 5,480 to be adjusted
annually for changes in the Israeli CPI.
3. Lease agreement with related parties - see E above.
I. As to purchase of new subsidiaries, see Note 15.
F - 25
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 SHAREHOLDERS' EQUITY
A. The Company's shares are traded on the NASDAQ.
B. STOCK OPTIONS PLAN
In May 1997, the Board of Directors of the Company adopted an employee
share option plan ("the 1997 Plan"), pursuant to which the Company may
grant options to purchase 180,000 ordinary shares to employees,
officers, Directors and consultants of the Company and the subsidiary.
Under the May 1997 plan, 160,000 options were granted to related
parties
The 1997 Plan was terminated on May 2004, and the remaining 20,000
options expired unexercised.
On January 4, 2005 the Parent Company's audit committee and Board of
Directors adopted a Stock Incentive Plan. The Parent Company was
authorized to grant up to 138,000 options to 9 of the Group's
employees (93,000 of the options to the Company's employees). The
issuance of the options was ratified by the Parent Company's Board of
Directors and the audit committee on February 27, 2005.
The options granted vest in three equal annual installments commencing
January 2006 and will expire in 2.5, 3.5 and 4.5 years, respectively.
The purchase price per share payable upon exercise of an option is NIS
14 (USD 3.6) per share, linked to the changes in the Consumer Price
Index, and subject to adjustments.
A summary of the status of the Company's stock option plans as of
December 31, 2007, 2006 and 2005 and changes during the years then
ended, is presented below:
DECEMBER 31, 2007 DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ----- ------- ----- ------- -----
NIS NIS NIS
----- ----- -----
Options outstanding at
beginning of year 42,000 13.55 63,000 14.05 - -
Granted during the year - - - - 93,000 14
Exercised during the year (11,000) 13.1 (21,000) 13.76 - -
Forfeited during the year - - - - (30,000) -
------- ----- ------- ----- ------- -----
Outstanding at end of year 31,000 13.43 42,000 13.55 63,000 14.05
======= ===== ======= ===== ======= =====
Weighted average fair value
of options granted during
the year 4.09 3.39 2.53
======= ======= =======
C. In February, 2005, the Company's authorized share capital was
increased by 40,000,000 shares of NIS 0.1 par value, from 10,000,000
to 50,000,000 shares.
D. On November 21, 2005, the Company declared a cash dividend of $ 0.14
per share payable to its shareholder of record as of January 11, 2006.
The cash dividend was paid on January 25, 2006.
E. On October 5, 2006, the Company closed a $10.0 million private
placement with U.S. institutional investors, and issued 1,652,893
shares.
F. As to new stock option plan See Note 15.
F - 26
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -INCOME TAXES
TAXATION UNDER VARIOUS LAWS
The Company is assessed under the provisions of the Income Tax Law
(Inflationary Adjustments), 1985, pursuant to which the results for tax
purposes are measured in real terms in accordance with changes in the
Israeli CPI.
On February 26, 2008 the Income Tax (Inflationary Adjustments) Law
(Amendment no. 20) (Limitation for period of application), 2008 (the
"Amendment") passed in a third calling in the Knesset. According to the
amendment, the application of the Inflationary Law will cease in the tax
year of 2007, and beginning in 2008 the instructions of the law will no
longer apply, except for transaction period instructions which have the
purpose of preventing distortions in the calculations of taxes.
In accordance with the Amendment, beginning in the year 2008, no
calculations for inflationary adjustments of revenues for tax purposes will
be made. In addition, there will be no adjustments to the Israeli CPI for
fixed assets' depreciations and carryforward tax losses for the period
beginning January 1, 2008.
PROVISION FOR INCOME TAXES:
YEAR ENDED DECEMBER 31,
----------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------ ------ ------ ------
NIS US DOLLARS
---------------------------- ------
(IN THOUSANDS)
----------------------------------------
Current taxes 3,288 5,057 3,533 854
Deferred income taxes (433) 322 34 (112)
Previous year taxes (338) - - (88)
------ ------ ------ ------
2,517 5,379 3,567 654
====== ====== ====== ======
DEFERRED INCOME TAXES
DECEMBER 31,
----------------------------------
2 0 0 7 2 0 0 6 2 0 0 7 (*)
---- ---- ----
NIS US DOLLARS
------------------- ----
(IN THOUSANDS)
----------------------------------
Included in other assets:
Accrued severance pay 115 94 30
Included in current assets (liabilities):
Marketable securities (88) (409) (22)
Accrued vacation pay 67 42 17
Allowance for doubtful accounts 104 59 27
Employee stock options 8 19 2
Unrealized gain from inter company
transactions 32 - 8
---- ---- ----
238 (195) 62
==== ==== ====
(*) Convenience translation into U.S. dollars.
F - 27
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (CONT.)
RECONCILIATION
The following is a reconciliation of the income taxes assuming that all
income is taxed at the ordinary statutory corporate tax rate in Israel and
the actual taxes on income, in the statement of operations:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------- ------- ------- -------
NIS US DOLLARS
--------------------------------------- -------
(IN THOUSANDS)
-------------------------------------------------------
Income before taxes on income 6,771 35,801 11,288 1,760
Statutory tax rates 29% 31% 34% 29%
------- ------- ------- -------
Provision computed by ordinary rates 1,964 11,098 3,838 510
------- ------- ------- -------
Increase (decrease) in provision due to: - - - -
Deferred tax in respect of losses for
which valuation allowance was provided 2,364 - - 615
Tax exempt income (182) (18) (31) (47)
Non-deductible expenses 130 121 61 33
Previous year taxes (338) - - (88)
Tax benefits for which deferred taxes
were not recorded - (5,592) - -
Effect of decrease in tax rate
on deferred taxes assets (13) 14 17 (3)
Differences in the definition
of Capital and non-monetary items for
tax purposes and financial reporting
purposes (1,227) (216) (255) (319)
Other (181) (28) (63) (47)
------- ------- ------- -------
553 (5,719) (271) 144
======= ======= ======= =======
2,517 5,379 3,567 654
======= ======= ======= =======
(*) Convenience translation into U.S. dollars.
TAX ASSESSMENTS
The Company has not yet been assessed for income tax purposes since its
inception.
F - 28
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
A. BALANCES WITH RELATED PARTIES
DECEMBER 31,
-----------------------------------
2 0 0 7 2 0 0 6 2 0 0 7 (*)
------- ------- -----------
NIS US DOLLARS
-------------------- -----------
(IN THOUSANDS)
-----------------------------------
Due to officers (shareholders in
the parent company) 844 3,707 219
Parent company 3,101 1,970 806
(*) Convenience translation into U.S. dollars.
B. TRANSACTIONS WITH RELATED PARTIES
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------- ------- ------- -----------
NIS US DOLLARS
---------------------------------- -----------
(IN THOUSANDS)
-----------------------------------------------------
Management fees 3,166 6,606 3,894 823
Rent expenses 1,037 1,939 1,918 270
Participation in expenses (67) (67) (64) (17)
For other transactions with related parties, see Note 8.
(*) Convenience translation into U.S. dollars.
NOTE 12 - SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
A. Percentage of revenues from customers constituting 10% or more of
revenue
YEAR ENDED DECEMBER 31,
--------------------------
2 0 0 7 2 0 0 6 2 0 0 5
------- ------- -------
%
--------------------------
Customer A 16 26 19
Customer B - - 12
B. COST OF SALES
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
-------- -------- -------- --------
NIS US DOLLARS
--------------------------------------- --------
(IN THOUSANDS)
-------------------------------------------------------
Purchases 190,779 125,546 125,131 49,605
Decrease (increase) in inventory (1) (2,043) 11,697 (3,659) (531)
Transportation and rent 7,761 4,974 5,046 2,018
Other 2,330 1,364 1,697 605
-------- -------- -------- --------
198,827 143,581 128,215 51,697
======== ======== ======== ========
(1) See also Note 1.
(*) Convenience translation into U.S. dollars.
F - 29
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA (CONT.)
C. SALES AND MARKETING
YEAR ENDED DECEMBER 31,
-----------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
----- ----- ----- -----
NIS US DOLLARS
-----------------------------------------
(IN THOUSANDS)
-----------------------------------------
Including shipping and handling 3,968 3,817 2,857 1,032
===== ===== ===== =====
(*) Convenience translation into U.S. dollars.
D. BAD DEBT
In July 2005, Club Market Marketing Chains Ltd., one of the three
largest food chains in Israel, encountered major financial
difficulties, announcing that it could not pay its debts to its
creditors. The District Court of Tel Aviv accepted Club Market's
petition for a stay of procedures against it and appointed receivers
for Club Market. On August 28, 2005 the court allowed the Club Market
court-appointed receivers to sell Club Market to Supersol, one of the
largest food chain in Israel, subject to several conditions. The court
also ratified the creditors' arrangement presented by the receivers.
As of September 1, 2005 Club Market's activities had been
substantially transferred to Supersol.
The Company submitted a claim of debt with the receivers with respect
to Club Market's debt to the Company, which was NIS 6.5 million (USD
1.7 million), (NIS 5.5 million net of VAT (USD 1.4 million)), as of
July 13, 2005. In view of this claim and the ratification of the
creditors' arrangement by the court on December 12, 2005, the Company
is expected to receive a proportionate share of its claim of debt. The
Club Market receivers estimate the rate of payment to be approximately
51% of the total debts, although this is subject to the examination by
the receivers and their approval of the Company's claim of debt. There
is no assurance as to the portion of the debt owed by ClubMarket that
will actually be paid to the Company. During 2005, the Company wrote
off NIS 3.5 million (USD 0.9 million) as a bad debt due to the
abovementioned Club Market debt.
As of December 31, 2007 a total amount of approximately NIS 2.1
million was paid on account of Club Market debt.
The following is a summary of the allowance for doubtful accounts
related to accounts receivable for the years ended December 31:
BALANCE AT BALANCE AT
BEGINNING END
OF PERIOD PROVISION OF PERIOD
--------- --------- ---------
NIS
----------------------------------------------
(IN THOUSANDS)
----------------------------------------------
2005 260 66 326
2006 326 91 417
2007 417 2,265 2,682
F - 30
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA (CONT.)
E. FINANCING INCOME, NET
YEAR ENDED DECEMBER 31,
------------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------ ------ ------ ------
NIS US DOLLARS
---------------------------------- ------
(IN THOUSANDS)
------------------------------------------------
Financing expenses:
Loss from marketable securities (56) - - (14)
Rate exchanges, interest
expenses and bank fees (925) (271) (141) (241)
Others (28) (169) - (7)
Realized loss on derivative financial
instruments (102) (248) - (27)
------ ------ ------ ------
(1,111) (688) (141) (289)
------ ------ ------ ------
Financing income:
Interest income 2,619 3,230 1,654 681
Realized gains on derivative financial
instruments - - 184 -
Gain from marketable securities - 1,316 755 -
Decrease in warrants to issue shares of
subsidiary 348 1,067 - 90
Others - - 49 -
------ ------ ------ ------
2,967 5,613 2,642 771
====== ====== ====== ======
Financing income, net 1,856 4,925 2,501 482
====== ====== ====== ======
(*) Convenience translation into U.S. dollars.
F - 31
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - REPORTING AND GEOGRAPHICAL SEGMENTS
A. INFORMATION ABOUT REPORTED SEGMENT INCOME OR LOSS AND ASSETS:
The Company is engaged in the import, export, marketing and
distributing of preserved products and non-preserved products which
constitute the basis for its reporting segments.
NON-PRESERVED PRESERVED
PRODUCTS PRODUCTS TOTAL
------- ------- -------
(IN NIS THOUSANDS)
-----------------------------------
YEAR ENDED DECEMBER 31, 2007
SALES 157,986 91,707 249,693
======= ======= =======
Gross profit 33,216 17,650 50,866
Selling & marketing expenses 14,669 9,735 24,404
------- ------- -------
Income per segment 18,547 7,915 26,462
General & administrative expenses 18,963
Impairment of goodwill 3,054
-------
Consolidated operating income 4,445
Financing income, net 1,856
Other income, net 470
Income taxes 2,517
Minority interest 2,287
-------
Net income 1,967
=======
Inventory 18,007 11,159 29,166
Assets not allocated to segments 210,450
-------
Total consolidated assets 239,616
=======
NON-PRESERVED PRESERVED
PRODUCTS PRODUCTS TOTAL
------- ------ -------
(IN NIS THOUSANDS)
----------------------------------
YEAR ENDED DECEMBER 31, 2006
SALES 108,150 83,310 191,460
======= ====== =======
Gross profit 31,295 16,584 47,879
Selling & marketing expenses 12,073 9,027 21,100
------- ------ -------
Income per segment 19,222 7,557 26,779
General & administrative expenses 14,151
-------
Consolidated operating income 12,628
Financing income, net 4,925
Other income, net 18,248
Income taxes 5,379
Minority interest 1,807
-------
Net income 28,615
=======
Inventory 11,680 7,421 19,101
Assets not allocated to segments 200,870
-------
Total consolidated assets 219,971
=======
F - 32
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - REPORTING AND GEOGRAPHICAL SEGMENTS (CONT.)
A. INFORMATION ABOUT REPORTED SEGMENT INCOME OR LOSS AND ASSETS (CONT.)
NON-PRESERVED PRESERVED
PRODUCTS PRODUCTS TOTAL
------ ------ -------
(IN NIS THOUSANDS)
---------------------------------
YEAR ENDED DECEMBER 31, 2005
SALES 92,784 73,498 166,282
====== ====== =======
Gross profit 24,051 14,016 38,067
Selling & marketing expenses 9,933 5,838 15,771
------ ------ -------
Income per segment 14,118 8,178 22,296
General & administrative expenses 13,544
-------
Consolidated operating income 8,752
Financing income, net 2,501
Other income, net 35
Income taxes 3,567
-------
Net income 7,721
=======
Inventory 16,456 14,342 30,798
Assets not allocated to segments 106,476
-------
Total consolidated assets 137,274
=======
B. GEOGRAPHIC INFORMATION
1) The Company's revenues by geographic areas (based on location of
customers) are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------
2007 2006 2005
------- ------- -------
(IN NIS THOUSANDS)
-----------------------------------
Israel 199,064 189,623 165,901
North-America 41,989 1,133 236
Other 8,640 704 145
------- ------- -------
249,693 191,460 166,282
======= ======= =======
2) The Company's Long-Lived assets by geographic areas (based on the
location of the assets) are as follows:
DECEMBER 31,
-------------------
2007 2006
------ ------
(IN NIS THOUSANDS)
-------------------
Israel 48,599 42,865
North-America 577 -
------ ------
49,176 42,865
====== ======
F - 33
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP
A. In accordance with Israeli GAAP, the Company's financial statements
are denominated through December 31, 2003 in adjusted amounts and as
of January 1, 2004 in "reported amounts" (also see Note 2). Such
accounting principle is considered a more meaningful presentation than
financial reporting based on nominal historical cost. Accordingly, the
Company is not required to eliminate the effect of historic price
level changes in a reconciliation to U.S. GAAP.
B. In accordance with U.S. GAAP, SFAS No. 115, changes in trading
securities should be presented in the statement of cash flows as part
of the operating activities. The following table provides a
reconciliation of the Statements of Cash flows for 2007, 2006 and 2005
in accordance with U.S. GAAP:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2 0 0 7 2 0 0 6 2 0 0 5 2 0 0 7 (*)
------- ------- ------- -------
NIS US DOLLARS
------------------------------------- -------
(IN THOUSANDS)
----------------------------------------------------
Net cash provided by (used in) operating
activities before adjustment 7,942 23,922 (7,293) 2,065
Adjustment (17,378) (9,400) (780) (4,519)
------- ------- ------- -------
Net cash provided by (used in)
operating activities after adjustment (9,436) 14,522 (8,073) (2,454)
======= ======= ======= =======
Net cash used in investing
activities before adjustment (44,334) (31,860) (15,618) (11,527)
Adjustment 17,378 9,400 780 4,519
------- ------- ------- -------
Net cash used in investing
activities after adjustment (26,956) (22,460) (14,838) (7,008)
======= ======= ======= =======
C. Had compensation cost for the Company's option plans been determined
on the basis of the fair value at the grant dates in accordance with
the provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, the Company's pro forma net
loss and pro forma basic and diluted net loss per share for year 2005
would have been as follows:
YEAR ENDED DECEMBER 31, 2005
--------------------
NIS US DOLLARS (*)
------ ------
(IN THOUSANDS)
--------------------
Net Income for the year, as reported 7,721 2,008
Deduct: stock-based compensation determined under APB 25 - -
Add: stock-based compensation determined under SFAS 123 (82) (21)
------ ------
Pro forma net income 7,639 1,987
====== ======
Net Income per share - basic and diluted:
As reported 0.9 0.2
Pro forma 0.9 0.2
The following assumptions were used for the year 2005: dividend yield
of 0.00%; risk-free interest rate of 2.5%; an expected life of 1.75 -
3.75 years; a volatility rate of 48%.
(*) Convenience translation into U.S. dollars.
F - 34
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (CONT.)
D. In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109" (FIN 48). FIN 48 clarifies the accounting for uncertainty in
income taxes by prescribing the recognition threshold a tax position
is required to meet before being recognized in the financial
statements. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006 and was adopted by the Company in
2007.
A reconciliation of the beginning and ending amount of unrecognized
tax Benefit is as follows:
YEAR ENDED
DECEMBER 31, 2007
-------
NIS
-------
(IN THOUSANDS)
-------
Beginning balance, upon adoption as of January 1, 2007 229
Additions:
Tax positions for current year 410
-------
Ending balance, as of December 31, 2007 639
=======
Total Interest and penalties relating to unrecognized tax benefit for
the year were not material.
In accordance to the company policy interest expenses related to tax
authorities are classified in financial expenses and penalties related
to tax authorities are classified in general and administration
expenses.
F - 35
G. WILLI-FOOD INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SUBSEQUENT EVENTS
A. In October 2007, the Company's subsidiary Gold Frost Ltd. subsidiary
signed a binding letter of intent to purchase a majority interest from
the owners of a dairy distributor in Denmark (the "Distributor"). In
the first quarter of 2008, Gold Frost held a 51% interest in the
Distributor, and the former owners of the Distributor holds the
remaining interest.
B. In November 2007, Willi Food announced its intention to purchase
Shamir Salads, an Israeli manufacturer and distributor of pre-packaged
chilled kosher Mediterranean dips and spreads in Israel and abroad.
The acquisition subsequently closed in the first quarter of 2008.
C. On January 2, 2008 the Parent Company's audit committee and Board of
Directors adopted a Stock Incentive Plan ("The second plan"). The
Parent Company was authorized to grant up to 100,000 options to 10 of
the Group's employees. The plan is subject to the approval of the TASE
and the approval of the Israeli tax-authorities. The options granted
vest in three equal annual installments commencing January 2008 and
will expire in 2.5, 3.5 and 4.5 years, respectively. The purchase
price per share payable upon exercise of an option is NIS 19 ($4.94)
per share, linked to the changes in the Consumer Price Index, and
subject to adjustments.
D. On January 2, 2008 the Audit Committee and the Board of Directors
unanimously approved the amendment of the Management Services
Agreements with Messrs. Zwi Williger and Joseph Williger. In
accordance to the new Management Services Agreements the terms were
amended as follows:
(a) The current monthly services fees according to the Management
Services Agreements will cease to be linked to the US Dollar and will
be translated to NIS 102,900 (excluding VAT) linked to changes in the
Israeli consumer price index.
(b) The terms of the Management Services Agreements are to be extended
indefinitely, subject to clause (c) below; provided however that in
the event the Williger Management Company provides the management
services to the Company without the presence of Messrs. Zwi Williger
or Joseph Williger, as the case may be, and/or in the case of the
death and/or permanent disability of Messrs. Zwi Williger or Joseph
Williger, the Company will be entitled to terminate the Management
Services Agreement immediately.
(c) Each of the parties to the Management Services Agreements may
terminate the agreement at any time, and for any reason, by prior
written notice which will be delivered to the other party as follows:
The Company may terminate the agreement at any time, and for any
reason, by prior written notice of at least 36 months.
The Williger Management Company may terminate the agreement at any
time, by prior written notice of at least 180 days.
(d) If a Williger Management Company is to terminate the Management
Services Agreement, the Williger Management Company would be entitled
to receive the management fees for a period of twelve (12) months,
which would begin after the prior notice period, whether or not it
provides the Company with any management services during such
twelve-month period.
In addition, the Management Services Agreements contain provisions
entitling each of Messrs. Zwi Williger and Joseph Williger to 30
vacation days per year, during which days the applicable Williger
Management Company will not provide management services to the
Company. Unused vacation days may be accumulated and paid for in lieu
of taking such days as vacation.
F - 36
ITEM 2 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company and the related Notes
thereto which appear in this Annual Report. The consolidated financial
statements have been prepared in accordance with Israeli GAAP, which differs in
certain insignificant respects from U.S. GAAP. Reference is made to Notes 2 and
14 of Notes to the consolidated financial statements for a description of the
significant differences between Israeli GAAP and U.S. GAAP. Unless otherwise
indicated, financial information for the Company included herein is presented on
a consolidated basis under Israeli GAAP.
The Company is engaged in the design, import, export, marketing and
distribution of a broad range of food products purchased from over 220 suppliers
worldwide and marketed in Israel and internationally, and to a much lesser
extent, the areas administered by the Palestinian Authority. The Company's
products are sold in Israel to over 1,100 customers, including supermarket
chains in the organized market, private supermarket chains, mini-markets,
wholesalers, manufacturers and institutional consumers. The Company's products
are also sold internationally, mainly by the Company's two new subsidiaries, WF
and Baron, to over 900 customers. The Company was incorporated in Israel in
January 1994 and commenced operations in February 1994.
During 2007, the Company, together with the global dairy industry, has been
affected by increases in primary supply prices and shortages stemming from a
series of factors, including weather related problems and reduced milk
production at the same time that consumption and demand has increased in growing
emerging markets. Moreover, the Company was directly impacted by the cessation
of butter and cheese export subsidies in the EU, which led our primary supplier,
Arla Foods, to increase prices on its exports to us by approximately 50%-80%.
The increase in the supply prices was the main reason for the increase in our
cost of sales as a percentage of total sales from approximately 75% in 2006 to
approximately 79.6% in 2007, and to a decrease in our gross profit as a
percentage of sales in from 25.0% in 2006 to 20.4% in 2007. In an effort to
reduce our operating costs and increase our logistical efficiency, we are now
operating from a new logistics center which was constructed in order to replace
the numerous external warehouse facilities that we used and in order to optimize
our overall operational activity. We believe the new facility will enable us to
take fuller advantage of the sales channels available to us. The new facility
will also allow us to consider adding new sources of products in Israel to
provide further products to meet consumer demand. In order to overcome this
price increase, we are looking to reduce our expenses while increasing the price
of our goods to our customers.
We also intend to continue to seek to grow our market share in Israel
through the introduction of additional innovative niche products to give the
customer more choice, healthier and/or less expensive products and, where
permitted, by expanding our relationships with our suppliers. We also intend to
increase expenditures on marketing and sales activities to increase the market
penetration of the products that we currently sell in Israel.
We also intend to expand our business outside of Israel, and in particular,
in the U.S. and Europe, beyond our expansion in the U.S. during 2007. In order
to do so, we acquired, on January, 2008, 51% of Shamir, an Israeli manufacturer
and distributor of pre-packaged chilled kosher Mediterranean dips and spreads in
Israel and abroad. In addition, on February, 2008, Gold Frost purchased 51% of a
dairy distributor in Denmark which owns a US dairy import license. For
convenience purposes, the financial data for the years ended December 31, 2007,
2006, 2005, 2004, and 2003 has been translated into U.S. Dollars using the
representative exchange rate. This rate as of December 31, 2007 was NIS 3.846 =
USD 1.00.
The Company is not involved in any off balance sheet transactions or
long-term contractual obligations.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis is based upon the consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in Israel and adapted to the generally accepted
accounting principles accepted in the United States. The use of these generally
accepted accounting principles requires the management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting accounting periods presented. These estimates include, among other
things, assessing the collectibility of accounts receivable and the use of
recoverability of inventory. Actual results could differ from those estimates.
The markets of the Company's products are characterized by intense competition
and a rapid turnover of products and frequent new introductions of products, all
of which may impact future ability to value the Company's assets.
The following critical accounting policies may affect significant judgments
and estimates used in the preparation of the consolidated financial statements.
1. Revenue Recognition - revenue from product sales is recognized upon the
shipment to the consumers, when the title and risk of loss have been
transferred to the consumer, price and terms are agreed and when no
significant vendor obligations exist and collection of the resulting
receivable is reasonably assured. Incentive to certain customers - the
Company is obligated to pay incentives to certain customers in relation to
the volume of sales. The incentive is calculated as a percentage of the
annual sales to the customer or as a percentage of the increase in volume
of sales to such customers in excess of a certain agreed amount. In
accordance with EITF 01-9 the Company presents revenue net of such
incentives. The Company grants to certain customers the right to return the
products. A provision for customers' return is recorded for the estimated
future products return, based on the Company's experience. This policy is
significant because the revenue is a key component of the Company's
operations, as well as the fact that the revenue recognition determines the
timing of certain expenses. Revenue results are difficult to predict and
any shortfall in revenue or delay in recognizing revenue could cause the
operating results to vary from quarter to quarter and may result in
operating losses.
2. Inventories - as of January 1, 2007, the Company implements Accounting
Standard No. 26 - "Inventory" ("the Standard"), which outlines the
accounting treatment for inventory. According to the Standard, inventory
should be stated at the lower of cost and net realizable value. According
to the standard the cost includes all purchase costs, as well as any other
costs incurred in reaching the inventory's present stage. Net realizable
value represents the selling price estimation during ordinary course of
business, net of the estimation of the costs needed to the selling
accomplishment. Cost is determined by average weighted cost used
consistently for all types of inventory of similar nature and uses.
Inventory's values and quantities review cause the Company to write down
the difference between the cost and the estimated market value upon
assumption about future demand and market conditions. If the inventory is
determined to be undervalued, the Company may have to recognize additional
operating income at the time of sale. Any significant unanticipated change
in demand or expiration of product life could have a significant impact on
the value of the inventory.
Up to December 31, 2006, inventories were stated at the lower of cost or
market value.
3. In January 2006, the company adopted Accounting Standard No. 20 (Revised)
"Accounting Treatment of Goodwill and Other Intangibles upon the
Acquisition of an Investee", which applies to financial statements covering
periods beginning on January 1, 2006 ("the Effective Date".)According to
the standard, the excess of acquisition cost of an investment in an
investee over the share of the company holding the fair value of the
investee's identifiable assets, including intangibles, net of the fair
value of identifiable liabilities (after tax allocation) at acquisition,
constitutes goodwill. Recognition of an intangible asset independently of
goodwill should take place only if the intangible asset is identifiable
based on the criteria outlined in the standard. Goodwill will not be
amortized but will rather be examined once a year or more frequently should
signs indicate goodwill impairment. Moreover, should a negative goodwill be
created upon acquisition it would be recognized as a gain and immediately
allocated to operations and not amortized. The standard distinguishes
between intangible assets which have defined useful lives and those that do
not, stating that the former should be amortized while the latter should
not while rather examined whether any signs indicate impairment.
We determine fair value using a discounted cash flow analysis. This type of
analysis requires us to make assumptions and estimates regarding industry
economic factors and the profitability of future business strategies. It is
our policy to conduct impairment testing based on our current business
strategy in light of present industry and economic conditions, as well as
future expectations. In assessing the recoverability of our goodwill, we
may be required to make assumptions regarding estimated future cash flows
and other factors to determine the fair value of the respective assets.
This process is subjective and requires judgment at many points throughout
the analysis. If our estimates or their related assumptions change in
subsequent periods or if actual cash flows are below our estimates, we may
be required to record impairment charges for these assets not previously
recorded.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
U.S. GAAP:
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
(SFAS No. 157). The purpose of SFAS No. 157 is to define fair value,
establish a framework for measuring fair value, and enhance disclosures
about fair value measurements. The measurement and disclosure requirements
are effective for the Company beginning in the first quarter of fiscal year
2008. The Company does not expect the adoption of SFAS No. 157 to have a
material impact on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS No. 159). SFAS No. 159
permits companies to choose to measure certain financial instruments and
certain other items at fair value. The standard requires that unrealized
gains and losses on items for which the fair value option has been elected
be reported in earnings.
A business entity will report unrealized gains and losses on items for
which the fair value option has been elected in earnings (or another
performance indicator if the business entity does not report earnings) at
each subsequent reporting date. The fair value option: (a) may be applied
instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method; (b) is irrevocable (unless a
new election date occurs); and (c) is applied only to entire instruments
and not to portions of instruments. SFAS No. 159 is effective as of the
beginning of an entity's first fiscal year that begins after November 15,
2007, although earlier adoption is permitted. The Company does not expect
the adoption of SFAS No. 159 to have a material impact on its consolidated
financial statements.
In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No.
07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services
to Be Used in Future Research and Development Activities" (EITF 07-3). EITF
07-3 requires non-refundable advance payments for goods and services to be
used in future research and development activities to be recorded as an
asset and the payments to be expensed when the research and development
activities are performed. EITF 07-3 applies prospectively for new
contractual arrangements entered into beginning in the first quarter of
fiscal year 2008. We currently recognize these non-refundable advanced
payments as an expense upon payment. The adoption of EITF 07-3 is not
expected to have a significant impact on the Company's consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141(Revised 2007) "Business
Combinations" ("SFAS 141(R)") and SFAS No 160, "Non-controlling Interests
in Consolidated Financial Statement" ("SFAS 160"). SFAS 141(R) requires the
acquiring entity in a business combination to record all assets acquired
and liabilities assumed at their respective acquisition-date fair values
and changes other practices under FAS 141, some of which could have a
material impact on how we account for business combinations. SFAS 141(R)
also requires additional disclosure of information surrounding a business
combination, such that users of the entity's financial statements can fully
understand the nature and financial impact of the business combination.
SFAS 160 requires entities to report non-controlling (minority) interests
in subsidiaries as equity in the consolidated financial statements. We are
required to adopt SFAS 141(R) and SFAS 160 simultaneously in our fiscal
year beginning after December 15, 2008. The provisions of SFAS 141(R) will
only impact the Company if it is a party to a business combination after
the pronouncement has been adopted. The Company is currently evaluating the
effects, if any, that SFAS 160 may have on its financial statements.
ISRAELI GAAP:
Accounting Standard No. 29 "Adoption of International Financial Reporting
Standards"
In July 2006, the Israeli Accounting Standards Board published Accounting
Standard No. 29 - "Adoption of International Financial Reporting Standards"
- IFRS ("the Standard").
According to the Standard, an entity subject to the Israeli Securities Law
and authoritative Regulations thereunder (including dual listed companies),
excluding foreign corporations , that do not prepare their financial
statements in accordance with Israeli GAAP, as defined by this Law will be
required to prepare financial statements in accordance with the IFRS and
related interpretations published by the International Accounting Standards
Board, for the reporting periods commencing January 1, 2008, including
interim periods.
An entity adopting IFRS as of January 1, 2008 and electing to report
comparative figures in accordance with the IFRS for only 2007, will be
required to prepare opening balance-sheet amounts as of January 1, 2007
based on the IFRS.
Reporting in accordance with the IFRS will be carried out based on the
provisions of IFRS No. 1, "First-time Adoption of IFRS Standards", which
establishes guidance on implementing and transitioning from financial
reporting based on domestic national accounting standards to reporting in
accordance with IFRS. IFRS No. 1 supersedes the transitional provisions
established in other IFRSs (including those established in former domestic
national accounting standards), stating that all IFRSs should be adopted
retroactively for the opening balance-sheet amounts. Nevertheless, IFRS No.
1 grants exemptions on certain issues by allowing the alternative of not
applying the retroactive application in respect thereof.
The Standard allows for earlier application in a manner by which applicable
entities may convert their financial statements published subsequent to
July 31, 2006 to the IFRS. Management has decided to adopt the IFRS
commencing January 1, 2008.
Since the requirements of the standard do not apply on the Company this
financial statements do not include opening balance-sheet amounts as of
January 1, 2007 based on the IFRS.
A. RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007 COMPARED WITH YEAR ENDED DECEMBER 31, 2006
SALES. Sales for the year ended December 31, 2007 increased by approximately NIS
58,233 thousand (USD 15,141 thousand), or 30.42%, to approximately NIS 249,693
thousand (USD 64,923 thousand) from NIS 191,460 thousand (USD 49,782 thousand)
for the year ended December 31, 2006. This increase in sales was driven
primarily by sales of our subsidiaries, Baron and WF, as well as growth in the
Company's organic business in the home market of Israel.
COST OF SALES. Cost of sales for the year ended December 31, 2007 increased to
approximately NIS 198,827 thousand (USD 51,697 thousand), or 79.63% of sales,
from approximately NIS 143,581 thousand (USD 37,333 thousand), or 74.99% of
sales, for the year ended December 31, 2006. This increase in cost of sales was
mainly due to a steep rise in raw food prices and to a lesser extent, an
impairment charge in the amount of NIS 3.2 million (USD 0.8 million) for expired
and unsaleable WF inventory, most of which was acquired as part of the WF
acquisition.
GROSS PROFIT. The results of sales and cost of sales, as mentioned above,
created a gross profit of approximately NIS 50,866 thousand (USD 13,226
thousand), equal to 20.37% of the sales in the year ended December 31, 2007,
reflecting an increase of 6.2% as compared to a gross profit of approximately
NIS 47,879 thousand (USD 12,449 thousand), equal to 25.01% of the sales in the
year ended December 31, 2006.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for the year ended
December 31, 2007 increased to approximately NIS 24,404 thousand (USD 6,345
thousand), or 9.77% of sales, from approximately NIS 21,100 thousand (USD 5,486
thousand), or 11.02% of sales, for the year ended December 31, 2006. This
increase in sales and marketing expenses was mainly due to the sales and
marketing expenses of the Company's two new subsidiaries, WF and Baron.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the year ended December 31, 2007 increased to approximately NIS 18,963 thousand (USD 4,931 thousand), or 7.59% of sales, from approximately NIS 14,151 thousand (USD 3,679 thousand), or 7.39% of sales, for the year ended December 31, 2006. This increase of general and administrative expenses was mainly due to doubtful debts expense in the amount of NIS 2,303 thousand (USD 599 thousand) for the year ended December 31, 2007, attributable to an impairment charge in the amount of NIS 2,174 thousand (USD 565 thousand) regarding an unrecoverable accounts receivables adjustment relating to WF, and due to the general and administrative expenses incurred by the Company's two new subsidiaries. This increase was partly offset by a one time management bonus paid in 2006 in the amount of NIS 1,804 thousand (USD 469 thousand) attributed to an unrealized capital gain resulting from the commencement of the trading of shares of the Company's majority-owned subsidiary, Gold Frost Ltd., on London's AIM market on March 9, 2006. IMPAIRMENT OF GOODWILL. Impairment of Goodwill expense for the year ended December 31, 2007, was NIS 3,054 thousand (USD 794 thousand) due to impairment of goodwill relating to WF. OPERATING INCOME. Operating income for the year ended December 31, 2007 decreased by approximately NIS 8,183 thousand (USD 2,128 thousand), or by 64.8%, to approximately NIS 4,445 thousand (USD 1,156 thousand), or 1.78% of sales, from approximately NIS 12,628 thousand (USD 3,283 thousand), or 6.60% of sales, for the year ended December 31, 2006. FINANCING INCOME, NET. Financing income, net, for the year ended December 31, 2007 was approximately NIS 1,856 thousand (USD 482 thousand) compared with approximately NIS 4,925 thousand (USD 1,281 thousand) for the year ended December 31, 2006. The decrease in financial income was due to losses from marketable securities of NIS 56 thousand (USD 14 thousand) in the year ended December 31, 2007 as compared to a gain from marketable securities of NIS 1,316 thousand (USD 342 thousand) in the year ended December 31, 2006, a decrease in the interest income on short term deposits of NIS 611 thousand (USD 159 thousand) and an increase in interest expense, rate exchanges and bank fees in the amount of NIS 654 thousand (USD 170 thousand). OTHER INCOME. Other income for the year ended December 31, 2007 amounted to NIS 470 thousand (USD 122 thousand) as compared to other income of NIS 18,248 thousand (USD 4,745 thousand) for the year ended December 31, 2006. Other income for the year ended December 31, 2006, was due to an unrealized capital gain in the amount of NIS 18,040 thousand (USD 4,691 thousand) resulting from the commencement of the trading of shares of the Company's majority-owned subsidiary, Gold Frost Ltd., on London's AIM market on March 9, 2006. PRE-TAX INCOME. Income before taxes for the year ended December 31, 2007 decreased by approximately NIS 29,030 thousand (USD 7,548 thousand), or by 81%, to approximately NIS 6,771 thousand (USD 1,760 thousand) from NIS 35,801 thousand (USD 9,309 thousand) for the year ended December 31, 2006. TAXES ON INCOME. Taxes on income for the year ended December 31, 2007 decreased to approximately NIS 2,517 thousand (USD 654 thousand) from approximately NIS 5,379 thousand (USD 1,399 thousand) in the year ended December 31, 2006. The decrease in taxes on income in 2007 in compare to 2006 was attributable to the decrease in income before taxes. INCOME AFTER TAXES ON INCOME. Income after taxes on income for the year ended December 31, 2007 decreased by approximately NIS 26,168 thousand (USD 6,804 thousand), or 86%, to approximately NIS 4,254 thousand (USD 1,106 thousand), or 1.70% of sales, from approximately NIS 30,422 thousand (USD 7,910 thousand), equal to 15.89% of sales for the year ended December 31, 2006.
MINORITY INTEREST. Minority interest for the year ended December 31, 2007 increased by approximately NIS 480 thousand (USD 125 thousand) to 2,287 thousand (USD 595 thousand) from approximately NIS 1,807 thousand (USD 470 thousand) for the year ended December 31, 2006. Minority interest for the year ended December 31, 2007 includes the minority of Gold Frost and of Baron. NET INCOME. Net income for the year ended December 31, 2007 decreased by approximately NIS 26,648 thousand (USD 6,929 thousand), or 93%, to approximately NIS 1,967 thousand (USD 511 thousand), or 0.79% of sales, from approximately NIS 28,615 thousand (USD 7,440 thousand), equal to 14.95% of sales for the year ended December 31, 2006. YEAR ENDED DECEMBER 31, 2006 COMPARED WITH YEAR ENDED DECEMBER 31, 2005 SALES. Sales for the year ended December 31, 2006 increased by approximately NIS 25,178 thousand (USD 6,547 thousand), or 15.14%, to approximately NIS 191,460 thousand (USD 49,782 thousand) from NIS 166,282 thousand (USD 43,235 thousand) for the year ended December 31, 2005. This increase in sales was mainly due to the increase in the private sector and the subsidiary sales of the dairy chilled products. COST OF SALES. Cost of sales for the year ended December 31, 2006 increased to approximately NIS 143,581 thousand (USD 37,333 thousand), or 74.99% of sales, from approximately NIS 128,215 thousand (USD 33,337 thousand), or 77.11% of sales, for the year ended December 31, 2005. This increase in cost of sales reflected our increased sales in 2006 as compared to 2005. As a percentage of sales, our cost of sales slightly decreased due to higher margins in the private sector and higher margins on the chilled dairy products. GROSS PROFIT. The results of sales and cost of sales, as mentioned above, created a gross profit of approximately NIS 47,879 thousand (USD 12,449 thousand), equal to 25.01 % of the sales in the year ended December 31, 2006, reflecting an increase of 25.78% as compared to a gross profit of approximately NIS 38,067 thousand (USD 9,898 thousand), equal to 22.89% of the sales in the year ended December 31, 2005. SALES AND MARKETING EXPENSES. Sales and marketing expenses for the year ended December 31, 2006 increased to approximately NIS 21,100 thousand (USD 5,486 thousand), or 11.02% of sales, from approximately NIS 15,771 thousand (USD 4,101 thousand), or 9.48% of sales, for the year ended December 31, 2005. This increase in sales and marketing expenses was mainly attributable to increase in advertising and sales promotion expenses in the amount of NIS 2,549 thousand (USD 663 thousand) due to a massive advertising campaign held by the Company and by its subsidiary during 2006. The second factor was the increase in payroll expenses in the amount of NIS 1,364 thousand (USD 355 thousand). The payroll increase was due to the employment of an average of nine additional employees (recruitment of sales agents and logistics network employees) in 2006 (a 14% increase as compared to 2005), In addition, some payroll expenses are revenues based commissions, so when the revenues increase the payroll increases as well. The last factor is related to the increase in transportation and maintenance costs in the amount of NIS 1,324 thousand (USD 344 thousand), which was attributed to the increase in sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the year ended December 31, 2006 increased to approximately NIS 14,151 thousand (USD 3,679 thousand), or 7.39% of sales, from approximately NIS 13,544 thousand (USD 3,522 thousand), or 8.15% of sales, for the year ended December 31, 2005. This increase of general and administrative expenses was mainly due to an increase in the payroll and accompanying expenses in the amount of NIS 3,125 thousand (USD 813 thousand), This increase primarily resulted from a one time management bonus in the amount of NIS 1,804 thousand (USD 469 thousand) attributed to an unrealized capital gain resulting from the commencement of the trading of shares of the Company's majority-owned subsidiary, Gold Frost Ltd., on London's AIM market on March 9, 2006 and due to the employment of an average of seven additional employees in 2006 (a 41% increase as compared to 2005). This increase was offset by a decline of NIS 3,735 thousand (USD 971 thousand) in doubtful debt mainly due to Club Market bad debt that was included in the general and Administrative Expenses of 2005 in the amount of NIS 3,500 thousand (USD 910 thousand). OPERATING INCOME. Operating income for the year ended December 31, 2006 increased by approximately NIS 3,876 thousand (USD 1,008 thousand), or by 44%, to approximately NIS 12,628 thousand (USD 3,283 thousand), or 6.60% of sales, from approximately NIS 8,752 thousand (USD 2,276 thousand), or 5.26% of sales, for the year ended December 31, 2005. FINANCING INCOME, NET. Financing income, net, for the year ended December 31, 2006 was approximately NIS 4,925 thousand (USD 1,281 thousand) compared with approximately NIS 2,501 thousand (USD 650 thousand) for the year ended December 31, 2005. The increase in financial income was due to an increase in the profit from marketable securities of NIS 562 thousand (USD 146 thousand), an increase in the interest income on short term deposits of NIS 1,576 thousand (USD 410 thousand) offset by a loss from future transactions of NIS 248 thousand (USD 64 thousand) compared to a gain from future transactions of NIS 184 thousand (USD 48 thousand) in the year ended December 31, 2005, and an increase, compared to 2005, in bank commissions, and a difference in exchange rates and interest on short term credit of NIS 130 thousand (USD 34 thousand). OTHER INCOME. Other income for the year ended December 31, 2006 increased by approximately NIS 18,213 thousand (USD 4,736 thousand) to approximately NIS 18,248 thousand (USD 4,745 thousand) from NIS 35 thousand (USD 9 thousand) for the year ended December 31, 2005. This increase in other income was due to an unrealized capital gain in the amount of NIS 18,040 thousand (USD 4,691 thousand) resulting from the commencement of the trading of shares of the Company's majority-owned subsidiary, Gold Frost Ltd., on London's AIM market on March 9, 2006. PRE-TAX INCOME. Income before taxes for the year ended December 31, 2006 increased by approximately NIS 24,513 thousand (USD 6,374 thousand), or by 217%, to approximately NIS 35,801 thousand (USD 9,309 thousand) from NIS 11,288 thousand (USD 2,935 thousand) for the year ended December 31, 2005. TAXES ON INCOME. Taxes on income for the year ended December 31, 2006 increased to approximately NIS 5,379 thousand (USD 1,399 thousand) from approximately NIS 3,567 thousand (USD 927 thousand) in the year ended December 31, 2005. The increase in taxes on income in 2006 in compare to 2005 was attributable to the increase in Income before taxes. INCOME AFTER TAXES ON INCOME. Income after taxes on income for the year ended December 31, 2006 increased by approximately NIS 22,701 thousand (USD 5,902 thousand), or 294%, to approximately NIS 30,422 thousand (USD 7,910 thousand), or 15.89% of sales, from approximately NIS 7,721 thousand (USD 2,008 thousand), equal to 4.64 % of sales for the year ended December 31, 2005. MINORITY INTEREST. Minority interest for the year ended December 31, 2006 in the amount of NIS 1,807 thousand (USD 470 thousand) is a result of the flotation of shares of the Company's majority-owned subsidiary, Gold Frost Ltd., on London's AIM market on March 9, 2006.
NET INCOME. Net income for the year ended December 31, 2006 increased by
approximately NIS 20,894 thousand (USD 5,433 thousand), or 271%, to
approximately NIS 28,615 thousand (USD 7,440 thousand), or 14.95% of sales, from
approximately NIS 7,721 thousand (USD 2,008 thousand), equal to 4.64 % of sales
for the year ended December 31, 2005.
B. LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been funded mainly
through equity and cash flows from operating activities, as well as by
short-term indebtedness provided by Israeli banks and loans from Willi Food, its
controlling shareholder. The Company's bank indebtedness is secured by certain
liens on its share capital, goodwill and certain other assets.
For the year ended December 31, 2007, cash and cash equivalents decreased
from approximately NIS 91.4 million (USD 23.8 million) at December 31, 2006 to
approximately NIS 61.6 million (USD 16.0 million) at December 31, 2007. For the
year ended December 31, 2006, cash and cash equivalents increased from
approximately NIS 30.4 million (USD 7.9 million) at December 31, 2005 to
approximately NIS 91.4 million (USD 23.8 million) at December 31, 2006
During the year ended December 31, 2007, marketable securities increased to
NIS 31.3 million (USD 8.1 million) from NIS 13.9 million (USD 3.6 million). For
the year ended December 31, 2006, marketable securities increased to
approximately NIS 13.9 million (USD 3.6 million) at December 31, 2006, from
approximately NIS 3.2 million (USD 0.8 million) at December 31, 2005.
For the year ended December 31, 2007, the Company generated a positive cash
flow from operating activities of approximately NIS 7.9 million (USD 2.1
million) as compared to a positive cash flow from operating activities of
approximately NIS 23.9 million (USD 6.2 million). For the year ended December
31, 2006. The decrease was primarily as a result of an increase in inventory of
approximately NIS 2.6 million (USD 0.7 million) for the year ended December 31,
2007, as compared to a decrease in inventory of approximately NIS 11.7 million
(USD 3.0 million) for the year ended December 31, 2006.
For the year ended December 31, 2006, the Company generated a positive cash
flow from operating activities of approximately NIS 23.9 million (USD 6.2
million), primarily as a result of a decrease in inventory of approximately NIS
11.7 million (USD 3.0 million), a decrease in receivables and other current
assets of approximately NIS 3.1 million (USD 0.8 million) and an increase in
payables and other current liabilities of approximately NIS 1.9 million (USD 0.5
million). Our receivables and other current assets decreased primarily due to
the decrease in advances to suppliers. Our payables and other current
liabilities increased primarily due to an increase in related parties mainly due
to the management bonus mentioned above in "Results of operations - general and
administrative expenses".
During the year ended December 31, 2007, the Company utilized cash flow of
NIS 44.3 million (USD 11.5 million) for investing activities, mainly for a
purchase of subsidiary and purchase of additional shares of Gold Frost in the
total amount of NIS 15.6 million (USD 4.1 million), for the purchase of
marketable securities, net, in the amount of NIS 17.4 million (USD 4.5 million),
and for additions to fixed assets of NIS 11.3 million (USD 2.9 million),
consisting mostly of the investments in the Company's new logistics center.
During the year ended December 31, 2006, the Company utilized cash flow of
NIS 31.9 million (USD 8.3 million) for investing activities, mainly for
additions to fixed assets of NIS 23.0 million (USD 6.0 million), consisting
mainly of the investments in the Company's new logistics center and from the
purchase of marketable securities, net, of NIS 9.4 million (USD 2.4 million).
During the year ended December 31, 2007, the Company generated cash flow
from financing activities of NIS 6.8 million (USD 1.8 million) due to short term
bank borrowings. During the year ended December 31, 2006, the Company generated
cash flow from financing activities of NIS 68.9 million (USD 17.9 million)
mainly due to the proceeds from the private placement of the Company in the
amount of NIS 41.3 million (USD 10.7 million) and due to the proceeds from the
public listing of Gold Frost shares in the amount of NIS 32.4 million (USD 8.4
million).
The Company's cash requirements, net, during the years ended December 31,
2007, 2006 and 2005 were met primarily through its working capital. As of
December 31, 2007, the Company had working capital of approximately NIS 143.2
million (USD 37.2 million) compared with NIS 144.3 million (USD 37.5 million) as
of December 31, 2006, and working capital of approximately NIS 85.4 million (USD
22.2 million) as of December 31, 2005. The Company believes that its working
capital is sufficient for the Company's present requirements.
The Company's trade receivables balance in December 31, 2007 was NIS 63.7
million (USD 16.6 million) as compared to the trade receivables balance in
December 31, 2006 in the amount of NIS 48.2 million (USD 12.5 million). In
December 31, 2005 trade receivables balance was NIS 48.4 million (USD 12.6
million). The average time period within which our accounts receivable were paid
was 95 days for 2007, compared with 92 days for 2006 and 93 days for 2005.
IMPACT OF INFLATION AND DEVALUATION ON RESULTS OF OPERATIONS, LIABILITIES AND
ASSETS
The rate of inflation in Israel during the last six years has been
significantly reduced as compared to previous years. The rate of devaluation of
the U.S. dollar, which was high until 2005, has reversed course and the
representative rate of the U.S. Dollar reached NIS 3.846 on December 31, 2007,
compared with NIS 4.225 on December 31, 2006, 4.603 on December 31, 2005, NIS
4.308 on December 31, 2004, and 4.379 on December 31, 2003. The representative
rate of the U.S. Dollar on April 21, 2008 was NIS 3.425.
The annual rates of inflation in Israel during the years ended December 31,
2002, 2003, 2004, 2005, 2006 and 2007 were approximately 6.5%, (1.9%), 1.6%,
2.4% (0.1%) and 3.4%, respectively, while during such periods the devaluation of
the NIS against the U.S. Dollar was approximately 7.3%, (7.6%), (1.6%), 6.8%
(8.2%) and (9.0%), respectively. During each of the years ended December 31,
2003, 2004, 2006 and 2007, the rate of inflation in Israel exceeded the rate of
devaluation of the NIS against the U.S. Dollar, while during each of the years
ended December 31, 2002 and 2005 the rate of devaluation of the NIS against the
U.S. Dollar exceeded the rate of inflation in Israel.
The representative rate on December 31, 2007 was NIS 3.846 per USD 1.00,
equal to a revaluation of 9.0% from the representative rate on December 31,
2006, which was NIS 4.225 per USD 1.00. The representative rate on December 31,
2006 was NIS 4.225 per USD 1.00, equal to a revaluation of 8.2% from the
representative rate on December 31, 2005, which was NIS 4.603 per USD 1.00. The
representative rate on December 31, 2005 was NIS 4.603 per USD 1.00, equal to a
devaluation of 6.8% from the representative rate on December 31, 2004, which was
NIS 4.308 per USD 1.00. The representative rate on December 31, 2004 was NIS
4.308 per USD 1.00, equal to a revaluation of 1.6% from the representative rate
at December 31, 2003, which was 4.379 per USD 1.00.
A revaluation of the NIS in relation to the U.S. Dollar will have the
effect of increasing the U.S. Dollar value of any assets of the Company which
consist of NIS or receivables payable in NIS. Such a revaluation would also have
the effect of increasing the U.S. Dollar amount of any liabilities of the
Company which are payable in NIS (unless such payables are linked to the
Dollar). Conversely, any decrease in the value of the NIS in relation to the
U.S. Dollar will have the effect of decreasing the U.S. Dollar value of any
linked NIS assets of the Company and the U.S. Dollar amount of any linked NIS
liabilities of the Company.
The dollar cost of the Company's operations in Israel is influenced by the
extent to which any increase in the rate of inflation in Israel over the rate of
inflation in the United States is offset by the devaluation of the NIS in
relation to the U.S. Dollar.
The Company's assets are not linked to the Israeli CPI or the U.S. Dollar.
However, some of the Company's liabilities are linked to the Israeli CPI and
various foreign currencies. Consequently, inflation in Israel and currency
fluctuations will have a negative effect on the value to the Company of payments
the Company receives in NIS and on the Company's liabilities linked to foreign
currencies.
GUARANTEES AND PLEDGES
Principally in connection with letters of credit issued to the Company, the
Company has issued a debenture to each of Bank Leumi Le'Israel, Bank Mizrahi
Ltd. and Bank Hapoalim Ltd., pursuant to which the Company has pledged all of
its assets (including its outstanding share capital and goodwill of the Company)
in favor of such banks to secure its obligations or those obligations incurred
by the Company jointly with third parties, including obligations with respect to
letters of credit with the Company's suppliers. Bank Leumi Le'Israel, Bank
Mizrahi Ltd. and Bank Hapoalim Ltd. have agreed among them that the pledges
subject to such debentures shall rank PARI PASSU. The outstanding amount of such
letters of credit as of December 31, 2007 was approximately NIS 33,286 thousand
(USD 8,655 thousand).
The Company also guarantees, without limitation as to amount and for an
unlimited period of time, the obligations of its wholly-owned subsidiary,
W.F.D., to the United Mizrahi Bank Ltd. As of December 31, 2007, W.F.D. had no
obligations to United Mizrahi Bank Ltd.
The Company also guarantees, without limitation as to amount and for an
unlimited period of time, the obligations of its subsidiary, Gold Frost, both to
Bank Leumi Le'Israel Ltd. and to the United Mizrahi Bank Ltd. As of December 31,
2007, Gold Frost had no obligations to such banks.
C. TREND INFORMATION
In prior years, there has been an increase in the number of small private
supermarket stores that have opened in Israel, which has resulted in greater
price competition in the stores and in our business. The increased price
competition resulted in an increase in our cost of sales as a percentage of
total sales. In order to keep our gross margin at its high levels we had to
change our product mix and introduce new products with high margins. By doing so
we were able to increase our gross profit in 2006. In 2007, the global market
experienced steep price increases in agricultural commodities and cost pressures
due to weather-related problems, reduced milk production, cessation of EU dairy
export subsidies at the same time that consumption and demand has increased in
growing emerging markets. These factors have negatively impacted the Company
near term sales and gross margins. Due to these factors, our gross margins
decreased from 25.01% in 2006 to 20.37% in 2007.
The Company is operating from a new logistic center starting from the
second quarter of 2007 with the aim of increasing the efficiency of its logistic
process and reducing its operating expenses. The Company will also work towards
increasing its sales to customers outside of Israel.
In July 2005, Club Market Marketing Chains Ltd., one of the three largest
food chains in Israel, owner of 114 stores and a major customer of the Company,
encountered major financial difficulties, announcing that it could not pay its
debts to its creditors. On August 28, 2005, the court allowed the sale of Club
Market to Supersol, subject to several conditions.Among the conditions imposed
was prohibiting the conditioning of the purchase from a supplier on that
supplier's purchase terms with their chains, prohibiting interfering with the
commercial terms awarded to other chains and prohibiting sales by Supersol at
less than cost. As of September 1, 2005, Club Market's activities were
substantially transferred to Supersol. This merger of two of the three largest
food chains in Israel strengthened Supersol's buying power with local food
suppliers (such as the Company) and the dependency of local food suppliers on
Supersol has grown.
The Company's management is evaluating the financial stability of its
customers by entering into agreements with companies for providing business
data, examining bank accounts, investigations, and following negative
publications regarding those customers or other signs indicating financial
difficulties.
In the U.S., despite the declining Jewish population (due to intermarriage
and lower birth rates), a published report from 2005 concluded that global
demand for kosher products is growing because of demand for kosher products is
not limited to just the Jewish population. Kosher food now commands attention
from a new crop of consumers and not just those who follow traditional Jewish
dietary laws. In a survey referred to in this report, more than 55% of
respondents who buy kosher foods felt that kosher products are safer and
healthier than non-kosher items. As increasing number of mainstream consumers
are becoming concerned about the integrity of the food they eat for ethical or
health reasons, and we believe this will provide a growth opportunity for the
kosher market, in which our subsidiary, WF, is currently operating. The clearer
labeling practices entailed in kosher food mean that consumers who are
vegetarian, food sensitive or allergic to certain ingredients can more easily
monitor their diets. According to this published report, the increased interest
in food ingredients will continue to contribute significantly to the growth of
the kosher food industry in the U.S. The report cites that one in 25 Americans
suffer from a true food allergy, but that a larger percentage of the population
is sensitive or intolerant of specific ingredients. In addition to the increase
in health-conscious consumers, other ethnic or religious groups contribute to
the increase in the kosher food market since the dietary restrictions for
certain other religious groups are met by kosher food.
D. TABULAR DISCLOSURE OF CONTRACTURAL OBLIGATIONS
The following table of the Company's material contractual obligations as of
December 31, 2007 summarizes the aggregate effect that these obligations are
expected to have on our cash flows in the periods indicated:
2007
Payments due by period
---------------------------------------------------------------------------
Contractual
Obligations Total Less than 1 year 2-3 years 4-5 years More than 5 years
-------------------- ----------- ----------- ----------- ----------- -----------
(in thousands)
Open purchase orders NIS 33,286 NIS 33,286 -- -- --
(USD 8,655) (USD 8,655)
Total NIS 33,286 NIS 33,286 -- -- --
(USD 8,655) (USD 8,655)
E. SAFE HARBOR
This annual report contains certain forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995). When
used in this report, the words "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to the Company or the
management of the Company, identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events, based on
certain assumptions and information currently available to management, all of
which are subject to certain risks and uncertainties including, among others
o changes affecting currency exchange rates, including the NIS/U.S.
Dollar exchange rate;
o payment default by any of our major clients;
o the loss of one of more of our key personnel;
o changes in laws and regulations, including those relating to the food
distribution industry, and inability to meet and maintain regulatory
qualifications and approvals for our products;
o termination of arrangements with our suppliers, in particular Arla
Foods amba;
o loss of one or more of our principal clients;
o increasing levels of competition in Israel and other markets in which
we do business;
o changes in economic conditions in Israel, including in particular
economic conditions in our core markets;
o our inability to accurately predict consumption of our products;
o product liability claims;
o our inability to continue to meet the Nasdaq listing requirements;
o we may not successfully integrate our prior acquisitions; and
o increases in milk, corn, wheat and other product prices.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results of operations may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.