Consolidated Financial Statements
December 31, 2012
This translation of the financial statement is for convenience purposes only.
The only binding version of the financial statement is the Hebrew version.
Carmel Olefins Ltd.
Consolidated Financial Statements
December 31, 2012
Contents
Page

Auditors Report to the Shareholders
1

Consolidated Statement of Financial Position
3

Consolidated Statement of Comprehensive Income
5

Consolidated Statement of Changes in Equity
6

Consolidated Statement of Cash Flows
8

Notes to the consolidated Financial Statements
10
AUDITORS' REPORT TO THE SHAREHOLDERS OF CARMEL OLEFINS LTD.
On the Audit of Internal Controls Over Financial Reporting
Under Section 9B(C) of the Securities Regulations (Periodic and Immediate Reports), 1970
We have audited the internal controls over financial reporting of Carmel Olefins Ltd. and its subsidiaries
(jointly - “the Company") as of December 31, 2012. These controls were identified as detailed in the
following paragraph. The Company’s Board of Directors and Management are responsible for maintaining
effective internal control over financial reporting and for their assessment of the efficacy of these internal
controls over financial reporting, attached to the periodic report for the above date. Our responsibility is to
express an opinion on the Company’s internal controls over financial reporting, as based on our audit.
The internal controls over financial reporting which we audited were identified in accordance with Auditing
Standard 104 of the Institute of Certified Public Accountants in Israel - Auditing of Internal Controls Over
Financial Reporting, and amendments thereto (“Auditing Standard 104”). These controls are: (1)
organization-wide controls, including controls over the preparation and finalization of financial reports and
general controls over information systems; (2) controls over the sales process (overseas sales, domestic sales,
and sales in the subsidiary Ducor Petrochemicals B.V.); (3) controls over the process for determining
deferred taxes; (4) controls over actuarial aspects of employee benefits; (5) controls over finished product
inventories; (all jointly - “Audited Controls”).
We conducted our audit in accordance with Auditing Standard 104. This standard requires that we plan and
perform the audit to identify the Audited Controls and obtain reasonable assurance about whether the
Audited Controls were maintained effectively in all material aspects. Our audit included obtaining an
understanding concerning the internal controls over financial reporting, identifying the Audited Controls,
assessing the risk for material weaknesses in the Audited Controls, and examining and assessing the efficacy
of the planning and implementation of those controls based on the assessed risk. Our audit of the said
controls also included the implementation of different procedures which we deemed necessary under the
circumstances. Our audit covered only the Audited Controls, as opposed to internal control of all material
processes related to financial reporting. Therefore, our opinion pertains strictly to the Audited Controls.
Furthermore, our audit did not cover the effects of interactions between the Audited Controls and unaudited
controls, and so our opinion does not take into account such possible effects. We believe our audit to provide
a reasonable basis for our opinion.
Due to inherent limitations, internal control over financial reporting in general, and specific controls in
particular, may fail to prevent or uncover misstatement. Furthermore, the drawing of forward-looking
conclusions based on any present assessment of efficacy is subject to risks that controls will become
unsuitable due to changing circumstances or a decrease in the extent to which policies or procedures are
maintained.
In our opinion, based on our audit, as of December 31, 2012, the Company has maintained the Audited
Controls effectively in all material aspects.
1
We have also audited, according to generally accepted auditing standards in Israel, the Company’s
consolidated financial statements for December 31, 2012 and 2011, and for each of the three years in the
period ended December 31, 2012, and our report of March 17, 2013, include an unqualified opinion
concerning the said financial statements and called attention to the Group's working capital deficit, which as
of December 31, 2012, totaled USD 117 million; to Midroog’s downgrade of its rating for the Company’s
bonds; to Management’s plans for increasing positive cash flows and improving the Company’s profitability,
including the parent company’s agreement to assist in identifying sources of financing if necessary;
Management’s assessment concerning its ability to carry out its plans in a manner which will yield the
Company sufficient cash flows for meeting its liabilities in a full and timely fashion in the foreseeable future;
and claims filed against the Company, arguing that injuries and damages incurred by the plaintiffs were due
to the pollution of the Kishon River, in which, the plaintiffs allege, the Company had a part. The Company,
based on the opinion of its legal counsel, is not able to assess the scope of its exposure, if any, and therefore
no provisions in this matter were included in the financial statements.
Brightman Almagor Zohar & Co.
Certified Public Accountants
Haifa, March 17, 2013
1
Auditors’ Report to the Shareholders of
Carmel Olefins Limited
We have audited the accompanying consolidated statements of financial position of Carmel Olefins Ltd.
(“the Company”) as of December 31, 2012 and 2011, and the consolidated statements of comprehensive
income, changes in equity and cash flows for each of the three years the last of which ended on December
31, 2012. These financial statements are under the responsibility of the Company’s Board of Directors and
Management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards in Israel, including those
prescribed by the Auditors’ Regulations (Auditor’s Mode of Performance), 1973. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by the Board of Directors and Management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above present fairly, in all material
respects, the financial position of the Company and its subsidiaries as of December 31, 2012 and 2011, and
the results of their operations, changes in equity and cash flows, for each of the three years, the last of which
ended on December 31, 2012, in accordance with International Financial Reporting Standards (IFRSs), and
the provisions of the Securities Regulations (Preparation of Annual Financial Statements), 2010.
Without qualifying our opinion, we call attention to the following matters:
Note 1C to the consolidated financial statements, concerning the Group's working capital deficit as of
December 31, 2012, to the amount of USD 117 million; Midroog’s downgrade of its rating for the
Company’s bonds; Management's plans for increasing the Company's positive cash flows and improving the
Company's profitability, including the Parent's agreement to assist the Company in locating sources of
financing if necessary; and to Management’s assessment concerning the Company’s ability to implement its
plans in such a manner that will yield sufficient cash for meeting the Company’s obligations at such times
and amounts as prescribed, in the foreseeable future.
Note 19B(2)(a) of the consolidated financial statements, concerning legal action brought against the
Company, alleging that personal injury and property damages were caused by pollution of the Kishon River,
to which the plaintiffs claim the Company was party. The Company, based on the opinion of its legal
counsel, is not able to assess the scope of its exposure, if any, and therefore no provisions in this matter were
included in the financial statements.
In accordance with Auditing Standard 104 - Audit of Internal Controls Over Financial Reporting established
by the Institute of Certified Public Accountants in Israel, and amendments thereto, we also audited internal
controls over the Company’s financial reporting as of December 31, 2012, and our report of March 17, 2013,
includes an unqualified opinion as to the efficacy of such controls.
Brightman Almagor Zohar & Co.
Certified Public Accountants
Haifa, March 17, 2013
2
Carmel Olefins Limited
Consolidated Statements of Financial Position
USD Thousands
As of December 31
Note
Current assets
Cash and cash equivalents
Trade receivables
Other receivables
Financial assets at fair value through profit or loss
Inventory
Current tax assets
4
5
27
6
Total current assets
Non-current assets
Financial assets at fair value through profit or loss
Deposits
Long-term loans and debit balances
Assets for employee benefits, net
Deferred tax assets
Property, plant and equipment, net
Intangible assets, net
27
19B(2)b(3)
7
17A
18
9
10
Total non-current assets
Total assets
(*)
2012
2011
13,626
185,004
23,930
10,171
133,281
--
15,058
189,395
17,202
10,117
123,279
1,204
366,012
356,255
35,517
35,014
10,835
3,167
18,003
719,298
12,207
59,340
19,155(*)
12,169
2,385
2,893
761,587
13,503
834,041
871,032
1,200,053
1,227,287
Re-stated - see Note 2T.
David Federman
Chairman of the Board
Pinhas Buchris
CEO
Israel Lederberg
CFO
Financial statements approval date: March 17, 2013.
The accompanying notes are an integral part of the consolidated financial statements.
3
Carmel Olefins Limited
Consolidated Statements of Financial Position
USD Thousands
As of December 31
2012
2011
189,852
271,303
17,033
3,569
1,609
104
192,613
177,438
19,883
1,745
560
--
483,470
392,239
167,099
216,371
4,087
19,488
--
200,569
237,054
3,294
15,710
7,883
Total non-current liabilities
407,045
464,510
Total liabilities
890,515
856,749
116,997
16,496
176,045
116,997
15,311
238,230
309,538
370,538
1,200,053
1,227,287
Note
Current liabilities
Loans, credit and bonds
Trade payables
Other payables
Financial liabilities at fair value through profit or loss
Provisions
Current tax liabilities
11
12
13
27
14
Total current liabilities
Non-current liabilities
Credit from banks, net
Bonds
Financial liabilities at fair value through profit or loss
Liabilities for employee benefits, net
Deferred tax liabilities
15
16
27
17A
18
Equity
Share capital
Capital reserves
Retained earnings
20
Total equity
Total liabilities and equity
The accompanying notes are an integral part of the consolidated financial statements.
4
Carmel Olefins Limited
Consolidated Statements of Comprehensive Income
USD Thousands
For the year ended December 31
Note
2012
2011
2010
21
1,089,162
1,076,061
1,219,486
1,158,720
1,012,478
894,483
13,101
60,766
117,995
34,961
18,305
(2,448)
5,249
36,355
18,459
---
29,841
23,332
---
(42,966)
5,952
64,822
6,387
(47,891)
7,578
(33,256)
21,494
(27,557)
Financing expenses, net
(41,504)
(25,678)
(6,063)
Profit (loss) before taxes on income
(84,470)
(19,726)
58,759
23,459
4,147
13,791
(61,011)
(15,579)
72,550
(246)
(1,174)
238
(316)
Revenues
Cost of sales
22
Gross profit
Sales and marketing expenses
General and administrative expenses
Other income
Early retirement expenses
23
24
26F
17G
Operating profit (loss)
Financing income
Financing expenses
25A
25B
Tax benefit
18
Profit (loss) for the year
Items of other comprehensive income
Currency translation differences on overseas operations
Actuarial gains (losses), net of taxes
Net change in the fair value of bonds designated at fair
value through profit or loss, attributable to changes in
credit risks, net of taxes
Other comprehensive income, net of taxes
Comprehensive income (loss) for the year
Earnings (losses) per share (USD)
Basic and diluted earnings (losses) per ordinary share
Number of shares
(309)
317
1,431
26,856
--
11
26,778
8
(61,000)
11,199
72,558
(1.96)
(0.50)
2.33
31,200,000
31,200,000
31,200,000
The accompanying notes are an integral part of the consolidated financial statements.
5
Carmel Olefins Limited
Consolidated Statements of Changes in Equity
USD Thousands
Share
capital
Capital
reserves
Capital
reserve
from
translation
differences
Capital
reserves for
financial
liabilities
designated
at fair value
Retained
earnings
Total
For the year ended December 31, 2012
Balance as of January 1, 2012
Loss for the year
Other comprehensive income for the
year, net of taxes:
Currency translation differences on
overseas operations
Actuarial loss, net of taxes
Net change in the fair value of bonds
designated at fair value through
profit or loss, attributable to
changes in credit risks, net of taxes
Total other comprehensive income
(loss) for the year, net of taxes
Balance as of December 31, 2012
116,997
(17,417)
--
--
---
---
--
--
--
--
116,997
(17,417)
(2,335)
--
(246)
--
--
35,063
238,230
370,538
--
(61,011)
(61,011)
---
-(1,174)
(246)
(1,174)
1,431
(246)
1,431
(2,581)
36,494
--
1,431
(1,174)
176,045
11
309,538
For the year ended December 31, 2011
Balance as of January 1, 2011
116,997
Cumulative effect of first time
application of IFRS 9 as of January
1, 2011
--
Balance as of January 1, 2011, after
first-time application of IFRS 9
116,997
Loss for the year
Other comprehensive income for the
year, net of taxes:
Currency translation differences on
overseas operations
Actuarial loss, net of taxes
Net change in the fair value of bonds
designated at fair value through
profit or loss, attributable to
changes in credit risks, net of taxes
Total other comprehensive income
(loss) for the year, net of taxes
Balance as of December 31, 2011
(17,417)
-(17,417)
(2,573)
-(2,573)
--
280,694
377,701
8,207
(26,569)
(18,362)
8,207
254,125
359,339
--
--
--
--
(15,579)
(15,579)
---
---
238
--
---
-(316)
238
(316)
--
--
--
26,856
--
-
238
26,856
116,997
(17,417)
(2,335)
35,063
--
26,856
(316)
238,230
26,778
370,538
The accompanying notes are an integral part of the consolidated financial statements.
6
Carmel Olefins Limited
Consolidated Statements of Changes in Equity (Contd.)
USD Thousands
Share
capital
Capital
reserves
Capital
reserve
from
translation
differences
Retained
earnings
Total
For the year ended December 31, 2010
Balance as of January 1, 2010
116,997
(17,417)
Profit for the year
--
--
Other comprehensive income for the year, net of
taxes:
Currency translation differences on overseas
operations
--
--
Actuarial gains, net of taxes
--
--
Total other comprehensive income (loss) for the
year, net of taxes
--
--
Balance as of December 31, 2010
116,997
(17,417)
(2,264)
--
(309)
--
207,827
305,143
72,550
72,550
-317
317
(309)
317
8
(2,573)
280,694
377,701
The accompanying notes are an integral part of the consolidated financial statements.
7
(309)
Carmel Olefins Limited
Consolidated Statements of Cash Flows
USD Thousands
For the year ended December 31
Cash flows from operating activities
Profit (loss) for the year
Adjustments required to present cash flows from operating
activities:
Income and expenses not involving cash flows (Appendix A Section A)
Changes in assets and liabilities (Appendix A - Section B)
Interest paid, net
Income tax paid, net
Net cash from (used in) operations
Cash flows used in investment activities
Change in deposits, net
Loans to employees and customers, net
Investments in property, plant and equipment
Investments in periodic maintenance
Spare parts and catalysts, net
Proceeds on the sale of spare parts inventory to Parent
2012
2011
2010
(61,011)
(15,579)
72,550
51,448
59,679
29,462
(9,563)
69,133
(16,611)
(334)
44,100
44,708
(15,293)
(378)
102,012
(182,215)
(16,638)
(209)
42,625
73,137
(97,050)
(15,859)
142
(30,566)
(16,498)
-63,000
138
10
(42,832)
(8,987)
(5,081)
--
411
75
(19,553)
(22,278)
(1,523)
--
(56,752)
(42,868)
219
Net cash from (used in) investment activities
Cash flows from financing activities
Short-term credit from banks, net
Receipt of long-term credit from banks
Repayment of long-term credit from banks
Payment for acquiring outstanding shares in a subsidiary
Proceeds from interest rate and currency swap transaction
Shelf prospectus issuance expenses
(31,288)
-(39,711)
-27,130
--
8,569
20,000
(34,752)
----
130,219
40,000
(32,875)
(13,615)
-(81)
Net cash from (used in) financing activities
(43,869)
(6,183)
123,648
Increase (decrease) in cash and cash equivalents
Effect of exchange rate fluctuations on cash and cash equivalents
Cash and cash equivalents at the beginning of the period
(1,025)
(407)
15,058
10,202
754
4,102
(16,270)
854
19,518
Cash and cash equivalents at the end of the period
13,626
15,058
4,102
The accompanying notes are an integral part of the consolidated financial statements.
8
Carmel Olefins Limited
Consolidated Statements of Cash Flows (Contd.)
USD Thousands
Appendix A - Adjustments required to present cash flows from operating activities:
For the year ended December 31
A.
B.
Income and expenses not involving cash flows
Depreciation and amortization
Tax income recognized in profit or loss
Financing expenses (income) recognized in profit or loss
Losses (gains) from fair value adjustments to financial assets
and liabilities at fair value through profit or loss
Capital gains from the sale of spare parts inventory
Capital losses on the sale of an investee
Changes in assets and liabilities
Decrease (increase) in trade receivables
Decrease (increase) in other receivables
Decrease (increase) in inventory
Increase (decrease) in trade payables
Decrease in other payables
Increase (decrease) in provisions
Increase in liabilities for employee benefits, net
2012
2011
2010
44,964
(23,459)
27,498
45,813
(4,147)
(9,916)
44,303
(13,791)
946
4,893
(2,608)
160
27,929
---
(1,996)
---
51,448
59,679
29,462
6,769
(6,500)
(23,897)
93,140
(3,449)
1,049
2,021
(387)
(7,334)
(40,082)
92,203
(825)
(124)
1,257
(60,738)
4,184
2,363
(126,234)
(3,545)
144
1,611
69,133
44,708
(182,215)
The accompanying notes are an integral part of the consolidated financial statements.
9
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 1 - GENERAL
A. The reporting entity
Carmel Olefins Limited ( "the Company") is a private company in accordance with the Companies
Law, 1999. The Company was incorporated in Israel and its registered office is in the Haifa Bay
area. The Company is wholly-owned by Oil Refineries Ltd. ( “ORL”).
The Company is a reporting entity, as defined in the Securities Law of 1968.
The Company is an industrial petrochemicals company engaged in the production and marketing of
polymers (primarily polypropylene and low density polyethylene) ( “Company Products”) that serve
primarily as raw materials in the plastics industry. Moreover, the Company manufactures monomers
(ethylene and propylene) that serve as feedstock in the production of Company Products.
Furthermore, the Company holds 100% of the share capital of Ducor Petrochemicals B.V. (
"Ducor"), a company incorporated in the Netherlands and engaged in the manufacture and marketing
of polypropylene.
B.
Definitions
In these financial statements:
The Company
– Carmel Olefins Ltd.
The Group
– The Company and its consolidated subsidiaries. For a list of the subsidiaries,
see Note 8.
Israeli CPI
– The Israeli Consumer Price Index, as published by the Central Bureau of
Statistics.
C. The Company and the Group’s Business
In 2012, the Group recorded operating losses of USD 43 million, and post-tax losses of USD 61
million. This, as opposed to an operating profit of USD 6 million and a post-tax loss of USD 16
million in 2011. The Group’s cash flows from operating activities in 2012 amounted to a positive
cash flow of USD 43 million.
The Group has a negative working capital balance of USD 117 million.
On August 26, 2012, Midroog announced that it will be removing the Company’s bonds from its
watch list, and that it would be downgrading the Company’s bonds to A3 negative (for more
information, see Note 19B(1)(a)).
As of December 31, 2012, the Company and it subsidiary Ducor meet the financial covenants
prescribed for their bank loans and bonds (for more information see Note 19B(1)(b)).
In order to increase its positive cash flows and improve profitability, the Company is taking the
following actions:
1)
Changing its organizational structure and realizing its synergic potential with the ORL Group for more information see Note 26F.
2)
Using natural gas as raw material for the production of polymers and as a fuel instead of fuel
oil. For more information on the availability of natural gas supplies, see Note 19A(2).
3)
In September 2012, ORL repaid, by way of early repayment, the long-term loan extended to it
by the Company, to the amount of USD 63 million (see also Note 26F).
4)
ORL extended its credit terms for the Company for the purchase of raw materials.
5)
The Company and the Parent together have formulated, and are carrying out, an operational
streamlining program in 2013, which aims to maximize potential margins and cut back on
expenses, so as to improve profitability, including the Board of Director’s approval to an early
retirement program for Company employees, and revocation of long-term benefits for special
projects (see Note 17F and 17G). Furthermore, the Company’s directors and Management have
resolved to forego 10% of their salary in 2013 (for more information, see Note 26D and 26L).
10
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 1 - GENERAL (CONTD.)
C. The Company and the Group’s Business (CONTD.)
Based on the Company’s projected cash flows, along with the above actions, Management believes
that the Group has sufficient sources for meeting its liabilities in full and on time, and for financing
its operations in the foreseeable future.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Statement of compliance with International Financial Reporting Standards (IFRSs)
The Group’s consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards ( “IFRSs”) and the interpretations thereto, as published by the
International Accounting Standards Board (IASB). The significant accounting policies detailed
below were applied consistently over all reporting periods presented in these consolidated financial
statements, except where expressly stated otherwise.
B.
The consolidated financial statements were prepared in accordance with the Securities Regulations
(Annual Financial Statements), 2010 ( “the Financial Statements Regulations”).
C. Format of the statement of financial position
The Group presents assets and liabilities in the statement of financial position according to current
and non-current items.
The Company’s operative cycle period is up to 12 months.
D. Basis of measurement
The financial statements have been prepared on the basis of historical cost, except for financial assets
and liabilities which are measured at fair value, and the following assets and liabilities which are
measured as detailed below: inventory; deferred tax assets and liabilities; provisions; employee
benefit assets and liabilities.
E.
Method for analyzing expenses recognized in the statement of comprehensive income
The Group's expenses recognized in the statement of comprehensive income are presented as per the
operational nature of the expense in the Group.
F.
Foreign currency
1.
Functional currency and presentation currency
The financial statements of each of the companies in the Group have been prepared in the
currency of the main economic environment in which they operate ( “Functional Currency”).
For the purpose of consolidating the financial statements, the results and the financial position
of each of the companies in the Group have been expressed in USD, which is the Company’s
Functional Currency. The Group’s consolidated financial statements are presented in USD. For
information concerning exchange rates and the changes therein during the course of the reported
periods, see Section R below.
11
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
F.
Foreign currency (contd.)
2.
Translation of transactions not in the Functional Currency
Transactions in currencies other than Group’s Functional Currency ( “Foreign Currency”) are
translated into the Group’s Functional Currency in accordance with the effective exchange rates
as of the transaction dates. Monetary assets and liabilities denominated in Foreign Currency as
of the reporting date, are translated into Functional Currency according to the effective
exchange rate on that date. Currency differences for monetary items refer to differences between
the Functional Currency cost recorded at the start of the year, adjusted for the effective interest
rate and intra-year payments, and the amortized Foreign Currency cost translated according to
the end-of-year exchange rate. Non-monetary assets and liabilities denominated in Foreign
Currency and measured at fair value, are translated into Functional Currency according to the
exchange rates that were in effect at the time when fair value was determined. Non-monetary
items denominated in Foreign Currency and measured at historical cost are translated according
to the exchange rates in effect at the transaction date.
3.
Recognition of exchange differences
Exchange differences are recognized in the statement of income during the period in which they
accrued.
4.
Translation of the financial statements of investee companies whose Functional Currency
is other than the USD
For the presentation of the consolidated financial statements, the assets and liabilities of
overseas operations, including attributed surplus costs, are presented according to the exchange
rates that were in effect at the end of the reporting period. Revenue and expense items are
translated according to the average exchange rates. Translation differences are recognized in
equity under the "Capital reserve from translation of overseas operations" item. These
translation differences are recognized in profit or loss upon disposal of the overseas operations
for which the translation differences were recorded.
G. Consolidated financial statements
The Group’s consolidated financial statements include the financial statements of the Company and
of the entities directly or indirectly controlled by the Company. Control is deemed to exist where the
Company has the power to control the financial and operational policies of an investee, in order to
receive benefits from its operations.
Potential voting rights that are exercisable or convertible into shares in an investee are taken into
account in determining whether or not control exists. The results of operations of subsidiaries that
were acquired or disposed of during the reporting period are included in the Company’s consolidated
statements of comprehensive income as from the time at which control was obtained or up to the
time at which control ceased to exist, as relevant.
For the purpose of consolidation, all inter-company transactions, balances, revenues and expenses
are eliminated in their entirety.
12
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
H. Inventory
Inventory is presented at the lower of either cost or net realizable value. The cost of inventory
includes all acquisition costs, direct labor costs, fixed and variable overhead, and other costs that
have been incurred in bringing the inventory to its present location and state.
Net realizable value represents an estimate of the selling price in the ordinary course of business, less
an estimate of the cost of completion and an estimate of the costs that are required in order to make
the sale.
Cost is determined as follows:
Finished goods - On a monthly average cost basis, which includes materials, labor, and other direct
and indirect manufacturing expenses.
Purchased goods - Based on the moving average method.
Raw materials, chemicals and packaging - Based on the moving average method.
Financial assets are initially measured at fair value. If financial assets are not subsequently
measured at fair value through profit and loss, then their initial measurement includes
transaction costs directly attributable to the purchase or creation of the asset. Following initial
recognition, the Group measures financial assets at fair value or at amortized cost.
Financial assets measured at amortized cost
Financial assets are measured after initial recognition at amortized cost, using the effective
interest method and net of any writedown for impairment, if such assets are held as part of a
business model aiming to hold assets to collect the contractual cash flows, if the contractual
terms of the financial assets give rise on specific dates to cash flows that are solely payments of
principal and interest; and if the Group has not opted to designate such assets to fair value
through profit and loss so as to minimize or avoid accounting mismatches.
Cash and cash equivalents include immediately usable cash, deposits which can be immediately
withdrawn, and also fixed-term deposits free of any restrictions and whose maturity date, on the
date of investment therein, does not exceed three months.
Deposits which are subject to usage restrictions, or whose maturity date upon investment
exceeds three months but does not exceed one year, are classified under the short-term deposit
item.
The Group measures cash and cash equivalents, trade receivables, deposits, other receivables
and long-term loans and debit balances at amortized cost. Early adoption of IFRS 9 did not
affect the measurement of these assets.
13
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
I.
Financial instruments (contd.)
1.
Measurement of non-derivative financial assets (contd.)
Financial assets measured at fair value
All financial assets not measured at amortized cost are measured, after initial recognition, at fair
value, with all changes in fair value generally being recognized in profit or loss. The fair value
of Foreign Currency financial assets is determined in that currency and translated to the
Company’s Functional Currency as per the exchange rate in effect at the end of the reporting
period. The Foreign Currency component constitutes part of the net gains and losses incurred
through the revaluation of assets to fair value.
2.
De-recognition of financial assets
Financial assets are derecognized when the Group’s contractual rights to cash flows generated
by the financial assets expire, or when the Group transfers the rights to cash flows generated by
the financial assets in a transaction where all risk and benefits derived from ownership of the
financial assets are effectively transferred.
3.
Measurement of non-derivative financial liabilities
In general, financial liabilities at amortized cost are initially recognized at fair value plus all
attributable transaction costs.
Financial liabilities at amortized cost
Following initial recognition, financial liabilities are measured at amortized cost as per the
effective interest rate method.
Transaction costs which are directly attributable to an expected issue of an instrument which is
to be classified as a financial liability, are recognized as an asset under the deferred expenses
item in the statement of financial position. These transaction costs are subtracted from the
financial liability upon its initial recognition, or are amortize as financing expenses in profit or
loss when the issue is no longer expected to occur.
The Group's non-derivative financial liabilities measured at amortized cost are as follows: loans
and credit from banks and other creditors, trade payables, and other payables.
4.
Financial liabilities designated at fair value through profit or loss
Until January 1, 2011, the Group did not have any financial liabilities designated at fair value
through profit or loss. At the First-Time Application Date of IFRS 9 (2010), the Group chose to
designate its issued marketable bonds at fair value through profit or loss.
Such designation was aimed at significantly reducing accounting mismatches arising from the
measurement of currency- and interest-swap contracts at fair value through profit or loss, while
up to December 31, 2010, the aforementioned bonds were measured at amortized cost.
At the First-Time Application Date, the Group conducted an examination to determine whether
recognizing the changes in fair value attributable to credit risk in other comprehensive income,
i.e. - according to the default option set forth in the Standard, will generate or increase
accounting mismatches in profit or loss. The Group found that the said change in fair value
should be recognized in other comprehensive income, as the changes in the fair value of the
future contracts, whose fair value was measured using the applicable observed risk-free interest
rate ( “Benchmark Interest Rate”), significantly offset the changes in the fair value of the bonds
caused by changes in the Benchmark Interest Rate. Other changes in the bonds’ fair value, due
mainly to changes in credit risk, do not have the same effect on the fair value of the futures
contracts.
14
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
I.
Financial instruments (contd.)
4.
Financial liabilities designated at fair value through profit or loss (contd.)
Therefore, recognizing the fair value changes attributable to credit risk changes under other
comprehensive income does not increase or introduce accounting mismatches into profit or loss.
Therefore, as of January 1, 2011, changes in the fair value of the bonds, attributable to credit
risk changes, are recognized in other comprehensive income.
The Group calculates the change in fair value attributable to changes in credit risk as the amount
of change in fair value which is not attributable to changes in identified market risks
(attributable mainly to the Benchmark Interest Rate, the Israeli CPI, and currency exchange
rates). Calculation is performed as follows:
A) The Group calculated the bonds’ internal rate of return upon issue, according to their fair
value (based on the bonds’ quoted price on the Tel Aviv Stock Exchange), and their cash
flows at that date. From this internal rate of return, the Group subtracted the benchmark
interest rate, at the issue date, so as to arrive at the specific component attributable to the
bonds’ credit risk at that date.
B) Upon initial recognition and in each subsequent reporting period, the Group calculates the
present value of the bonds by discounting their cash flows at the relevant date, using the
benchmark interest rate for that date plus the component attributable to the credit risk as
calculated in Section (a) above.
C) The difference between the fair value of the liabilities upon initial application and in each
subsequent reporting period, which is based as aforesaid on the bonds’ price quote on the
Tel Aviv Stock Exchange, and the amount calculated in Section (b) above, is the amount
attributable to credit risk, and recognized in other comprehensive income as aforesaid.
The Group believes this method for determining the change in fair value attributable to
credit risk to be appropriate, as the only significant change in market conditions attributable
to the bonds is due to changes in the Benchmark Interest Rate.
5.
Derecognition of financial liabilities
Financial liabilities are derecognized when the Group’s contractual commitment expires or is
settled or annulled.
6.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amounts are presented in the
financial position statement, when the Group has an immediate and enforceable legal right to
offset the recognized amounts, and intends to settle the asset and liability on a net basis or to
dispose of the asset and settle the liability simultaneously.
7.
Derivative financial instruments
Group companies make use of derivative financial instruments to mitigate commodity risk,
currency risk, inflation risk, interest rate risk, and input prices risk.
Measurement of derivative financial instruments
Derivatives are initially recognized at fair value. Attributable transaction costs are recognized in
profit or loss as they arise. Subsequent to initial recognition, derivatives are measured at fair
value, with changes accounted for as follows:
15
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
I.
Financial instruments (contd.)
7.
Derivative financial instruments (contd.)
Economic hedging
Changes in the fair value of derivatives used for economic hedging are recognized in profit or
loss according to the purpose of the economic hedge, i.e. - under the item to which profit or
losses on the hedged item are classified. Changes in the fair value of derivative instruments used
for economic hedging of commodity prices are classified under the cost of sales item, while
changes in the fair value of the other derivative instruments are classified as financing income
or expenses.
Non-hedging derivatives
Changes in the fair value of derivatives not used for hedging are recognized immediately in
profit or loss, as financing income or expenses.
8.
Share capital
Ordinary shares are classified as equity.
9.
CPI-linked financial assets and liabilities not measured at fair value
The value of CPI-linked financial assets and liabilities, not measured at fair value, is revaluated
in each period according to the actual increase in the CPI.
J.
Property, plant and equipment
1.
Recognition and measurement
Property, plant and equipment items are measured at cost, less of accumulated depreciation and
accumulated impairment losses, if any.
These costs include expenditures directly attributable to acquiring the asset. Self-constructed
asset costs include the cost of materials, direct labor costs, discounted credit costs, and
additional costs which can be directly attributable to bringing the asset to the location and state
required to operate it according to Management’s intentions. The cost of purchased software,
which is an integral part of operating the relevant equipment, is recognized as part of the cost of
such equipment.
When significant parts of property, plant and equipment (including significant periodic
inspection costs) have different durations, they are treated as separate items (significant
components).
Gains or losses from derecognition of a property, plant and equipment item are determined by
comparing the consideration from derecognizing the asset with its carrying amount, and are
recognized as a net amount in profit or loss.
The Group’s property, plant and equipment balance also includes surplus costs attributed to
property, plant and equipment, incurred in the acquisition of control in a subsidiary.
2.
Subsequent costs
The cost of replacing a property, plant and equipment item, and other subsequent costs, are
recognized as part of that item’s carrying amount if the Group expects to receive the future
economic benefit derived from the item and that its cost can be reliably measured. Ongoing
maintenance costs are attributed to profit or loss as they arise.
16
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
J.
Property, plant and equipment (contd.)
3.
Depreciation
Assets are amortized when available for use, i.e. - when they have reached the location and state
required for their operation as intended by Management.
Depreciation is recognized in profit or loss as per the straight line method over the estimated
useful life of each component of property, plant and equipment items. Group-owned land is not
amortized.
Estimated useful life periods for the current period and for the comparative period are as
follows:
Depreciation rates
Buildings
Machinery and equipment
Office furniture and equipment
Vehicles
20% - 2%
25% - 2%
33% - 6%
20% - 15%
Primarily 5%
Primarily 3%
Primarily 25%
Primarily 20%
Estimates concerning the depreciation method and useful life are reviewed at least at the end of
every reporting year and adjusted as necessary.
4.
To guarantee the continued and proper operation of its facilities, the Group must regularly
conduct periodic maintenance every 4-5 years. Actual expenses incurred through the periodic
maintenance of facilities are discounted and amortized over the period until the next scheduled
maintenance date.
5.
Advances on the acquisition of property, plant and equipment are classified under the property,
plant and equipment item.
K. Intangible assets
Intangible assets acquired by the Group have a definite useful life and are measured at cost less of
accumulated writedowns and losses for impairment.
Intangible assets also include surplus costs attributed to intangible assets, incurred through the
acquisition of control in a subsidiary. The cost of such intangible assets equals their fair value at the
time of the business combination.
L.
Subsequent costs
Subsequent costs are recognized as an intangible asset only when they serve to increase the future
economic benefit of the asset for which they were expended. All other costs are recognized in
comprehensive income at the time that they are incurred.
M. Amortization
Amortization is recognized in profit or loss as per the straight line method, over the intangible asset’s
estimated useful life, from the time at which assets become available for use.
Estimated useful life periods for the current period and for the comparative period are as follows:
1)
Royalties on know-how, paid in advance, are amortized using the straight line method over a
period of 12 to 15 years.
2)
Intangible assets attributable to customer relations are amortized over 5 years.
Estimates concerning the amortization method and useful life are reviewed at least at the end of
every reporting year and adjusted as necessary.
17
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
N. Impairment of assets
1.
Financial assets
Trade receivable balances are tested for impairment when objective evidence indicates that a
loss occurred subsequent to initial recognition, and adversely affected an asset’s estimated
future cash flows, which can be estimated reliably.
Group companies review evidence for impairment of trade receivable balances at the single
asset level.
Impairment losses on trade receivable balances are recognized in profit or loss under the
‘General and administrative expenses’ item.
2.
Non-financial assets
Timing of impairment testing
The carrying amount of the Group’s non-financial assets, which are not inventory or deferred tax
assets, is reviewed at every reporting date so as to determine whether any indications for impairment
exist. If such indications exist, the asset’s estimated recoverable amount is calculated.
Measuring the recoverable amount
The recoverable amount of an asset or cash-generating unit is the higher of their value in use
and their fair value net of selling costs. In determining value in use, the Group discounts
projected future cash flows using a pre-tax discount rate, which reflects market expectations as
to the time value of money and an asset's specific risks, for which the future cash flows
expected from the asset have not been adjusted.
Identifying cash-generating units
In assessing impairment of assets which cannot be individually examined, assets are grouped
together into the smallest possible asset group which generates cash flows from ongoing use,
which are essentially independent of other assets and groups ( “Cash Generating Unit”).
Recognition of impairment losses
Impairment losses are recognized in profit or loss, when the carrying amount of an asset or a
Cash Generating Unit is higher than its recoverable amount. Recognized impairment losses on
Cash Generating Units are allocated, pro rata, to writing down the carrying amount of the Cash
Generating Unit's constituent assets.
O. Recognition of income
Revenue from product sales in the ordinary course of business are measured at the fair value of the
consideration received or which will be received, net of commercial and volume-based discounts.
The Group recognizes income when:




There is convincing evidence that the significant risks and benefits resulting from ownership of
the goods have been transferred to the buyer; as concerns the sale of the Group’s products in
Israel, this condition is generally met upon removal of the goods from the factory. As for the
sale of Group products outside of Israel, this condition is generally met when the goods are
loaded on the shipper’s vessel, and in other cases upon the goods arriving at the port of
destination.
The Group does not retain continuing managerial involvement with the goods, and does not
retain effective control over the goods; consideration is expected to be received;
The costs that have been incurred, or that will be incurred through the transaction, can be
measured reliably; and
Revenues can be measured reliably.
18
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
P.
Financing income and expenses
Financing income includes interest income on investments, changes in the fair value of financial
assets presented at fair value through profit or loss, changes in the fair value of bonds designated at
fair value through profit or loss which are not attributable to the Company's credit risk, and expected
returns on the assets in employee benefit plans. Interest income is recognized as it accrues, as per the
effective interest method.
Financing expenses include interest expenditures on borrowings, changes in the time value of
employee benefits, changes in the fair value of financial assets presented at fair value through profit
or loss, and changes in the fair value of bonds designated to fair value through profit or loss which
are not attributable to credit risk.
Credit costs, which are not discounted, are recognized in profit or loss as per the effective interest
method.
Gains and losses on currency exchange differences on financial assets and liabilities are classified in
net amounts under financing income or expenses.
Q. Provisions
Provisions recognized in the financial statements refer primarily to legal actions and environmental
considerations.
Provisions for legal actions are recognized where the Group has a present legal commitment or an
implied commitment as a result of a past event, for which it is more likely than not that the Group
will use economic resources to settle the said commitment, and the commitment can be reliably
estimated. However, in rare cases where the results of the action and/or the Ministry of
Environmental Protection’s demand cannot be estimated reliably, no provision is recognized in the
financial statements.
R. Taxes on income
Taxes on income include current taxes and deferred taxes. Current taxes and deferred taxes are
recognized in profit or loss or directly in equity or other comprehensive income if they are due to a
transaction or event which are recognized directly in equity or other comprehensive income.
Current taxes
Current taxes are the tax payment expected to be made on the taxable income for the year, calculated
as per the statutory tax rates applicable according to the laws that have been enacted, or whose
enactment has effectively been completed, as of the financial position statement date, and includes
taxes on previous years.
Uncertain tax assessments
A provision for uncertain tax assessments, including additional interest and tax expenses, is
recognized when it is more likely than not that the Group will be required to utilize its economic
resources to settle a commitment.
Deferred taxes
Deferred taxes are recognized as per the equity method, and pertain to temporary differences
between the carrying amount of assets and liabilities for financial reporting purposes, and their value
for tax purposes.
19
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
R. Taxes on income (contd.)
Deferred taxes (contd.)
The Group does not recognize deferred taxes for provisions due to investments in subsidiaries, if the
Group controls the reversal date of the difference and expects that no reversal will occur in the
foreseeable future, whether by disposing of the investment or by distributing dividends for the
investment. Deferred taxes are measured using the tax rates expected to apply to the aforesaid
temporary differences when they are realized, based on tax laws that have been enacted or that have
effectively been enacted as of the financial position statement date.
A deferred tax asset is recognized for losses carried forward, tax benefits, and deductible temporary
differences when the Group expects to have taxable future income against which these temporary
differences can be utilized. Deferred tax assets are reviewed at every financial position statement
date, and are written off if the relevant tax benefits are not expected to materialize.
S.
Employee benefits
1.
Post-employment benefits
The Group maintains a number of post-employment benefit plans. Plans are usually funded
through contributions to insurance companies or pension funds, and are classified as defined
contribution plans and defined benefit plans.
A) Defined contribution plans
A defined contribution plan is a post-employment plan where the Group makes fixed
payments to a separate entity, without having any legal or implied obligation to make any
additional payments. The Group’s obligations to contribute to a defined contribution plan
are recognized as an expense in profit or loss in the periods in which the employees
provided related services.
B) Defined benefit plans
A defined benefit plan is a post-employment benefit plan which is not categorized as a
defined contribution plan. The Group’s net obligation in connection with a defined benefit
plan for post-employment benefits, is calculated for each plan separately by estimating the
future amount of the benefit to be received by the employee in consideration for his
services, in the current period and in the previous periods. This benefit is presented at
present value net of the fair value of the plan’s assets. The discounting rate is determined
according to the yield, as of the reporting date, on government bonds whose currency and
maturity date are similar to those stipulated for the Group's obligation. Post-employment
defined benefit plans include, inter alia, obligations for severance pay, holiday gifts, and
weekends for retired employees.
Calculations are made by a certified actuary as per the entitlement unit method.
The Group recognizes all actuarial gains or losses incurred through defined benefit plans
immediately in other comprehensive income, under the 'Retained earnings’ item.
Interest costs and expected yield on the plan’s assets which were recognized in profit or
loss, are classified as financing income or expenses, respectively.
The Group offsets an asset pertaining to one benefit plan against a liability pertaining to another
plan only when there is a legally enforceable right to use excesses from one plan to settle a
liability incurred through another plan, and the Group intends to simultaneously settle the
liability on a net basis or utilize excesses from one plan to settle its liability in another plan.
20
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
S.
Employee benefits (contd.)
2.
Other long-term employee benefits
The Group’s net liability for long-term employee benefits not pertaining to post-employment
benefit plans, is for the amount of a future benefit due to employees for services rendered in the
current period and in previous periods. The amount of these benefits is discounted to present
value and is presented net of the fair value of assets pertaining to this liability. The discounting
rate is determined according to the yield, as of the reporting date, on government bonds whose
currency and maturity date are similar to those stipulated for the Group's liabilities.
Calculation is based on the predicted entitlement unit method. Actuarial gains and losses are
recognized in comprehensive income in the period in which they arose.
Other long-term employee benefits include, inter alia, redemption of sick days, tuition for
employees’ children, and a 50-year celebration bonus in a consolidated company.
3.
Severance benefits
Severance benefits are recognized as an expense when the Group has clearly, and irrevocably
committed to dismiss employees prior to their reaching retirement age under a formal and
detailed program, or to provide severance benefits following an offer aimed at encouraging
voluntary retirement. Benefits paid to employees upon voluntary retirement are recognized at
the time that the Group offered its employees a program aimed at encouraging voluntary
retirement (which constitutes severance benefits), the Group expects its offer to be accepted
,and the number of employees accepting the offer can be reliably estimated. If the benefits are
payable more than 12 months after the end of the reporting period, they are discounted to
present value. The discounting rate is determined according to the yield, as of the reporting date,
on government bonds whose currency and maturity date are similar to those stipulated for the
Group's liability.
4.
Short-term benefits
Liabilities for short-term employee benefits are measured on an un-discounted basis, and the
expense is recognized at the time that the relevant service is rendered or in the case of nonaccrued absence - at the actual time of absence.
A provision for short-term employee benefits in respect of a cash bonus is recognized when the
Group has a present legal or implied obligation to pay the said amount for services rendered by
an employee in the past, and the relevant amount can be reliably estimated.
Classification of employee benefits as short-term benefits or as other long-term employee
benefits is based on the date on which the relevant liability is due to be settled.
Short-term benefits include mainly salaries, vacation days, and convalescence.
21
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
T.
Exchange rates and linkage
Foreign Currency balances, or Foreign Currency-linked balances, are included in the financial
statements according to the representative exchange rates announced by the Bank of Israel in effect
at the end of the reporting period.
CPI-linked balances are presented according to the last known CPI at the end of the reporting period
(the CPI for the month prior to financial reporting month).
The following table details the USD and EUR exchange rates, and the CPI:
As of
31.12.2012
31.12.2011
USD
representative
exchange rate
EUR-USD
exchange rate
CPI
in points (*)
3.733
3.821
1.318
1.292
105.7
104.0
%
%
%
1.99
(3.19)
(7.39)
1.63
2.17
2.66
(*) Base index - 2010 average = 100
Changes during the period ended
December 2012 (12 months)
December 2011 (12 months)
December 2010 (12 months)
(2.30)
7.66
(5.99)
U. New financial reporting standards and interpretations not yet adopted applicable from
January 1, 2013 onwards
1.
IFRS 10 - Consolidated Financial Statements ("the Standard").
The Standard presents a new model for determining whether or not an investor controls an
investee and, consequently, whether that investee should be consolidated. This model will be
applied for all investees. Under this model, an investor controls an investee when it is exposed,
or has rights, to variable returns from its involvement with the investee, and has the ability to
affect those returns through its power over the investee, and there is a connection between
power and returns.
Application of the Standard is not expected to materially influence the Group’s financial
statements.
2.
IFRS 13 - Fair Value Measurement ("the Standard").
The Standard supersedes instructions for fair value measurement included in the other IFRSs.
To this end, the Standard defines fair value, and prescribes measurement and disclosure
guidelines. However, the Standard does not require new fair value measurements, but rather
explains how to measure fair value when such measurement is required by other standards.
The Standard will apply when fair value measurements or disclosures are required or permitted
under other IFRSs. Application of the Standard is not expected to materially influence the
Group’s financial statements.
22
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
U. New financial reporting standards and interpretations not yet adopted applicable from
January 1, 2013 onwards (contd.)
2.
IFRS 13 - Fair Value Measurement ("the Standard").(contd.)
Amendment to IAS 19 - Employee Benefits ("the Amendment")
The amendment includes a number of changes concerning the manner of accounting for
employee benefits:
The main changes are as follows:

Net financing income (expenses) are to be calculated by multiplying the net defined benefit
liability (asset) by the discount rate used to measure the defined benefit liability.
Consequently, the calculation of actuarial gains or losses has also changed;

The amendment changes the definition for short term employee benefits and other long
term employee benefits so that instead of classifying benefits as long term or short term
according to the entitlement period, classification will be based on the entity's expectations
regarding the time of the benefit's full utilization.
The Group estimates that the Amendment is not expected to materially influence its financial
statements.
3.
Amendment to IAS 1 - Presentation of Financial Statements concerning presentation of
items of other comprehensive income ("the Amendment")
The Amendment changes the manner in which items of other comprehensive income are presented
in financial statements, so that items of other comprehensive income which after initial recognition
as comprehensive income are to be transferred to profit or loss, will be presented separately from
items of other comprehensive income which are never transferred to profit or loss.
The Group estimates that the Amendment is not expected to materially influence its financial
statements.
V. Re-statement
Deposits provided as collateral for current maturities on long-term loans, which as of December 31,
2011 amounted to USD 19.155 million, were re-stated from current assets to non-current assets.
NOTE 3
- USE OF ACCOUNTING ESTIMATES AND JUDGMENTS
A. General
The preparation of these financial statements in compliance with IFRSs requires management to
exercise judgment and make assessments, estimates and assumptions that affect the application of
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
The formulation of accounting estimates used in the preparation of the Group’s financial statements
requires the Group’s management to make assumptions concerning circumstances and events
involving significant uncertainty.
In determining these estimates, the Group’s management bases its judgment on past experience,
various facts, external factors, and reasonable assumptions according to relevant circumstances for
each estimate. Estimates and their underlying assumptions are reviewed on an ongoing basis by the
Group's management. Changes to accounting estimates are recognized in the period in which such
estimates are revised and in all future periods affected.
23
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 3
B.
- USE OF ACCOUNTING ESTIMATES AND JUDGMENTS (CONTD.)
Critical estimates
The following are asset and liability items included in the financial statements, for which the Group has employed estimates and made forward-looking
assumptions and there is significant risk that results may necessitate material adjustments to their carrying amounts in subsequent reporting periods:
Estimate
Principal Assumptions
Possible Effects
Reference
Net realizable value of
inventory
Realizable price of inventory as finished product.
Required selling costs based on past experience.
Recognition or reversal of
impairment loss.
Recoverable amount when
testing for impairment of
non-financial assets
Post-tax discount rate;
Estimated cash flows based on past experience for the cash generating unit
or similar units and on Management’s best judgment concerning the
economic conditions expected during the remaining useful life of the assets
comprising the cash generating units.
Recognition of impairment
losses on non-financial assets
Recognition of a deferred
tax asset on losses for tax
purposes
Expected future taxable profits against which deferred losses can be
utilized;
Determining the tax rates that will apply at the reversal date, including the
entitlement date of each company in the Group to benefits under the
Encouragement of Capital Investments Law in the coming years and the
date of transition to the amendment to the Encouragement of Capital
Investments Law.
Recognition or reversal of a
deferred tax asset to profit or
loss
For information concerning
losses on which the Group
recognized deferred tax
assets, see Note 18.
Actuarial measurement of
employee benefits
Actuarial assumptions which are determined based on market conditions
and the Group's past experience, specifically:
Discount rate
Rate of future salary crawl
Employee churn rates
Changes in obligations under
a post-employment defined
benefit plan, liability for early
retirement, and other longterm benefits.
For more information
concerning actuarial
assumptions, see Note 17.
24
For information concerning
impairment losses recognized
on inventory, see Note 6 Inventory.
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
Estimate
Principal Assumptions
Possible Effects
Assessment of the chances
of contingent liabilities
Assessment whether it is more likely than not that economic resources will
be used in connection with legal actions and other contingent claims,
brought against the Company and/or its investees, based on the opinion of
their legal counsel, which relies on their best professional judgment,
considering the stage of the proceedings, and legal experience in the
various issues.
Assessment based on the Group’s legal counsel, that as concerns a number
of claims, in light of the complexity of the proceedings, it is not possible at
this time to estimate the Group’s monetary exposure, and so no provisions
were included on account of these claims in the financial statements.
Annulment or creation of a
provision against profit or
loss
Examining the estimated
useful life of property, plant
and equipment at least once
a year
Assessments by internal and/or external engineers, possessing relevant
professional knowledge and experience, based, inter alia, on the Group’s
past experience.
Increased or decreased
depreciation costs recognized
in profit or loss.
Fair value measurement of
derivative financial
instruments
Use of pricing and assessment methods characteristic of the various
instruments on the various markets based on relevant assumptions, such as:
quotes for prices, rates and interest rates obtained from banks, financial
entities and prevalent trading software.
Changes in the fair value of
derivative financial
instruments which is
generally recognized in profit
or loss.
25
Reference
For information concerning
the Company's exposure to
contingent claims - see Note
19.
For more information, see
Note 27.
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 4 - TRADE RECEIVABLES
As of December 31
2012
2011
Debts outstanding
Checks receivable
174,202
12,850
189,575
7,380
Less of provision for doubtful debts
187,052
(2,048)
196,955
(7,560)
185,004
189,395
For information concerning transactions and balances with related parties and principal shareholders, see Note
26A.
A. Out of all trade receivables as of December 31, 2012, USD 19.472 million reflect Customer A’s
debt. The Group does not have any additional customers whose debt to the Group exceeds 10% of its
trade receivables balance (as of December 31, 2011, Customer A’s debt totaled USD 36.447
million).
B.
Group customers are charged an annual 7.5% interest on debts in arrears.
C. Age of customer debts
As of December 31
2012
Gross
Debts not in arrears
Debts in arrears of up to six months
Debts in arrears for between six to twelve
months
Debts of more than a year
2011
Impairment
Gross
Impairment
141,146
44,287
-(429)
148,489
41,430
-(524)
1,493
126
(1,493)
(126)
81
6,955
(81)
(6,955)
187,052
(2,048)
196,955
(7,560)
Movement in provision to doubtful debt for trade receivables:
Balance as of January 1
Increase (decrease) in provision for doubtful debt
Reclassified from long-term debit balances
Balance as of December 31
26
2012
2011
7,560
(5,512)
--
1,677
1,248
4,635
2,048
7,560
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 5 - OTHER RECEIVABLES
As of December 31
Other accounts receivable:
Institutions
Employees (including current maturities on long-term loans)
Debit balances:
Advanced expenses (including current maturities on long-term services in
advance)
Advances to suppliers
Other (1)
2012
2011
188
308
10,155
323
496
10,478
5,199
1,409
16,826
5,048
1,623
53
23,434
6,724
23,930
17,202
(1) Due to a malfunction in the ethylene facility, the Company recorded increased energy costs. These expenses
are covered by the Company’s insurance policy, and so the Company recognized USD 16.5 million in
compensation receivable. The amount was recognized according to calculations approved in the reporting
period by the insurance company appraiser, and was presented in profit or loss as a decrease in the cost of
sales item. Subsequent to the income statement date, the Company receive a letter from its insurers
confirming payment.
NOTE 6 - INVENTORY
As of December 31
Composition:
Raw materials, chemicals and packaging materials
Finished products (1)
2012
2011
6,707
126,574
23,816
99,463
133,281
123,279
(1) As of December 31, 2012, the Group recorded a USD 2.766 million provision for impairment of finished
product inventory (as of December 31, 2011 - USD 8.068 million).
NOTE 7 - LONG-TERM LOANS AND DEBIT BALANCES
As of December 31
Composition:
Loans to employees (1)
Long-term services in advance
Net of current maturities
(1) Un-linked NIS-based loans bearing interest at a rate of 2.44% - 3.83%.
27
2012
2011
750
11,614
12,364
(1,529)
891
12,818
13,709
(1,540)
10,835
12,169
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 8
- INVESTMENT IN INVESTEES
The following companies are held directly by the Company and consolidated in its financial statements:
Subsidiary
Carmel Olefins (UK.) Ltd.
Colins Ltd.
Colland Polymers B.V. (1)
Carmel Olefins Investments 2007 Ltd.
Place of
residence
UK
Guernsey
The Netherlands
Israel
Main area of
operations
UK
UK and Israel
The Netherlands
Inactive
Interest in voting
rights (%)
100%
100%
100%
100%
(1) Starting December 20, 2011, the Company, through its wholly-owned subsidiary Colland Polymers B.V. (
“Colland”), holds 100% of the share capital of Ducor Petrochemicals B.V. ( “Ducor”).
28
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT
Composition and movements for the item:
Land and
buildings (3)
Cost
Balance as of January 1, 2011
Additions during the year
Net exchange differences from translation of overseas operations
Balance as of December 31, 2011
Additions during the year
Derecognitions during the year
Net exchange differences from translation of overseas
operations
Balance as of December 31, 2012
Accumulated depreciation
Balance as of January 1, 2011
Additions during the year
Net exchange differences from translation of overseas operations
Balance as of December 31, 2011
Additions during the year
Net exchange differences from translation of overseas operations
Balance as of December 31, 2012
Facilities and
equipment (4)
Vehicles
Equipment
and furniture
Inventory of
spare parts (1)
44,170
1,189
-45,359
-(45,359)
Catalysts (2)
Total
18,024
2,154
-20,178
-(2,688)
927,781
55,162
(1,881)
981,062
47,064
(48,047)
40,003
113
-40,116
17
--
821,520
51,692
(1,881)
871,331
47,028
--
235
--235
---
3,829
14
-3,843
19
--
-40,133
1,523
919,882
-235
-3,862
---
-17,490
1,523
981,602
1,988
584
-2,572
597
-3,169
163,581
37,909
(573)
200,917
39,806
351
241,074
155
28
-183
24
-207
3,068
175
-3,243
65
-3,308
-------
9,903
2,657
-12,560
1,986
-14,546
178,695
41,353
(573)
219,475
42,478
351
262,304
Amortized cost as of December 31, 2012
36,964
678,808
28
554
--
2,944
719,298
Amortized cost as of December 31, 2011
37,544
670,414
52
600
45,359
7,618
761,587
(1) For information on the sale of spare parts inventory in the reporting period - see Note 26F.
(2) Changes during the year are presented in net amounts
(3) The rights to the Company’s land, on which the Company’s facilities are located, with an overall area of 380,000 square meters, were granted to the Company upon its
establishment by virtue of transfer agreements and irrevocable authorizations from Israel Petrochemical Enterprises Ltd. ( “IPE”) and ORL, and through the purchase of
lands from IPE and ORL in subsequent years. Ownership of the above mentioned land is not registered in the Company’s name in the Land Registry, as a result of
problems in the reparcelation of the land. The Company has recorded caveats in its favor with the Israel Land Registrar.
(4) For information on the pledge of assets, see Note 19B(1)(b)(1).
29
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 10 - INTANGIBLE ASSETS
Composition and movements for the item:
Know-how
Cost
Balance as of January 1, 2011
Net exchange differences from translation of
overseas operations
Balance as of December 31, 2011
Net exchange differences from translation of
overseas operations
Balance as of December 31, 2012
28,946
253
(128)
1477
--
28,818
Accrued amortization
Balance as of January 1, 2011
Additions during the year (1)
Net exchange differences from translation of
overseas operations
Balance as of December 31, 2011
Additions during the year (1)
Net exchange differences from translation of
overseas operations
Balance as of December 31, 2012
Supplier
agreement
Other
253
(47)
1,430
Total
30676
(175)
30,501
75
--
29
104
28,893
253
1,459
30,605
14,150
1,287
166
7
1,279
207
15,595
1,501
(42)
--
(56)
(98)
15,395
1,266
173
80
1,430
-
16,998
1,346
25
--
29
54
16,686
253
1,459
18,398
Amortized cost as of December 31, 2012
12,207
--
--
12,207
Amortized cost as of December 31, 2011
13,423
80
--
13,503
(1) Amortization of intangible assets is attributed to cost of sales.
NOTE 11 - SHORT-TERM LOANS, CREDIT AND BONDS
Nominal
interest rate
Currency
Overdrawn accounts
Short-term loans
Short-term loans
Current maturities of long-term loans
Current maturities of long-term loans
Current maturities of bonds
USD
USD
EUR
USD
EUR
NIS
For information regarding liens - see Note 19B(2).
30
As of December 31
31.12.2012
2012
2011
3.8%-3.9%
3.9%-4.2%
2.4%-3.6%
61,987
40,000
8,017
24,397
10,447
45,004
62,295
78,800
-29,397
10,251
11,870
189,852
192,613
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 12 - TRADE PAYABLES
As of December 31
2012
2011
Composition:
Liabilities to various suppliers
Liabilities to principal shareholders
40,600
230,703
66,106
111,332
271,303
177,438
For information concerning transactions and balances with related parties and principal shareholders, see
Note 26A.
NOTE 13 - OTHER PAYABLES
As of December 31
2012
2011
Composition:
Liabilities for wages and salaries (1)
Liabilities to principle shareholders (2)
Interest payable
Other accounts payable
15,828
-431
774
10,253
9,337
-293
17,033
19,883
(1) For more information, see Note 17A.
(2) For more information, see also Note 26A.
NOTE 14 - PROVISIONS
Legal Actions
2012
2011
Balance as of January 1
Provisions created in the period
Provisions utilized in the period
Currency translation effects
560
1,002
-47
684
75
(156)
(43)
Balance as of December 31
1,609
560
For information on the nature of the Company's provisions, see Note 19.
NOTE 15 - LONG-TERM CREDIT FROM BANKS
Currency
Long-term loans
Long-term loans
USD
EUR
Net cost of raising long-term loans
Current maturities
Current maturities
USD
EUR
Interest rate
31.12.2012
1%-3.6%
1.1%-3.8%
As of December 31
2012
2011
180,359
23,014
203,373
209,758
32,795
242,553
(1,430)
(24,397)
(10,447)
(2,336)
(29,397)
(10,251)
167,099
200,569
For information regarding liens and financial covenants made in connection with these loans - see Note
19B(1)(b)(2).
31
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 16 - BONDS
A. The Company’s bonds are repayable in eight equal annual installments, commencing on March 31,
2013. A number of financial covenants were set for the Company, which include compliance with
certain financial ratios. As of the financial statement date, the Company is in compliance with these
covenants. See also Note 19B(1)a. The bonds are listed for trading on the Tel Aviv Stock Exchange.
The bonds bear an annual interest at a rate of 4.69% per annum.
B.
Composition:
As of December 31
2012
2011
Balance of bonds
Current maturities
261,375
(45,004)
216,371
248,924
(11,870)
237,054
NOTE 17 - EMPLOYEE BENEFITS, NET
Employee benefits include short-term benefits, post-employment benefits, other long-term benefits and
severance benefits.
As regards post-employment benefits, the Company maintains funded benefit plans, which are financed
through a central compensation fund. Furthermore, the Company contributes amounts to corresponding
insurance policies. The funded benefit plans entitle entitled employees to a one-time benefit based on
their compensation agreement. The Company also has a defined contribution plan for that part of its
workforce which is subject to Section 14 of the Severance Pay Law of 1963.
A. Employee benefits - composition:
As of December 31
2012
2011
Classified under Current liabilities - Other payables:
Short-term employee benefits (1)
Current maturities of other long-term employee liabilities
Classified under Non-current liabilities - Employee benefits:
Liabilities recognized for a defined benefit plan
Early retirement - severance benefits
Liabilities for other long-term employee benefits
Net of current maturities for severance - early retirement
(1)
13,731
2,097
15,828
8,737
1,516
10,253
10,330
9,472
1,783
(2,097)
19,488
8,172
5,812
3,242
(1,516)
15,710
Short-term employee benefits include liabilities for salaries, social benefits including personal days
and convalescence, and a liability for early retirement, see Note 17G below.
As of December 31
2012
2011
Classified under Non-current assets:
Fair value of plan assets
Liabilities recognized for a defined benefit plan
Liabilities for other long-term employee benefits
Net asset for employee benefits
8,401
(2,991)
(2,243)
3,167
32
7,700
(3,057)
(2,258)
2,385
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 17 EMPLOYEE BENEFITS, NET (CONTD.)
B.
Post-employment benefit plans - defined benefit plan
1.
The Company’s liabilities for pension payments and supplementation of retirement
compensation are covered in full by its employment termination liabilities, pension and
compensation contributions to approved provident funds, and executive insurance policies.
The provision deposited in compensation funds includes gains which have accrued as of the
reporting date. Deposited funds can only be withdrawn after the statutory requirements
prescribed by the Severance Pay Law or by the employment agreements have been met in full.
2.
In addition to pension payments, Company retirees receive from the pension fund benefits
which are mainly comprised of holiday gifts and weekend vacations. The Company’s liabilities
for these benefits are accumulated over the term of the employees’ employment with the
Company. In its financial statements, the Company includes expected post-employment costs
based on actuarial calculations.
C. Liabilities for other long-term employee benefits
1.
According to the salary agreements signed with its employees, the Company has a liability to
pay employees compensation upon their retirement, on account of unutilized sick days, tot he
amount of their accrued sick day balance, and for a maximum amount of 50 days. In its
financial statements, the Company includes costs for this liability based on actuarial
calculations.
2.
The Company has liability for financing the BA studies of its employees’ children. Employees
are only entitled to this benefit during the course of their employment. In its financial
statements, the Company includes costs for this liability based on actuarial calculations.
D. Severance benefits
In case of early retirement, the Company is required to cover the monthly payments until entitlement
to comprehensive pension payments from the pension fund.
E.
Composition of employment termination liabilities - defined benefit plan
As of December 31
2012
2011(*)
Financed liabilities
Present value of financed liabilities
Net of the fair value of plan assets
31,051
(35,981)
26,431
(31,074)
Total asset for defined benefit, net
(4,930)
(4,643)
9,850
8,172
Non-financed liabilities
Total liabilities recognized for a defined benefit
(*) Re-stated
33
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 17 - EMPLOYEE BENEFITS, NET (CONTD.)
E
Composition of employment termination liabilities - defined benefit plan (contd.)
1.
Movement in the present value of liabilities for defined benefit plans
Liabilities for defined benefit plans as of January 1
Benefits paid
Direct servicing costs
Gains recognized following downsizing (see Note 17G below)
Interest costs
Changes from currency exchange differences
Actuarial losses (gains) recognized in other comprehensive income
Liabilities for defined benefits as of December 31
2012
2011 (*)
34,603
(1,419)
1,025
(556)
1,637
1,870
3,741
40,901
33,310
(271)
425
-508
740
(109)
34,603
2012
2011 (*)
31,074
724
(1,406)
1,573
1,810
2,206
35,981
30,874
1,826
(928)
366
(573)
(491)
31,074
(*) Re-statement
2.
Movement in plan assets
Fair value of plan assets as of January 1
Contributions
Withdrawals from central compensation fund
Expected yield on plan assets
Changes from currency exchange differences
Actuarial gains (losses) recognized in other comprehensive income
Fair value of plan assets as of December 31
(*) Re-statement
3.
Composition of plan assets
Plan assets are comprised as follows:
As of December 31
2011
2012
%
%
Cash and cash equivalents
Marketable government bonds
Marketable corporate bonds
Non-marketable corporate bonds
Shares and other securities, marketable
Deposits and loans
Other investments
4.
7.60
19.23
17.15
12.16
30.54
8.37
4.95
100.00
7.08
16.92
17.30
17.33
32.01
8.92
0.44
100.00
Expenses recognized in profit or loss - defined benefit plan
For the year ended December 31
2011 (*)
2010
2012
Current servicing costs
Gains recognized following downsizing
Interest costs
Expected yield on plan assets
Exchange differences
1,025
(556)
1,637
(1,573)
60
593
(*) Re-stated
34
425
-508
(366)
1,313
1,880
943
-462
(377)
185
1,213
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 17 - EMPLOYEE BENEFITS, NET (CONTD.)
E.
Expenses recognized in profit or loss - defined benefit plan (contd.)
5.
The expense was classified under the following items of comprehensive income:
For the year ended December 31
2011(*)
2010
2012
Cost of sales
Sales and marketing expenses
General and administrative expenses
Financing expenses, net
394
23
52
124
357
21
47
1,455
792
47
104
270
593
1,880
1,213
Actual yield:
For the year ended December 31
2011(*)
2010
2012
Actual yield on plan assets
3,779
(125)
438
(*) Re-stated
6.
Actuarial losses (gains) recognized directly in other comprehensive income:
For the year ended December 31
2011
2010
2012
F.
Aggregate balance as of January 1
Amounts recognized during the period
1,706
1,535
1,324
382
1,976
(652)
Aggregate balance as of December 31
3,241
1,706
1,324
Liabilities for other long-term benefits
As of December 31
2011
2012
2,243
2,258
1,327
1,160
223
1,898
184
233
Liability for redemption of sick leave
Tuition
Liability for bonuses (1)
Long-term leave
4,026
(1)
5,500
In the reporting period, the Company’s Board of Directors resolved to cancel the annual benefit
component for special projects in the benefit program for Management and the Company’s employees,
which was approved by the Board of Directors in 2011.
G. Early retirement plan
In December 2012, the Company’s Board of Directors approved an early retirement plan for
employees offering preferred terms prior to the statutory retirement age. Under this plan, 11
employees will retire in 2013, at a total cost of USD 3.482 million. This liability is presented under
the Other payables line item. Furthermore, under the Company’s streamlining plan, 8 employees left
on early retirement in December 2012, at a total cost of USD 1.767 million.
35
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 17 - EMPLOYEE BENEFITS, NET (CONTD.)
H. Actuarial assumptions
1.
The main actuarial assumptions as of the reporting date are as follows:
2012
%
2011
%
2010
%
Discount and interest rates:
Compensation
Unutilized sick leave
Holiday gifts
Tuition
Early retirement
3.7
4.8
5.1
3.3
2.2
5.3
5.2
5.4
4.9
3.0
5.2
5.2
5.2
5.2
5.2
Expected yield on plan assets as of January 1
Rate of future salary crawl
Employee churn rate
5.2
4.5
0.8
5.3
4.5
0.5
5.5
4.5
0.5
2.
Future mortality rates are based on standard mortality tables and demographic assumptions as
published in the Ministry of Finance circulars.
3.
Marriage rates and spouse ages are based on tables published in pension circulars.
4.
The discount rate is based on market data concerning non-CPI-linked, “Shahar” government
bonds as of the financial position statement date, according to the gross yield to maturity for
bonds with a similar duration to that of the Company’s liability.
5.
Entitlement to the 50-year bonus is only valid during the course of an employee’s employment.
36
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 18 - TAXES ON INCOME
A. Tax laws applicable to the Company
1.
Income Tax Law (Adjustments for Inflation), 1985
From the 2008 tax year and thereafter, the adjustment of income for tax purposes will no longer be
calculated on a real basis. Moreover, linkage to the CPI of the depreciation on property, plant and
equipment items, and of losses carried forward for tax purposes will be discontinued, so that these
amounts will be adjusted to the CPI for the end of the 2007 tax year, and their linkage to the CPI will
be discontinued from that time onwards.
The amendment to the Adjustments Law was reflected in the Company’s calculations of its current
and deferred taxes from 2008.
2.
Encouragement of Capital Investments Law, 1959
Under the Law, the Company is entitled to various tax benefits by virtue of its "Benefited
Enterprise" status, as defined in the Law. The main benefits granted under the Law are:
A) Alternative benefits track
Under this track, the Company is entitled to a tax exemption during the first two years or
the first six years of the benefits period, as relevant and as detailed below, as well as a
reduced tax rate of 25% for the remainder of the benefits period.
The basic condition for receiving benefits under this tract is for the enterprise to contribute
to Israel’s economic independence and to be competitive to the gross domestic product (
“Competitive Enterprise”). In order to meet this condition as regards the establishment of
an enterprise, the Law sets forth various requirements for industrial enterprises.
For projects approved after April 1, 2005, the Law stipulates another prerequisite for
receiving benefits under the alternate track - a minimum entitling investment. This pertains
to investments in acquiring productive assets in machinery and equipment, which must be
made within a period of three years. The minimum entitling investment required for
expanding an enterprise is the higher of either NIS 300,000 or an amount equivalent to the
“entitling percent” of the value of the productive assets. Productive assets shall also include
productive assets used but not owned by the enterprise.
The entitling percent of the value of the productive assets is as follows:
Proportion of the value of
productive assets before
expansion (NIS millions)
Percent of new investment
required by value of
productive assets
Under 140
140-500
Over 500
12%
7%
5%
The income entitling an enterprise to tax benefits under the alternate track shall be the
taxable income of a company which meets certain conditions set forth in the law
(“Benefited Company”) generated through an industrial enterprise. The law specifies the
types of income entitled to tax benefits under the alternate track, including as concerns
industrial enterprises.
37
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 18 - TAXES ON INCOME (CONTD.)
A. Tax laws applicable to the Company (contd.)
2.
Encouragement of Capital Investments Law, 1959 (contd.)
B) Benefited enterprise
The Company has been granted “Benefited Enterprise” status for one expansion project, for
which the benefit period has not yet ended. In accordance with a taxation decision given to
the Company by the Tax Authority, 2007 was chosen as the year of choice for the aforesaid
expansion plan.
In 2006, following the Second Lebanon War, and in order to aid the recovery of those
towns damaged during the war, the Government decided to include hi-tech enterprises in
Haifa in Development Area B. This benefit applies only to the 2007 tax year.
In light of the aforesaid, a high-tech manufacturing enterprise, meeting the export criteria set
forth in the Encouragement of Capital Investments Law, will be tax-exempt for a period of 6
years, and will be subject to a 25% tax rate for one year. In light of the Company meeting the
above criteria, the Company received a pre-ruling from the Tax Authority approving 20 as the
“year of choice” for Development Area B, for its investments in 2005-2007.
The start of the benefit period was set starting from the year in which taxable income was
first generated by the Approved / Benefited Enterprise, provided that 14 years had not
passed from the year in which approval was granted and 12 years from the enterprise first
coming online. As regards the expansion plans under Amendment 60 to the Law, the start
of the benefit period was set as the later of the following - the year of choice, or the year in
which the Company first generated taxable income. This, provided that 12 years had not
passed from the start of the year of choice. Therefore, the benefit period for the Benefited
Enterprise will end no later than the end of the 2018 tax year.
C) Economic Policies Law
In December 2010, the Israeli Knesset approved the 2011-2012 Economics Policies Law
(Legislative Amendments), 2011. This law sets forth, inter alia, amendments to the
Encouragement of Capital Investments Law, 1959 (“the Law”). The amendment is
effective starting January 1, 2011. The amendment changes the benefits track prescribed
under the Law, and applies a uniform tax rate for all of the Company’s preferred income.
As of the 2011 tax year, the Company may (irrevocably) choose whether to switch to the
provisions set forth in the amendment, and from the tax year for which such choice was made, to
be subject to the amended tax rates. The tax rates under the amendment to the Law are as follows:
in 2011 and 2012 - 15% (in Development Area A - 10%); in 2013 and 2014 - 12.5% (in
Development Area A - 7%); and from 2015 onwards - 12% (in Development Area A - 6%). The
Company may choose whether to be subject to the amendment to the law, and waive the
outstanding balance of those benefits to which it is entitled under the Law prior to its amendment.
As of December 31, 2012, the Company has yet to notify the Tax Authority of its intention
to apply the amendment to the Law.
3.
Tax rates applicable to the Company’s income in Israel
On July 14, 2009, the Israeli Knesset enacted the Economic Efficiency Law (Legislative
Amendments for Implementing the Economic Plan for the Years 2009 and 2010), 2009. This law
provided, inter alia, for an additional gradual reduction of the corporate income tax rate, down to a
rate of 18% from 2016 onwards. In accordance with the above-mentioned amendments, the
applicable corporate tax rate in the 2010-2011 tax years are 25% and 24%, respectively.
On December 5, 2011, the Israeli Knesset approved the Tax Burden Correction Law
(Legislative Amendments), 2011. The Law revokes the tax decrease prescribed in the Economic
Efficiency Law as detailed above, and prescribes a corporate income tax rate, a capital gains tax
rate, and a betterment tax rate of 25% from 2012 onwards.
38
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 18 - TAXES ON INCOME (CONTD.)
A. Tax laws applicable to the Company (contd.)
4.
Benefits under the Encouragement of Industry Law (Taxes), 1969
A) The Company is an “Industrial Company” ad defined in the Encouragement of Industry
Law (Taxes), 1969, and is therefore entitled to the following principal benefits:
1)
Increased depreciation rates.
2)
8-year amortization of knowledge used in the company’s development.
3)
Option to file consolidated statements for companies with one production line.
B) Starting 2011, the Company files a consolidated statement to the Tax Authorities, together
with ORL, pursuant to Section 23 (a) to the above law.
B.
Tax assessments
On December 26, 2012, the Company and the tax assessor signed a settlement agreement,
prescribing the Company’s final tax liability for the 2005-2010 tax years. The Company has not
incurred any material expenses as a result of this settlement agreement.
In light of the aforesaid, the Company has received final tax assessments up to and including the
2010 tax year.
The subsidiary of the consolidated company in the Netherlands has final tax assessments up to and
including 2005.
C. Deferred taxes
The composition and movement of deferred taxes as presented in the statement of financial position
are as follows:
Property,
plant and
equipment
and other
assets
Inventory
Provisions
for
employee
rights
Losses
carried
forward (1)
87,962
--
(3,234)
388
--
---
-(66)
9
--
-(9,610)
-(1,852)
-( 46)
-11,498
5,334
(4,137)
5,334
(4,147)
Balance as of December 31, 2011
Exchange differences from translation of
overseas operations
Actuarial losses
Change in the fair value of bonds designated
at fair value through profit or loss,
attributable to changes in credit risks
Deconsolidation
Changes recognized in profit or loss
78,740
(1,852)
(3,346)
(77,066)
8,514
4,990
Balance as of December 31, 2012
79,072
--483
---
---
3,472
397
(66)
---
-(361)
--1,251
--(1,217)
-445
(23,084)
1,776
-(2,135)
1,776
445
(24,702)
(4,924)
(99,705)
8,155
(18,003)
(601)
---
7,317
Total
Balance as of January 1, 2011
Exchange differences from translation of
overseas operations
Actuarial losses
Change in the fair value of bonds designated
at fair value through profit or loss,
attributable to changes in credit risks
Changes recognized in profit or loss
(151)
--
(88,573)
Other
(151)
(361)
(1) The Company has losses carried forward for tax purposes of approximately USD 433 million. Subsidiaries
have losses carried forward for tax purposes of approximately USD 20 million.
The Group records deferred taxes on all of the losses carried forward for tax purposes in Israel and in
the Netherlands.
39
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 18 - TAXES ON INCOME (CONTD.)
C. Deferred taxes (contd.)
Deferred taxes are presented as follows:
As of December 31
2011
2012
Non-current assets
Non-current liabilities
18,033
--
2,893
(7,883)
18,033
(4,990)
D. Taxes on income recognized directly in other comprehensive income
For the year ended December 31
2011
2010
2012
Actuarial gains (losses)
Change in the fair value of bonds designated at fair value
through profit or loss, attributable to changes in credit risks
E.
(361)
(66)
547
1,776
5,334
--
1,415
5,268
547
Tax income (expenses) recognized in profit or loss
For the year ended December 31
2011
2010
2012
Taxes for previous years
Deferred tax income from the creation and reversal of
temporary differences
40
(1,243)
--
--
24,702
4,147
13,791
23,459
4,147
13,791
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 18 - TAXES ON INCOME (CONTD.)
F.
The principle tax rate vs. the effective tax rate for the Group
The following table reconciles the amount of tax that would have applied had all of the income been
taxed at the regular rates applicable to companies in Israel, and the amount of tax presented in the
statement of comprehensive income:
For the year ended December 31
2011
2010
2012
Profit (loss) before taxes on income
(84,470)
Statutory tax rate
25%
(19,726)
24%
58,759
25%
Tax expenses (income) as per the statutory tax rate
(21,118)
(4,734)
14,690
Tax rate differences for Approved Enterprise status
(1,079)
3,170
(8,451)
Adjustment of deferred tax balances due to changes in tax
rates
--
(3,510)
(23,701)
Difference in the tax rate applicable to the income of overseas
consolidated companies
--
(150)
(22)
318
228
230
1,243
--
--
849
3,463
Expenses not deductible for tax purposes, inflationary and
other differences
Taxes for previous years
Difference between basis of measurement of income as reported
for tax purposes and measurement of income as reported in the
financial statements, net, and other differences
Tax income
41
(2,823)
(23,459)
(4,147)
(13,791)
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS
A. Contracts
1.
Land rentals and leases
The Company is committed under various agreements to the operating leasing and renting of
land for various periods up to the year 2024, to a total cumulative amount of USD 3 million.
2.
Supply of natural gas
The Company’s facility is connected to the national natural gas pipeline, and is fully natural gasready. ORL has contracted - both on its own behalf and for the Company - with Israel Natural Gas
Lines Ltd. ( “INGL”), which operates the national pipeline, in a delivery agreement.
ORL also signed agreements with suppliers, for buying the natural gas required by the ORL
Group companies, including the Company, as detailed below. The Company buys its natural gas
requirements from ORL, "back-to-back" to ORL's contractual terms.
The natural gas purchase agreements signed by ORL, are as follows:
A) EMG Agreement - On December 12, 2010, ORL signed an agreement with East
Mediterranean Gas S.A.E. ( “EMG”) for the supply of natural gas from Egypt, to ORL’s
facilities and those of its subsidiaries (“ORL Group”), including the Company, for a period
of 20 years from the start of supply. Due to repeated attacks on the natural gas line used by
EMG, and after EMG notified ORL of the cancellation of its agreement for buying natural
gas from its suppliers, in order to sell the natural gas to EMG's customers, including ORL ORL annulled its agreement with EMG, while reserving all legal rights towards EMG.
B) On May 20, 2011, ORL signed an agreement with the Yam Tethys Group1 ( “Yam Tethys
Agreement”) for purchasing a total quantity of 1.2 BCM ( “Contractual Amount”) for itself
and for its subsidiaries, including the Company, for a supply period of 27 months
commencing June 1, 2011 ( “Basic Agreement Period”). Under the agreement, the
consideration for the entire Contractual Amount was to be paid, in installments, over the
Basic Agreement Period or over a shorter period should the ORL Group consume the entire
Contractual Amount earlier. The agreement does not bind the ORL Group to any particular
volume or rate of gas consumption during the Basic Agreement Period. Should the ORL
Group fail to consume, during the Basic Agreement Term, the entire Contractual Amount,
the agreement calls for the supply period to be extended for another period, which will
allow the ORL Group to consume the entire Contractual Amount. The consideration is
based on a fixed component and a variable component derived from a cost formula based
on the price of crude oil and including a "minimum" price but not a "maximum" price.
From January 2012, the Yam Tethys Group supplies only part of the gas quantities to
which it committed in the agreement, following its notification of a force majeure event
preventing supply of the full Contractual Amount.
C) On November 25, 2011, in conjunction with ORL signing an agreement with the Tamar
Group (see paragraph D below), ORL signed a settlement agreement with the Yam Tethys
Group, whereby the parties agreed as follows:
1

ORL confirmed that it does not dispute the Yam Tethys Group’s claim that the
reduction in supply volumes of natural gas, which started on January 2012, was due to
a force majeure event.

Starting August 2012, ORL will pay only for gas quantities actually supplied, and not
according to the monthly payments prescribed in the agreement.
Noble Energy Mediterranean Limited, Delek Drilling Limited Partnership, Avner Oil Exploration Limited
Partnership, and Delek Investment and Properties Ltd. ( “Yam Tethys Group”).
42
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
A. Contracts (contd.)
2.
Supply of natural gas (contd.)
C) (contd.)

The parties agreed that up to USD 34 million of the USD 59 million paid by ORL to the
Yam Tethys Group in advance on gas quantities not yet supplied ( “the Accrued Amount”),
will be set off from amounts due to the Yam Tethys Group for gas quantities supplied to
ORL from August 2012 and until the start of supply of natural gas from the Tamar reservoir.
The remaining USD 25 million of the Accrued Amount will serve as payment for natural gas
which ORL will consume from the start of supply of natural gas from the Tamar reservoir,
and until the end of the Yam Tethys Agreement term. The sellers will not be bound to sell
ORL, nor will ORL be bound to buy natural gas in excess of the aforesaid amount of USD
25 million. From the start of supply of natural gas from the Tamar reservoir, ORL will pay
for quantities which it will consume under the Yam Tethys Agreement, according to the
price specified in the agreement with the Tamar Group. The Yam Tethys Agreement term
will be extended until the earlier of either the end of 2016, or such time as ORL has
consumed the entire gas quantity prescribed in the said agreement.
D) On November 25, 2012, ORL signed an agreement with the Tamar Group2 for the supply
of natural gas which shall serve as the energy source and raw material for ORL’s facilities
and those of its subsidiaries, including the Company ( “Tamar Agreement”). The total gas
quantity which ORL is expected to buy from the Tamar Group is 5.8 BCM. The Agreement
term is up to the earlier of either seven years from the start of supply or such time as ORL
consumes the entire gas quantity prescribed in the Agreement, subject to ORL’s right to
extend the Agreement term by up to two years, if ORL has not actually received a pro rated
amount of the above quantity at the end of the sixth year of the Agreement term.
Supply of the natural gas will start when the Tamar Group’s reservoir comes online.
The total monetary value of the Agreement may reach USD 1.3 billion. The actual value
will be affected by a variety of factors, and principally the price of oil and the volume and
rate of consumption of natural gas.
The price of the natural gas was determined according to a formula based primarily on the
price of oil (including minimum and maximum prices), and in a small part on the price of
the production component in the price of electricity (with an adjustable minimum price).
In the interim period, starting at such time as the terms specified in the Agreement are met
and until completion of the project for increasing the supply capacity of the Tamar
Project’s treatment and distribution system (to the extent that such project is completed),
supply of natural gas to ORL and the Company pursuant to the Agreement shall be subject
to the natural gas quantities then available, after supply of natural gas pursuant to
agreements signed with the Yam Tethys Group, including the Yam Tethys Agreement, and
pursuant to agreements signed with the Tamar Group prior to the agreement with ORL. For
information concerning the Natural Gas Council’s resolution regulating the utilization of
capacity in the natural gas line, see paragraph E below.
The Tamar Agreement includes additional provisions common in these types of
agreements, including: A take-or-pay commitment by ORL for a minimum annual quantity
of gas, at such volume and subject to such mechanisms as set forth in the Agreement;
compensation mechanisms for supply shortages; gas quality requirements; maximum
liabilities; arbitration clause; etc.
The Agreement is subject to approval by the Antitrust Commissioner.
2
Noble Energy Mediterranean Limited, Isramco Negev 2 Limited Partnership, Avner Oil Exploration Limited
Partnership, Delek Drilling Limited Partnershhip, and Dor Gas Exploration Limited Partnership ( “Tamar Group”).
43
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
A. Contracts (contd.)
2.
Supply of natural gas (contd.)
D) On December 5, 2012, the Natural Gas Council issued resolution number 6/2012, dated
November 29, 2012, concerning the regulation of use of the capacity of the natural gas line
from the Tamar Rig and until the exit point of the natural gas from the receiving station in
Ashdod (“Natural Gas Council Resolution" and "Gas Pipeline"). The Natural Gas Council
Resolution states that the Gas Pipeline’s capacity is limited, and cannot meet all expected
needs in the market in the coming years. Therefore, the Natural Gas Council Resolution
states, inter alia, that upon capacity shortages occurring in the Gas Pipeline, the Gas
Pipeline’s capacity will be divided, pro rata, among all consumers connected to the national
pipeline, according to the formula set forth in the Natural Gas Council Resolution.
The Natural Gas Council Resolution prescribes a number of limited exceptions to the prorata mechanism to secure capacities for supplying certain quantities of natural gas to
pipeline consumers, and granting preference in utilizing natural gas quantities in the
linepack to consumers who signed an agreement with the Yam Tethys Group and/or the
Tamar Group before August 14, 2012 (preference which applies to the Yam Tethys
Agreement but not on the Tamar Agreement).
This regulation of pipeline capacity, differs from the provisions of the Tamar Project
concerning the allocation of pipeline capacity in case of capacity shortages. To the best of
ORL’s and the Company’s understanding, and that of its legal counsel, the Natural Gas
Council Resolution also applies the pro-rata mechanism specified in the resolution to the
Yam Tethys Agreement, while prior to the Natural Gas Authority Resolution, the supply of
natural gas to the Company under the Yam Tethys Agreement was not subject to such
mechanism. However, the pro-rata mechanism specified in the Natural Gas Council
Resolution, may increase the natural gas quantity supplied to the Company upon possible
capacity shortages in the gas pipeline under the Tamar Agreement. As of the reporting date,
the manner in which the Natural Gas Council Resolution will be implemented and/or its
effects on the Yam Tethys Agreement and the Tamar Agreement, are not known.
B.
Contingent liabilities
1.
Pledges and financial covenants
A) Bonds
The Company has marketable bonds The bonds have been rated by Midroog Ltd. As of the
reporting date, the Company’s bonds were rated A3 negative. The conditions to which the
Company committed from the date on which its bonds (Series A) were listed for trading on
the TASE, and which failure to comply with constitutes immediate grounds for early
repayment are as follows:
1)
The Company will not distribute a dividend to its shareholders unless on the date of
the distribution of such dividend, the Company has cash balances sufficient to make
the net payment to the bondholders (Series A) subsequent to distributing the dividend.
2) The rating of the bonds will not fall below Group A.
3) If any Company debt exceeding NIS 50 million is called upon for immediate
repayment.
As of the date of the financial statements, the Company meets these financial covenants.
On January 24, 2013, Midroog Ltd. announced that it was putting the Company’s bonds on
credit review, so as to assess the impact of a planned initiative to transfer the Company’s
debts to ORL (for more information - see Note 29A).
44
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
B.
Contingent liabilities (contd.)
1.
Pledges and financial covenants (contd.)
B) Banks
1)
Original financial covenants
As a condition for the loans extended to the Company by the banks, the Company
undertook not to pledge in any way its assets and property, so long as it has debts and
liabilities due to credit facilities provided by the banks. The Company further
undertook not to provide any guarantee to any third party (except for guarantees
issued by the Company in the ordinary course of business) without prior approval
from the banks.
Moreover, a number of financial covenants were set for the Company, which include
meeting certain financial ratios.
As of January 1, 2008, the following financial covenants were agreed upon with the
banks ( “Original Financial Covenants”):
Required ratio
Tangible equity (USD millions)(1)
Tangible equity to balance sheet total
Current assets to current liabilities(2)
Financial debt to tangible equity (3)
Debt coverage ratio (4-quarter minimum) (4)(5)
Debt coverage ratio (8-quarter average) (4)
> 138
 29%
 1.1
< 1.8
 1.0
 1.1
(1) “Tangible Equity” is defined as equity less deferred expenses and other intangible assets.
(2) In calculating the current ratio, the Company’s banks include the deposit pledged to their
benefit, regardless of its classification in the Company’s statements as either a current or
non-current asset.
(3) The ratio between total liabilities to banks and financial institutions less amounts due for
short-term and long-term currency swap transactions on principal and interest, and the
tangible equity on the last day of every quarter.
(4) The ratio between the operating income during that period plus depreciation and
amortization, and the amount of payment of principal for that period plus payments of
interest on long-term loans (less the difference for currency swap transactions on the
principal and interest for that period and on short-term loans, and the current taxes for that
period.
(5) The average coverage ratio for the four consecutive quarters preceding the testing date:
the coverage ratio will not be less than 1, excluding the quarter in which periodic facility
maintenance was carried out, for which quarter the coverage ratio will not be less than
0.75.
45
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
B.
Contingent liabilities (contd.)
1.
Pledges and financial covenants (contd.)
B) Banks
2)
New financial covenants
The Company has received waivers from the banks which specify New Financial
Covenants ( “New Financial Covenants”) and additional conditions, as detailed below,
governing the Company’s financial statements up to and including its statements for
September 30, 2013.
The following table details the Company’s New Financial Covenants as of December
31, 2012:
Required ratio Actual ratio(1)
Tangible equity (USD millions)
> 200
297
Tangible equity to balance sheet total
26%
 22%
Current assets to current liabilities(2)
0.8
 0.6
Financial debt to tangible equity (3)
< 2.4
1.7
Total financial debt (USD millions) (4)
575
 623
Available cash (USD millions)
> 10
14
(1) In calculating the actual ratio, the Company rounds off each of the ratios to the same level
of accuracy prescribed for that ratio in the agreements signed with the banks, and reports
to the banks are made accordingly.
(2) In calculating the current ratio, the Company’s banks consider the USD 35 million
deposit pledged to their benefit as a current asset, regardless of its classification in the
Company’s statements as either a current or non-current asset.
(3) The ratio between total liabilities to banks and financial institutions less amounts due for
short-term and long-term currency swap transactions on principal and interest and less
deposits pledged to banks, and the tangible equity on the last day of every quarter.
(4) The Company’s (separate) current liabilities and long-term liabilities towards financial
institutions and bondholders (according to their liability value).
The following matters were also agreed upon:
(a) The coverage ratio (for 8-quarters) will not be measured.
(b) Increasing the encumbered deposit in all the banks to such an amount as suffices
for the current maturities on the long-term loans for the coming year.
(c) Submittal of a comfort letter from the Company, whereby ORL, as the controlling
shareholder in the Company, agrees that if the Company be short of financial
resources for meeting its liabilities towards the recipients of the comfort letter, it
shall act, as necessary, to assist the Company in identifying sources of financing
that will allow the Company to meet its financial obligations.
(d) The Company and ORL, jointly committed to increase the supplier’s credit period
provided by ORL to the Company by 30 days.
(e) Increasing the interest rate by up to 1%, and payment of one-time fees.
In accordance with the extension of the terms of the waiver received in the fourth
quarter of the year, an additional condition was stipulated: receipt of guarantees from
ORL or other collateral which the banks will find satisfactory, no later than April 15,
2013. It is noted, that to the best of the Company’s knowledge, ORL has adopted a
resolution to provide such guarantee. However, such resolution is subject to various
approvals, including approval by ORL's financing banks, which, as of current, have
yet to be received.
46
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
B.
Contingent liabilities (contd.)
1.
Pledges and financial covenants (contd.)
B) Banks
2)
Additional conditions
The Company and the banks have agreed that the following terms shall apply during
the concession period:
(a) The Company will not distribute and will not declare dividends to its
shareholders without receiving the bank’s prior written approval.
(b) The Company will neither acquire nor invest in assets in amounts exceeding USD
10 million a year, without obtaining prior written approval from the banks with
which the Company has signed the Series of Agreements. Due to the Company’s
plans to make investments totaling USD 67 million in the period 2010-2012, as
part of the Company’s migration to natural gas, the Company has contacted the
banks in writing and requested approval as aforesaid, and has obtained the banks’
approval for these investments.
(c) A fixed first pledge on all assets, equipment and machinery owned by the
Company, and a fixed first mortgage on all the Company’s rights in the land
where the Company’s plant operations in the Haifa Bay area. In addition to this
collateral, it was agreed that monetary deposits shall be made with some of the
banks, which will be pledged in favor of those banks.
(d) According to the series of agreements, the “Concession Period” is an indefinite
period starting on September 30, 2009, and ending on the date on which the
Company will meet the Original Financial Covenants for a period of four
consecutive quarters, and present the banks with a financial plan based on
forecasted prices, according to which the Company is able to service its debts and
meet its previous financial covenants under the credit agreements with the banks
up to the termination of those agreements.
(e) At the end of the concession period, the New Financial Covenants will be
annulled, except for the covenant requiring that the Company's total financial
debt not fall below USD 623 million and tangible equity not fall below USD 200
million, and the Original Financial Covenants will apply once more and the
pledges on the Company's assets will continue until the loans are repaid in full.
(f) The Company undertook towards the banks that if any of those banks shall be
entitled to call for immediate repayment of those amounts due to it by the
Company, all other banks shall have grounds to call for immediate repayment
under a cross default clause.
As of December 31, 2012, the Company meets its New Financial Covenants.
47
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
B.
Contingent liabilities (contd.)
2.
Legal actions
Litigants
Court
Amount claimed
A. Actions concerning the Kishon River
40 fishermen (or their
Haifa
Personal injuries not
successors and
District
requiring
dependents), versus
Court
quantification.
dozens of defendants
The damages
including the Company,
quantified in the
ORL, and Gadiv
statements of claim
Petrochemical Industries
totaled NIS 140
Ltd. ("Gadiv”)
million upon filing
suit (2001-2005),
excluding linkage,
interest, punitive
damages and various
expenses.
Nature of claim
Chances of success
(as assessed by the Company)
Personal injuries
which the plaintiffs
allege were caused
by the defendants’
pumping of sewage
into the Kishon
River.
Based on the opinion of its legal
counsel representing it in these
actions, in light of the factual and
legal complexity of these cases, the
preliminary stage of the
proceedings (summations
concerning the causal connection, it
its most narrow meaning, between
activities in the Kishon River and
the plaintiffs’ illnesses), and the
numerous parties involved, the
Company cannot assess its
exposure to these actions and has
not made any provisions for these
actions in its financial statements.
90 soldiers (or their
successors and
dependents) against
dozens of defendants
including the Company,
ORL and Gadiv
Haifa
District
Court
Personal injuries not
requiring
quantification.
The damages
quantified in the
statements of claim
totaled NIS 500
million upon filing
suit (2000-2007),
excluding linkage,
interest, punitive
damages and various
expenses.
Personal injuries
which the plaintiffs
allege were caused
by toxic materials
found in and around
the Kishon River
Based on the opinion of its legal
counsel representing it in these
actions, in light of the factual and
legal complexity of these cases, the
preliminary stage of the
proceedings (summations
concerning the causal connection,
in its most narrow meaning,
between activities in the Kishon
River and the plaintiffs’ illnesses),
And the numerous parties involved,
the Company cannot assess its
exposure to these actions and has
not made any provisions for these
actions in its financial statements.
Israel Shipyards versus
12 defendants, including
the Company, ORL and
Gadiv
Haifa
District
Court
NIS 21 million, upon
filing suit (2004).
Claim that pollution
of the Kishon River
damaged the
plaintiff’s facilities,
located at the river’s
estuary.
Based on the opinion of its legal
counsel, representing it in this
action, the Company’ included a
provision which Management
believes adequately reflects the cost
of this action, the likelihood of
whose payment is greater than
50%. It is noted that the Company
and the plaintiff have reached a
settlement, whereby the Company
will pay 2.8% of any amount on
which the parties will settle, should
any such settlement be reached.
The Company’s final status in the
case has yet to be determined.
48
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
B.
Contingent liabilities (contd.)
2.
Legal action (contd.)
Litigants
B. Commercial actions
CAOL customer (in
liquidation)
Court
Central
District
Court
C. Local and indirect tax claims
Haifa Municipality
Appeals
committee
Haifa Municipality
Haifa Municipality
Amount claimed
Nature of claim
Chances of success
(as assessed by the Company)
A legal action
concerning claims to
excessive charges by
the Company on
ethylene sales to the
customer at a price
exceeding the
maximum price, in
the years 1993-2000.
USD 13 million
(upon filing suit)
Management, based on the opinion
of the Company’s legal counsel
representing it in this case, believes
that the chances that the Company
will be required to pay material
amounts in connection with this
claim are less than 50%.
NIS 26 million as of
the demand for
payment date (2010).
The Company was
charged a sewage
tax, which it
contests.
Management, based on the opinion
of its legal counsel representing it
in this case, believes that in light of
the preliminary stage of the
proceedings, which are currently in
the legal clarification stage of the
various arguments, the likelihood
that the Company’s arguments will
be accepted by the competent legal
instances and the Company will not
be required to pay the amount
claimed, are greater than 50%.
A demand for
payment of
development fees:
road development
fees, channeling
fees, water utility
construction fees,
within 90 days from
the demand for
payment. The
Company did not
pay these amounts.
Based on the opinion of its legal
counsel representing it in this
claim, the Company believes that,
at this time, and as the Municipality
has yet to submit its position, and
as the case is still undergoing full
legal clarification of the arguments
against the charge, the likelihood
that the Company’s arguments will
be accepted by the competent legal
instances and the Company will not
be required to pay the charge, is
greater than 50%.
A demand for
payment of
additinoal land tax
charges from 2012
for facilities owned
by the Company,
ORL, and additional
companies in the
ORL Group.
Based on the opinion of its legal
counsel, representing it in this
action, the Company’ included a
provision which Management
believes adequately reflects the cost
of this action, the likelihood of
whose payment is greater than
50%.
Haifa
NIS 55 million as of
Administrati the demand for
ve Court
payment date (2012).
NIS 12 million
49
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 19 - CONTINGENT LIABILITIES AND CONTRACTS (CONTD.)
B.
Contingent liabilities (contd.)
2.
Legal action (contd.)
Court
Litigants
D. Environmental liabilities
Ministry of
Investigatio
Environmental Protection n
Reichin et al. (class
action)
Supreme
Court
Amount claimed
Nature of claim
Chances of success
(as assessed by the
Company)
--
Following a hearing which
took place in early 2012, the
Ministry of Environmental
Protection launched a
criminal investigation
concerning alleged
violations of personal
injunctions issued for the
Company, ORL and Gadiv.
Employees, managers, and
officers in the above
companies were questioned.
At this time, Management
cannot estimate what these
investigations will find, the
extent to which the
investigation will prove the
Company's liability for the
alleged pollution, and the
possible costs to the
Company. Thus, no
provisions were made in the
Company’s books in
connection with the
aforesaid.
NIS 150 million
A class action concerning a
black smoke emission
incident which occurred in
2003. ORL, and the
plaintiffs reached a
settlement whereby ORL
will invest NIS 650,000 in
financing an environmental
education program. This
settlement agreement was
approved by the district
court, and an appeal by
additional applicants for
approval of a class action
was filed with the Supreme
Court. The Company has
reached a settlement
agreement with the plaintiff,
whereby it will invest an
additional NIS 180,000 in
financing the said program.
The settlement reached by
the Company and the
plaintiff was approved in
court and the ruling has
become final.
The Company, based on the
opinion of its legal counsel
representing it in this case,
believes that it will not incur
additional charges other than
the amount reached in
settlement and which has
been included in its financial
statements. The Company
has paid the settlement
amount, after the ruling in
its case was rendered final.
The Company recognizes provisions in its books for claims, which Management, based on the
opinion of legal counsel, believes are more likely than not to be accepted. Provisions are made
according to the estimated payments which the company expects will be required to settle the
liability. Additional exposure to which no provision was made amounts to USD 37 million
(excluding legal actions detailed in Section A above).
50
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 20 - EQUITY
A. The Company's share capital comprises ordinary shares of NIS 10 par value each. The number of
authorized, issued and paid-up shares for all reporting years was 31,200,000 par value. Ordinary
shares grant their holders a right to vote and participate in meetings, rights to participation in the
Company's earnings, and a right to participate in the Company's suprlus assets upon liquidation.
B.
Dividends
It is the Company’s policy to distribute a dividend each year, at a rate of no less than 35% and no
more than 70% of its annual earnings, subject to the provisions of law and the restrictions prescribed
by the financial covenants with the banks. See also Note 19B(1)(2)(b).
NOTE 21 - REVENUES
For the year ended December 31
2011
2010
2012
Composition:
Sales in Israel
Sales abroad
Other income
434,981
653,268
464,590
753,649
413,656
598,225
1,088,249
913
1,218,239
1,247
1,011,881
597
1,089,162
1,219,486
1,012,478
NOTE 22 - COST OF SALES
For the year ended December 31
2011
2010
2012
Composition:
Raw materials, auxiliary materials and consumables
Purchased products
Salaries and associated costs
Manufacturing and other expenses
Depreciation and amortization
Total manufacturing costs
Changes in finished product inventory (1)
965,907
5,816
57,993
32,807
44,983
1,107,506
1,049,125
3,742
61,315
39,524
45,551
1,199,257
746,027
4,192
50,891
38,954
43,902
883,966
(31,445)
1,076,061
(40,537)
1,158,720
10,517
894,483
(1) Includes a USD 5.302 million decrease in a provision for finished product inventory impairment (in 2011 - an
increase of USD 8.068 million in the provision).
NOTE 23 - SALES AND MARKETING EXPENSES
For the year ended December 31
2011
2010
2012
Composition:
Salaries and associated costs
Freight and insurance expenses
Agent commissions
Other
2,643
27,401
3,347
1,570
34,961
51
4,192
25,745
3,990
2,428
36,355
3,835
20,876
2,859
2,271
29,841
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 24 - GENERAL AND ADMINISTRATIVE EXPENSES
For the year ended December 31
2011
2010
2012
Composition:
Salaries and associated costs
Communication and data processing
Professional services
Management fees
Bad and doubtful debts
Depreciation and amortization
Other
11,800
1,273
4,408
-(1,377)
66
2,135
9,126
2,440
2,365
-2,146
262
2,120
9,649
1,851
2,667
5,000
1,573
401
2,191
18,305
18,459
23,332
NOTE 25 - FINANCING
A. Financing income
For the year ended December 31
Composition:
Interest income from banks
Interest income on trade receivables
Interest expenses on principle and interest swaps
Net gains from changes in exchange rates
Other income
B.
2012
2011
2010
143
-5,467
-777
100
490
6,653
-335
68
-7,614
13,517
295
6,387
7,578
21,494
Financing expenses
For the year ended December 31
Composition:
Financing expenses for short-term credit
Financing expenses for bonds
Financing expenses for long-term loans
Net financing expenses for employee benefits
Interest expenses on principle and interest swaps
Net losses from changes in exchange rates
Other expenses
Interest income on trade receivables, net
52
2012
2011
2010
3,644
12,629
9,194
583
2,056
17,709
1,794
282
2,142
12,758
8,478
479
3,586
3,166
2,647
--
2,240
12,396
8,227
460
--4,234
--
47,891
33,256
27,557
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 26 PRINCIPAL SHAREHOLDERS AND RELATED PARTIES
A. Balances and transactions with principal shareholders and related parties
Balances with related parties and principal shareholders
As of December 31
2012
2011
Asset (liability)
118
308
31,158
43,127
(230,703)
(111,276)
(154)
(26)
-(9,337)
(662)
(534)
Cash and cash equivalents
Trade receivables
Trade payables - parent, net
Other trade payables
Other payables - parent
Key executives
(200,243)
(77,738)
Transactions with related parties and principal shareholders
For the year ended December 31
2012
2011
2010
Revenues (expenses)
Principal shareholders and related parties
Revenues
85,501
120,648
75,033
Expenses
Operating expenses - parent
Financing expenses, net
(600,770)
(1,026)
(619,905)
(2,072)
(420,602)
(2,125)
Total expenses
(601,796)
(621,977)
(422,727)
Total transactions with related parties and principal
shareholders
(516,295)
(501,329)
(347,694)
(1,295)
(2,283)
(3,186)
(517,590)
(503,612)
(350,880)
Key executives (including directors)
Operating expenses
Total transactions
1.
Transactions with principal shareholders and related parties were carried out during the ordinary
course of the Company’s business.
2.
Sales of the Company’s products to related parties and principal shareholders were carried out at
market terms.
3.
The majority of raw materials were purchased from ORL, and therefore the Company is
dependent on ORL.
53
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 26 - PRINCIPAL SHAREHOLDERS AND RELATED PARTIES (CONTD.)
B.
Benefits to key executives (including directors)
In addition to their salaries, the Group's senior executives are entitled to non-cash benefits (e.g. company car, medical insurance, etc.). The Company deposits moneys on their behalf as part of a
defined post-employment benefit plan.
Benefits for key executives (including directors) employed by the Company include:
Total benefits for key executives
For the year ended December 31
2011
2010
2012
Persons Amount Persons Amount Person s Amount
1,222
4
2,283
6
3,186
3
Benefits for key executives (including directors) not employed by the Company include:
Total benefits for non-employed
directors
For the year ended December 31
2011
2010
2012
Persons Amount Persons Amount Person s Amount
73
--8
53
2
C. Shareholders agreement
In 2004 an agreement was signed between the Company, IPE and ORL (“the Agreement”), which
regulated various aspects in the relations between the parties, including ORL’s commitment to
supply raw materials.
In June 2006, ORL notified the Company that it has assigned to ORA part of its obligations and
rights in connection with the supply of raw materials to the Company, as from the date of the
operation of the facilities constructed under the expansion plan.
On December 30, 2009, following the merger whereby ORL acquired from IPE all of IPE’s shares in
the Company (50%), thereby becoming the sole shareholder of all of the Company’s share capital,
the shareholders agreement was cancelled. The aforesaid notwithstanding, ORL has undertaken to
continue providing the Company with raw materials under such terms as applied prior to the above
merger, according to the dates specified in the agreement.
For information concerning raw material prices, see also Section M below.
D. The Company’s Chairman’s salary
Starting January 1, 2007, the Company’s Chairman, Mr. David Federman, provides the Company with
(executive) chairman services (directly or through a company owned by Mr. Federman and his family).
In light of the fact that, in addition to his duties as Company Chairman, the Chairman also devotes
significant amounts of time to perform his functions in ORL, and following the operational merger
between the Company and ORL, the legal framework with the Chairman was changed, so that
starting December 1, 2011, the engagement for the Chairman’s services is handled by ORL pursuant
to its management services agreement with a private company controlled by the Chairman and his
family. ORL pays the consideration for these management services, to a monthly amount of NIS
164,580 (plus VAT). Throughout 2013, ORL will pay a monthly amount of NIS 148,122 (plus VAT)
in consideration for management services, following the Chairman’s decision to waive 10% of his
management fees. It is noted that the terms to which the Chairman is entitled from ORL are identical
to those to which he was entitled from the Company prior to the aforesaid changes, except for the
fact that the Chairman receives remuneration for a full time position, while his entitlement from the
Company was for a 70% full-time position.
54
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 26 - PRINCIPAL SHAREHOLDERS AND RELATED PARTIES (CONTD.)
E.
On January 29, 2012, following approval by the Company’s Audit Committee, the Company’s Board
of Directors resolved to contract with a principal shareholder customer in an “incidental transaction"
(i.e. - a transaction for the sale of products outside of the annual agreement), for the sale of a certain
quantity of products in the period between January and June 2012, at a fixed monthly amount of
products and at a fixed price as agreed upon by the parties. This transaction is under similar terms to
the Company’s transactions with other customers in “incidental transactions”, bearing in mind the
quantities of product purchased by each customer. Due to the quantitative scope of the "incidental
transaction', the transaction was classified as an extraordinary transaction and was brought before the
Company's general meeting, and was approved by the general meeting on January 29, 2012.
F.
In order to consolidate the ORL Group’s supply chain, which includes the procurement, contracts
and warehousing units, as part of the headquarters consolidation and ORL Group company
integration initiative, in the reporting period the Company signed an agreement with the other
companies in the ORL Group which stipulates, inter alia:
1.
The Company sold to ORL its spare parts, chemicals and auxiliary material inventories at their
NIS-based amortized cost as recorded in the Company's books on January 1, 2012, for a total
amount of USD 63 million. The Company also assigned to ORL its agreements for the receipt
of services from various service providers and contractors.
2.
The cost of reselling the spare parts, chemicals and auxiliary materials from ORL to the
Company, and the cost of selling spare parts, chemicals and auxiliary materials that will be
purchased in the future by ORL and used by the Company, will be determined according to the
relevant items’ cost in ORL’s books at the time of each future transaction. Provision of services
to the Company by service providers and contractors who will be engaged through agreements
with ORL, will be based on actual costs to ORL.
3.
Inventory financing and maintenance costs between the ORL Group companies will be
determined pro rata to the inventories held by each of the ORL Group companies upon the sale
of the said inventories, and an updating mechanism will be set forth for determining this ratio.
4.
For ORL’s purchase of its inventory, the Company provided ORL with a 10-year loan of USD
63 million, bearing interest as per market terms. As part of the agreements to update the
financial covenants with the banks, ORL paid the above loan by way of early repayment, in
September 2012.
This transaction was approved by the Company’s board of directors, following approval by the
Company’s Audit Committee and by the general meeting of the Company’s shareholders. The
agreement was also approved by the Company’s financing banks.
G. On January 1, 2012, the Company signed an agreement with ORL for the sale to ORL of all shares
held by the Company in its subsidiary, Carmel Olefins (Marketing) 1990 Ltd., in consideration for
USD 21,000 (NIS 81,000).
This transaction was approved by the Company’s board of directors, following approval by the
Company’s Audit Committee and by the general meeting of the Company’s shareholders. The
transaction has also been approved by the Company’s financing banks. On June 25, 2012, the
transaction was completed, and the Company recorded a capital loss of USD 160,000.
H. The Company signed an agreement with the Group companies, effective starting January 1, 2011,
regulating the provision of management and operation services for various headquarter functions
between the companies of the ORL Group, and allocating salary costs paid to third parties by the
headquarters units of the Group companies to the company actually receiving the relevant service.
This agreement is to the Company’s benefit and is conducted in the ordinary course of business and
at market terms.
The transaction was approved by the Company’s board of directors, following approval by the
Company's Audit Committee.
55
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 26 - PRINCIPAL SHAREHOLDERS AND RELATED PARTIES (CONTD.)
I.
Non-significant transactions
On January 29, 2012, after examining the nature of the Company’s’ operations, the Board of
Directors decided to adopt guidelines and rules for classifying a transaction of the Company or of its
consolidated subsidiary with a principal shareholder as a non-significant transaction, as stated in
Regulation 41(a)(6) of the Securities Regulations (Annual Financial Statements), 2010.
According to the Securities Regulations (Periodic and Immediate Reports), it is not necessary to
report and/or provide detailed disclosure of such transactions in the Company’s immediate reports or
periodic reports.
Therefore, the Board of Directors determined that the following transactions, carried out in the
normal course of business and at market prices, constitute transactions which have an insignificant
effect on the Company, and therefore the information concerning these transactions is immaterial to
reasonable investors considering purchasing the Company's securities.
In the absence of special qualitative considerations arising from all the relevant circumstances, a
"non-significant transaction' will be a transaction which meets any one of the following conditions:
J.
1.
A transaction for the purchase of products, including raw materials and materials used in the
manufacturing process or in rendering services, which is to the Company’s benefit, made during
the ordinary course of the Company’s business and at market terms, where the annual expenses
incurred through the said transaction do not exceed 1% of the annual cost of sales (cost of sales,
manufacturing and services) or of the annual operational expenses (sales and marketing
expenses, and general and administrative expenses), as relevant, as stated in the Company's
most recent financial statements, and provided that the overall annual cost of purchases of the
same type of product or service does not exceed 3% of the aforesaid costs.
2.
A transaction for the sale of products, including raw materials and materials used in
manufacturing or in the rendering of services, which is to the Company’s benefit, carried out in
the ordinary course of the Company’s business and at market terms, where the annual revenue
from such transaction do not exceed 1% of the annual revenues stated in the Company’s most
recent consolidated financial statements, and provided that the overall annual revenues from
such sales of the same type of product or service do not exceed 3% of the aforesaid revenues.
3.
A transaction by the Company to jointly acquire third-party services or products, together with its
controlling shareholder and/or companies under the controlling shareholder's control, which is to the
Company’s benefit and carried out in the ordinary course of the Company’s business and at market
terms, and where the Company’s Audit Committee has determined the sharing of costs and expenses
in the transaction to be fair and equal under the circumstances, where the total annual expense
incurred through the transaction does not exceed 1% of the annual cost of sales or the annual
operating expenses, as relevant, as stated in the Company's annual consolidated financial statements
for the year preceding the transaction, and provided that the overall annual expenses from such
purchases of the same type of products or services do not exceed 3% of the aforesaid costs.
On March 25, 2012, Mr. Rami Shlomo completed his tenure as CEO of the Company, and was succeeded
by Mr. Pinhas Buchris, CEO of ORL and a director in the Company. For information concerning the
Company CEO’s appeal to the Chairman of ORL’s board of directors, requesting that the latter locate a
new CEO for the ORL Group including the Company, as soon as possible, see Note 29B below.
K. On November 30, 2012, Mr. Igal Salhov finished his tenure as CFO of the Company, and was
replaced by Mr. Israel Lederberg, CFO of ORL.
L.
The Company’s directors, including its outside directors, notified the Company of their decision to
waive 10% of their directors’ fees in 2013. Furthermore, Company officers who are members of
Management, notified the Company of their decision to waive 10% of their salary (excluding
contributions and ancillary benefits) for 2013. At the end of 2013, directors’ fees and management
salaries will be automatically reinstated to their level had no such waiver been made.
56
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 26 - PRINCIPAL SHAREHOLDERS AND RELATED PARTIES (CONTD.)
M. Raw materials agreement with the Parent
The Company and ORL have reached understandings for updating and changing the price of some of the
raw materials which the Company buys from ORL and the return materials which the Company sells to
ORL, so that they are based on the weighted price per energy unit at the companies' facilities, considering
the mix of energy sources actually utilized by the companies (natural gas and fuel oil) and their prices.
Among other things, these understandings extend the term of existing agreements governing the
supply of raw materials and return materials, and stipulate natural gas-based prices for feeds which
could not be transferred between the companies until recently due to the lack of natural gas or the
lack of suitable facilities for receiving such feeds.
These understandings shall be in effect from October 1, 2012, until December 31, 2013, after which
they shall renew automatically for additional one-year terms, unless either party provides prior notice
cancelling their renewal. The right to give such prior notice shall not apply to the existing
agreements governing the supply of raw materials and return materials, as exist between the
companies, which stipulate specific periods and supply quantities.
The understandings were approved by the Company’s Audit Committee and Board of directors, and
were also approved by ORL on March 4, 2013.
NOTE 27 - FINANCIAL INSTRUMENTS
A. Capital management policies
The Group manages its capital so as to ensure that members of the Group can continue to operate as
a “going concern”.
The Company’s capital is comprised of debt, which includes loans, bonds, cash and cash equivalents,
and equity.
For information concerning the financial covenants with which the Company is required to comply,
see Note 19B(1).
B.
Financial instrument categories
For information concerning the classification of financial instruments by category, see Section C2 below.
C. Market risks
During the Course of its business, the Company is exposed to market risks, which derive from
changes in the prices of its products, the prices of raw materials, interest rates, currency exchange
rates, and inflation.
The Company’s risk management policies are intended to serve management as a tool for achieving
its business goals, by assessing the possible outcomes of exposures and the limitation of such
exposures according to criteria set forth by the Company’s board of directors. Reporting and control
over the implementation of these policies are carried out by the board of directors.
The Company makes use of financial instruments, including derivative financial instruments
(“Derivatives”), so as to minimize its exposure to these risks. The Company does not issue or hold
financial instruments for trade.
1.
Currency risks
The Company operates in the petrochemical market, which is a USD-based market. As such, the
bulk of its current assets and liabilities are denominated in USD or linked thereto, and some of
the Company's long-term credit is in USD. For this reason, the USD was set as the Company's
Functional Currency. Accordingly, the Company measures its exposure due to changes in the
USD exchange rate versus the other currencies in which the Company operates.
Pursuant to the board of directors’ resolutions, and so as to minimize exposure to currency
exchange rate fluctuations, the Company uses derivative financial instruments to mitigate its
exposure at the assets and liabilities level.
57
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 - FINANCIAL INSTRUMENTS (CONTD.)
C. Market risks (contd.)
2.
Analysis of financial instruments by linkage basis and currency
As of December 31, 2012
NonFinancial
Financial
In NIS,
un-linked
Current assets
Cash and cash equivalents
Trade receivables
Other receivables (1)
Financial assets at fair value
through profit or loss (2)
Inventory
Non-current assets
Financial assets at fair value
through profit or loss (2)
Deposits
Long-term loans and debit
balances (2)
Assets for employee benefits,
net
Deferred tax assets
Property, plant and equipment,
net
Intangible assets, net
Total assets
Current liabilities
Loans and credit (1)
Trade payables
Other payables (1)
Financial liabilities at fair value
through profit or loss (1)
Provisions
Current tax liabilities
Non-current liabilities
Credit from banks, net (2)
Bonds, net (2)
Financial liabilities at fair value
through profit or loss (2)
Liabilities for employee
benefits, net (2)
Total liabilities
Total accounting balance, net
(1)
(2)
(3)
(4)
--5,377
In NIS,
CPI-linked
214
40,447
185 (3)
In EUR and
EUR-linked
In GBP and
GBP-linked
In USD and
USD-linked
Total
----
1,921
55,753
--
348
11,515
88
11,143
77,289
16,751
13,626
185,004
22,401
4,746
--
4,746
133,281
-133,281
---
---
---
---
---
---
266,993
--
-10,489
---
11,614
750
--
--
--
--
12,364
3,167
18,003
---
---
---
---
---
3,167
18,003
719,298
12,207
---
---
---
---
---
719,298
12,207
902,947
41,596
266,993
68,163
11,951
----
8,017
30,067
746
-126
671
101,987
109,386
431
110,004
271,303
14,936
----
-131,724
13,088 (4)
(226,051)
24,525
(91,597)
40,942
35,014
1,200,053
-1,609
104
----
----
----
----
1,282
---
1,282
1,609
104
(1,431)
--
---
-261,375
23,015
--
---
180,359
--
201,943
261,375
--
--
--
--
--
6,374
6,374
21,585
--
--
--
--
--
21,585
21,867
144,812
261,375
61,845
797
399,819
890,515
881,080
(103,216)
5,618
6,318
11,154
(491,416)
309,538
Excluding current maturities.
Including current maturities.
Including VAT balance of USD 188,000, which constitutes a non-financial asset.
Including an institutional salary-related balance of USD 763,000, which constitutes a non-financial liability.
58
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 - FINANCIAL INSTRUMENTS (CONTD.)
C. Market risks (contd.)
2.
Analysis of financial instruments by linkage basis and currency (contd.)
As of December 31, 2011
NonFinancial
Financial
In NIS,
un-linked
Current assets
Cash and cash equivalents
Trade receivables
Other receivables (1)
Financial assets at fair value
through profit or loss (2)
Inventory
Current tax assets
Non-current assets
Financial assets at fair value
through profit or loss (2)
Deposits
Long-term loans and debit
balances (2)
Assets for employee benefits,
net
Deferred tax assets
Property, plant and equipment,
net
Intangible assets, net
Total assets
--5,449
In NIS,
CPI-linked
In EUR and
EUR-linked
In GBP and
GBP-linked
In USD and
USD-linked
Total
2,363
33,269
6,996 (3)
----
10,358
53,924
977
1,918
9,876
52
419
92,326
2,188
15,058
189,395
15,662
-123,279
1,204
4,069
---
----
----
----
----
4,069
123,279
1,204
---
---
211,421
--
-5,139
---
12,818
891
--
--
--
--
13,709
2,385
2,893
---
---
---
---
---
2,385
2,893
761,587
13,503
---
---
---
---
---
761,587
13,503
923,118
47,588
211,421
70,398
11,846
-----
-41,372
205
--
-48
38
--
141,095
120,612
9,337
--
141,095
177,438
18,367
560
---
-248,924
32,795
--
---
209,756
--
240,217
248,924
(146,033)
14,016
(37,084)
65,388
19,155
1,227,287
Current liabilities
Loans and credit (1)
Trade payables
Other payables (1)
Provisions
Non-current liabilities
Credit from banks, net (2)
Bonds, net (2)
Financial liabilities at fair value
through profit or loss (2)
Liabilities for employee
benefits, net (2)
Deferred tax liabilities, net
--
5,039
--
--
--
--
5,039
17,226
7,883
---
---
---
---
---
17,226
7,883
Total liabilities
23,335
29,232
248,924
74,372
86
480,800
856,749
899,783
18,356
(37,503)
(3,974)
(517,884)
370,538
Total accounting balance, net
(1)
(2)
(3)
(4)
---560
(2,334)
--
-15,406
8,787 (4)
--
11,760
Excluding current maturities.
Including current maturities.
Including VAT balance of USD 9.11 million, which constitutes a non-financial asset.
Including an institutional salary-related balance of USD 3.988 million, which constitutes a non-financial
liability.
59
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 - FINANCIAL INSTRUMENTS (CONTD.)
C. Market risks (contd.)
2.
Analysis of financial instruments by linkage basis and currency (contd.)
The following tables detail the sensitivity to a 5%-10% increase or decrease in the relevant
exchange rate. These sensitivity analyses include existing balances of monetary items
denominated in Foreign Currency and adjust their translation at the end of the period to a 5%10% change in the Foreign Currency rates.
Sensitivity analysis for the NIS-USD exchange rate
For the year ended December 31
2012
2011
Increase (decrease) in profit for the period
Increase (decrease) in profit for the period
10%
5%
5% 10% 10%
5%
5% 10% -
Change in exchange rate
Trade receivables - NIS
Trade payables - NIS
Other payables - NIS
Bonds
Bond hedges (swaps)
Forward contract
Total
(3,677)
11,975
1,190
23,761
(28,839)
4,191
(1,926)
6,273
623
12,446
(15,106)
2,195
2,129
(6,933)
(689)
(13,757)
16,697
(2,426)
4,494
(14,636)
(1,454)
(29,042)
35,248
(5,120)
(3,024)
1,401
799
22,630
(23,708)
(402)
(1,584)
734
418
11,854
(12,419)
(210)
1,751
(811)
(462)
(13,101)
13,726
232
3,697
(1,712)
(976)
(27,659)
28,977
491
8,601
4,505
(4,979)
(10,510)
(2,304)
(1,207)
1,335
2,818
Sensitivity analysis for the EUR-USD exchange rate
For the year ended December 31
2012
2011
Increase (decrease) in profit for the period
Increase (decrease) in profit for the period
10%
5%
5% 10% 10%
5%
5% 10% Change in exchange rate
Trade receivables - EUR
Deposits - EUR
Trade payables - EUR
Forward contract
Long-term loans - EUR
5,068
954
(2,733)
(7,321)
(2,302)
2,655
499
(1,432)
(3,661)
(1,151)
(2,934 )
(552)
1,582
3,661
1,151
(6,195 )
(1,165)
3,341
7,321
2,302
4,902
467
(3,761)
(6,577)
(3,070)
2,568
245
(1,970)
(3,288)
(1,535)
(2,838)
(270)
2,177
3,288
1,535
(5,992)
(571)
4,597
6,577
3,070
Total
(6,334)
(3,090)
2,908
5,604
(8,039)
(3,980)
3,892
7,681
Sensitivity analysis for the GPB-USD exchange rate
For the year ended December 31
2012
2011
Increase (decrease) in profit for the period
Increase (decrease) in profit for the period
10%
5%
5% 10% 10%
5%
5% 10% Change in exchange rate
Trade receivables - GBP
Forward contract
Total
1,047
(1,390)
548
(695)
(606)
695
(343)
(147)
89
(1,279)
1,390
111
60
898
(964)
470
(482)
(520)
482
(1,097)
964
(66)
(12)
(38)
(133)
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 FINANCIAL INSTRUMENTS (CONTD.)
C. Market risks (contd.)
3.
Interest risks
The Group finances its operations through long- and short term credit from banks and bonds.
Interest on short- and long-term credit changes according with the Libor and the variable
interest rate. The interest rate on the Company’s bonds is fixed.
Sensitivity analyses:
As of December 31, 2012
Profit (loss)
EUR interest rate
Long-term EUR loans
USD interest rate
Bond hedges (swaps)
Interest rate swaps (IRS)
Long-term USD loans
Total
Profit (loss)
Reduction
Decrease
0.5%1%5%10% (108)
(238)
(88)
(177)
Increase
10% +
5% +
174
87
Addition
1%+
0.5%+
184
93
226
230
3,339
113
112
1,688
2,947
4,248
(320)
1,495
2,180
(160)
(1,854)
(2,135)
(125)
(5,285)
(4,102)
(1,537)
(114)
(112)
(1,726)
(229)
(231)
(3,490)
3,969
2,000
7,059
3,608
(4,222)
(11,162)
(2,040)
(4,127)
As of December 31, 2011
Profit (loss)
EUR interest rate
Long-term EUR loans
USD interest rate
Bond hedges (swaps)
Interest rate swaps (IRS)
Long-term USD loans
Total
Profit (loss)
Reduction
Decrease
0.5%1%5%10% (197)
(401)
(180)
(362)
Increase
10% +
5% +
354
178
Addition
1%+
0.5%+
385
194
66
613
3,947
32
301
1,997
820
5,607
(486)
418
2,837
(244)
(434)
(2,899)
246
(1,700)
(5,832)
(259)
(33)
(303)
(2,046)
(67)
(619)
(4,142)
4,980
2,508
6,326
3,205
(3,284)
(8,192)
(2,562)
(5,190)
61
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 - FINANCIAL INSTRUMENTS (CONTD.)
C. Market risks (contd.)
4.
CPI-related risks
The Company finances part of its operations through NIS-denominated bonds which are linked
to the Israeli CPI. In order to reduc part of its exposure to changes in the Israeli CPI, the
Company makes use of interest rate swap transactions, which include the issue of NIS-based,
CPI-linked loans and the receipt of USD-based, variable-interest lans. In order to minimize part
of its above exposure, the Company makes use of interest rate swaps (IRS, CAP/FLOOR).
Sensitivity analyses:
Bond hedges (swaps)
Bonds
Total
As of December 31, 2012
Profit (loss)
Increase
Decrease
10% +
5% +
5%10% 31,604
15,802
(15,802)
(31,604)
(26,138)
(13,069)
13,069
26,138
5,466
5.
2,733
(2,733)
(5,466)
As of December 31, 2011
Profit (loss)
Increase
Decrease
10% +
5% +
5%10% 26,079
13,040
(13,040)
(26,079)
(24,893)
(12,446)
12,446
24,893
1,186
594
(594)
(1,186)
Hedging-related credit risk
Derivatives transactions are made with banks and international companies, with particular
attention to the financial integrity of these entities. Therefore, the Company believes that no
significant credit risks arise from these transactions. The Company neither demands nor
provides collateral for these derivatives.
6.
Customer credit risk
Credit risks are monetary risks which the Company is liable to incur if a customer or another
debtor should fail to meet their contractual obligations.
In order to mitigate its exposure to risks arising from the extension of credit to customers, credit
that is extended to customers is mostly covered by credit insurance or collateral.
62
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 - FINANCIAL INSTRUMENTS (CONTD.)
D. Liquidity risk
Liquidity risk tables
The following table details the contractual repayment dates of financial liabilities in non-discounted
amounts, including estimated interest payments based on forward interest rates. This disclosure does
not include amounts for which offset agreements have been signed.
As of December 31, 2012
Contractual cash flow
Non-derivative financial liabilities
Short term credit and loans (1)
Trade payables
Other payables (1)
Long-term credit from banks (2) (3)
Bonds (2)
Financial liabilities - derivative instruments
Interest rate swap contracts (2)
Total
Carrying
amount
Under
1 year
1-2
years
2-5
years
Over
5 years
Total
contractual
cash flow
110,004
271,303
14,936
203,373
261,375
110,004
271,303
14,936
46,145
45,859
---39,739
44,267
---75,544
83,762
---76,828
148,430
110,004
271,303
14,936
238,256
322,318
860,991
488,247
84,006
159,306
225,258
956,817
4,087
2,287
2,079
1,981
--
6,347
865,078
490,534
86,085
161,287
225,258
963,164
Total
contractual
cash flow
As of December 31, 2011
Contractual cash flow
Non-derivative financial liabilities
Short term credit and loans (1)
Trade payables
Other payables (1)
Long-term credit from banks (2) (3)
Bonds (1)
Financial liabilities - derivative instruments
Interest rate swap contracts (2)
Total
Carrying
amount
Under
1 year
1-2
years
2-5
years
Over
5 years
141,095
177,438
18,367
242,553
248,924
141,095
177,438
18,367
47,545
12,259
---42,106
44,165
---116,870
123,302
---75,021
142,950
141,095
177,438
18,367
281,542
322,676
828,377
396,704
86,271
240,172
217,971
941,118
5,039
1,724
1,550
1,763
--
5,037
833,416
398,428
87,821
241,935
217,971
946,155
(1) Excluding current maturities.
(2) Including current maturities.
(3) Including raising costs
As regards certain liabilities to banks and bonds, the Company is subject to financial covenants
(see Note 19B2). Failure to meet these financial covenants may lead to repayment of liabilities
prior to the date specified in the above table. In addition to these financial liabilities, the
Company does not expect the cash flows included in the repayment schedule analysis to differ
significantly in either timing or amounts. Interest payments on variable-interest liabilities may
differ from the above amounts.
63
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 - FINANCIAL INSTRUMENTS (CONTD.)
D. Liquidity risk (contd.)
1.
Non-derivative financial assets
Most of the Company’s non-derivative financial assets are for a period of up to six months.
2.
Derivative financial instruments
The following table details the Group’s liquidity analysis for interest rate swap contracts that are
settled net. The table was prepared on the basis of cash receipts/payments on these instruments.
When the amount payable or receivable is not fixed, the disclosed amount is determined
according to predicted interest rates as described by the interest yield curve as at the end of the
reporting period.
Under
1 year
1-2 years
2-5 years
Over 5
years
Total
10,855
29,246
USD Thousands
31.12.2012
Bond hedges (swaps)
Interest rate swap contracts
31.12.2011
Bond hedges (swaps)
Interest rate swap contracts
E
5,385
4,965
8,041
(2,287)
(2,079)
(1,981)
6,042
9,007
20,487
(1,724)
(1,550)
(1,763)
--
16,843
--
(6,347)
52,379
(5,037)
Fair value of financial instruments
The carrying amount of certain financial assets and financial liabilities, including cash and cash
equivalents, trade receivables, other receivables, financial assets at fair value through profit or loss,
loans and long-term receivables, deposits, financial derivatives, overdrawn bank accounts, short-term
loans and credit, trade payables, other payables, matches or is close to the fair value of these items.
64
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 27 - FINANCIAL INSTRUMENTS (CONTD.)
F.
Fair value hierarchy
The following table analyzes financial instruments measured at fair value, using assessment
methodology. The various levels were defined as follows:
Level 1 - quoted (unadjusted) prices on an active market for identical instruments.
Level 2 - data which has been directly or indirectly observed, not included in Level 1 as aforesaid.
Level 3 - data that are not based on observed market data.
As of December 31, 2012
Level 1
Level 2
Level 3
Total
---
40,942
--
-4,746
40,942
4,746
--
40,942
4,746
45,688
261,375
--
--
261,375
---
6,374
1,282
---
6,374
1,282
261,375
7,656
--
269,031
Assets
Hedging derivatives
Principal and interest swap contracts
Derivatives on inventory
Liabilities
Financial liabilities - non-derivatives
Marketable bonds
Financial liabilities - derivative instruments
Interest rate swap contracts
Forward contracts
As of December 31, 2011
Level 1
Level 2
Level 3
Total
----
65,388
-3,507
-562
--
65,388
562
3,507
--
68,895
562
69,457
248,924
--
--
248,924
--
5,039
--
5,039
248,924
5,039
--
253,963
Assets
Hedging derivatives
Principal and interest swap contracts
Derivatives on inventory
Forward contracts
Liabilities
Financial liabilities - non-derivatives
Marketable bonds
Financial liabilities - derivative instruments
Interest rate swap contracts
65
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 28 SEGMENT-BASED REPORTING
A. General
Operating segments are identified on the basis of internal reports about the Group's components
which are reviewed regularly by the Group's chief operating decision maker to make decisions about
resources to be allocated to the segments and assess their performance.
The reports submitted to the Group's chief operating decision maker (operating profit and EBITDA),
to make decisions about resources to be allocated to the segments and to assess their performance are
based on geographic regions.
B.
Analysis of revenues and results by operating segment
Operating profit and EBITDA data for the operating segments represent the results of each segment.
These reports were prepared using identical accounting policies throughout the Group.
Segment A
(Israel)
Segment B
(the Netherlands)
Consolidation
adjustments
Consolidated
For the year ended December 31, 2012
Revenues from externals
Inter-segment sales
826,468
17,426
262,694
--
-(17,426)
1,089,162
--
Segment revenues
Depreciation and amortization
Segment operating loss
Early retirement expenses
EBITDA
Financing expenses, net
Loss before taxes on income
843,894
40,813
(29,100)
5,249
16,962
262,694
4,151
(13,866)
-(9,715)
(17,426)
-----
1,089,162
44,964
(42,966)
5,249
7,247
(41,504)
(84,470)
For the year ended December 31, 2011
Revenues from externals
Inter-segment sales
919,458
10,924
300,028
--
-(10,924)
1,219,486
--
Segment revenues
Depreciation and amortization
Segment operating profit (loss)
EBITDA
Financing expenses, net
Loss before taxes on income
930,382
41,592
18,497
60,089
300,028
4,221
(12,545)
(8,324)
(10,924)
----
1,219,486
45,813
5,952
51,765
(25,678)
(19,726)
For the year ended December 31, 2010
Revenues from externals
Inter-segment sales
756,258
7,113
256,220
--
-(7,113)
1,012,478
--
Segment revenues
Depreciation and amortization
Segment operating profit
EBITDA
Financing expenses, net
Profit before taxes on income
763,371
39,951
59,002
98,953
256,220
4,352
5,820
10,172
(7,113)
----
1,012,478
44,303
64,822
109,125
(6,063)
58,759
66
Carmel Olefins Ltd.
Notes to the Consolidated Financial Statements
USD Thousands
NOTE 28 - SEGMENT-BASE REPORTING (CONTD.)
C. Information by geographies
For the year ended December 31
2012
2011
2010
435,894
169,975
474,252
9,041
1,089,162
465,837
210,367
531,380
11,902
1,219,486
414,253
139,449
448,686
10,090
1,012,478
Revenues from externals by customer location
Israel
Asia
Europe
Other
As of December 31
2012
2011
672,264
59,241
731,505
730,368
44,722
775,090
Location of non-current assets
Segment A - Israel
Segment B - the Netherlands
Total non-current assets
D. Principal customers
In the period 2010-2012, the Company did not have customers whose transactions account for more
than 10% of the Company’s total income.
NOTE 29 - MATERIAL EVENTS DURING AND SUBSEQUENT TO THE REPORTING
PERIOD
A. On September 4, 2012, ORL's board of Directors instructed ORL's management to review a possible
full merger between ORL and the Company, Gadiv, and Haifa Basic Oils Ltd. Should ORL's
management resolve to recommend such a merger, it will be brought before the competent organs for
approval.
Furthermore, and in light of the complexity of carrying out such a merger, ORL’s board of directors
has instructed ORL’s management on December 31, 2012, to consider taking the necessary steps for
ORL to undertake the Company’s debts towards the banks and towards its bondholders. To this end,
ORL intends to immediately contact ORL’s and the Company’s banks, as well as their bondholders,
so as to obtain their consent to the said initiative, including their consent to formulating a uniform set
of financial covenants for all the said creditors, which will be measured according to ORL's
consolidated data. ORL’s undertaking of the Company’s debts, as aforesaid, will allow ORL to
benefit from most of the advantages offered by a full merger between the companies, in a relatively
short time frame.
B.
On February 26, 2013, the ORL’s CEO (who is also CEO of the Company), contacted the chairman
of ORL’s board of directors, and requested that the latter act as soon as possible to find a new CEO
for the ORL Group.
ORL’s CEO has announced that he will continue serving in his position, and that he will give notice
of his resignation, and the date of such resignation, after a suitable candidate is found.
In light of the CEO’s announcement, ORL’s Chairman has appointed a committee for finding a new
CEO, which has started working to identify candidates for the position.
67