Hadera Paper Ltd. Examination of Impairment of Assets

Published November 2nd, 2009 - 01:37 GMT

Hadera Paper Ltd. (AMEX:AIP) (the "Company" or "Hadera Paper")
announced that, together with Clal Industries and Investments Ltd., the
controlling shareholder in Hadera Paper ("CII"), has commissioned expert
assessors in order to obtain assessments, as at September 30, 2009, regarding
fixed-asset items included in the industrial operations in the packaging
paper sector ("The Property"). The said assessments are nearing completion
and are expected to establish the value of The Property, as recorded in the
Hadera Paper books. We note that the assessor estimates determine the value
of most of the Property on the basis of realizable market value (denominated
in euros), adopting the view of the market player who is an international
player and consequently, for most of the Property, are not influenced by
events and occurrences in the local market.


    It should be noted that in accordance with the assessment by Vadim
Portnoy Business Consulting Ltd. ("Portnoy Consulting"), dated August 18,
2009 (prepared for the purpose of determining the proceeds in the transaction
of the acquisition of holdings in Hadera Paper shares by CII, on the basis of
data from June 30, 2009), the total value of Hadera Paper was determined to
be greater than its shareholders' equity. It is from this value that a value
of NIS 746 million was derived for the industrial operations in the sector of
packaging paper, recycling and office supplies, as compared with the book
value of NIS 1,169 million in the books of Hadera Paper, on the basis of
initial data from the draft financial statements of Hadera Paper as at
September 30, 2009. The surplus book value of this sector above its derived
value as mentioned above, originates from the Property. The assessment was
made by Portnoy Consulting on the basis of discounted cash flows and was
considerably influenced by the trend of decreasing prices currently prevalent
in the Israeli packaging paper market since 2008. In an earlier assessment
from Portnoy Consulting, dated March 23, 2009 (that was prepared as part of
the examination of the need for the impairment of the CII holdings in Hadera
Paper shares for the purpose of the CII financial statements dated December
31, 2008, that was not publicly published), the total value of Hadera Paper
was determined to be greater than its shareholders' equity on that day.
Nevertheless, this earlier assessment also indicates a similar state of


    In accordance with Generally Accepted Accounting Principles (IAS 36), for
the purpose of examining the need for a provision for an impairment of an
asset in a cash-generating unit, the value of the property should not be
lowered to a value that is lower than its fair value minus divestiture costs
(as determined in the final assessments of this Property, once these are


    Based on the drafts of the assessments of the Property, currently in the
possession of Hadera Paper, and in accordance with GAAP, Hadera Paper
estimates, that at this stage, it will include no recognition of a loss on
account of the impairment of the Property in its financial statements. It
should be noted that the analysis of these assessments has yet to be
completed by the Hadera Paper CPAs, and that the financial statements for the
third quarter of 2009 have yet to be approved.


    Moreover, it has come to the attention of Hadera Paper that in the
assessment of Portnoy Consulting, a value was attributed to Carmel Container
Systems Ltd. (hereinafter: "Carmel") on the basis of a transaction for the
purchase of Carmel shares by Hadera Paper in September 2008, net of a
controlling premium. This value is lower by a sum of approximately NIS 48
million than the net value of the Carmel assets according to the draft
financial statements of Hadera Paper for the third quarter of 2009.
Consequently, Hadera Paper is examining the need to create a provision for
the impairment of the cash-generating unit - Carmel - in accordance with
GAAP. At this stage, the company believes that such a provision is


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