Heavy machinery engineering equipment importer Kalrom Motors and Engineering Equipment Agencies Ltd. (TASE:KLRM), controlled by the Klein family, has won a US Army tender to supply 36 pieces of engineering equipment. The tender could be worth up to $1.7 million over two years. The US Army has already placed an initial $185,000 order with Kalrom.
"Globes": Why is the US Army ordering US-made equipment through an Israeli company, rather than directly from the manufacturer, Deere & Co. (John Deere) (NYSE:DE)?
Kalrom general manager Amir Klein: "Because the contract includes the provision of various services, such as deliveries of spare parts, maintenance agreements, etc. The contract is not for delivery of equipment to the US Army within the US, but in and around the Middle East, including Israel, Turkey, Greece, Cyprus, and other countries."
Kalrom imports John Deere heavy machinery engineering equipment. The official importer is Kalrom's parent company, Mifram Projects (1990) Ltd., owned by the Klein family. An agreement between Mifram and Kalrom transferred the import rights to Kalrom. It had been claimed in the past that the agreement favored Mifram over Kalrom.
There's been a lot of noise about the relationship between Kalrom and Mifram. What is the true relationship?
"Mifram has a contract with John Deere, which Kalrom carries out."
Who profits?
"Kalrom makes the entire profit from imports. All the revenue and profit accrue to it."
Simultaneously with the announcement of the US Army contract, Kalrom announced that the Israel Tax Authority had imposed a NIS 633,000 fine on the company in a dispute over tax assessments for 2001-03. The dispute is over the Tax Authority's decision not to recognize Kalrom's accumulated losses, and over a NIS 4 million tax assessment.
Kalrom claims that the Tax Authority is prepared to compromise and recognize 60% of Kalrom's losses for offsetting purpose. However, Klarom refuses to compromise and insists that the full losses be recognized for offsetting purposes. Klein says the case is still in the early stages.
Published by Globes [online] - www.globes.co.il - on October 12, 2004