UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended March 31, 2010
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the transition period from _______________________ to_______________
 
Commission file number 0-538
 
AMPAL-AMERICAN ISRAEL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

New York
13-0435685
(State or Other Jurisdiction of
(I.R.S. Employer)
Incorporation of Organization)
Identification Number
   
555 Madison Avenue
New York, NY, USA
10022
(Address of Principal Executive Offices)
(Zip code)
 
Registrant’s Telephone Number, Including Area Code (866) 447-8636
 
Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  x                       No   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes o                       No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer", "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer  o
Accelerated filer   x
Non-accelerated filer  o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o     No   x
 
         The number of shares outstanding of the issuer’s Class A Stock, par value $1.00 per share, its only authorized common stock, is 56,133,764 (as of April 26, 2009).
 
 
 
 
 
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
 
Index to Form 10-Q
 
       
Page
Part I
 
Financial Information
 
         
   
         
   
1-2
         
   
3
         
   
4-5
         
   
6-7
         
   
8-17
         
 
17-25
         
 
25-26
         
  Item 4. 
26
         
 
         
   
27
         
   
27
         
   
27
         
   
27
         
   
27
         
   
27
         
   
27

 
 
 
 
ITEM 1. FINANCIAL STATEMENTS
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS AS OF
 
March 31,
2010
   
December 31,
2009
 
(U.S. Dollars in thousands)
 
(Unaudited)
   
(Audited)
 
             
Current assets :
           
Cash and cash equivalents
  $ 28,016     $ 71,377  
Marketable securities
    17,898       29,345  
Accounts receivable (Net of allowance for doubtful amounts of $2.6 and $1.4)
    184,405       99,655  
Deposits, notes and loans receivable
    10,271       10,102  
Inventories
    25,506       28,556  
Other assets
    19,512       20,135  
       Total current assets
    285,608       259,170  
Non-current assets :
               
Investments
    372,205       371,305  
Fixed assets, less accumulated depreciation of $30,304 and $21,038
    197,162       148,738  
Deposits, notes and loans receivable
    37,931       35,154  
Deferred income taxes
    33,619       30,907  
Other assets
    12,623       13,071  
Goodwill
    116,702       51,878  
Intangible assets
    205,710       10,377  
       Total Non-current assets
    975,952       661,430  
                 
TOTAL ASSETS
  $ 1,261,560     $ 920,600  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
1
 
 
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND  EQUITY AS OF
 
March 31,
2010
   
December 31,
2009
 
(U.S. Dollars in thousands, except share amounts)
 
(Unaudited)
   
(Audited)
 
             
LIABILITIES
           
Current liabilities :
           
Notes and loans payable and current maturities
  $ 207,597     $ 170,922  
Accounts payable, accrued expenses and others
    154,762       76,292  
       Total current liabilities
    362,359       247,214  
Long term liabilities :
               
Notes and loans payable
    358,626       126,905  
Notes to partners
    98,713       97,091  
Debentures
    216,759       215,325  
Deferred income taxes
    3,095       2,933  
Other long term liabilities
    8,866       9,137  
       Total long term liabilities
    686,059       451,391  
Total liabilities
    1,048,418       698,605  
                 
EQUITY
               
Ampal's shareholders' equity :
               
Class A Stock $1 par value; authorized 100,000,000 and 100,000,000 shares; issued 63,277,321
and 63,277,321 shares; outstanding 56,133,764 and 56,133,764 shares
    63,277       63,277  
                 
Additional paid-in capital
    192,206       191,984  
                 
Retained earnings
    1,455       10,260  
                 
Accumulated other comprehensive loss
    (13,380 )     (14,688 )
                 
Treasury stock, at cost
    (28,763 )     (28,763 )
                 
Total Ampal shareholders’ equity
    214,795       222,070  
                 
Noncontrolling interest
    (1,653 )     (75 )
                 
Total equity
    213,142       221,995  
                 
TOTAL LIABILITIES AND  EQUITY
  $ 1,261,560     $ 920,600  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
2
 
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
THREE MONTHS ENDED MARCH 31,
 
2010
   
2009
 
(U.S. Dollars in thousands, except per share amounts)
 
(Unaudited)
   
(Unaudited)
 
             
REVENUES:
           
Chemical income
  $ 114,392     $ 94,673  
Communication  income
    52,097       -  
Equity in earnings (losses) of affiliates
    17       (44 )
Realized gains on investments
    104       -  
Gain (Loss) from sale of fixed assets
    2       (24 )
Realized and unrealized gains (losses) on marketable securities
    79       (255 )
Translation gain
    -       26,591  
Interest income
    238       664  
Leisure-time income
    661       693  
Gain from redemption of debt, gain from change in ownership interest in a subsidiary and other income
    577       2,935  
Total revenues
    168,167       125,233  
                 
EXPENSES:
               
Chemical expense - cost of goods sold
    106,508       86,773  
Communication expense - cost of goods sold
    36,352       -  
Interest expense
    9,040       7,274  
Translation loss
    3,415       -  
Marketing and sales expense
    10,838       1,617  
General, administrative and other
    12,582       7,618  
Total expenses
    178,735       103,282  
Gain (loss) before income taxes
    (10,568 )     21,951  
Provision for income taxes
    (232 )     419  
Net income (loss)
    (10,336 )     21,532  
Less: Net income (loss) attributable to noncontrolling interests
    (1,531 )     9,038  
Net income (loss) from continuing operations
    (8,805 )     12,494  
                 
Basic and diluted EPS:
               
    Earnings (loss) per share
  $ (0.16 )   $ 0.22  
                 
Shares used in EPS calculation (in thousands)
    56,134       56,153  
                 
 
Diluted EPS:
               
    Earnings (loss) per share
  $ (0.16 )   $ 0.22  
                 
Shares used in EPS calculation (in thousands)
    56,134       56,601  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3
 
 
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31,
 
2010
   
2009
 
(U.S. Dollars in thousands)
 
(Unaudited)
   
(Unaudited)
 
             
Cash flows from operating activities:
           
Net income (loss) for the period
  $ (10,336 )   $ 21,532  
Adjustments to reconcile net loss for the period to net cash provided by (used in) operating activities:
               
Equity in losses (earnings) of affiliates
    (17 )     44  
Realized and unrealized loss (gain) on investments, net
    (183 )     255  
Depreciation and amortization expense
    12,636       3,073  
Loss (gain) from sale of fixed assets
    (2 )     24  
Non cash stock based compensation
    222       186  
Translation (gain) loss
    3,415       (26,591 )
Decrease (increase) in other assets
    (1,744 )     (145 )
Decrease  in inventories
    2,608       8,391  
Decrease (increase) in accounts receivable
    (13,568 )     17,661  
Increase  (decrease) in accounts payable, accrued expenses and other
    8,740       (5,263 )
Dividends received from affiliates
    -       572  
                 
Net cash provided  by operating activities
    1,771       19,739  
                 
Cash flows from investing activities:
               
Deposits, notes and loans receivable collected
    5,356       5,407  
Deposits, notes and loans receivable granted
    (5,338 )     -  
Purchase and improvements of fixed assets
    (3,147 )     (9,054 )
Investments made in affiliates and others
    (1,029 )     (602 )
Investments made in available for sale shares
    (1,764 )     (7,101 )
Proceeds from sale of available for sale shares
    13,758       12,307  
Payment for rights of use of communication lines and other
    (2,947 )     -  
Acquisition of  the business of 012 (1)
    (319,102 )     -  
Proceeds from sale of fixed assets
    210       263  
                 
Net cash provided by (used in) investing activities
    (314,003 )     1,220  
 
(1) Assets and liabilities purchased in 012 Smile – see Note 8
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
4
 
 
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

             
THREE MONTHS ENDED MARCH 31,
 
2010
   
2009
 
(U.S. Dollars in thousands)
 
(Unaudited)
   
(Unaudited)
 
             
Cash flows from financing activities:
           
Proceeds from notes issued and loans received
  $ 271,826     $ 9,680  
Notes and loans payable repaid
    (3,581 )     (19,925 )
Debentures repaid and shares repurchased
    -       (5,995 )
Net cash (used in) provided by financing activities
    268,245       (16,240 )
                 
Effect of exchange rate changes on cash and cash equivalents
    626       (268 )
                 
Net increase (decrease)  in cash and cash equivalents
    (43,361 )     4,451  
Cash and cash equivalents at beginning of period
    71,377       68,682  
                 
Cash and cash equivalents at end of period
  $ 28,016     $ 73,133  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
5
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
(U.S. Dollars in thousands)
 
Unaudited

   
Equity attributable to Ampal American Israel Corporation shareholders
             
       
Class A stock
 
 
 
             
   
Number
of shares*
   
Amount
   
Additional
paid in
capital
   
Retained
earnings
   
Accumulated
other
comprehensive
income (loss)
   
Treasury
stock
   
Non-controlling
interests
   
Total
equity
 
                                                                 
BALANCE AT JANUARY 1, 2010
    63,277       63,277       191,984       10,260       (14,688 )     (28,763 )     (75 )     221,995  
CHANGES DURING 2010:
                                                               
Net loss for the period
                            (8,805 )                     (1,531 )     (10,336 )
Unrealized loss from marketable securities
                                    54                       54  
Foreign currency translation adjustments
                                    1,254               (47 )     1,207  
Total comprehensive loss
                                                            (9,075 )
Share based compensation expense
                    222                                       222  
BALANCE AT March 31, 2010
    63,277       63,277       192,206       1,455       (13,380 )     (28,763 )     (1,653 )     213,142  
 
*In thousands
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
6
 
 
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
(U.S. Dollars in thousands)
 
Unaudited

   
Equity attributable to Ampal American Israel Corporation shareholders
             
   
Class A stock
                                     
   
Number
of shares*
   
Amount
   
Additional
paid in
capital
   
Retained
earnings
   
Accumulated
other
comprehensive
income (loss)
   
Treasury
stock
   
Non-controlling
interests
   
Total
equity
 
                                                 
                                                 
BALANCE AT JANUARY 1, 2009
    63,277       63,277       191,263       31,062       (17,876 )     (28,500 )     869       240,095  
CHANGES DURING 2009:
                                                               
Net income for the period
                            12,494                       9,038       21,532  
Unrealized loss from marketable securities
                                    (2,359 )                     (2,359 )
Foreign currency translation adjustments
                                    (8,731 )             (184 )     (8,915 )
Total comprehensive income
                                                            10,258  
Purchase of  292,103 shares
                                            (263 )             (263 )
Share based compensation expense
                    187                                       187  
BALANCE AT March 31, 2009
    63,277       63,277       191,450       43,556       (28,966 )     (28,763 )     9,723       250,277  
 
*In thousands
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
7
 
 
AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(Unaudited)
 
1.
As used in these financial statements, the term the “Company” refers to Ampal-American Israel Corporation (“Ampal”) and its consolidated subsidiaries.
 
2.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”), in the United States of America, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. You should read these interim condensed consolidated financial statements in conjunction with the audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission.
 
Reference should be made to the Company’s consolidated financial statements for the year ended December 31, 2009 for a description of the critical accounting policies. Also, reference should be made to the notes to the Company’s December 31, 2009 consolidated financial statements for additional information regarding the Company’s consolidated financial condition, results of operations and cash flows.
 
3.
Recently Adopted and Recently Issued Accounting Pronouncements
 
ASC 810 (formerly SFAS No. 167)
 
In June 2009, the Financial Accounting Standards Board ("FASB") issued accounting guidance contained within ASC 810, “Consolidation,” regarding the consolidation of variable interest entities (formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”). Amendments to FASB Interpretation No. 46(R), ASC 810, is intended to improve financial reporting by providing additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s involvement with variable interest entities. This standard is effective for interim and annual periods beginning after November 15, 2009. The adoption did not have a material impact on the Company's financial statements.
 
4.            Cash and cash equivalents
 
Cash equivalents are short-term, highly liquid investments (bank accounts and bank deposits) that have original maturity dates of three months or less and are readily convertible into cash.
 
Cash equivalents equal to $2.0 million have been allocated as a compensating balance for various loans provided to the Company and would therefore be unavailable if the Company wished to pledge them in order to provide an additional source of cash.
 
5.
Inventories – mainly chemicals and other materials intended for sale are valued at the lower of cost or market. Cost is determined based on the moving average basis.
 
6.
East Mediterranean Gas Company
 
East Mediterranean Gas Co. S.A.E, an Egyptian joint stock company ("EMG"),  organized in 2000 in accordance with the Egyptian Special Free Zones system, has been granted the right to export natural gas from Egypt to Israel, other locations in the East Mediterranean basin and to other countries. EMG has linked the Israeli energy market with the Egyptian national gas grid via an East Mediterranean pipeline with the first gas delivery occurring in May 2008. EMG is the developer, owner and operator of the pipeline and its associated facilities on shore in both the point of departure at El Arish, Egypt and the point of entry in Ashkelon, Israel. EMG signed the following gas supply contracts with its Israeli customers:
 
 
·
In late 2005, a contract was signed with the Israel Electric Corporation ("IEC") for 2.1 billion cubic meters ("BCM") annually over 15-20 years, and was amended on September 17, 2009. The current total contracted gas supply to IEC is approximately 42 BCM and the total value of the contract is approximately $6 billion.
 
 
·
In December 2007, a contract was signed with Dorad Energy, Ltd. ("Dorad") (an independent power producer)  and was amended in July 2009. The contract determines that the duration of the gas supply will be for 17 years with an option to Dorad to extend the term for 5 more years. The total contracted gas supply is expected to be between 12.5 BCM to 16 BCM and the total annual amount of income is expected to be between $125 million to $150 million.
 
 
8
 
 
 
·
On October 19, 2009, EMG entered into three contracts with respect to three combined cycle cogeneration plants: Ashdod Energy Ltd.; Ramat Negev Energy Ltd., and Solad Energy Ltd. with a total production capacity of 270 Megawatts and 240 tons of steam per hour. The contracts provide for gas deliveries over an 18 year contract period.
 
 
·
In November 2009, a contract was signed with Haifa Chemicals South Ltd., for gas supply for its industrial uses. The total value of the contract will be between $70 million to $100 million, over a contract term of 5-8 years. The gas delivery will start in the second quarter of 2010.
 
 
·
In December 2009, a contract was signed with Makhteshim-Agan for gas supply for its industrial uses over a contract term of 5 years. The gas delivery is scheduled to begin in the middle of 2010 .
 
In June 2009, EMG and its upstream supplier in Egypt entered into an amendment (“Amendment”) to the Gas Sales & Purchase Agreement (“GSPA”) with regard to repricing gas sold to EMG. The Amendment to the GSPA includes price increases, periodic price adjustments and new gas delivery targets. Subsequently, EMG entered into negotiations with both of its then contracted clients, IEC and Dorad, in order to amend their contracts to reflect the provisions contained in the Amendment. The Dorad amendment was signed in July 2009 and the IEC amendment was signed on September 17, 2009 and received all required approvals by the IEC in February 2010.
 
EMG is in the process of negotiating several additional agreements covering much of the anticipated 7.0 BCM annually earmarked for the Israeli market. This project is governed by an agreement signed between Israel and Egypt which designates EMG as the authorized exporter of Egyptian gas, secures EMG’s tax exemption in Israel and provides for the Egyptian government’s guarantee for the delivery of the gas to the Israeli market.
 
In May 2008, the Government of Egypt adopted legislation that purports to revoke the tax free status of existing free zone companies operating in the iron, cement, steel, petroleum, liquefaction and transport of natural gas industries. The legislation, by its terms, would apply to EMG. Ampal understands that the impact of this change in law would be to impose a 20% tax on EMG’s net future income. It is not clear to what extent the legislation will be enforced or whether it is valid under Egyptian legal principles. The legislation is, to Ampal's understanding, unusual, and it is not clear whether EMG will be successful in its negotiations and therefore what, if any, impact the legislation will ultimately have on EMG.
 
On November 29, 2007, Ampal and the Israel Infrastructure Fund ("IIF"), leading a group of institutional investors ("Investors"), purchased a 4.3% interest in EMG, through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership (the “Joint Venture”), from Merhav (M.N.F) Ltd. ("Merhav") for a purchase price of approximately $95.4 million, using funds provided by the Investors. In addition to the Joint Venture’s purchase from Merhav, Ampal contributed into the Joint Venture an additional 4.3% interest in EMG already held by Ampal. The Joint Venture now holds a total of 8.6% of the outstanding shares of EMG. Ampal’s contribution was valued at the same price per EMG share as the Joint Venture’s purchase. This amount is equivalent to the purchase price (on a per share basis) paid by Ampal for its December 2006 purchase of EMG shares from Merhav.
 
As of March 31, 2010, the Company’s Financial Statements reflect a 16.8% interest in shares of EMG, with 8.2% held directly and 8.6% held through the Joint Venture (of which Ampal owns 50%).
 
7.
Gadot Chemical Tankers and Terminals Ltd. (“Gadot”)
 
Gadot, a wholly owned subsidiary of Ampal (99.99% on a fully diluted basis), was founded in 1958 as a privately held Israeli company with operations in distribution and marketing of liquid chemicals for raw materials used for industrial purposes. Since then, Gadot has expanded into a group of companies, which currently forms Israel’s leading chemical distribution organization. Through its subsidiaries, Gadot ships, stores, and distributes liquid chemicals, oils, and a large variety of materials to countries across the globe, with an emphasis on Israel and Western Europe. In our description of Gadot’s business operations, the term “Gadot” refers to Gadot and its consolidated subsidiaries. Gadot listed its shares for trading on the Tel Aviv Stock Exchange ("TASE") in 2003 and was delisted from trade on October 16, 2008, following Ampal's successful tender offers to purchase Gadot's publicly held shares.
 
Gadot’s business is influenced by certain economic factors, which include (i) global changes in demand for chemicals used as raw materials for industrial purposes, (ii) price fluctuations of chemicals and raw materials, (iii) price fluctuations of shipping costs, ship leases and ship fuel, (iv) general global financial stability, and (v) currency fluctuations between the New Israeli Shekel   and other currencies, primarily the U.S. dollar.
 
 
9
 
 
Gadot’s operations are divided into three main service sectors:
 
 
·
Importing, marketing and sale of chemicals and other raw materials in Israel and Europe;
 
 
·
Shipping, primarily between the European ports of the Atlantic ocean and the Mediterranean sea port and Agency Services for Shipping Companies and Docked Ships; and
 
 
·
Logistical services in Israel and Europe;
 
These service sectors are synergistic and complimentary, so that Gadot provides its customers with a full range of services, from acquiring chemicals based on a customer’s needs, logistical handling including shipping and transport, offloading, storage and delivery. Members of the Gadot group of companies also provide services for other members of the group, strengthening the group as a whole.
 
8.
Acquisition of the business of 012 Smile Communications Ltd.
 
 
On January 31, 2010 ("the Closing Date"), Ampal, through its indirect wholly owned subsidiary Merhav Ampal Energy Ltd. (“MAE”) and MAE's wholly owned subsidiary 012 Smile Telecom Ltd. ("012 Smile," formerly Ampal Investments and Communications 2009 Ltd.), closed the transaction to purchase the business of 012 Smile Communications Ltd. (“012”), pursuant to an Asset Purchase Agreement (the "012 Agreement") between MAE (on behalf of 012 Smile) and 012, dated November 16, 2009, as amended on January 26, 2010 ("012 Acquisition") for 1.2 billion New Israeli Shekels ("NIS"), or approximately $322 million. Ampal, through its subsidiaries, acquired substantially all the assets and liabilities of 012, including all of its customer and supplier agreements, management, employees, infrastructure, equipment and other assets, but excluding (i) certain retained cash and other customary excluded assets, (ii) the rights and obligations of 012 related to the acquisition of Bezeq – The Israeli Telecommunications Corporation Ltd. and (iii) certain indebtedness and other liabilities.  Prior to closing of the acquisition, 012 Smile received all required licenses for the conduct continuing of the business from the Israeli Ministry of Communications ("Ministry of Communications").
 
 
The purchase of 012’s business further diversified Ampal's business and added the communication sector to Ampal's holdings.
 
 
Ampal's management has been managing the strategy and day to day operations of the acquired business since January 1, 2010. In the period from January 1, 2010 to the Closing Date the operations Ampal purchased generated cash in the amount of $3.1 million. This amount transferred from 012 to 012 Smile on the 012 Closing Date and was deducted from the purchase price in accordance with the requirements of the US GAAP.
 
 
As a result of the 012 Acquisition, 012 Smile has become a leading provider of communication services in Israel, offering a wide range of broadband and traditional voice services. 012 Smile's broadband services include broadband Internet access with a suite of value-added services, specialized data services and server hosting, as well as new innovative services such as local telephony via voice over broadband and a WiFi network of hotspots across Israel. Traditional voice services include outgoing and incoming international telephony, hubbing, roaming and signaling and calling card services. 012 Smile services residential and business customers, as well as Israeli cellular operators and international communication services providers through its integrated multipurpose network, which allows 012 Smile to provide services to almost all of the homes and businesses in Israel.
 
 
Ampal financed the 012 transaction with a combination of (i) available cash, (ii) the proceeds of a new 012 Credit Facility, dated January 31, 2010 (the “012 Credit Facility”), between 012 Smile, Bank Leumi Le'Israel B.M. ("Leumi") and Israel Discount Bank Ltd. ("Discount," and together with Leumi, the "Bank Lenders"), for 800 million NIS, (approximately $215 million) and (iii) a Loan Agreement, dated January 31, 2010 (the "012 Loan Agreement"), between MAE, 012 Smile, Harel Insurance Company Ltd. and its affiliates (collectively, "Harel") and Menora Mivtachim Insurance Ltd. and its affiliates (collectively, "Menora," and together with Harel, the "Institutional Lenders"), for 220 million NIS (approximately $59 million). Ampal has guaranteed the obligations of 012 Smile under the 012 Credit Facility.
 
 
The purchase price was $319 million, consisting of $322 million paid in cash at closing and reduced by the $3.1 million of cash that was transferred from 012 to 012 Smile on the 012 Closing Date representing the cash generated during the period from January 1, 2010 through the closing.
 
 
The purchase price was allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach and a variation of the income approach known as the profit allocation method, which discounts expected future cash flows to present value using estimates and assumptions determined by management. Purchased identifiable intangible assets are amortized on a straight-line basis over their respective useful lives. Our allocation of the purchase price is summarized in the table below (in thousands):
 
 
10
 
 
   
(In thousands)
 
Accounts receivable - trade
  $ 59,327  
Accounts receivable - other
    3,763  
Accounts payable - trade
    (44,687 )
Accounts payable - other
    (21,519 )
Property and equipment
    49,288  
Intangible assets
    104,896  
Other
    (1,415 )
Trade names
    20,831  
Customer base
    74,619  
Other intangible assets
    10,388  
Goodwill
    63,611  
    $ 319,102  
 
 
Our estimated useful life of the identifiable intangible assets acquired is thirteen years for the trade name, nine years for customer base and one year for other intangibles.
 
 
Customer base - The customer base, was valued using a variation of the income approach. Under this approach, the Company estimated the present value of expected future cash flows resulting from the existing customer relationships, considering attrition and charges for contributory assets utilized in the business. The customer relationships are amortized to depreciation and amortization, over a weighted average amortization period of eight years, based on the expected discounted future net cash flows by year.
 
 
Trade names - The trade names were valued using a “relief from royalty” method, an approach under which fair value is estimated to be the present value of royalties saved. The trade names were valued in three parts based on 012’s three primary segments. The trade names are amortized to depreciation and amortization, on a straight-line basis, over 13 years.
 
 
Set forth below are the pro forma combined condensed income statements for the three months ended March 31, 2010 and 2009, assuming that the acquisition of 012 had occurred on January 1, 2010 and 2009, respectively, after giving effect to certain adjustments, including amortization of identifiable intangible assets of 012, the elimination of intercompany transactions and profits not yet realized outside the Company.
 
 
The pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisition taken place at the beginning of 2010 or 2009, nor is it necessarily indicative of future results.
 

   
Three months ended March 31,
 
   
2010
   
2009
 
   
$ In thousands
(except per share data)
 
             
Revenues
    194,212       194,599  
                 
Net income (loss)
    (9,195 )     15,685  
                 
Loss per share - primary and diluted
    (0.16 )     0.28  
 
9.
Sugarcane Ethanol Production Project
 
On December 31, 2009, Ampal signed an option exercise agreement (the “Exercise Agreement”) with Merhav pursuant to which it exercised, subject to certain conditions, its option (the “Option”) to convert Ampal’s existing loan to Merhav (consisting of $20 million of principal plus accrued interest) (the “Loan”) into a 25% equity interest in the sugarcane ethanol production project in Colombia (the “Project”) being developed by Merhav. The Loan is evidenced by an Amended and Restated Promissory Note, dated December 25, 2008 (the “Note”), issued by Merhav in favor of Ampal, and is secured by Merhav’s pledge of its shares of Class A Stock of Ampal, pursuant to that certain Pledge Agreement, dated December 24, 2007, between Merhav and Ampal (the “Pledge Agreement”). Merhav’s obligations under the Note are guaranteed by Mr. Yosef A. Maiman pursuant to a personal guaranty, dated as of December 25, 2008 (the “Guaranty”). The Option is evidenced by an Option Agreement, dated December 25, 2007, between Merhav and Ampal, as amended on December 25, 2008 (the “Option Agreement”). The Loan, Option and related transactions are summarized in previously filed annual and periodic reports.
 
 
11
 
 
Pursuant to the Exercise Agreement, the conversion of the Loan into a 25% equity interest in the Project will take the form of the issuance to Ampal of 25% of all of the issued and outstanding equity interests in Merhav Renewable Energies Limited, a Cyprus corporation and subsidiary of Merhav (“Merhav Energies”). The purchase price for the 25% equity stake in Merhav Energies, to be paid at closing, is the outstanding balance of the Note on December 31, 2009, or approximately $22.249 million. The closing of the purchase of the 25% equity stake and the conversion of the Loan is subject to, among other things, (i) the initial disbursement of (or other evidence of) long term debt financing for the Project obtained from Banco do Brasil or any other unaffiliated third party lender (the date such financing is obtained, the “Qualified Financing Date”), (ii) the payment in full of all outstanding amounts due and payable under the Note, and (iii) the delivery at closing of the Shareholders’ Agreement (as defined below) by Merhav and Ampal, setting forth certain agreements relating to the governance of Merhav Energies. At closing, the Note and the Guaranty shall be cancelled and the pledge of Merhav’s shares of Class A Stock under the Pledge Agreement shall be released. The closing is to occur on the Qualified Financing Date or as soon as practicable thereafter, but no later than December 31, 2010. The Exercise Agreement contains other customary closing conditions, as well as customary representations and warranties.
 
Pursuant to the Exercise Agreement, the Note was amended to extend its maturity date to the earlier of the Qualified Financing Date or December 31, 2010. Additionally, Merhav and Ampal have agreed that, under certain circumstances, each will arrange for loans to Merhav Energies from to time to time through third parties, directly or indirectly, for up to $15 million.
 
As stated above, as a condition to closing Ampal’s purchase of a 25% equity stake in Merhav Energies, Merhav, Ampal and Merhav Energies will enter into a Shareholders’ Agreement (the “Shareholders’ Agreement”), to provide for, among other things, (i) restrictions on the transfer of shares of Merhav Energies, (ii) a right of first refusal on transfers of shares of Merhav Energies, (iii) tag-along and drag-along rights on the transfer of shares of Merhav Energies, (iv) preemptive rights on the issuance of new shares of capital stock (or other equity interest) by Merhav Energies, subject to the anti-dilution rights of Ampal, and (v) the right of Ampal to designate 25% of the directors of Merhav Energies. In addition to preemptive rights under the Shareholders’ Agreement, Ampal has been granted anti-dilution protection, which may result in the issuance of additional shares of Merhav Energies to Ampal, in the event that, prior to end of the 180 day period following the commencement of the Project’s operations, Merhav sells, or Merhav Energies issues, shares of Merhav Energies at a per share price that is less than the per share price paid by Ampal under the Exercise Agreement.
 
Merhav is a multinational corporation with interests in a range of sectors, including energy, infrastructure projects and agriculture. Merhav is a significant shareholder of Ampal and is wholly owned by Mr. Yosef A. Maiman, the President, CEO and member of the controlling shareholder group of Ampal. Because of the foregoing relationship, a special committee of the Board of Directors of Ampal composed of Ampal’s independent directors negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which has been retained as financial advisor to the special committee, advised the special committee on this transaction.
 
10.          Services and Management Agreements
 
Ampal and Gadot entered into a services agreement pursuant to which Gadot shall pay Ampal management fees, calculated as a percentage of Gadot's profits, in consideration for management services render