10-Q

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, 2009

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 27, 2009).

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES

Index to Form 10-Q

		Page




Part I	Financial Information

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets	1-2

	Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008	3

	Consolidated Statements of Cash Flows	4-5

	Consolidated Statements of Changes in Shareholders' Equity	6-7

	Notes to the Consolidated Financial Statements	8-15

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15-21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	23

Part II.	Other Information

	Item 1. Legal Proceedings	24

	Item 1A. Risk Factors	24

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 3. Defaults upon Senior Securities	25

	Item 4. Submission of Matters to a Vote of Security Holders	25

	Item 5. Other Information	25

	Item 6. Exhibits	25

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

ASSETS AS OF	March 31, 2009		December 31, 2008
(U.S. Dollars in thousands)	(Unaudited)		(Audited)



Current assets:
Cash and cash equivalents	$	73,133	$	68,682
Marketable securities		45,615		52,859
Accounts receivable (Net of allowance for doubtful amounts of $0.1 and $0.3)		84,372		111,231
Deposits		12,570		13,834
Inventories		22,966		33,744
Other assets		18,332		19,510

Total current assets		256,988		299,860

Non-current assets:
Investments		370,055		375,612
Fixed assets, less accumulated depreciation of $14,844 and $13,175		115,175		112,195
Deposits		38,273		45,134
Deferred income taxes		22,851		22,819
Other assets		13,017		13,958
Goodwill		47,017		51,556
Intangible assets		12,914		14,783

Total Non-current assets		619,302		636,057


TOTAL ASSETS	$	876,290	$	935,917

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND EQUITY AS OF	March 31, 2009			December 31, 2008
(U.S. Dollars in thousands, except share amounts)	(Unaudited)			(Audited)



LIABILITIES
Current liabilities:
Notes and loans payable and current maturities	$	136,738		$	157,233
Accounts payable, accrued expenses and others		69,406			83,925

Total current liabilities		206,144			241,158

Long term liabilities:
Notes and loans payable		215,919			222,499
Debentures		189,492			216,724
Deferred income taxes		5,485			5,965
Other long term liabilities		8,973			9,476

Total long term liabilities		419,869			454,664

Total liabilities		626,013			695,822


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 56,425,867 shares		63,277			63,277

Additional paid-in capital		191,450			191,263

Retained earnings		43,556			31,062

Accumulated other comprehensive loss		(28,966	)		(17,876	)

Treasury stock, at cost		(28,763	)		(28,500	)


Total Ampal shareholders' equity		240,554			239,226


Noncontrolling interest		9,723			869


Total equity		250,277			240,095


TOTAL LIABILITIES AND EQUITY	$	876,290		$	935,917

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31,	2009			2008
(U.S. Dollars in thousands, except per share amounts)	(Unaudited)			(Unaudited)



REVENUES:
Chemical income	$	94,673		$	125,612
Real estate income		21			-
Equity in earnings (losses) of affiliates		(44	)		585
Realized gains on investments		-			412
Loss from sale of fixed assets		(24	)		-
Realized and unrealized gains (losses) on marketable securities		(255	)		100
Translation gain		26,591
Interest income		664			648
Leisure-time income		693			726
Gain from redemption of debt, gain from change in ownership interest in a subsidiary
and other income		2,914			646

Total revenues		125,233			128,729

EXPENSES:
Chemical expense - cost of goods sold		86,773			119,098
Real estate expenses		137			-
Interest expense		7,274			4,425
Translation loss		-			13,223
Marketing expense		1,617			3,097
General, administrative and other		7,481			7,946

Total expenses		103,282			147,789

Gain (loss) before income taxes		21,951			(19,060	)
Provision for income taxes (tax benefits)		419			(827	)

Net income (loss)		21,532			(18,233	)
Less: Net income (loss) attributable to noncontrolling interests		9,038			(7,958	)

Net income (loss) from continuing operations		12,494			(10,275	)


Basic EPS:

Earnings (loss) per share	$	0.22		$	(0.18	)


Shares used in EPS calculation (in thousands)		56,153			57,703


Diluted EPS:

Earnings (loss) per share	$	0.22		$	(0.18	)


Shares used in EPS calculation (in thousands)		56,601			57,703

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31,	2009			2008
(U.S. Dollars in thousands)	(Unaudited)			(Unaudited)



Cash flows from operating activities:
Net income (loss) for the period	$	21,532		$	(18,233	)
Adjustments to reconcile net (income) loss for the period to net cash
provided by (used in) operating activities:
Equity in losses (earnings) of affiliates		44			(585	)
Realized and unrealized loss (gain) on investments, net		255			(511	)
Depreciation and amortization expense		3,073			1,515
Loss from sale of fixed assets		24			-
Non cash stock based compensation		186			214
Translation (gain) loss		(26,591	)		13,223
Decrease (increase) in other assets		(145	)		(1,465	)
Decrease (increase) in inventories		8,391			(13,076	)
Decrease (increase) in accounts receivable		17,661			(4,894	)
Increase (decrease) in accounts payable, accrued expenses and other		(5,263	)		15,616
Investments made in trading securities		-			(79	)
Proceeds from sale of trading securities		-			1,284
Gain from change in ownership interest in a subsidiary		-			(490	)
Dividends received from affiliates		572			510


Net cash (used in) provided by operating activities		19,739			(6,971	)


Cash flows from investing activities:
Deposits, notes and loans receivable collected		5,407			-
Investments in fixed assets		(9,054	)		(14,022	)
Investments made in available for sale shares		(7,101	)		-
Investments made in affiliates and others		(602	)		(1,714	)
Proceeds from sale of available for sale shares		12,307			-
Proceeds from sale of investments		-			419
Proceeds from sale of fixed assets		263			79


Net cash provided by (used in) investing activities		1,220			(15,238	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31,	2009			2008
(U.S. Dollars in thousands)	(Unaudited)			(Unaudited)



Cash flows from financing activities:
Notes and loans payable received	$	9,680		$	7,874
Notes and loans payable repaid		(19,925	)		(47	)
Debentures repaid and shares repurchased		(5,995	)		-

Net cash provided by (used in) financing activities		(16,240	)		7,827


Effect of exchange rate changes on cash and cash equivalents		(268	)		205


Net increase in cash and cash equivalents		4,451			(14,177	)
Cash and cash equivalents at beginning of period		68,682			44,267


Cash and cash equivalents at end of period	$	73,133		$	30,090


Supplement Disclosure of Non-cash Investing and Financing Activities:
Conversion of a convertible debenture in subsidiary		-			1,446

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands)

Unaudited

	Ampal American Israel Corporation
	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.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands)

Unaudited

	Ampal American Israel Corporation
	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, 2008		63,277		63,277		189,899		47,931			(14,821	)		(27,874	)		23,206			281,618
CHANGES DURING 2008:
Net Loss for the period								(10,275	)								(7,958	)		(18,233	)
Unrealized loss from
marketable securities											(150	)								(150	)
Foreign currency
translation adjustments											7,673						2,383			10,056

Total comprehensive loss																				(8,327	)
Share based compensation
expense						214														214

BALANCE AT March 31, 2008		63,277		63,277		190,113		37,656			(7,298	)		(27,874	)		17,631			273,505

*In thousands

The accompanying notes are an integral part of these condensed consolidated financial statements.

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.

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, 2008, filed with the Securities and Exchange Commission.

Reference should be made to the Company’s consolidated financial statements for the year ended December 31, 2008 for a description of the critical accounting policies. Also, reference should be made to the notes to the Company’s December 31, 2008 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

FAS 157-4

In April 2009, the FASB issued FASB Staff Position No. 157-4, “Determining Whether a Market is not Active and a Transaction is not Distressed” (“FSP FAS 157-4”), which provides additional guidance in accordance with FASB No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability has significantly decreased. FSP FAS 157-4 shall be effective for interim and annual reporting periods ending after June 15, 2009. We are currently evaluating the future impacts and disclosures of this staff position.

FAS 107-1

In April 2009, the FASB issued FASB Staff Position No. 107-1 (“FSP FAS 107-1”) and APB 28-1 (“APB 28-1”), which amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim reporting periods. FSP FAS 107-1 and APB 28-1 will be effective for interim reporting periods ending after June 15, 2009. We are currently evaluating the future impacts and disclosures of this staff position

EITF 03-6-1

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-6-1”). The FASB decided that unvested share-based payout awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method under SFAS 128, Earnings per Share. FSP EITF 03-6-1 became effective for the Company on January 1, 2009 and the adoption did not have an impact on our financial statements.

SFAS No. 157 –Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”(“SFAS 157”), which provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 will apply whenever another US GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require additional disclosures in both annual and quarterly reports. SFAS 157 is for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Company). In February 2008, the FASB deferred for one additional year the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of the parts of SFAS 157 that became effective in 2008 did not have a material impact on the Company’s financial statements. The remaining parts of SFAS 157 did not have a material impact on our financial statements.

SFAS No. 141R –Business Combinations

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) which replaces SFAS No. 141, “Business Combination”. SFAS 141R establishes the principles and requirements for how an acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) discloses the business combination. This Statement applies to all transactions in which an entity obtains control of one or more businesses, including transactions that occur without the transfer of any type of consideration. SFAS 141R will be effective on a prospective basis for all business combinations on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. Early adoption is not allowed. The adoption of SFAS 141R had no material impact on the financial statements.

SFAS No. 160 –Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements–an amendment of ARB No. 51" (“SFAS 160”). SFAS 160 amends ARB No. 51 and establishes accounting and reporting standards that require noncontrolling interests (previously referred to as minority interest) to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and upon a loss of control, retained ownership interest will be remeasured at fair value, with any gain or loss recognized in earnings. The presentation and disclosure requirements of SFAS 160 were applied retrospectively.Other than the change in presentation of noncontrolling interests, the adoption of SFAS 160 had no material impact on the financial statements.

SFAS No. 161–Disclosures about Derivative Instruments and Hedging Activities

In March 2008, FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”(“FAS 161”). FAS 161 amends and expands the disclosure requirements of FAS 133 to clarify how and why companies use derivative instruments. In addition, FAS 161 requires more disclosures regarding how companies account for derivative instruments and the impact derivatives have on a company’s financial statements. Other than the required disclosures (see note 9), the adoption of SFAS 161 had no material impact on the financial statements.

SFAS No. 142-3 – Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FASB Staff Position (the “FSP”) FAS No. 142-3 (“FSP FAS 142-3”), which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under FAS No. 142, “Goodwill and Other Intangible Assets.” FSP FAS 143-2 requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141, “Business Combinations.” The adoption of FSP FAS 142-3 had no material impact on the 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 equal to $2.7 million has been placed 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 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. In the Israeli market, EMG’s first contract was signed in late 2005 with the Israel Electric Corporation for a quantity of 2.1 BCM annually over 15-20 years. 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.

On November 29, 2007, Ampal and the Israel Infrastructure Fund (“IIF”), leading a group of institutional 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, 2009, 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%). For more information concerning our interest in EMG please see “Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations” below.

EMG has reached, in February 2009, an agreement in principle with the Egyptian authorities with regard to repricing gas sold to EMG. The agreement is yet to be finalized in the form of an amendment to the agreement between EMG and its upstream supplier. To the best of Ampal’s understanding from EMG, the agreement in principle with the Egyptian authorities includes various provisions designed to avoid adverse economic impact to EMG, and the two sides have committed to a good faith intensive effort to reach a definitive agreement with respect to supply and the price of gas to EMG. There is, however, no assurance that the negotiations will be completed or that the outcome will not adversely affect EMG. To the best of Ampal’s understanding, recently other international companies purchasing gas from Egypt successfully completed such negotiations to all parties’ satisfaction. At this stage EMG is not supplying the full contracted quantities of the gas and to the best of Ampal’s knowledge the full contracted quantities should begin to be supplied in the near future. The said price negotiations commenced on the request of the Egyptian Ministry of Trade and Infrastructure and were driven by the substantial increase in the energy prices since the existing gas purchase prices were determined in 2000.

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, liquification and transport of natural gas industries. The legislation, by its terms, would apply to EMG. Ampal understands that the impact of this recent 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 September 2008, Midroog downgraded the rating on Ampal’s Series A and Series B Debentures from A2 to A3 and will continue to maintain Ampal on its “Watchlist.”Midroog concluded that there is a possibility that new agreements between EMG and the Egyptian gas supplier may adversely affect EMG’s financial results compared to previous expectations, which will result in reduced cash flow from EMG to Ampal and other financial parameters resulting from such reduced cash flow. Midroog added that it will monitor the situation, including the negotiations between EMG and the Egyptian gas supplier, the regularity of the gas supply and other matters, and will review Ampal’s rating accordingly. Ampal’s rating will remain on the Watchlist.

7.	Acquisition of Gadot

On December 3, 2007, Ampal completed the purchase of a 65.5% controlling interest (63.66% on a fully diluted basis) in Gadot Chemical Tankers and Terminals Ltd. (“Gadot”) through its wholly owned subsidiary, MAE. On June 3, 2008, Ampal purchased an additional 14.98% bringing its controlling interest to 79.3% (78.88% on a fully diluted basis) and on August 12, 2008, Ampal purchased an additional 20.6% bringing its controlling interest to 100% (99.99% on a fully diluted basis). Total consideration including direct transaction expenses was $132.3 million. The cash consideration was financed with Ampal’s own resources and with borrowings in the amount of $87.5 million.

Gadot was founded in 1958 as a privately held Israeli company, with operations in distribution and marketing of liquid chemicals for raw materials used in industry. 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 in 2003 and was delisted from trading as of October 16, 2008 following its acquisition by Ampal.

Under the purchase method of accounting, the total consideration of $132.3 million allocated to Gadot’s identifiable tangible and intangible assets and liabilities assumed based on their estimated fair values as of the date of the completion of the transactions.

The overall identified tangible and intangible assets acquired amounted to approximately $34.3 million and $27.8 million, respectively. The main assets included are ships and tankers and an option to purchase and lease ships, for approximately $28.7 million and $7.6 million, respectively, to be amortized over an estimated useful life of 12 and 4 years, respectively.

8.	Sugarcane Ethanol Production Project

On May 29, 2008, Ampal loaned Merhav $10 million, in addition to the currently outstanding $10 million that were loaned on December 25, 2007, to fund the sugarcane ethanol production project (the “Project”) in Colombia being developed by Merhav. The additional loan was made pursuant to the existing promissory note, dated as of December 25, 2007, by Merhav in favor of Ampal (the “Promissory Note”). The Promissory Note was given in connection with an option agreement dated December 25, 2007 (the “Original Option Agreement”), with Merhav providing Ampal with the option (the “Option”) to acquire up to a 35% equity interest in the Project. The loan will be convertible into all or a portion of the equity interest purchased pursuant to the Original Option Agreement.

On December 25, 2008, Ampal entered into an amendment (the “Option Amendment”) to the Original Option Agreement. Under the Original Option Agreement, the Option expired on the earlier of December 25, 2008 or the date (the “Financing Date”) on which both (i) Merhav obtained third-party debt financing for the Project and (ii) an unaffiliated third party holds at least a 25% equity interest in the Project. The Option Amendment extends the expiration of the Option to the earlier of December 31, 2009 or the Financing Date.

The Option Amendment also provides that in determining the price to be paid by Ampal for shares pursuant to the option under the Valuation Model (as defined below), the parties have agreed to review the discount rate set forth in the Valuation Model to determine whether the discount rate should be increased, provided, however, that the purchase price shall not exceed the amount Ampal would have paid without giving effect to the Option Amendment. The maximum purchase price for any interest in the Project purchased by Ampal pursuant to the option would be (A) with respect to any portion of such interest being purchased by conversion of the outstanding balance of the Amended Promissory Note referred to below, the lesser of (i) a price based on a currently agreed valuation model as updated from time to time to reflect changes in project, financing and other similar costs (the “Valuation Model”) as such updates are reviewed by Houlihan Lokey Howard &Zukin at the time of the Option’s exercise or (ii) the lowest price paid by any unaffiliated third party for an interest in the Project, or (B) with respect to any portion of such interest in the Project being purchased in excess of the balance of the Amended Promissory Note, the lowest price paid by an unaffiliated third party for its interest in the Project, unless no unaffiliated third party has purchased an interest in the Project, in which case the purchase price will be based on the Valuation Model.

In consideration for Merhav entering into the Option Amendment, Ampal agreed to certain amendments to the Promissory Note reflected in an Amended and Restated Promissory Note, dated December 25, 2008 (the “Amended Promissory Note”). The Amended Promissory Note provides for (i) an increase in the annual interest rate from LIBOR plus 2.25% to LIBOR plus 3.25% and (ii) an extension of the maturity date of the Promissory Note to December 31, 2009. As a condition to amending and restating the Promissory Note, Ampal received a personal guaranty dated as of December 25, 2008, from Yosef A. Maiman personally guaranteeing the obligations of Merhav under the Amended Promissory Note.

The loan continues to be secured by Merhav’s pledge to Ampal, pursuant to a Pledge Agreement dated December 25, 2007, between Merhav and Ampal, of all of the shares of Ampal’s Class A Common Stock, par value $1.00 per share (“Class A Stock”), owned by Merhav.

Yosef A. Maiman, the Chairman, President and CEO of Ampal and a member of the controlling shareholders group of Ampal, is the sole owner of Merhav. Because of the foregoing relationship, a special committee of the Board of Directors composed of Ampal’s independent directors negotiated and approved the transaction.

9.	Derivatives and Other Financial Instruments

As stated above, in March 2008, the FASB issued FAS 161, Disclosures about Derivative Instruments and Hedging Activities. SFAS 161 is an amendment of (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities (SFAS 133). This statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. FAS 161 became effective for the Company on January 1, 2009 and we have incorporated the additional disclosure information for FAS 161 below.

The Company is exposed to certain risks relating to its ongoing business operations, including financial, market, political, and economic risks. The following discussion provides information regarding the Company’s exposure to the risks of changing commodity prices, interest rates, and foreign currency exchange rates.

The Company’s derivative activities are subject to management’s discretion.

The interest rate and foreign exchange contracts are held for purposes other than trading. They are used primarily to mitigate uncertainty and volatility, and to in order to cover underlying exposures. The swap contract was entered into to convert some of the Company’s New Israeli Shekel denominated debt in the amount of NIS150 million ($43.9 million) into U.S. Dollars amount and to convert Israeli interest rates into LIBOR interest rates. The SWAP contract will be settled in five equal annual installments commencing on January 31, 2012.

We use foreign currency forward contracts to mitigate fluctuations in foreign currency exchange rates due to variability in the payment or receipt of currencies other than the Company’s functional currency. We use contracts to purchase U.S. Dollars and sell Euros, contracts to purchase Euros and sell U.S. Dollars, contracts to purchase Yen and sell U.S. Dollars and contracts to purchase U.S. Dollars and sell New Israeli Shekel.

We enter into derivative financial instruments, including swaps and forward agreements. We report the fair value of the derivatives on our balance sheet. The derivatives used are not designated as a hedging instrument. Changes in fair value are recognized in earnings in the period of change.

The following summarizes the gross fair market value of all derivative instruments and their location in our consolidated balance sheet and are shown by those in an asset or liability position and categorized as commodity derivatives.

All our derivative contracts are designated as not hedging instruments under SFAS 133.

Asset Derivatives

		(U.S. Dollars in thousands)
Derivative Instrument	Location	March 31, 2009		December 31, 2008		March 31, 2008



Exchange rate contracts	Other assets		846		9,601		2,295

Liability Derivatives

		(U.S. Dollars in thousands)
Derivative Instrument	Location	March 31, 2009		December 31, 2008		March 31, 2008



SWAP contracts	Accounts payable, accrued expenses and others		5,629		4,218		-

Exchange rate contracts	Accounts payable, accrued expenses and others		7		10,105		1,745

Statement of Operation

		(U.S. Dollars in thousands)
Derivative Instrument	Location	Three months ended March 31, 2009			Three months ended March 31, 2008



SWAP contracts	Interest expense		(1,993	)		-

Exchange rate contracts	Interest expense		(1,606	)		(415	)

10.	Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”(“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair-value measurements. The Company adopted SFAS 157 effective January 1, 2008 for all financial assets and liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a recurring basis. Although the adoption of SFAS 157 did not materially impact the Company’s financial condition, results of operations or cash flows, the Company is required to provide additional disclosures within its condensed consolidated financial statements.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer the liability (an exit price) in an orderly transaction between market participants and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within SFAS 157 distinguishes between three levels of inputs that may be utilized when measuring fair value including level 1 inputs (using quoted prices in active markets for identical assets or liabilities), level 2 inputs (using inputs other than level 1 prices such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability) and level 3 inputs (unobservable inputs supported by little or no market activity based on the company’s own assumptions used to measure assets and liabilities). A financial asset’s or liability’s classification within the above hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company also adopted SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years after November 15, 2007. The Company did not elect to apply the fair value option available under SFAS 159 for any of its eligible instruments.

The following section describes the valuation methodologies used by the Company to measure derivative contracts at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models, the key inputs to those models, and any significant assumptions.

Derivative contracts are valued using quoted market prices and significant other observable and unobservable inputs. Such financial instruments consist of aluminum, energy, interest rate, and foreign exchange contracts. The fair values for the majority of these derivative contracts are based upon current quoted market prices. These financial instruments are typically exchange-traded and are generally classified within Level 1 or Level 2 of the fair value hierarchy depending on whether the exchange is deemed to be an active market or not.

Financial assets and liabilities measured at fair value on a recurring basis as at March 31, 2009 consisted of the following (in thousands):

Fair Value Measurements as Using at :

	March 31, 2009								December 31, 2008
	Level 1		Level 2			Total			Level 1		Level 2			Total



Trading securities *	$	4,151	$	-		$	4,151		$	4,396	$	-		$	4,396
Available for sale securities *		41,463		-			41,463			48,463		-			48,463
Derivative assets - forward agreements		-		846			846			-		9,601			9,601

Derivative liabilities **		-		(5,636	)		(5,636	)		-		(14,323	)		(14,323	)

Total	$	45,614	$	(4,790	)	$	40,824		$	52,859	$	(4,722	)	$	48,137

Marketable securities that are classified in level 1 consist of available-for-sale and trading securities for which market prices are readily available, marketable securities that are classified in level 2 consist of trading securities for which there are quoted prices in active broker’s markets. The fair value of derivative assets are determined based on inputs that can be derived from information available in publicly quoted markets. Unrealized gains or losses from available-for-sale securities are recorded in accumulated other comprehensive (loss) income.

* The trading securities and available for sale securities are mainly traded debentures

** Out of which $5.6 and $4.2 million is attributable to a SWAP agreement as of March 31, 2009 and December 31, 2008 respectively and the remaining to forward agreements.

11.	Segment information presented below, results primarily from operations in Israel.

SFAS 131 “Disclosure about Segments of an Enterprise and Related Information”establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. Segment information presented below results primarily from operations in Israel.

The chemical segment consists of Gadot which operates in the distribution and marketing of liquid chemicals for raw materials used in the chemical industry.

The energy segment consists of the investment in EMG, an Egyptian joint stock company, which holds the right to supply and supplies natural gas to Israel through an underwater pipeline from Egypt to Israel. This investment is accounted for under the cost method.

The leisure-time segment consists of an affiliate; Country Club Kfar Saba Ltd., the Company’s 51%-owned subsidiary, located in Israel.

The finance segment consists of all other activities which are not part of any of the above segments.

THREE MONTHS ENDED MARCH 31,	2009			2008
(Dollars in thousands)



Revenues:
Chemicals	$	94,649		$	126,103
Finance		29,911			1,315
Leisure-time		717			726

		125,277			128,144
Share in losses of affiliates		(44	)		585

Total consolidated revenues	$	125,233		$	128,729


Pre-tax Operating Gain (loss):
Chemicals	$	171		$	(2,217	)
Finance		21,621			(17,576	)
Leisure-time		203			148

		21,995			(19,645	)
Share in losses of affiliates		(44	)		585

Total consolidated pretax loss	$	21,951		$	(19,060	)


Total Assets:
Chemicals	$	328,408		$	381,582
Finance		486,339			430,396
Energy		361,323			361,323
Leisure-Time		2,802			3,475
Inter- segments adjustments		(302,582	)		(356,720	)

Total consolidated assets	$	876,290		$	820,056

Corporate office expense is principally applicable to the financing operations and has been charged to that segment. Revenues and pre-tax operating gain above exclude equity in earnings of affiliates.

12.	The following table summarizes securities that were not included in the calculations of diluted earnings per share of Class A Stock for the periods ended March 31, 2009 and 2008 because such shares are anti-dilutive.

(Shares in thousands)	Three Months ended March 31,
	2009		2008



Shares resulting from Options and Rights		-		2,435

13.	LEGAL PROCEEDINGS:

On January 1, 2002, Galha (1960) Ltd. (“Galha”) filed a suit against the Company and other parties, including directors of Paradise Industries Ltd. (“Paradise”) appointed by the Company, in the Tel Aviv District Court, in the amount of NIS 11,560,000 ($3 million). Galha claimed that the Company, which was a shareholder of Paradise, and another shareholder of Paradise, misused funds that were received by Paradise from an insurance company for the purpose of reconstructing an industrial building owned by Galha and used by Paradise which burnt down. Paradise is currently involved in liquidation proceedings. Ampal issued a guarantee in favor of Galha for the payment of an amount of up to NIS 4,172,000 ($1,085,000) if a final judgment against the Company will be given.

On May 26, 2003, the Company and the directors of Paradise appointed by the Company filed a third party claim against Arieh Israeli Insurance Company Ltd. in the Tel Aviv District Court claiming that, to the extent the court decides that the directors of Paradise appointed by the Company will have to pay any amounts to Galha, Arieh will pay such amounts on behalf of the directors in accordance with the Directors and Officers insurance policy that the Company had at that time with Arieh. Arieh filed a statement of defense and stated that the policy does not cover the claim. The dispute was submitted to mediation. In the mediation procedure the parties arrived to an agreement that was approved as a judgment of the Tel Aviv District Court on January 13, 2009. According to the judgment Ampal paid the plaintiffs an amount of NIS 834,200 ($219,411 ), Arieh paid an amount of $150,000 and a third defendant paid an amount of NIS 135,800 ($35,718).The judgment stated that claim was declined against all defendants and the guarantee Ampal issued in favor of the Galha was cancelled.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES

CRITICAL ACCOUNTING POLICIES

The preparation of Ampal – American Israel Corporation’s (“Ampal”, and collectively with its subsidiaries, the “Company”) consolidated financial statements is in conformity with accounting principles generally accepted in the United States (“GAAP”) which requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. To facilitate the understanding of Ampal’s business activities, described below are certain Ampal accounting policies that are relatively more important to the portrayal of its financial condition and results of operations and that require management’s subjective judgments. Ampal bases its judgments on its experience and various other assumptions that it believes to be reasonable under the circumstances. Please refer to Note 1 to Ampal’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for a summary of all of Ampal’s significant accounting policies.

No significant updates have occurred since our last annual report on form 10-K.

Revenue Recognition

The Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB) No. 104 – “Revenue Recognition”. Revenue is recognized when (a) the significant risks and rewards of ownership of the goods have been transferred to the buyer; (b) the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the Company; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Chemical income derives from the following activities: sales of a wide range of liquid chemicals, providing maritime shipping services of chemicals by ships and providing other services which include logistics and storage services for chemicals.

Revenue for services is recognized as follows:

—

Revenues arising from the provision of marine transport services proportionally over the period of the marine transport services. As to voyages uncompleted in which a loss is expected, a full provision is made in the amount of the expected loss.

—

Revenues from chemical brokerage commissions are recognized when the right to receive them is created.

—

Rental income is recorded over the rental period. Revenues from services provided to tenants and country-club subscribers are recognized ratably over the contractual period or as services are performed. Revenue from amortization of tenant deposits (included in discontuinued operation) was calculated at a fixed periodic rate based on the specific terms in the occupancy agreement signed with the tenants.

—

Income from other services is recognized over the period during which those services are preformed.

Recently adopted and recently Issued Accounting Pronouncements

FAS 157-4

FAS 107-1

EITF 03-6-1

SFAS No. 157 –Fair Value Measurements

SFAS No. 141R –Business Combinations

SFAS No. 160 –Noncontrolling Interests in Consolidated Financial Statements

SFAS No. 161–Disclosures about Derivative Instruments and Hedging Activities

SFAS No. 142-3 – Determination of the Useful Life of Intangible Assets

Results of Operations

Changes in pricing and demand for chemicals

The overall demand for chemical products, especially commodity chemicals, is highly dependent on general economic conditions. In the past few months, both the prices and demand for chemicals decreased dramatically due to the global recession. The economic indicators from the United States and Europe reveal the intensity of the recession and it is unclear when the market sentiment will change. The economic slowdown is felt in all sectors of the economy.

Three months ended March 31, 2009 compared to three months ended March 31, 2008

The Company recorded a consolidated net gain of $12.5 million for the three months ended March 31, 2009 compared to a net loss of $10.3 million for the corresponding period in 2008. The gain in 2009 is primarily attributable to the translation gain and gain from the debenture repurchase as compared to the translation loss in 2008. The gain was partially offset by an increase in interest expenses resulting from the issuance of the Series B debentures and loans for the financing of Gadot’s purchase.

In the three months ended March 31, 2009, the Company included the results of operations of Gadot, Below is data from Gadot results of operations (in millions of dollars):

					March 31, 2008




Chemical income	-	$	94.7		$	126.1

Chemical expense	-	$	86.8		$	119.1

Marketing expense	-	$	1.6		$	3.1

Other expense (mainly
general and administrative)	-	$	3.8		$	4.9

Interest expense	-	$	2.8		$	1.3

Net gain (loss)	-	$	(0.3	)	$	(0.6	)

In the three months ended March 31, 2009, the Company recorded $1.6 million of marketing expense, as compared to a $3.1 million marketing expense in the corresponding period in 2008. These expenses are attributable to Gadot and composed mainly of salary and commission expenses. The decrease is due to the result of a restructuring plan that took place in Gadot during the second half of 2008.

In the three months ended March 31, 2009, the Company recorded a $7.5 million of general, administrative and other expense, as compared to $7.9 million in the corresponding period in 2008.

In the three months ended March 31, 2009, the Company recorded a $9.0 million of noncontrolling interests share in gain of subsidiaries, net, as compared to $8.0 million share in loss in the corresponding period in 2008. These gains are mainly attributable to translation gains in the notes issued to the partners in Merhav Ampal Energy, LP, an Israeli limited partnership (the "Joint Venture"), resulting from the valuation of the New Israeli Shekel compared to the U.S. Dollar.

In the three months ended March 31, 2009, the Company recorded a $7.3 million interest expense, as compared to a $4.4 million interest expense for the corresponding period in 2008. The increase in interest expense relates to the increase in notes payable which the Company received to finance the purchase of Gadot, issuance of the Company's Series B debentures and the interest expense of the SWAP agreement that was signed on the second quarter in 2008.

In the three months ended March 31, 2009, the Company recorded a $26.6 million translation gain, as compared to a $13.2 million translation loss for the corresponding period in 2008. The translation gain is related to devaluation of the Company's debt denominated in New Israeli Shekel as compared to the U.S. Dollar, an increase of 10.1% in the three months ended March 31, 2009 as compared to a decrease of 7.6% for the corresponding period in 2008.

The Company recorded a minor net loss in Equity in losses of affiliates for the three months ended March 31, 2009, compared to a net gain in Equity in earnings of affiliates of $0.6 million for the corresponding period in 2008.

Results of operations analyzed by segments for three months ended March 31:

	2009			2008
	(U.S. Dollars in thousands)



Revenues:

Chemicals	$	94,649		$	126,103
Finance		29,911			1,315
Leisure-time		717			726

		125,277			128,144
Equity in earnings (losses) of affiliates		(44	)		585


Total	$	125,233		$	128,729

The Chemicals income relates solely to Gadot and derives from the following activities: sales of a wide range of liquid chemicals, providing maritime shipping services of chemicals by ships and providing other services which include logistics and storage services for chemicals.

In the three months ended March 31, 2009, the Company recorded $125.2 million in revenue which was comprised of $94.6 million in the Chemicals segment, $29.9 million in the Finance segment, $0.7 million in the Leisure-Time segment and a minor net loss in Equity in losses of affiliates, as compared to $128.7 million for the same period in 2008, which was comprised of $126.1 million in the Chemicals segment, $1.3 million in the Finance segment, $0.7 million in the Leisure-time segment and a $0.6 million gain in Equity in earnings of affiliates. The decrease in Chemicals revenues is primarily attributable to the slowdown in the markets, especially in Europe, which lead the decrease in sold quantities and product prices and due to significant decrease in the demand for chemical carrier shipping. The recession and the resulting significant decrease in the demand for chemical carrier ships was felt during the first quarter of 2009. The decrease in demand for chemical shipping lead to a steep decline in freight rates. In addition, the decline in shipped quantities generates an uneven shipment of chemicals, which in certain voyages, results in almost no cargo being shipped on the return leg of a voyage.

This was partially offset by the change in the valuation of the New Israeli Shekel as compared to the U.S. Dollar. The increase in the Finance segment revenue is primarily related to the increase in interest income from deposits and loans receivable.

	2009		2008
	(U.S. Dollars in thousands)



Expenses:

Chemicals	$	94,921	$	128,320
Finance		7,847		18,891
Leisure-time		514		578


Total	$	103,282	$	147,789

In the three months ended March 31, 2009, the Company recorded $103.3 million in expenses which was comprised of $94.9 million of expenses in the Chemicals segment, $7.8 million of expenses in the Finance segment and $0.5 million of expenses in the Leisure-time segment, as compared to $147.8 million in expenses for the same period in 2008 which was comprised of $128.3 million in the Chemicals segment, $18.9 million in the Finance segment and $0.6 million in the Leisure-Time segment. The decrease in expenses in the Finance segment is primarily attributable to the $26.6 million translation gain which was recorded due to the devaluation of the Company’s debt denominated in New Israeli Shekel as compared to the U.S. dollar and was partially offset by to the increase in interest expense related to the notes payable which the Company received to finance the purchase of Gadot and issuance of the Company’s Series B debentures.

Income taxes

In the three month periods ended March 31, 2009 the Company reported tax expense of $0.4 million as compared to approximately $0.8 million of tax benefit in the corresponding periods in 2008. The Company’s net income for the period resulted mostly from translation gains (these gains represent temporary differences for tax purposes). We created a deferred tax asset and full valuation allowance for such gains. The tax expense which was recorded pertains to Gadot’s income.

Liquidity and Capital Resources

Cash Flows

On March 31, 2009, cash, cash equivalents and marketable securities were $118.7 million, as compared with $121.6 million at December 31, 2008. The decrease is mainly attributable to the repurchase of the Company’s Series B debentures.

As of March 31, 2009, the Company had $45.6 million of marketable securities as compared to $52.9 million as of December 31, 2008. The decrease is attributable to the sale of marketable securities.

The Company may also receive cash from operations and investing activities and amounts available under credit facilities, as described below. The Company believes that these sources are sufficient to fund the current requirements of operations, capital expenditures, investing activities and other financial commitments of the Company for the next 12 months. However, to the extent that contingencies and payment obligations described below and in other parts of this Report require the Company to make unanticipated payments, the Company would need to further utilize these sources of cash. The Company may need to draw upon its other sources of cash, which may include additional borrowing, refinancing of its existing indebtedness or liquidating other assets, the value of which may also decline.

In addition, Ampal’s interest in Gadot has been pledged and cash equal to $2.7 million has been placed as a compensating balance for various loans provided to the Company.

Cash flows from operating activities

Net cash provided by operating activities totaled approximately $19.7 million for the three months ended March 31, 2009, compared to approximately $7.0 million used in operating activities for the corresponding period in 2008. The increase in cash provided by operating activities is primarily attributable to the decrease in accounts receivable and inventories. This was partially offset by decrease in accounts payable and proceeds from trading securities.

Cash flows from investing activities

Net cash provided by investing activities totaled approximately $1.2 million for the three months ended March 31, 2009, compared to approximately $15.2 million used in by investing activities for the corresponding period in 2008. The increase in cash provided in investing activities is primarily attributable to deposits collected, proceeds from the sale of available for sale securities and decrease in capital improvements in 2009. This was partially offset by the purchase of available for sale securities in 2009.

Cash flows from financing activities

Net cash used in financing activities was approximately $16.2 million for the three months ended March 31, 2009, compared to approximately $7.8 million of net cash provided by financing activities for the corresponding period in 2008. The increase in cash used is primarily attributable to the loans repaid and repurchase of Company’s Series B debentures.

Investments

In the three months ended March 31, 2009, the Company made additional investments in the form of a $0.6 million loan to Bay Heart Ltd. (“Bay Heart”).

Debt

Notes issued to institutional investors in Israel, the convertible note issued to Merhav M.N.F Ltd. (“Merhav”) and other loans payable pursuant to bank borrowings are either in U.S. Dollars, linked to the Consumer Price Index in Israel or in unlinked New Israeli Shekels, with interest rates varying depending upon their linkage provision and mature between 2009-2019.

The Company finances its general operations and other financial commitments through bank loans from Bank Hapoalim, Union Bank of Israel Ltd. (“UBI”) and Israel Discount Bank Ltd (“IDB”). As of March 31, 2009, the outstanding indebtedness under these bank loans totaled $352.7 million and the loans mature through 2009-2019.

On April 29, 2008, Ampal completed a public offering in Israel of NIS 577.8 million (approximately $166.8 million) aggregate principal amount of its Series B debentures, due in 2016. The debentures are linked to the Israeli consumer price index and carry an annual interest rate of 6.6%. The debentures rank pari passu with Ampal’s unsecured indebtedness. The debentures will be repaid in five equal annual installments commencing on January 31, 2012, and the interest will be paid semi-annually. As of March 31, 2009, the outstanding debt under the debentures amounts to $123.3 million, due to the change in valuation of the New Israeli Shekel as compared to the U.S. dollar and to the repurchase plan. Ampal deposited an amount of $44.6 million with Clal Finance Trusties 2007 Ltd. in accordance with a trust agreement dated April 6, 2008, to secure the first four years worth of payments of interest on the debentures. As of March 31, 2009, the outstanding amount of the deposit was $27.5 million. The debt offering was made solely to certain non-U.S. institutional investors in accordance with Regulation S under the U.S. Securities Act of 1933, as amended. The notes have not been and will not be registered under the U.S. securities laws, or any state securities laws, and may not be offered or sold in the United States or to United States persons without registration unless an exemption from such registration is available.

On March 27, 2008, Midroog Ltd., an affiliate of Moody’s Investors Service rated the Series B debentures as A2 and also raised the rating of Ampal’s Series A debentures to A2. On September 15, 2008, Midroog reduced the rating on the Series A and Series B debentures to A3.

Ampal funded the Gadot transaction with a combination of available cash and the proceeds of the credit facility, dated November 29, 2007 (the “Credit Facility”), between Merhav Ampal Energy Ltd. (“MAE”) and IDB, for approximately $60.7 million, which amount was increased, on the same terms and conditions, on June 3, 2008 by approximately $11.3 million in order to fund the second stage of the transaction and on September 23, 2008 by approximately $15.4 million in order to fund the third stage of the transaction. The Credit Facility is divided into two equal loans of approximately $43.7 million. The first loan is a revolving loan that has no principal payments and may be repaid in full or in part on December 31 of each year until 2019, when a single balloon payment will become due. The second loan also matures in 2019, has no principal payments for the first one and a half years, and shall thereafter be paid in equal installments over the remaining ten years of the term. Interest on both loans accrues at a floating rate equal to LIBOR plus a percentage spread and is payable on a current basis. Ampal has guaranteed all the obligations of MAE under the Credit Facility and Ampal’s interest in Gadot has also been pledged to IDB as a security for the Credit Facility. Yosef Maiman has agreed with IDB to maintain ownership of a certain amount of the Company’s Class A Common Stock. The Credit Facility contains customary affirmative and negative covenants for credit facilities of this type.

As of March 31, 2009, the Company has a $8.3 million loan with UBI that bears interest at the rate of LIBOR plus 2% to be repaid in six annual installments commencing on April 2, 2008 and various other loans with UBI in the aggregate amount of $7.0 million bearing interest at rates between 3.75% and 4.8% to be repaid during 2009.

As of March 31, 2009, the Company has a $18.0 million loan with Bank Hapoalim as part of a $27 million dollar loan facility. The funds borrowed under the loan facility are due in nine annual installments commencing on December 31, 2007 and bear interest at an annual rate of LIBOR plus 2%. The related loan agreement contains financial and other covenants including an acceleration of payment upon the occurrence of certain changes in the ownership of the Company’s Class A Stock. As of March 31, 2009, the Company is in compliance with its debt covenants.

As of March 31, 2009, the Company has a $87.5 million loan from institutional investors who own 50% of Merhav Ampal Energy Holdings, LP. The loan is not linked to the Consumer Price Index in Israel, bears no interest and is repayable upon agreement by both parties, but with a minimum term of one year.

The Company has a short term loan from Bank Hapoalim in the aggregate amount of $3.5 million bearing interest of 7.1%, to be repaid by December 31, 2009 and a revolving short term loan in the amount of $4.5 million bearing interest of 3.8 % .

On November 20, 2006, the Company entered into a trust agreement with Hermetic Trust (1975) Ltd. pursuant to which the Company issued Series A debentures to institutional investors in Israel in the principal aggregate amount of NIS 250 million (approximately $58 million) with an interest rate of 5.75%, which is linked to the Israeli consumer price index. The notes shall rank pari passu with our unsecured indebtedness. The notes will be repaid in five equal annual installments commencing on November 20, 2011, and the interest will be paid semi-annually. As of March 31, 2009, the outstanding debt under the notes amounts to $58.4 million, due to the change in valuation of the New Israeli Shekel as compared to the U.S. dollar. The Company deposited an amount of $10.2 million with Hermetic Trust (1975) Ltd. to secure the first three years worth of payments of interest on the debentures. As of March 31, 2009, the outstanding amount of the deposit was $3.5 million.

Midroog initially rated the Company’s Series A debentures as A3. On March 27, 2008 Midroog raised the rating of the Series A debentures to A2 and rated the Series B debentures as A2. On September 15, 2008 Midroog reduced the rating to A3.

Other long term borrowings in the amount of $0.2 million are linked to the Consumer Price Index in Israel, mature between 2009 and 2010 and bear annual interest of 5.7%.

As of March 31, 2009, Gadot had $0.1 million outstanding under its convertible debentures. Gadot’s debentures were listed on the TASE in December 2003, are linked to the Consumer Price Index in Israel, bear annual interest at the rate of 6.5%, and are repayable at December 5, 2009. The debentures are convertible into ordinary shares of Gadot, each incremental amount of NIS 3.53 of outstanding debentures (linked to the Consumer Price Index in Israel) is convertible into one ordinary share of Gadot, par value NIS 0.1, subject to adjustments.

As of March 31, 2009, Gadot had $8.1 million outstanding under its other debentures. These debentures are not convertible into shares and are repayable in five equal annual installments on September 15 of each of the years 2008 through 2012. The outstanding balance of the principal of the debentures bears annual interest at the rate of 5.3%. The principal and interest of the debentures are linked to the Consumer Price Index in Israel and the interest is payable in semi-annual installments on March 15 and September 15 of each of the years 2006 through 2012.

As of March 31 2009, Gadot has short term loans payable in the amount of $69.5 million and long term loans payable in the amount of $64.5 million. The various short term loans payable are either unlinked or linked to the Euro and bear interest at rates between 5.73% to 6.09%. The various long term loans payable are either unlinked or linked to the Consumer Price Index in Israel or linked to the Euro and bear interest at rates between 4.82% to 6.9%.

The weighted average interest rates and the balances of these short-term borrowings at March 31, 2009 and December 31, 2008 were 3.77% on $136.7 million and 5.1% on $157.2 million, respectively.

As of March 31, 2009, the Company had issued guarantees on certain outstanding loans to its investees and subsidiaries in the aggregate principal amount of $64.4 million. These include:

A $7.5 million guarantee on indebtedness incurred by Bay Heart in connection with the development of property. Bay Heart recorded losses in 2009. There can be no guarantee that Bay Heart will become profitable or that it will generate sufficient cash to repay its outstanding indebtedness without relying on the Company’s guarantee.

2.	A $56.9 million guarantee of outstanding indebtedness of Gadot.

Off-Balance Sheet Arrangements

Other than the foreign currency contracts specified below, the Company has no off-balance sheet arrangements.

FOREIGN CURRENCY CONTRACTS

The Company’s derivative financial instruments consist of foreign currency forward exchange contracts to purchase or sell U.S. dollars. These contracts are utilized by the Company, from time to time, to manage risk exposure to movements in foreign exchange rates. None of these contracts have been designated as hedging instruments. These contracts are recognized as assets or liabilities on the balance sheet at their fair value, which is the estimated amount at which they could be settled, based on market prices or dealer quotes, where available, or based on pricing models. Changes in fair value are recognized currently in earnings.

As of March 31, 2009, the Company had open foreign currency forward exchange contracts to purchase U.S. Dollars and sell Euros in the amount of $1.5 million, contracts to purchase Euros and sell U.S. Dollars in the amount of $2.2 million, contracts to purchase Yen and sell U.S. Dollars in the amount of $0.8 million and contracts to purchase U.S. Dollars and sell NIS in the amount of $3.0 million.

FORWARD LOOKING STATEMENTS

This Quarterly Report (including but not limited to factors discussed above, in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed elsewhere in this Quarterly Report on Form 10-Q) includes forward-looking statements (within the meaning of Section 27A of the Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934) and information relating to the Company that are based on the beliefs of management of the Company as well as assumptions made by and information currently available to the management of the Company. When used in this Quarterly Report, the words “anticipate,” “believe,” “estimate,” “expect,”“intend,” “plan,” and similar expressions, as they relate to the Company or the management of the Company, identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events or future financial performance of the Company, the outcome of which is subject to certain risks and other factors which could cause actual results to differ materially from those anticipated by the forward-looking statements, including among others, the economic and political conditions in Israel and the Middle East and the global business and economic conditions in the different sectors and markets where the Company’s portfolio companies operate.

Should any of those risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary from those described herein as anticipated, believed, estimated, expected, intended or planned. These risks and uncertainties may include, but are not limited to, those described in this report, in Part II, Item 1A. Risk Factors and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2008, and those described from time to time in our future reports filed with the Securities and Exchange Commission. The Company assumes no obligation to update or revise any forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISKS AND SENSITIVITY ANALYSIS

The Company is exposed to various market risks, including changes in interest rates, foreign currency exchange rates, index rates and equity price changes. The following analysis presents the hypothetical loss in earnings, cash flows and fair values of the financial instruments which were held by the Company at March 31, 2009, and are sensitive to the above market risks.

During the three months ended March 31, 2009, there have been no material changes in the market risk exposures facing the Company as compared to those the Company faced in the fiscal year ended December 31, 2008.

Interest Rate Risks

On May 15, 2008, the Company entered into a swap agreement with respect to its Series B debentures, in the principal amount of $123.3 million, due 2016. As a result of these agreements the Company is currently paying an effective interest rate of LIBOR plus 5.12% on $43.9 million of these debentures, as compared to the original 6.6% fixed rate which is linked to the Israeli consumer price index.

As of March 31, 2009, the value of the currency swap resulted in a $0.8 million decrease in other assets and a corresponding increase in interest expense.

As of March 31, 2009, the Company had financial assets totaling $102.4 million and financial liabilities totaling $542.3 million. For fixed rate financial instruments, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for variable rate financial instruments, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant.

As of March 31, 2009, the Company did not have fixed rate financial assets and had variable rate financial assets of $102.4 million. A ten percent decrease in interest rates would not increase the unrealized fair value of the fixed rate assets.

As of March 31, 2009, the Company had fixed rate debt of $297.5 million and variable rate debt of $244.8 million. A ten percent decrease in interest rates would increase the unrealized fair value of the financial debts in the form of the fixed rate debt by approximately $6.6 million.

The net decrease in earnings and cash flows for the next year resulting from a ten percent interest rate increase would be approximately $0.8 million, holding other variables constant.

Foreign Currency Exchange Rate Sensitivity Analysis

The Company’s exchange rate exposure on its financial instruments results from its investments and ongoing operations. As of March 31, 2009, the Company had open foreign currency forward exchange contracts to purchase U.S. Dollars and sell Euros in the amount of $1.5 million, contracts to purchase Euros and sell U.S. Dollars in the amount of $2.2 million, contracts to purchase Yen and sell U.S. Dollars in the amount of $0.8 million and contracts to purchase U.S. Dollars and sell New in the amount of $3.0 million. Holding other variables constant, if there were a ten percent devaluation of each of the foreign currency, the Company’s cumulative translation loss reflected in the Company’s accumulated other comprehensive loss would increase by $2.5 million, and regarding the statements of operations, a ten percent devaluation of the U.S. Dollar exchange rate would result in a net increase in earnings and cash flows of $19.6 million, and a ten percent devaluation of the Euro exchange rate would result in a net increase in earnings and cash flows of $0.5 million.

On May 15, 2008, the Company entered into a swap agreement with respect to its Series B debentures, in the principal amount of $123.3 million, due 2016. As a result of these agreements the Company is currently paying an effective interest rate of LIBOR plus 5.12% on $43.9 million of these notes, as compared to the original 6.6% fixed rate which is linked to the Israeli consumer price index. As of March 31, 2009, the value of the currency swap resulted in a $1.4 million decrease in other assets and a corresponding increase in interest expense.

Equity Price Risk

The Company’s investments at March 31, 2009 included trading marketable securities which are recorded at a fair value of $4.2 million, including a net unrealized loss of $0.1 million, and $41.5 million of trading securities that are classified as available for sale, including a net unrealized loss of $3.3 million. Those securities have exposure to equity price risk. The estimated potential loss in fair value resulting from a hypothetical ten percent decrease in prices quoted on stock exchanges is approximately $4.6 million. There will be no impact on cash flow resulting from a hypothetical ten percent decrease in prices quoted on stock exchanges.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Part

–

II OTHER INFORMATION

Item 1.

Legal Proceedings:

Item 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

During the first quarter ended March 31, 2009, Ampal made the following stock repurchases pursuant to the stock repurchase program:

Issuer Purchases of Equity Securities
	(a)		(b)		(c)		(d)
Period	Total Number of Shares (or Units) Purchased		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾


Month #1
(January 1^st to January 31^st )		255,391	$	0.858		255,391	$	18,683,000

Month #2
(February 1^st to February 28^th )		13,829	$	1.266		13,829	$	18,665,000

Month #3
(March 1^st to March 31^st)		22,883	$	1.261		22,883	$	18,637,000

Total		292,103	$	0.909		292,103	$	18,637,000

⁽¹⁾

On November 24, 2008, Ampal announced that its Board of Directors approved a repurchase program, effective November 23, 2008, to repurchase up to $20 million of its Class A Stock.

Item 3.

Defaults upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders.

None.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

(a)

Exhibits:

10.1

English Translation of Hebrew Language Employment Agreement between Gadot Chemical Tankers and Terminals Ltd. and Erez I. Meltzer, dated April 13, 2009 (Filed as exhibit 10.1 to Form 8-K filed with the SEC on April 14, 2009, and incorporated herein by reference).

11.1

Schedule Setting Forth Computation of Earnings Per Share of Class A Stock.

31.1

Certification of Yosef A. Maiman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Yosef A. Maiman and Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMPAL-AMERICAN ISRAEL CORPORATION

By: /s/ Yosef A. Maiman
——————————————
Yosef A. Maiman
Chairman of the Board
President & Chief Executive Officer
(Principal Executive Officer)

By: /s/ Irit Eluz
——————————————
Irit Eluz
CFO and Senior Vice President,
Finance and Treasurer
(Principal Financial Officer)

By: /s/ Zahi Ben-Atav
——————————————
Zahi Ben-Atav
VP Accounting and Controller
(Principal Accounting Officer)

Date: May 6, 2009

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES

Exhibit Index

Exhibit No.

Description

10.1

11.1

Schedule Setting Forth Computation of Earnings Per Share of Class A Stock.

31.1

Certification of Yosef A. Maiman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Yosef A. Maiman and Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549