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Alon Holdings Blue Square - Israel Ltd. Announces Financial Results For The First Nine Months And Third Quarter Of 2011

In May 2011, Alon Holdings and Dor Alon (thereafter - the buyers) and Cal (thereafter - Cal) signed an exercise of the agreement to purchase 49% of Diners held by Cal in exchange for a loan granted by Cal to the buyers.

In July, the Company completed the conditions and the buyers paid the loan in the amount of NIS 36 million which Cal granted them.

Alon Holdings and Dor Alon handled their financial statements by an agreement to buy Diners as option for purchasing stock options and recorded in the period income before taxes from revaluation of approximately NIS 102 million (U.S. $ 27.5 million). In the third quarter, upon the consummation of the purchase, the Company recorded in the statements of income liability in respect of deferred income taxes of NIS 37 million (U.S $ 9.7 million) attributed to the revaluation gains from the option.

As of the date of this report, the Company has not yet completed the attribution of the purchase cost to the portion purchased in identifiable assets and liabilities of Diners. The attribution of the purchase cost, as above, was performed on the basis of an initial recognition and therefore, in the following reporting periods some adjustments may be necessary for this attribution.

4. Legislative amendments

Reduction of marketing margin on supervised fuels: In September of this year, the fuel administration reduced the marketing margin on supervised fuels by 11.5 - 18.4 Agorot per liter; this reduction is expected to adversely and significantly affect the business results of Dor Alon.

5. Proposals for legislative amendments

a. Amendments in Corporate tax rates

At the beginning of November 2011, a memorandum of law for economic and social change was published (legislative amendments) (taxes) - 2011 (the memo of law). Under this memo of law, it is proposed, inter alia, to cancel effective 2012 the reduction outline of corporate taxes.  It is also proposed to raise the corporate tax to 25% in 2012. In view of the proposal to raise the corporate tax rates to 25% in 2012, the tax rates on capital gain and real appreciation shall be raised respectively. The deferred tax balances included in the financial statements as of September 30, 2011, are calculated according to the tax rates in effect as of the date of the financial statements and do not take into account the effects that may derive from the memo of law. Said effects shall be included in the financial statements to be published effective with the date on which the law will be substantively enacted. The Company estimates that based on the deferred tax balances as of September 30, 2011, the effect on income following the memo of law shall be reflected by a decrease of NIS 19 million (U.S $ 5.1 million), the decrease attributed to the Company's shareholders would amount to NIS 13 million (U.S $ 3.5 million) and the portion attributed to non controlling interests would amount to NIS 6 million (U.S $ 1.3 million). The effect on the capital reserve shall be reflected by a decrease of NIS 6 million (U.S $ 1.6 million), attributed to the Company's shareholders, an amount that may decrease or increase according to the approval of the memo of law.

b. Recommendations submitted to the government

On September 26, 2011, the committee for economic and social change, aiming to review and propose solutions for the high cost of living in Israel, submitted its recommendations for the government's review, the essence of which as to fueling sites and direct trade and marketing of Liquefied petroleum gas relating to the Company.

The encouragement of competition in the fueling and commercial sites.

  • To initiate legislative procedures that will release immediately private gas stations from exclusivity agreements with the retail fuel companies.
  • To give priority, by planning procedures for individuals, to entities that are not one of the large four retail fuel companies and instruct the planning bodies to plan plots of land for 40 new fueling stations within 2 years and market them to individuals.
  • To expedite applying universal fueling device standards.
  • To implement immediate supervision on diesel fuel at the door of refineries and fueling stations.
  • To impose on the national infrastructures ministry to map geographic areas in which the competition is low and oblige sale of stations in these areas to individuals to encourage competition.

The encouragement of competition in the area of direct marketing of Liquefied petroleum gas.

  • To supervise the price at the door of the refinery and the price for the consumer.
  • To reform the area of securing free access for carriers to increase competition.

It is indicated that the implementation of legislative amendments and the proposal for legislative amendments may have an adverse effect in part, on the business results of per Alon at this stage it is impossible to estimate the extent of the effect.

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