UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
o☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 20162017
OR
oOR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
OR
oOR
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report _____________
Commission file number 0-28996
ELBIT IMAGING LTD.
(Exact name of registrant as specified in its charter)
N/A
(Translation of registrant’s name into English)
ISRAEL
(Jurisdiction of incorporation or organization)
7 MOTA GUR STREET, PETACH TIKVA 4952801, ISRAEL
(Address of principal executive offices)
RON HADASSI
Tel: +972-3-608-6000
Fax: +972-3-608-6050
7 MOTA GUR STREET, PETACH TIKVA 4952801, ISRAEL
(Name, Telephone, E-Mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: | Name of each exchange on which registered: | |
ORDINARY SHARES, NO PAR VALUE | NASDAQ GLOBAL SELECT MARKET |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 9,190,808 ordinary shares, no par value per share, as of December 31, 2016.2017.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YESo ☐ NOý ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
YESo ☐ NOý☒
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.
YESý☒NOo ☐
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).
YESo ☐ NOo ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” in Rule 12b-2 inof the Exchange Act. (Check one):
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP |
International Financial Reporting Standards as issued by the International Accounting Standards Board |
Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
☐oItem 17o ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act:Act):
YESo ☐ NO☒ NOý
i
INTRODUCTION
To date we operate primarily in the following fields of business:
Medical Industries – through our indirect holdings in two companies which operates in the field of life science: (i) InSightec Ltd. (“InSightec”) - InSightec operates in the field of development, production, and marketing of treatment-oriented medical systems, based on a unique technological platform combining the use of focused ultrasound and magnetic resonance imaging for the purpose of performing noninvasive treatments in human beings; (ii) Gamida Ltd. (“Gamida”) – Gamida operates in the field of research, development and manufacture of products designated for certain cancer diseases.
Plots in India – we have holdings in plots of land in India which are designated for sale (and which were initially designated for residential projects).
Plots in Eastern Europe initially designated for development of commercial centers - plots in Eastern Europe (and in Greece) held by our subsidiary Plaza Centers N.V. (“PC”) whose business strategy is to no longer develop commercial centers but to dispose its real estate assets at optimal market conditions.
References in this annual report to Elbit Imaging Ltd. and its subsidiaries are referred to herein as “EI,” “Elbit,” the “Company,” “our,” “we” or “us”.
Special Explanatory Note
Share and share price information in this annual report have been adjusted to reflect the 1-for-3 reverse share split effected by us on June 28, 2016.
THIS ANNUAL REPORT ON FORM 20-F CONTAINS “FORWARD-LOOKING STATEMENTS,” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”“SECURITIES ACT”), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE “EXCHANGE ACT”“EXCHANGE ACT”). FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT ABOUT THE COMPANY’S BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, PROJECTED CASH FLOW, INITIATION, TIMING, PROGRESS AND RESULTS OF RESEARCH, MANUFACTURING, PRECLINICAL STUDIES, CLINICAL TRIALS, AND OTHER RESEARCH AND DEVELOPMENT EFFORTS OF INSIGHTEC AND/OR GAMIDA, RELATIONSHIPS WITH EMPLOYEES, BUSINESS PARTNERS AND OTHER THIRD PARTIES, THE CONDITION OF ITS PROPERTIES, LOCAL AND GLOBAL MARKET TERMS AND TRENDS, AND THE LIKE. WORDS SUCH AS “BELIEVE,” “EXPECT,” “INTEND,” “ESTIMATE” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS BUT ARE NOT THE EXCLUSIVE MEANS OF IDENTIFYING SUCH STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED, EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS INCLUDING, WITHOUT LIMITATION, THE FACTORS SET FORTH BELOW UNDER THE CAPTION “RISK FACTORS.” ANY FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT SPEAK ONLY AS OF THE DATE HEREOF, AND WE CAUTION EXISTING AND PROSPECTIVE INVESTORS NOT TO PLACE UNDUE RELIANCE ON SUCH STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS DO NOT PURPORT TO BE PREDICTIONS OF FUTURE EVENTS OR CIRCUMSTANCES, AND THEREFORE, THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN WILL PROVE TO BE ACCURATE. WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS.
ii
CURRENCY TRANSLATION
CURRENCY TRANSLATION
For the reader’s convenience, financial information for 20162017 has been translated from various foreign currencies to the U.S. dollar (“$” or “U.S. dollar”“U.S. dollar”), as of December 31, 2016,2017, in accordance with the following exchange rates:
Currency | $1.00 as of December 31, | |||
1 New Israeli Shekel (NIS) | ||||
1 Euro | ||||
1 Great British Pound (GBP) | ||||
1 Hungarian Forint (HUF) | ||||
1 Czech Republic Koruny (CZK) | ||||
1 Romanian LEI (RON) | ||||
1 Polish Zloty (PLN) | ||||
1 Indian Rupee (INR) | ||||
1 Crore (10 million INR) |
The U.S. dollar amounts reflected in these convenience translations should not be construed as representing amounts that actually can be received or paid in U.S. dollars or convertible into U.S. dollars (unless otherwise indicated), nor do such convenience translations mean that the foreign currency amounts (i) actually represent the corresponding U.S. dollar amounts stated, or (ii) could be converted into U.S. dollars at the assumed rate. The Federal Reserve Bank of New York does not certify for customs purposes a buying rate for cable transfers in New Israeli Shekel (“NIS”NIS”). Therefore all information about exchange rates is based on the Bank of Israel rates.
EXCHANGE RATES
The exchange rate between the NIS and U.S. dollar published by the Bank of Israel was NIS 3.6133.523 to the U.S. dollar on April 30, 2017. [The23, 2018. The exchange rate has fluctuated during the six month period beginning October 20162017 through April 30, 201723, 2018 from a high of NIS 3.8563.55 to the U.S. dollar to a low of NIS 3.6143.388 to the U.S. dollar. The monthly high and low exchange rates between the NIS and the U.S. dollar during the six month period beginning AprilOctober 2017, through September 30, 2017,April 23, 2018 as published by the Bank of Israel, were as follows:
HIGH | LOW | |||
MONTH | 1 U.S. dollar =NIS | 1 U.S. dollar =NIS | ||
October 2017 | 3.542 | 3.491 | ||
November 2017 | 3.544 | 3.499 | ||
December 2017 | 3.550 | 3.467 | ||
January 2018 | 3.535 | 3.388 | ||
February 2018 | 3.681 | 3.427 | ||
March 2018 | 3.514 | 3.431 | ||
April 2018 (until April 23 , 2018) | 3.503 | 3.537 |
The average exchange rate between the NIS and U.S. dollar, using the average of the exchange rates on the last day of each colander month during the period, for each of the five most recent fiscal years was as follows:
PERIOD | AVERAGE EXCHANGE RATE | |
January 1, 2013 - December 31, 2013 | 3.609 NIS/$1 | |
January 1, 2014 - December 31, 2014 | 3.577 NIS/$1 | |
January 1, 2015 – December 31, 2015 | 3.885 NIS/$1 | |
January 1, 2016 – December 31, 2016 | 3.841 NIS/$1 | |
January 1, 2017 – December 31, 2017 | 3.599 NIS/$1 |
iii
PART I
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
Not Applicable.
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not Applicable.
ITEM 3. | KEY INFORMATION |
A. | SELECTED FINANCIAL DATA |
The following selected consolidated financial data of Elbit Imaging Ltd. and its subsidiaries (together, “EI,” “Elbit,” the “Company,” “our,” “we” or “us”) are derived from our 20162017 consolidated financial statements and are set forth below in table format. Our 20162017 consolidated financial statements and notes included elsewhere in this report were prepared in accordance with International Financial Reporting Standards (“IFRS”IFRS”) as issued by the International Accounting Standards Board (“IASB”IASB”).
The 20162017 consolidated financial statements were audited by Ernst &and Young Israel – Kost Forer Gabbay &and Kasierer (“Ernst &and Young Israel”Israel”), a firm of certified public accountants in Israel and a member of Ernst &and Young Global. See “Item 16F - CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT” for more information regarding the appointment of our new independent auditors. The consolidated financial statements for all years prior yearsto 2016 presented in this fillingfiling were audited by Brightman Almagor Zohar &and Co., a Member Firm of Deloitte Touche TohmatsuTohmatsu. Our selected consolidated financial data are presented in NIS. A convenience translation to U.S. dollars is presented for 20162017 only.
The selected financial data for the years ended December 31, 2017, 2016, 2015, 2014 2013, and 20122013 which are presented in the table below are derived from our consolidated financial statements prepared in accordance with IFRS and do not include consolidated financial data in accordance with U.S. GAAP.
CONSOLIDATED STATEMENTS OF OPERATIONS IN ACCORDANCE WITH IFRS
(In thousands of USD, except share and per share data)
2016 Convenience translation | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||
($’000) | ||||||||||||||||||||||||
Income revenues and gains | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Revenues from sale of commercial centers | 32,775 | 126,019 | 200,078 | 201,571 | 8,614 | 67,594 | ||||||||||||||||||
Revenues from hotel operations and management | 35,328 | 135,839 | 147,886 | 197,007 | 202,791 | 206,746 | ||||||||||||||||||
Total revenues | 68,103 | 261,858 | 347,964 | 398,578 | 211,405 | 274,340 | ||||||||||||||||||
Gains and other | ||||||||||||||||||||||||
Rental income from commercial centers | 17,274 | 66,417 | 83,849 | 113,661 | 129,748 | 147,185 | ||||||||||||||||||
Gains from sale of investees | - | - | 6,712 | 11,301 | - | - | ||||||||||||||||||
Gains from changes of shareholding in investees | - | - | - | - | - | 53,875 | ||||||||||||||||||
Total gains | 17,274 | 66,417 | 90,561 | 124,962 | 129,748 | 201,060 | ||||||||||||||||||
Total income revenues and gains | 85,377 | 328,275 | 438,525 | 523,540 | 341,153 | 475,400 | ||||||||||||||||||
Expenses and losses | ||||||||||||||||||||||||
Commercial centers | 41,562 | 159,806 | 290,360 | 291,864 | 124,737 | 213,367 | ||||||||||||||||||
Hotel operations and management | 30,004 | 115,367 | 126,849 | 173,918 | 179,137 | 186,760 | ||||||||||||||||||
General and administrative expenses | 2,668 | 10,257 | 16,678 | 39,785 | 60,643 | 48,771 | ||||||||||||||||||
Share in losses of associates, net | 14,125 | 54,313 | 42,925 | 17,298 | 339,030 | 102,127 | ||||||||||||||||||
Financial expenses | 37,448 | 143,987 | 236,288 | 237,601 | 334,101 | 184,273 | ||||||||||||||||||
Financial income | 274 | 1,056 | (2,154 | ) | (6,317 | ) | (3,930 | ) | (28,303 | ) | ||||||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | (705 | ) | (2,707 | ) | 5,446 | 71,432 | 68,407 | 50,229 | ||||||||||||||||
Financial gain from debt restructuring | - | - | - | (1,616,628 | ) | - | - | |||||||||||||||||
Write-down, charges and other expenses, net | 40,405 | 155,357 | 38,298 | 531,042 | 840,034 | 302,093 | ||||||||||||||||||
165,783 | 637,435 | 754,690 | (260,005 | ) | 1,942,159 | 1,059,317 | ||||||||||||||||||
Profit (loss) before income taxes | (80,406 | ) | (309,162 | ) | (316,165 | ) | 783,545 | (1,601,006 | ) | (583,917 | ) | |||||||||||||
Income taxes (tax benefits) | 756 | 2,906 | 5,631 | (2,287 | ) | (30,937 | ) | (9,212 | ) | |||||||||||||||
Profit (loss) from continuing operations | (81,162 | ) | (312,068 | ) | (321,796 | ) | 785,832 | (1,570,069 | ) | (574,705 | ) | |||||||||||||
Profit(loss) from discontinued operations, net | - | - | 6,874 | (1,475 | ) | 5,059 | 90,721 | |||||||||||||||||
Profit (loss) for the year | (81,162 | ) | (312,068 | ) | (314,922 | ) | 784,357 | (1,565,010 | ) | (483,984 | ) | |||||||||||||
Attributable to: | ||||||||||||||||||||||||
Equity holders of the Company | (50,671 | ) | (194,830 | ) | (186,150 | ) | 1,008,999 | (1,155,645 | ) | (315,746 | ) | |||||||||||||
Non-controlling interest | (30,491 | ) | (117,237 | ) | (128,772 | ) | (224,642 | ) | (409,365 | ) | (168,238 | ) | ||||||||||||
(81,162 | ) | (312,068 | ) | (314,922 | ) | 784,357 | (1,565,010 | ) | (483,984 | ) | ||||||||||||||
Earnings per share - (in NIS) | ||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||
From continuing operations | (5.51 | ) | (21.20 | ) | (21.00 | ) | 127.64 | (2,796.44 | ) | (988.53 | ) | |||||||||||||
From discontinued operations | - | - | 0.75 | (0.19 | ) | 11.53 | 227.26 | |||||||||||||||||
(5.51 | ) | (21.20 | ) | (20.25 | ) | 127.45 | (2,784.91 | ) | (761.27 | ) | ||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||
From continuing operations | (5.51 | ) | (21.20 | ) | (21.00 | ) | 127.64 | (2,796.44 | ) | (988.53 | ) | |||||||||||||
From discontinued operations | - | - | 0.75 | (0.19 | ) | 11.53 | 227.26 | |||||||||||||||||
(5.51 | ) | (21.20 | ) | (20.25 | ) | 127.45 | (2,784.91 | ) | (761.27 | ) |
2017 Convenience translation | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
($’000) | (NIS’000) | (NIS’000) | ||||||||||||||||||||||
Income revenues and gains | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Revenues from sale of commercial centers | 225,794 | 782,829 | 126,019 | 200,078 | 201,571 | 8,614 | ||||||||||||||||||
Total revenues | 225,794 | 782,829 | 126,019 | 200,078 | 201,571 | 8,614 | ||||||||||||||||||
Gains and other | ||||||||||||||||||||||||
Rental income from commercial centers | 9,229 | 31,997 | 66,417 | 83,849 | 113,661 | 129,748 | ||||||||||||||||||
Gains from sale of investees | - | - | - | 6,712 | 11,301 | - | ||||||||||||||||||
Gains from changes of shareholding in investees | - | - | - | - | - | - | ||||||||||||||||||
Total gains | 9,229 | 31,997 | 66,417 | 90,561 | 124,962 | 129,748 | ||||||||||||||||||
Total income revenues and gains | 235,023 | 814,826 | 192,436 | 290,0639 | 326,533 | 138,362 | ||||||||||||||||||
Expenses and losses | ||||||||||||||||||||||||
Commercial centers | 232,369 | 805,623 | 159,806 | 290,360 | 291,864 | 124,737 | ||||||||||||||||||
General and administrative expenses | 4,306 | 14,930 | 10,257 | 16,678 | 39,785 | 60,643 | ||||||||||||||||||
Share in losses of associates, net | 5,827 | 20,202 | 54,313 | 42,925 | 17,298 | 339,030 | ||||||||||||||||||
Financial expenses | 32,390 | 112,296 | 124,354 | 207,721 | 207,729 | 306,929 | ||||||||||||||||||
Financial income | (522 | ) | (1,811 | ) | (1,056 | ) | (2,154 | ) | (6,317 | ) | (3,930 | ) | ||||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | - | - | (2,707 | ) | 2,568 | 71,432 | 68,407 | |||||||||||||||||
Financial gain from debt restructuring | - | - | - | - | (1,616,628 | ) | - | |||||||||||||||||
Write-down, charges and other expenses, net | 29,166 | 101,120 | 162,318 | 99,292 | 544,371 | 784,075 | ||||||||||||||||||
303,536 | 1,052,360 | 509,397 | 657,390 | (450,465 | ) | 1,679,891 | ||||||||||||||||||
Profit (loss) before income taxes | (68,513 | ) | (237,534 | ) | (316,961 | ) | (366,751 | ) | 776,998 | (1,541,530 | ) | |||||||||||||
Income taxes (tax benefits) | 3,243 | 11,244 | 3,020 | 4,402 | (2,287 | ) | (30,937 | |||||||||||||||||
Profit (loss) from continuing operations | (71,756 | ) | (248,778 | ) | (319,981 | ) | (371,153 | ) | 779,285 | (1,510,593 | ) | |||||||||||||
Profit(loss) from discontinued operations, net | (44,102 | ) | (152,903 | ) | 7,913 | 56,231 | 5,072 | (54,418 | ) | |||||||||||||||
Profit (loss) for the year | (115,858 | ) | (401,681 | ) | (312,068 | ) | (314,922 | ) | 784,357 | (1,565,010 | ||||||||||||||
Attributable to: | ||||||||||||||||||||||||
Equity holders of the Company | (97,500 | ) | (338,034 | ) | (194,830 | ) | (186,150 | ) | 1,008,999 | (1,155,645 | ) | |||||||||||||
Non-controlling interest | (18,358 | ) | (63,647 | ) | (117,238 | ) | (128,772 | ) | (224,642 | ) | (409,365 | ) | ||||||||||||
(115,858 | ) | (401,681 | ) | (312,068 | ) | (314,922 | ) | 784,357 | (1,565,010 | ) | ||||||||||||||
Earnings per share - (in NIS) | ||||||||||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||
From continuing operations | (5.80 | ) | (20.14 | ) | (22.05 | ) | (21.73 | ) | 126.81 | (2,675.22 | ) | |||||||||||||
From discontinued operations | (4.80 | ) | (16.64 | ) | 0.85 | 1.48 | 0.64 | (109.69 | ) | |||||||||||||||
(10.60 | ) | (36.78 | ) | (21.20 | ) | (20.25 | ) | 127.45 | (2,784.91 | ) | ||||||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||
From continuing operations | (5.80 | ) | (20.14 | ) | (22.05 | ) | (21.73 | ) | 126.81 | (2,675.22 | ) | |||||||||||||
From discontinued operations | (4.80 | ) | (16.64 | ) | 0.85 | 1.43 | 0.64 | (109.69 | ) | |||||||||||||||
(10.60 | ) | (36.78 | ) | (21.20 | ) | (20.25 | ) | 127.45 | (2,784.91 | ) |
SELECTED BALANCE SHEET DATA IN ACCORDANCE WITH IFRS
2016 Convenience translation | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||
($ ’000) | ||||||||||||||||||||||||
Current Assets | 46,448 | 178,592 | 217,544 | 488,702 | 694,348 | 1,042,069 | ||||||||||||||||||
Non-current Assets | 541,642 | 2,082,617 | 2,486,008 | 3,172,611 | 3,870,096 | 5,700,578 | ||||||||||||||||||
Total | 588,090 | 2,261,209 | 2,703,552 | 3,661,313 | 4,564,444 | 6,742,647 | ||||||||||||||||||
Current Liabilities | 314,597 | 1,209,627 | 806,251 | 358,985 | 4,794,477 | 1,721,661 | ||||||||||||||||||
Non-current Liabilities | 260,851 | 1,002,968 | 1,593,237 | 2,589,091 | 178,597 | 3,631,878 | ||||||||||||||||||
Shareholders’ equity Attributable to: | ||||||||||||||||||||||||
Equity holders of the company | (23,015 | ) | (88,489 | ) | 19,287 | 231,979 | (1,032,637 | ) | 288,630 | |||||||||||||||
Non-controlling interest | 35,657 | 137,103 | 284,777 | 481,258 | 624,007 | 1,100,478 | ||||||||||||||||||
Total | 588,090 | 2,261,209 | 2,703,552 | 3,661,313 | 4,564,444 | 6,742,647 |
2017 Convenience translation | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
($’000) | (NIS’000) | (NIS’000) | (NIS’000) | (NIS’000) | (NIS’000) | |||||||||||||||||||
Current Assets | 139,445 | 483,456 | 178,592 | 217,544 | 488,702 | 694,348 | ||||||||||||||||||
Non-current Assets | 153,998 | 533,913 | 2,082,617 | 2,486,008 | 3,172,611 | 3,870,096 | ||||||||||||||||||
Total | 293,443 | 1,017,371 | 2,261,209 | 2,703,552 | 3,661,313 | 4,564,444 | ||||||||||||||||||
Current Liabilities | 244,266 | 846,874 | 1,209,627 | 806,251 | 358,985 | 4,794,477 | ||||||||||||||||||
Non-current Liabilities | 92,092 | 319,282 | 1,002,967 | 1,593,237 | 2,589,091 | 178,597 | ||||||||||||||||||
Shareholders’ equity Attributable to: | ||||||||||||||||||||||||
Equity holders of the company | (56,082 | ) | (194,435 | ) | (88,489 | ) | 19,287 | 231,979 | (1,032,637 | ) | ||||||||||||||
Non-controlling interest | 13,167 | 45,651 | 137,103 | 284,777 | 481,258 | 624,007 | ||||||||||||||||||
Total | 293,443 | 1,017,371 | 2,261,209 | 2,703,552 | 3,661,313 | 4,564,444 |
B. | CAPITALIZATION AND INDEBTEDNESS |
Not Applicable.
C. | REASONS FOR THE OFFER AND USE OF PROCEEDS |
Not Applicable.
3 |
D. | RISK FACTORS |
The following is a list of the material risk factors that may affect our business our financial condition, results of operations and our cash flows. We cannot predict nor can we assess the impact, if any, of such risk factors on our business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those projected in any forward-looking statement. Furthermore, we cannot assess the occurrence, probability or likelihood of any such risk factor, or a combination of factors, to materialize, nor can we provide assurance that we will not be subject to additional risk factors resulting from local and/or global changes and developments not under our control that might impact our businesses or the markets in which we operate.
RISKS RELATING TO OUR MEDICAL COMPANIES IN GENERAL
Our medical companies are subject to extensive governmental regulation, which can be costly and subject their business to disruption, delays and potential penalties.
Our medical companies are subject to extensive regulation by the US Federal and Drug Administrative (“FDA”) and various other U.S. federal and state authorities and the European Medicines Agency and other foreign regulatory authorities. The process of obtaining regulatory approvals to market a drug or medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for future products or new indications and uses, could result in delayed realization of product revenues, reduction in revenues and substantial additional costs. In addition, no assurance can be given that our medical companies will remain in compliance with applicable FDA and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and post marketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns. Our medical companies’ facilities are subject to ongoing regulation, including periodic inspection by the FDA and other regulatory authorities, and they must incur expense and expend effort to ensure compliance with these complex regulations. Failure to comply with all applicable regulatory requirements may subject our medical companies to operating restrictions and criminal prosecution, monetary penalties and other disciplinary actions, including, sanctions, warning letters, product seizures, recalls, fines, injunctions, suspension, shutdown of production, revocation of approvals or the inability to obtain future approvals, or exclusion from future participation in government healthcare programs. Any of these events could disrupt our medical business.
There is uncertainty regarding reaching the phase of commercial sales
Gamida is primarily involved in research and development stages of its products. InSightec’s ExAblate system has obtained regulatory approvals for certain applications (including FDA and CE approval) which are sold to customers, and InSightec’s research and development activities focus on additional applications to its existing products.
A company wishing to develop a medical product and receive approval to market it must pass through a series of trials catalogued according to various phases, and each of them may end in failure. In such circumstances, InSightec’s and Gamida’s research and development activities do not carry with them a certainty of succeeding and reaching the phase of commercial sales of their products. Furthermore, it is not possible to predict the results of the later-phase trials based on the results of the preclinical trials and the first clinical trials carried out in the same product. Furthermore, a large part of the costs is invested in research and development expenses before the company begins to derive revenue from the sales of the products in development. A failure in one of the trial phases may cause the loss of the entire investments. Furthermore, there is no certainty regarding the price that may be received for the products under development when they begin to be marketed.
Our medical companies need considerable funds for research and development in order to be successful
InSightec invests significant resources into the research and development of new applications for its existing products, and a significant part of Gamida’s operations is in the research and development field. So long as InSightec and Gamida continue with their product development processes, their development costs will remain high, as will their need for considerable funds, and Insightec a will not generate revenues for its new applications, and Gamida will not generate revenues from its products. Both InSightec and Gamida are dependent on the success of their respective research and development process, and if its research and development efforts, including clinical trials, fail in part or in whole, or significantly deviate from their objectives in terms of the development time or development costs, it could have a material adverse effect on Insightec and/or Gamida, as the case may be.
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The clinical trials may not be successful and may be delayed or discontinued
The continued development of the products/applications being developed by InSightec and Gamida is conditioned on the conduct of clinical trials and the success of these trials at each of the regulatory phases. The conduct of clinical trials depends on a range of factors, including the ability to recruit a satisfactory number of both ill and healthy candidates. The necessity to receive the consent of clinical research entities for the trials, approvals for the conduct of the trials, as well as the possibility for unpredicted side effects may negatively impact the success of our medical companies’ successful completion of their clinical trials. All these may delay, or even cause a discontinuation of, the clinical trials, and lead to a postponement of the approvals and permits, as described above. Moreover, it is not possible to know when the clinical trials will be completed, if at all.
Our medical companies may experience difficulties and delays in recruiting candidates for clinical trials
Continued development of InSightec’s and Gamida’s products/applications and completion of the clinical trials depend, among other factors, on the recruitment of appropriate candidates for the aforementioned trials. A lower than expected rate and/or delay of the recruitment of trial candidates may be caused by a variety of factors, such as the low prevalence of patients fitting the trial criteria, competition between the companies for candidate participation in trials, changes in the candidates’ willingness to volunteer for the trial, and a lack of budgets.
Our medical companies’ operations (which include clinical trials) may lead to exposure to legal claims.
Our medical companies’ activities in the field of medical equipment and devices development include clinical trials, which raise exposure to legal claims due to bodily injury or side effects resulting from the usage of such medical devices or treatment or the negligence or improper usage of such equipment by the medical staff performing the treatment. Any such claims could result in harm to our business and results of operations.
Our medical companies may be unable to adequately protect or enforce their rights to intellectual property, causing them to lose valuable rights.
InSightec’s and Gamida’s success and ability to compete depends in large part upon their ability to protect their proprietary technology. InSightec and Gamida rely on a combination of patent, copyright, trademark and trade secret laws, and on confidentiality and invention assignment agreements, in order to protect their intellectual property rights. The process of seeking patent protection can be long and expensive, and there can be no assurance that InSightec’s and Gamida’s existing or future patent applications will result in patents being issued, or that InSightec’s and Gamida’s existing patents, or any patents, which may be issued as a result of existing or future applications, will provide meaningful protection or commercial advantage to InSightec and Gamida.
Violation of a third party’s rights
Claims by competitors and other third parties that InSightec’s or Gamida’s products allegedly infringe the patent rights of others (e.g. if InSightec’s and/or Gamida’s employees or service providers have violated, or are violating, the intellectual property rights held, in the past or present, by their other employers) could have a material adverse effect on InSightec’s or Gamida’s business. Any future litigation, regardless of outcome, could result in substantial expense and significant diversion of the efforts of InSightec’s and Gamida’s technical and management personnel. An adverse determination in any such proceeding could subject InSightec and Gamida to significant liabilities or require InSightec or Gamida to seek licenses from third parties or pay royalties that may be substantial.
Lack of coverage by government entities and/or insurance companies for the products’ costs
The payment mechanisms currently used in the USA and Europe and some other countries, according to which the cost of patient care is covered by government bodies and/or insurance companies, may affect InSightec’s and Gamida’s sales potential. Should insurance coverage for the costs of InSightec’s and Gamida’s products not be approved, this may lead to a reduction in these products’ sales potential.
InSightec believes that third-party payors will not provide reimbursement on a national basis for treatments using the ExAblate, unless InSightec can generate a sufficient amount of data through long-term patient studies to demonstrate that such treatments produce favorable results in a cost-effective manner relative to other treatments. Furthermore, InSightec could be adversely affected by changes in reimbursement policies of private healthcare or governmental payors to the extent any such changes affect reimbursement for treatment procedures using the ExAblate. If InSightec is unable to obtain reimbursement on a national basis for treatments using the ExAblate, or if there are changes in reimbursement policies of private healthcare or governmental payors affecting the reimbursement for treatment procedures using the ExAblate, it could have a material adverse effect on InSightec.
For more information regarding reimbursement for InSightec's products see "Item 4B – Business Overview – Insightec – Insurance Coverage".
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Our medical companies are dependent on professional and skilled manpower
InSightec’s and Gamida’s success depends, among other factors, on the continued services of key personnel in the development, production, management and business development fields. The supply of professional and skilled manpower in InSightec’s and Gamida’s field of activity in Israel is small. Should InSightec and Gamida not be able to hire or retain the aforementioned employees, this could cause a delay in the development and production of their products.
Grants and benefits from government entities and limits on realization of holdings
InSightec and Gamida benefit from the budgets of government entities, such as the Israeli Innovation Authority. These grants and benefits impose limitations on the activities of recipient companies (e.g. restrictions on production outside Israel and a prohibition on sales of knowledge to foreign entities). Moreover, limitations exist on the possibility to sell InSightec’s and Gamida’s operations to foreign investors, which may limit the options for realizations of the Company’s holdings in InSightec and/or Gamida. A violation of the limitations may subject InSightec and Gamida to a range of penalties, including financial and criminal penalties. Furthermore, changes in the budgets of the aforementioned government entities that may prevent or reduce the grants and/or benefits that InSightec and Gamida may receive in the future may substantially impact their operations and results. Moreover, foreign investments are affected, among other factors, by the preservation of foreign investment incentives by Israeli regulators, including tax incentives. In the event that the aforementioned incentives for foreign investments are discontinued and/or limited, this may negatively affect foreign investments in InSightec and Gamida, and therefore negatively affect their business results and the company’s business results.
Limits on the realization of InSightec and Gamida holdings
InSightec and Gamida sometimes enter into agreements which impose restrictions on the holdings of parties to the agreement or on third parties, including the company, related to their holdings in InSightec and Gamida, such as refusal rights and tag along rights. The aforementioned restrictions may limit the company’s ability to realize its holdings in InSightec and/or Gamida and even deter potential investors from entering into investment agreements with the Company in regards to InSightec and Gamida.
Developments in the pharmaceutical and medical research fields
The development of competing drug treatments in InSightec’s and Gamida’s fields of research and development may reduce or obviate entirely the need for their products.
Changes enabling the circumvention of InSightec’s and/or Gamida’s intellectual property
It is possible that, after development is completed and a patent is registered in InSightec’s and/or Gamida’s name, third parties may succeed in developing alternative products that will include a technological change that will enable them to circumvent InSightec’s and/or Gamida’s patent-protected rights. In such a case, it is possible that third parties may succeed in developing products competing with InSightec’s and/or Gamida’s without violating the patent-protected rights, which may increase competition for InSightec’s and/or Gamida’s products and reduce their expected profits.
Violation of rights that are protected by patents, or will be protected in the future by patents
It is possible that, after development is completed and a patent is registered in InSightec’s and Gamida’s name, third parties may act to produce InSightec’s and Gamida’s products while violating the patent-protected rights. In light of this, the production of InSightec’s and Gamida’s products in violation of their patent-protected rights may harm them, and cause a decline in the prices of their products and reduce their expected profits.
Risks inherent in marketing medical products
Certain risks are inherent in marketing medical products and/or medicine, such as side effects for a drug (when referring to Gamida’s products) and other patient reactions to the drug, which in some cases are unpredicted. The realization of the aforementioned risks may delay the continued development activities, and impact InSightec’s and Gamida’s continued operations and product development.
InSightec and Gamida are dependent on further capital investments.
Until InSightec achieves broad market acceptance of the ExAblate and is able to generate sufficient sales to support its business and its research and development expenses, and until Gamida begins selling its products and generating positive cash flow, each of them will need to obtain additional capital investments to support its business in general and, in particular, its significant research and development costs and expenses. The current volume of sales and backlog of InSightec will not suffice to maintain its current cash burn-rate and expenditure levels. Each of InSightec’s or Gamida’s inability to obtain additional funding sources, particularly capital investments, might have a material adverse effect on its business and/or ability to continue its operations.
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InSightec’s and Gamida’s technology may become obsolete, which could materially adversely impact InSightec’s and Gamida’s future business and financial performance.
InSightec’s and Gamida’s success and ability to compete depends in large part upon their ability to develop and maintain unique and leading technologies and capabilities, providing medical solutions superior to alternative treatments and technologies. The discovery or development of more advanced, efficient or cost-effective treatments or technologies by third parties providing better solutions to the same diseases, could make InSightec’s or Gamida’s technologies or solutions inferior, obsolete or irrelevant. The rapid development and massive research and development activities in the medical areas in which these companies operate creates constant risk of such occurrence, which could adversely impact InSightec’s and Gamida’s future business and financial performance.
RISKS RELATING TO INSIGHTEC
Demand for InSightec products
As of the date of this annual report, and in light of InSightec’s annual sales volume, there is no certainty that the demand for InSightec products will remain stable or grow. Furthermore, there is currently no certainty with regards to the rate of growth in the gynecology, oncology, and neurology markets, at which the current InSightec products are targeted. Increased demand for InSightec products depends also on the success of the marketing efforts, including overcoming various obstacles, with regard to which there is no certainty.
Technological compatibility
As of the date of this annual report, ExAblate is compatible only with certain Magnetic Resonance Imaging (MRI) systems of GE Healthcare, a division of the General Electric Company (“GE”) and MRI systems of Siemens Healthcare GmbH (“Siemens”), which may limit InSightec’s potential market.
In light of the above, we depend on collaboration with GE and Siemens to ensure the compatibility of the ExAblate with new models of GE and Siemens MRI systems and upgrades to existing GE MRI systems. If InSightec is unable to receive information regarding new models of the GE and Siemens MRI systems or upgrades to existing GE and Siemens MRI systems, and coordinate corresponding upgrades to the ExAblate to ensure continued compatibility with new and existing GE and Siemens MRI systems, its ability to generate sales of its system will be adversely affected. A termination of the cooperation with MRI manufacturers may cause a delay in the sale of InSightec products and a need for additional funding in order to make its products compatible with the MRI systems of other manufacturers.
InSightec is dependent on GE
As at the date of this report, InSightec has regulatory authorizations to integrate systems manufactured by it only into MRI beds manufactured by GE. InSightec is in the process of obtaining authorizations to integrate the systems manufactured by Siemens. However, at this stage, prior to having obtained the authorizations as stated, InSightec is dependent upon GE.
If the ExAblate is subject to a product recall, InSightec will not be able to generate sufficient sales to support its business.
If the ExAblate does not comply with regulatory standards or if it is subject to reports of damaging effects to patients, it may be subject to a mandatory recall by the relevant authorities and sales may be stopped until it can clear regulatory approvals once again. A recall may harm the reputation of InSightec and its products and its ability to generate additional sales of the ExAblate which may be adversely affected. As of the date of this annual report, and to InSightec’s best knowledge, no incidents that may lead to a product recall by the relevant authorities have been reported.
Incorporation of third-party software components in InSightec products
Third-party software components are found in InSightec’s products which are subject to use limitations in accordance with their user license. Should InSightec fail to use the product in accordance with the license and the limitations established therein, InSightec may be sued for violations of the component developer’s copyrights and/or may be required to hand over sensitive internal information to the public, which would benefit InSightec’s competitors and harm its protected confidential data. Any demand to reveal InSightec’s source code or exposure of InSightec to copyright violations would significantly damage its competitiveness and business outcomes.
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If the ExAblate systems do not achieve broad market acceptance, InSightec will not be able to generate sufficient sales to support its business.
InSightec must achieve broad market acceptance of the approved ExAblate systems among physicians, patients and third-party payors in order to generate sufficient sales to support its business. Physicians will not recommend the use of any of the approved systems unless InSightec can demonstrate that it produces results comparable or superior to existing alternative treatments. If long-term patient studies do not support InSightec’s existing clinical results, or if they indicate that the use of the particular approved system has negative side effects on patients, physicians may not adopt or may not continue to use them. Even if InSightec demonstrates the effectiveness of the approved systems, physicians may still not use the systems for a number of other reasons. Physicians may continue to recommend traditional treatment options simply because those methods are already widely accepted and are based on established technologies. Patients may also be reluctant to undergo new, less established treatments. If, due to any of these factors, the approved ExAblate systems do not receive broad market acceptance among physicians or patients, InSightec will not generate significant sales. In this event, InSightec’s business, financial condition and results of operations would be significantly harmed, and InSightec’s ability to develop additional treatment applications for the ExAblate would be adversely affected.
RISKS RELATING TO GAMIDA
Gamida is dependent on the completion of the development of its products in the field of stem cell proliferation
Gamida develops unique products using unique technologies for the proliferation of stem cells. There is no certainty that the development activities will conclude successfully nor is there any certainty that the clinical trials conducted by Gamida will conclude successfully and accordingly that Gamida’s products will be found to be effective and safe for use.
Gamida’s is dependent on manufacturing sites
The manufacturing capability of Gamida depends upon the manufacturing site that it owns and the manufacturing site of its subcontractor. As of the date of this report, the manufacturing of NiCord for all the clinical trials conducted by Gamida is carried out at all of these manufacturing sites. Physical or other damage to the manufacturing sites, and mainly the manufacturing site of the subcontractor, that requires its unexpected closing, could materially adversely affect Gamida.
RISKS RELATING TO REAL ESTATE IN GENERAL
We and Plaza Centers N.V. (“PC”)PC essentially ceased significant business development activities in the real estate sector, particularly in the fields of hotels, plots in India and commercial centers, which may have a material adverse effect on our operations and cash flow.
As a result of certain constraints imposed on us and PC within the framework of our respective Debt Restructurings, as well as other circumstances, such as the change of control of the Company, the replacement of our and PC’s board members, lack of new financing and related matters, we did not initiate any new projects nor make any significant progress in projects that were under development. PC developed only onecurrently does not develop commercial center in Serbia during that periodcenters and most of the plots purchased by PC in the past are designated for sale and not for development. Rather, we and PC are currently focused on enhancing parts of our backlog projects and selling them at favorable market conditions. In addition, we did not commence new cycles of entrepreneurship-development-improvement-realization, and focused only on our backlog projects with no new pipeline. Since we are highly dependent on the realization of our current assets as a source of cash flow to serve our debts, this change in corporate strategy and focus may adversely affect our operations, and may cause material adverse effects on our ability to generate future cash flow in order to meet our and PC’s obligations.
Delays in the realization of our assets could result in significant harm to our financial condition and our ability to repay our indebtedness in a timely manner.
Our business activity is characterized by cycles of entrepreneurship-development-improvement-realization, with the objective to create value with our assets and, as a result, following the realization of such assets, to create value for our company. Our cash flow is dependent upon maintaining synchronization between the realization timetables to the payment schedules of our indebtedness. Delays or inability to realize our assets could harm our cash flow and our ability to serve our indebtedness. Difficulties in realizing our assets may be attributed to a number of factors, including delays in obtaining permits and licenses from municipal and planning authorities ,a tougher approach and stricter demands by banks and financial institutions for the financing of our projects (both for entrepreneurs and potential purchasers) and other factors beyond our control. We and PC are dependent on realizing a significant part of our assets in order to serve our debts in a timely manner, some of which require further development before placing them in the market. There is no assurance that we and PC will succeed in the realization of our assets in synchronization with the maturity date of our debts, which may lead us to an event of default under our notes (the “Notes”) and PC’s notes (the “PC Notes”).
Our real estate assets and investments are managed in foreign currencies while our liabilities and the liabilities of PC are denominated in NIS.
We are impacted by exchange rate fluctuations as a significant part of our cash flow is dependent on our real estate assets and investments which are acquired and managed in foreign currencies (mainly Euro, US Dollar and Rupee) while our debts (mainly the Notes and PC Notes) are mainly incurred in NIS and Euro. As a result of this currency discrepancy, the proceeds from the realization of our real estate assets and investments may significantly fluctuate and we may be adversely affected by such discrepancy. Currently we do not have any material hedges against exchange rate fluctuations. If a devaluation of the foreign currency against the NIS will occur when we will realize these assets and investments our cash flow may be significantly harmed and it may cause us not the serve our indebtedness in full and on timely manner. In addition such exchange rate fluctuations will affect our shareholders equity and our net asset value in the event we will have currency exchange losses that are attributed to the profit and loss or directly to our shareholders equity in accordance with accounting standard.
We and PC have numerous liens on our respective assets and subsidiaries, which may result in a material adverse effect on our operations.
We placed floating liens on all of our assets and fixed liens on our various holdings and rights in our subsidiaries Elbit Ultrasound (Luxembourg) B.V./S.ar.l (through which we hold a controlling stake in Plaza, of which we own approximately 44.9% of its share capital) and Elscint Holdings and Investments N.V. (through which we hold indirectly our Radisson Complex in Bucharest), including rights to a shareholder’s loan granted by us to each of such entities. In addition, we placed fixed liens on our holdings and shareholder’s loan (subject to certain exception) in Bea Hotels Eastern Europe B.V. (the entity through which we hold a in the Radisson Blu Complex in Bucharest) and we placed a lien on approximately 13% of the share capital in PC in favor of bank Hapoalim. In the event that we default on the terms of the Notes or the loan agreement with Bank Hapoalim, applicable liens may be foreclosed, which may result in the liquidation of our subsidiaries and material harm to our operations and cash flow. In addition, such liens limit our ability to sell our holdings and other rights in these subsidiaries (subject to certain exceptions included in the Notes, as defined below) without making early prepayment of certain amounts to Bank Hapoalim.
With respect to our subsidiary, PC, in accordance with the terms of their Debt Restructuring and subject to exceptions detailed therein, they are restricted from issuing additional notes, amending the terms of the current PC Notes, not creating (including PC’s subsidiaries) any encumbrance on a Real Estate Asset.
The grant of liens resulted in most of our valuable assets being subject to liens and encumbrances. In the event that we need additional financing for our operations, we will not be able to provide adequate collateral, which may adversely affect our ability to raise the financing on favorable terms or at all. Such outcome may substantially limit our ability to further develop our assets and may cause material adverse effect on our results of operations and cash flow.
We have significant capital needs and additional financing may not be available.
The sectors in which we compete are capital intensive. We require substantial up-front expenditures for land development and construction costs for our existing plots designated for the development of commercial centers and investments in research and development. Accordingly, in case we would like to develop our existing plots and/or to invest in our medical companies we require substantial amounts of cash and financing for our operations. We cannot be certain that our own capital will be sufficient to support such future development or that such external financing would be available on favorable terms, on a timely basis or at all. Furthermore, any changes in the global economy, real estate or business environments in which we operate, any negative trend in the capital markets, any restrictions on the availability of credit and/or decrease the credit rating of PC, might have a material adverse effect on our ability to raise capital.
In addition, under the terms of our outstanding Notes, the net proceeds of any debt we raise must be used to repay the Notes, unless raised to refinance the debt to Bank Hapoalim under the Refinancing Agreement. This further limits our ability to secure additional debt financing. In addition, most of our valuable assets are subject to liens and encumbrances. In the event we shall need additional financing for our operations, we will not be able to provide adequate collateral, which may adversely affect our ability to raise the financing on favorable terms or at all. Such outcome may substantially limit our ability to pursue our business plan.
Furthermore, as part of PC’s debt restructuring under the Amended PC Plan which is described more fully below,inter alia, PC is required to assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of its debt to its note holders. PC will be permitted to make investments only if its cash reserves contain an amount equal to general and administrative expenses and interest payments for such debt for a six-month period, has placed a negative pledge on its assets and undertook certain limitations on distribution of dividends and incurring of new indebtedness, financial covenants and other undertakings with respect to the sale and financing of certain projects and investment in new projects, all together, imposing considerable limitations on obtaining new financing.
Events of default under the Notes or PC Notes may result in cross-defaults being triggered under our other credit facilities.
If an event of default were to subsist under the Notes or PC Notes, that event of default may, in accordance with cross-default provisions, may raise a claim that there is an event of default under the Notes or our other loans or credit facilities. Upon an event of default (whether due to cross-default or otherwise), the relevant lenders would have the right, subject to the terms of the relevant facility arrangements to,inter alia, declare the borrower’s outstanding debts under the relevant facilities to be due and payable and/or cancel their respective commitments under the facilities, enforce their security, take control of certain assets or make a demand on any guarantees given in respect of the relevant facility. Accordingly, in the event we do not fulfill our obligations under the Notes or if PC does not fulfill its obligations under PC Notes as the case may be, the respective trustees representing holders of the Notes in case of the Company or the Israeli notes in case of PC, may be able to claim an immediate settlement, and declare all or any part of the unsettled balance of the Notes or PC’s Israeli notes or Polish notes, as the case may be, immediately due and payable. Such event of default will trigger cross-default provisions included in other credit facilities which may lead the financing banks to foreclose the collateral granted to them as part of their respective financing agreements (related mainly to operational commercial centers and the Radisson Complex). The occurrence of one or more of these factors may have a material adverse effect on our business, financial condition or prospects and/or results of operations and cash flow.
Conditions and changes in the local and global economic environments may adversely affect our business and financial results including our ability to comply with certain financial covenants.
Adverse economic conditions in the markets in which we operate can harm our business. Such adverse economic conditions may result in economic factors including diminished liquidity and tighter credit conditions, leading to decreased credit availability, as well as declines in economic growth, employment levels, purchasing power, and the size and amount of transactions.
The credit crisis of recent years could have a number of follow-on effects on our business, including a possible: (i) slowdown in our business resulting from potential buyers experiencing difficulties in raising capital from financial institutions in order to finance the purchase of our assets from us, which may significantly impact our cash flow and our ability to serve our debts in a timely manner (ii) decrease in asset values that are deemed to be permanent, which may result in impairment losses and possible noncompliance with certain financial covenants in credit and loan agreements to which we are a party, (iii) negative impact on our liquidity, financial condition and share price, which may impact our ability to raise capital in the market, obtain financing and other sources of funding in the future on terms favorable to us, which would harm our ability to finance the development of our projects and engage with co-investors, r and (iv) imposition of regulatory limitations on financial institutions with respect to their ability to provide financing to companies such as us and/or projects such as those in which we are engaged and/or to potential buyers of our assets , while creating a credit crunch. If such financial and economic uncertainty shall occur, it may materially adversely affect our results of operations and cash flow.
We are highly leveraged and our debts contain financial and operational covenants, which if breached could adversely affect our ability to operate our business.
We are highly leveraged and have significant debt service obligations. As of the balance sheet date our consolidated debt toward banks and note holders amount to NIS 1,982 million ($515 million), out of which a corporate -level debt (i.e.: debts of the Company on a standalone balance sheet) amounted to NIS 558 million (approximately $145 million).
As a result of our substantial indebtedness: (i) we could be more vulnerable to general adverse economic and industry conditions; (ii) we may find it more difficult to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; (iii) we may not be able to refinance our outstanding indebtedness, and (iv) we may have limited flexibility in planning for, or reacting to, changes in our business and in the industry.
We cannot guarantee that we will be able to generate enough cash flow from operations or that we will be able to obtain sufficient capital to serve our debt in timely manner or fund our planned capital expenditures. In addition, we may need to refinance some or all of our indebtedness on or before maturity. We cannot guarantee that we will be able to refinance our indebtedness on commercially reasonable terms or at all.
Our ability to satisfy our obligations under certain credit facilities depends on the value of our assets.
Although the use of borrowings is intended to enhance the returns on our invested capital when the value of our underlying assets increases, it may have the opposite effect where the value of underlying assets falls. Any fall in the value of any of our properties may significantly reduce the value of our equity investment in the entity which holds such property, meaning that we may not make a profit, may incur a loss on the sale or impairment of any such property and/or increase the likelihood of breaching certain financial covenants and trigger potential cross defaults. The occurrence of one or more of these factors may have a material adverse effect on our business, financial condition, prospects and/or results of operations and cash flow.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, and any determination that we or any of our subsidiaries has violated the Foreign Corrupt Practices Act or similar worldwide laws could have a material adverse effect on our business.
We are subject to compliance with various laws and regulations, including the Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-corruption laws, including Sections 290-295 of the Israeli Penal Code, which generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage. The FCPA also requires proper record keeping and characterization of such payments in our reports filed with the SEC.
While our employees and agents are required to comply with these laws, we operate in many parts of the world that have experienced governmental and commercial corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our commitment to legal compliance and corporate ethics, we cannot ensure that our policies and procedures will always protect us from intentional, reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in financial penalties, debarment from government contracts and other consequences that may have a material adverse effect on our business, financial condition or results of operations. In particular:
Potential violation of the requirements of the FCPA in Casa Radio Project in Romania
In March 2016 PC announced that its board became aware of certain issues with respect to certain agreements that were executed in the past by PC in connection with the Casa Radio Project in Romania that may indicate potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.
In order to address this matter, PC’s Board appointed the chairman of its Audit Committee to investigate the matters internally. PC’s Board also appointed independent law firms to perform an independent review of the issues raised. PC has approached and is co-operating fully with relevant Romanian authorities regarding the matters that have come to its attention in this respect, and it has submitted its findings to the Romanian authorities.
Following PC’s report to us, our audit committee decided to appoint a special committee to examine the matters raised in PC’s announcement, including any internal control and reporting issues. The special committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board. The Company’s Board fully adopted the special committee’s recommendations, and is working to implement them. The Company informed and is fully cooperating with the relevant governmental agencies in this matter.
Potential violation of the requirements of the FCPA in Agency and commission agreement from 2011
In addition, in April 2017 our Board of Directors and PC’s Board of Directors became aware of certain issues with respect to an agency and commission agreement from 2011 regarding the sale in 2012 of property in the U.S. jointly owned by PC and the Company. The agreement was between the Company, PC and another party, the beneficial owners of which had not been identified.
The characteristics of the contract could raise red flags that this contract may be a potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA. In order to address this matter, our Board has appointed a joint committee with PC to investigate and examine the issues raised, including any internal control and reporting issues.
The joint committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board. The Company’s Board fully adopted the joint committee’s recommendations, and, among other steps, is working to implement specific changes to its internal control policies and procedures. The Company informed and is fully cooperating with the relevant governmental agency in this matter.
For additional details regarding the recommendations of each of the above mentioned committees see Item 15 “Changes in Internal Control over Financial Reporting”.
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Under the terms of the Notes we have limited flexibility in distributing dividends due to prepayment obligations.
The Notes include mandatory prepayment provisions in the event we pay a dividend or make any other distribution before the full redemption of the Notes, such that we will be obligated to prepay an amount equal to the amount distributed by us, in the following order: (i) first, towards all unpaid amounts under the Series H notes, and (ii) secondly, towards all unpaid amounts under the Series I notes. In addition, pursuant to the Refinancing Agreement with Bank Hapoalim, in the case of a distribution, including payment of a dividend in any manner to the Company’s shareholders, we are required to prepay Bank Hapoalim an amount equal to the amount paid to the Noteholders on such date multiplied by the ratio between our debt to Bank Hapoalim and our total debt to Bank Hapoalim and to the Noteholders as of such date. Such provisions may substantially limit our ability to distribute dividends to our shareholders. In addition, such limitation could prove burdensome and limit our ability to raise equity investments due to the limited ability to avail our shareholders of the return of such investments by way of dividends or distributions.
We have no controlling shareholders who are able to influence the composition of our board of directors.
Our largest shareholders include affiliates of York Capital Management Global Advisers LLC and affiliates of Davidson Kempner Capital Management LLC beneficially own an aggregate of approximately 19.6% and 14.3% respectively, of our outstanding ordinary shares. To our knowledge, these shareholders are not party to a shareholders’ agreement between them or with any other shareholders. As a result, we have no controlling shareholder able to influence the composition of our board of directors. Consequently, following the next annual general meeting of our shareholders, a board of directors comprised of new individuals may be elected. Such new board or directors may have significantly different corporate strategies than our current board of directors, which may cause a material change in our operations and financial results.
The market price of our ordinary shares may suffer from fluctuation and may decline significantly.
There are a number of different major groups of shareholders with different and possibly opposing interests who may at any time sell their shares in the Company. There may be an adverse effect on the market price of our shares as a result of a substantial number of shares being sold or available for sale. If our shareholders sell substantial amounts of our ordinary shares, the market price of our ordinary shares may fall. Our ordinary shares are generally freely tradable, and the potential sales of such shares could cause the market price of our ordinary shares to decline significantly. They also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
We are restricted from receiving dividends from PC and other subsidiaries.
PC Notes include certain limitations on the distribution of dividends as well as subordination provisions, which would significantly limit our ability to generate cash flow from PC and may significantly affect our cash flow and operations. In addition, other subsidiaries of ours are subject to limitations on the payment of dividends by virtue of legal or regulatory restrictions in their respective jurisdictions. These limitations may have material adverse effects on our cash flow and in turn our ability to service our debts in timely manner.
If PC fails to comply with the provisions of the PC Notes, it may enter into liquidation or we may lose our control over PC.
PC has a considerable amount of debt to serve in the coming year to the PC Noteholders. If PC will not be able to meet its obligations under the PC Notes it will enter into a default under the PC Notes and there is no obligation or assurance that we will be able to further support PC. In addition, PC’s audited financial statements for the year ended December 31 2016 includes a going concern note. Such default may result in massive dilution of our holdings causing us to lose our control over PC or the liquidation of PC, which would result in the loss of our investment in PC.
Our financial instruments (mainly our loans and Notes) and our derivative financial instruments are subject to fluctuation in interest rates, changes in the consumer price index and/or changes in fair value, which may have a negative impact on our earnings, balance sheet and cash flows.
Floating interest rates on of our debt facilities expose us to increases in market interest rates and subsequent increases in interest costs. From time to time, we may engage in transactions to hedge a portion of this risk through currency swaps in order to reduce our risk of increases in interest costs. To the extent that at any time we do not have any hedges or our hedges are insufficient against interest rate fluctuations, our earnings, cash flow, and financial position may be negatively impacted.
The principal and interest of most of our debt instruments is determined by reference to the Israeli consumer price index (the “CPI”), which may entail significant risks not associated with similar investments in a conventional fixed or floating rate debt security. The historical value of the CPI is not indicative of future CPI performance and its value is affected by, and sometimes depends on, a number of interrelated factors, including direct government intervention and economic, financial, regulatory, and political events, over which we have no control. An increase in the CPI will result in additional financing expenses to our profits and losses and will have a negative impact on our cash flows. Currently we do not have any material hedges against fluctuations in the CPI.
Certain of our financial instruments and derivative financial instruments are measured by fair value. Any change to the fair value of such instrument will affect our profits and losses and may have a material effect on our results.
The fair value of our real estate assets (including commercial centers, hotels, plots in India and others) may be harmed by certain factors that may entail impairment losses not previously recorded, which would affect our financial results and the satisfaction of financial covenants.results.
Certain circumstances may affect the fair value of our real estate assets, (whether operating or under construction), including, among other things: (i) a decrease in the average room rates and occupancy rates in our Radisson Complex, (ii) a decrease in the rental rates and the occupancy rates in our commercial centers, (iii) an increase in the applicable discounts rates at which we discount the anticipated operational cash flow of the real estate, (iv) the absence of or modifications to permits or approvals required for the construction and/or operationdevelopment of any real estate asset, (v)the plots, (ii) delays in completion of development works beyond the anticipated target, (vi) cost overruns, (vii)(iii) pending lawsuits that may affect our operations, whether or not we are a party thereto, (viii)(iv) full or partial eminent domain proceedings (with or without compensation) regarding such real estate assets; and (viii)(v) findings indicating soil or water contamination or the existence of historical or geological antiquities that may require us to absorb significant cleaning, purification or preservation costs.costs; (vi) sale done under time constrains which prevents us from making a sale in optimal conditions. In addition, certain laws and regulations applicable to our business in certain countries where the legislation process undergoes constant changes may be subject to frequent and substantially different interpretations, and agreements which may be interpreted by governmental authorities so as to shorten the term of use of real estate, which may be accompanied by a demolition or nationalization order with or without compensation, may significantly affect the value of such real estate asset.
The failure to comply with government regulation may adversely affect our business and results of operations.Real estate investments are relatively illiquid.
Our businessSubstantially all of our portfolio’s total consolidated assets consist of investments in undeveloped real estate properties. Because real estate investments are relatively illiquid, our ability to quickly sell one or more properties in the portfolio in response to changing economic, financial and investment conditions is limited. Moreover, the sale of any of the undeveloped assets to third parties will involve other difficulties compared to the selling of operational real estate assets, such as the lack of financing for development, the risk of not obtaining the building permits and approvals from the authorities and the like.
The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates, supply and demand for space, and trends, that are beyond our control. As our projects are subject to numerous nationalfactors that are not under our control, there is no assurance that our predictions and local government regulations, including those relatingestimations of the timing in which we will be able to acquisitionsell any property and/or the price or terms we set will actually materialize as predicted. There is no assurance that our predictions and estimations as to the length of time needed to find a willing purchaser and to close the sale of a property will be correct.
In addition, current economic and capital market conditions might make it more difficult for us to sell properties or might adversely affect the price we receive for properties that we do sell. Finally, attempting to sell any of our investments in real properties at an accelerated pace due to cash flow needs may result in receiving a lower purchase price for such investments.
In addition, the number of prospective buyers interested in purchasing real estate properties building and zoning requirements, fire safety control, access for the disabled, environmental law and health board reviews and standards. In addition, we are subject to laws governing our relationships with employees, including minimum wage requirements, overtime, working conditions, and work permit requirements. In addition, our medical business is highly regulated by the Federal and Drug Administrative (“FDA”) and other similar bodies in Europe and Asia. A determination that we (or any of our tenants, where applicable) are not in compliance with these regulations could result in the imposition of fines, an award of damages to private litigants and significant expenses in bringing our operations into compliance with such laws and regulations.
Operating globally exposes us to additional and unpredictable risks.
We conduct our businesses in multiple countries. Our future results could be materially adversely affected by a variety of factors relating to international transactions, including changes in exchange rates, general economic conditions, regulatory requirements, dividend restrictions, tax structures or changes in tax laws or practices, and longer payment cycles in the countries in our geographic areas of operations. International operations may be limited or disrupted by the imposition of governmental controls and regulations, political instability, hostilities, natural disasters and difficulties in managing international operations. In the CEE region and India, laws and regulations, particularly those involving taxation, foreign investment and trade, titlelimited. Therefore, if we want to securities, and transfer of title that are applicable to our activities, can change quickly and in a far more volatile manner than in developed market economies. We cannot assure you thatsell one or more of thesethe properties in our portfolio, we may not be able to dispose of the property within the desired time period and may receive less consideration than the book value of the property in our consolidated financial statements.
Environmental factors may have a significant impact on the budget, schedule, viability and marketability of our assets.
If and to the extent that we will notengage in the development of any of our real estate assets (rather than sale it AS IS), we may encounter unforeseen construction delays or compliance defaults due to factors beyond our control such as delays or defaults caused by previously unknown soil contamination or the discovery of archeological findings which may have a significant impact on development budget and schedules and which may, in turn, have a detrimental effect on the viability or marketability of the development or cause legal liability in connection with a portfolio asset. We may be liable for the costs of removal, investigation or remedy of hazardous or toxic substances located on or in a site owned by us, regardless of whether we were responsible for the presence of such hazardous or toxic substances. The costs of any required removal, investigation or remedy of such substances may be substantial and/or may result in significant budget overruns and critical delays in construction schedules. The presence of such substances, or the failure to remedy such substances properly, may also adversely affect our ability to sell or lease such property or to obtain financing using the real estate as security. Additionally, any future sale of such property will be generally subject to indemnities to be provided by us to the purchaser against such environmental liabilities. Accordingly, we may continue to face potential environmental liabilities with respect to a particular property even after such property has been sold. Any environmental issue may significantly increase the cost of a development and/or cause delays, which could have a material adverse effect on our international operationsthe profitability of that development and consequently, on our business, financial condition results of operations and our cash flow. A failure to effectively manage the expansion of our business could have a negative impact on our business.
If we are characterized as a passive foreign investment company for U.S. federal income tax purposes, U.S. holders of ordinary shares may suffer adverse tax consequences.
Generally, if for any taxable year, after applying certain look through rules, 75% or more of our gross income is passive income, or at least 50% of the value of our assets, averaged quarterly, are held for the production of, or produce, passive income, we will be characterized as a passive foreign investment company (“PFIC”), for U.S. federal income tax purposes. Our PFIC status is determined based on several factors, including our market capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions and methodologies upon which we base our analysis. A determination that we are a PFIC could cause our U.S. shareholders to suffer adverse tax consequences, including having gains realized on the sale of our shares taxed at ordinary income rates, rather than capital gains rates, and being subject to an interest charge on such gain. Similar rules apply to certain “excess distributions” made with respect to our ordinary shares. A determination that we are a PFIC could also have an adverse effect on the price and marketability of our shares. If we are a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning our ordinary shares. Accordingly, you are urged to consult your tax advisors regarding the application of such rules. See “Item 10.E. Taxation - Tax consequences if we are a Passive Foreign Investment Company” in our Annual Report on Form 20-F.
We are subject to a class actions proceeding that may have a material adverse effect on our results of operations and cash flow.flows.
In November 1999 a claim was initiated against us and certain other third parties, including former directors of the Company and Elscint Ltd., in connection with the change of control of our company and our former subsidiary Elscint Ltd. (“Elscint,” which was merged into us in 2010) in May 1999 and the acquisition of the hotel businesses and the Arena Commercial Center in Israel by Elscint in September 1999 from Europe Israel (our former controlling shareholder prior to the Debt Restructuring), as well as motions to certify certain of such claims as class actions (Gadish et al v. Elscint et al). On May 28, 2012, the Supreme Court certified the lawsuit as a class action with respect to the claim that the hotels and the Arena Commercial Center were allegedly sold to us at a price higher than the then-current fair value and that Elron Electronic Industries Ltd. (an unrelated third party) had breached certain minority rights in the framework of the sale of Elscint’s shares to Europe Israel, and the case was remanded to the Court for hearing the case without prejudicing the parties’ rights and arguments with respect to a derivative action.
On September 27, 2017, we announced that the district court approved in principle a settlement with the Plaintiffs according to which the Plaintiffs will receive compensation in the total amount of NIS 50 million (approximately USD14 million) (the “Settlement”). The Company is expected to pay NIS 5 million (approximately USD1.4 million) of the said amount. The court instructed the parties to provide a final settlement agreement according to the changes approved in its decision, and further decided that it will provide final approval of the Settlement upon submission to such a final settlement agreement.
For additional details regarding the class action lawsuit filed against us, see “Note 14 (B) (1) in our 2016 annual consolidated financial statements”.
Our results of operations fluctuate due to the seasonality of our various businesses and significant revenues recognized following consummation of sale.
Our annual revenues and earnings are substantially dependent upon general business activity, vacation and holiday seasons and the influence of weather conditions. As a result, changes in any of the above have a disproportionate effect on the annual results of operations.
In addition, we have experienced at times in the past, and may in the future experience, significant fluctuations in our quarterly and annual operating results as a result of various factors including, among other things, significant sales of our properties and the frequency of such transactions which are recognized upon the completions of the sale transaction. Therefore, we believe that period-to-period comparisons of our historical results of operations may not necessarily be meaningful and that investors should not rely on them as an indication of our future performance. It is likely that in some future periods, our operating results may be below expectations of public market analysts or investors.
If we do not satisfy the NASDAQ requirements for continued listing, our ordinary shares could be delisted from NASDAQ and from the TASE.
Our listing on the NASDAQ Stock Market is contingent on our compliance with the NASDAQ’s conditions for continued listing. One of such conditions is the timely filing our Annual Report on Form 20-F with the Securities and Exchange Commission, in accordance with the requirement of the SEC.
For example, in May 2017, the Company received a notice from NASDAQ that it was not in compliance with Rule 5250(c)(1) because it failed to timely file this Form 20-F for the period ending December 31, 2016. The delay in filing the Form 20-F was the result of a disclaimer contained in the report of the auditor of Plaza Centers N.V. (an indirect subsidiary (45%) of the Company) in Plaza’s annual financial statements for 2016. As a result of this disclaimer, the Company’s auditor notified the Company that it is unable to provide an audit opinion regarding the Company’s financial statements for 2016. After the Company submitted a plan to regain compliance and other information, among others, NASDAQ ultimately granted the Company an extension until November 13, 2017 to file its annual report this Form 20-F and thereby regain compliance with the Rule 5250(c)(1).
If a delisting were to occur, and our shares did not thereafter qualify for trading on the Nasdaq Global Market or the Nasdaq Capital Market, trading in our shares in the United States may be conducted, if available, on the Over the Counter Bulletin Board or another medium. In the event of such delisting, an investor may find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of, our shares, and our ability to raise future capital through the sale of our shares could be adversely affected. Moreover, we would be unable to use the SEC’s “short form” Form F-3 to register the offering and sale of securities, even for limited primary offerings. In addition, in the event of such delisting, we may be required to comply with enhanced reporting obligations under the Israeli securities laws, in addition to the reporting obligations under the U.S. securities laws, which could require additional management attention, increase our legal and accounting expenses and raise our exposure to sanctions for possible violations of Israeli securities laws.
In addition, if a delisting or suspension from the NASDAQ were to occur, the Company’s shares and Notes likely be suspended or delisted from TASE.
If PC and Elbit Medical Technologies Ltd. do not satisfy the applicable stock exchange conditions of for continued listing, their shares could be delisted.
The shares of PC are listed for trading on the main board of the London Stock Exchange under the symbol “PLAZ”, on the main list of the Warsaw Stock Exchange under the symbol “PLZ”, and on the Tel Aviv Stock Exchange under the symbol “PLAZ”. The shares of our subsidiary Elbit Medical Technologies Ltd. are listed on the Tel-Aviv Stock Exchange under the symbol “EMTC”. If PC or Elbit Medical Technologies Ltd. do not satisfy the conditions of the applicable stock exchange for continued listing (such as, but not limited to, free-float requirements), their shares could be delisted. Such occurrences would make the realization of those investments or any part thereof by us more difficult and could limit the possibility to attract new investors to those portfolios.
Our Ordinary Shares are traded on different markets and this may result in price variations.
Our ordinary shares are traded on the Tel Aviv Stock Exchange and on the Nasdaq Stock Market. Trading in our ordinary shares on these markets will be made in different currencies (NIS on the Tel Aviv Stock Exchange and USD on the Nasdaq) and will take place at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on any of these markets could cause a decrease in the trading price of our ordinary shares on the other market.
RISKS RELATING TO THE COMMERCIAL CENTERS BUSINESSCASA RADIO PROJECT IN ROMANIA
There is no assurance that we will successfully implement our disposal strategy in the commercial centers business and in such event our results and cash flows may be materially adversely affected.
Generally, our strategy in the commercial centers business is to sell such commercial centers to third parties and to use the proceeds from such sales in order to reduce PC’s corporate debt in accordance with the provisions of PC debt Restructuring. In addition, PC is intending to sale its plots, which are not designated to development, to third parties. There is no assurance that such sales will actually occur or that they will occur according to the timetable we predicted or planned. In addition there is no assurance that we will have the financial resource to invest in the plots designated for commercial centers. There can be no assurance that we will be able to complete dispositions under commercially reasonable terms or at all. Accordingly, our results of operation and cash flows can be materially adversely affected.
Our Casa Radio project in Romania and other commercial centers we operate may be subject to governmental expropriation or monetary sanctions.
In 2006, PC added the Casa Radio project in Romania to its portfolio. The nature of the development and exploitation rights granted to the joint venture company in relation to the Casa Radio site in Bucharest are for a period of only 49 years, and in the event that this term is not extended, the rights in relation to the site would revert to the Government of Romania. Additionally, there may be other regulatory risks relating to the Romanian government’s right to expropriate the rights to the Casa Radio Site in Bucharest or that they will impose sanctions on PC with respect to the property, See “Item 4 – Information on the Company – History and Development of the Company – Recent Events -– Casa Radio Project in Bucharest, Romania” for more information regarding the Casa Radio Site. Furthermore, these rights are subject to termination under certain circumstances by the Romanian government, such as in the event of a delay in the project timetable, and any termination prior to the expiration of such rights may have a material adverse effect on our business cash flow and our results of operations.
If we will start a development of a new commercial center we may be exposed to certain risks that might harm our operations and cash flow
As of the date of filling this annual report we have no project under development. The only project which is designated by PC for development is the Casa Radio Project. If we will decide to start the development of this project the following risks will be borne by us.
We rely on subcontractors for all of our construction and development activities. If we cannot enter into subcontracting arrangements on terms acceptable to us or at all, we will incur additional costs which will have an adverse effect on our business. The competition for the services of quality contractors and subcontractors may cause delays in construction, thus exposing us to a loss of our competitive advantage. Subcontracting arrangements may be on less favorable terms than would otherwise be available, which may result in increased development and construction costs.
Furthermore, an important element in the success of the construction process of our commercial projects is the short construction time, and our ability to open projects such as commercial centers ahead of our competitors. Our ability to open the commercial center on time may be affected by several factors such as: (i) the inability to obtain financing for development at attractive terms or at all; (ii) delays in obtaining zoning (or land classification, as the case may be for each jurisdiction) and other approvals; (iii) fluctuating prices and shortages in the supply of raw materials and labor; (iv) the abilities of subcontractors to complete work competently and on schedule; (v) the surface and subsurface condition of the land underlying the project; (vi) environmental uncertainties;
With respect to our commercial centers designated for development we are dependent on our ability to enter into new leases on favorable terms with third parties, including anchor tenants (such as the operators of supermarkets, department stores, cinemas, national retail outlets and large electrical appliances stores) in order to receive a profitable price for each commercial center. Anchor stores in commercial centers play an important part in generating customer traffic and making a center a desirable location for other tenants.
RISKS RELATING TO THE HOTEL BUSINESS
The hotel industry may be affected by economic conditions, oversupply, travel patterns, weather and other conditions beyond our control which may adversely affect our business and results of operations.
The hotel industry may be adversely affected by changes in national or local economic conditions and other local market conditions, especially in times of economic crisis. Our Radisson Complex in Bucharest, Romania, comprised of the Radisson Blu hotel and the Park Inn hotel and commercial areas (collectively, the “Radisson Complex”), may be subject to the risk of oversupply of hotel rooms. Other general risks that may affect our Radisson Complex are changes in travel patterns (business or tourism), changes in trends as to performance of exhibitions, conferences and conventions in Romania or at all (including as a result of a financial crisis). Extreme weather conditions, changes in Romanian governmental regulations which influence or determine wages, workers’ union activities, changes in interest rates, the availability of financing for operating or capital needs, and changes in real estate tax rates and other current operating expenses. Unforeseen events, such as terrorist attacks, volcanic eruptions, extreme weather conditions, outbreaks of epidemics and health concerns (such as SARS, avian flu, swine flu) and the economic recession had, and may continue to have, an adverse effect on local and international travel patterns and, as a result, on occupancy rates and rates in our Radisson Complex.
Competition in the hotels industry could have an adverse effect on our business and results of operations.
The hotel business is highly competitive. Competitive factors within the industry include: (i) convenience of location and accessibility to business centers; (ii) room rates; (iii) quality of accommodations; (iv) brand name recognition; (v) quality and nature of service and guest facilities provided; (vi) reputation; (vii) convenience and ease of reservation systems; and (viii) the supply and availability of alternative lodging.
Many of these competitors have greater financial resources and better brand name recognition than we do, and may have more established relationships with prospective franchisers, representatives in the local Romanian industry. The number of competitive lodging facilities in Bucharest could have a material adverse effect on our Radisson Complex’s occupancy and rates and, therefore, results of operations and cash flows. New or existing competitors may significantly reduce their rates or offer greater convenience, services or amenities or significantly expand or improve hotels in Bucharest, thereby materially adversely affecting our business and results of operations.
We rely on management agreements with the Rezidor Hotel Group, which may not provide the intended benefits and may be terminated by Redizor. Any significant decline in the reputation of the Rezidor Hotel Group or in the performance of our Radisson Complex could adversely affect our results of operation.
Our Radisson Complex operates under a long-term management agreement with the Rezidor Hotel Group (“Rezidor”). Any significant decline in the reputation of Rezidor or in its ability to ensure the performance of our Radisson Complex at anticipated levels could adversely affect our results of operations. If our agreement with Rezidor is terminated by Rezidor, we cannot be certain that we would be able to obtain alternative management services of the same standard on similar or better terms.
The long-term management arrangements entail additional risks, including the possibility that: (i) Rezidor might, at any time, have economic or other business interests that are inconsistent with ours or with the management of our Radisson Complex; (ii) Rezidor may be in breach of the agreement or in a position to take action contrary to the agreement, or frustrate the execution of acts which we believe to be in the interest of our Radisson Complex; and (iii) Rezidor might become bankrupt or insolvent.
Disputes or disagreements with Rezidor could result in interruption to the business operations of our Radisson Complex, may materially impact our financial condition, cash flow, and results of operations.
Our agreement with Rezidor imposes obligations on us that may force us to incur significant costs.
Our agreement with Rezidor, contains specific standards for, and restrictions and limitations on, hotel operation and maintenance. These standards, restrictions and limitations may conflict with our priorities, and impose capital demands upon us. In addition, Rezidor may alter its standards or hinder our ability to improve or modify our Radisson Complex. We may be forced to incur significant costs or make capital improvements in order to comply with the requirements of Rezidor and, if our relationship with Rezidor is terminated, to change the franchise affiliation of our Radisson Complex.
The value of our investment in our Radisson Complex is subject to various risks related to ownership and operation of real property.
In addition to the items set forth above, our investment in our Radisson Complex is subject to varying degrees of risk related to the ownership and operation of real property. The fair value of our Radisson Complex and income from our Radisson Complex may be materially adversely affected by:
RISKS RELATING TO OUR PLOTS IN INDIA
We may have difficulties exercising a full separation from our partner in connection with our project in Bangalore, India which may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in India
Our strategy with respect to our plots in India is to dispose of such assets under the most optimal market conditions. Due to regulatory, physical and other limitations to develop our project in Bangalore, India, on December 2, 2015, we announced that Elbit Plaza India Real Estate Holdings Limited (in which we holdshold a 50% stake with PC) (“EPI”EPI”) signed an agreement to sell 100% of its interest in a special purpose vehicle which holds a siteplot in Bangalore, India to a local Investor which should had been closed on September 30, 2016. The2016.The Local investor has failed to close the transaction in the agreed time line. As a result of this breach, the local investor was required to carry out an agreed upon separation mechanism in such manner that EPI will have full title over the property.plot. Such mechanism include mainly the execution of certain title documents transferring and duly registering the 10% undivided interest in the plot that are being held by the local Partner in EPI’s favor. Since the separation mechanism has not been executed by the Local investor, EPI forfeited from the Escrow Agent,escrow agent, the transfer deeds for land plots covering approximately 8.3 acres which had been provided to us as guarantees under the agreement.
On June 19, 2017, we announced that EPI has signed a revised agreement.agreement for the sale of the plot in Bangalore. As part of the agreement, part of the consideration will be paid by the local investorPurchaser in installments until the Final Closing. The Final Closing willfinal closing was set to take place on September 1, 2018. All other existing securities granted to EPI under the previous agreement will remain in place until the Final Closing.
On January 19, 2018 we announced that the purchaser announced that the remaining payments under the revised agreement will not be made due to certain change proposed by the Indian authorities that could potentially impact the development of the site.
On February 21, 2018 the Company announced that despite the purchaser’s January 2018 announcement, the Purchaser paid the January installment in the amount of INR 5 Crores (circa €0.62 million).
In March 2018, an amended revised agreement was signed and the Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8 million). Following the signing of the revised agreement, the Purchaser paid EPI an additional INR 10 Crores (approximately €1.3 million) further to the INR 45 Crores (approximately €5.9 million) that were already paid during the recent year. An additional INR 83 Crores (approximately €10.8 million) will be paid by the Purchaser in unequal monthly installments until the final closing. The final closing will take place on August 31, 2019 when the final installment of approximately INR 212 Crores (approximately €27.8 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
If the Purchaser defaults before the final closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the final closing. However, it should be noted that, in case of a breach by the local investorPurchaser of the new agreement, we will still should achieve full separation from the local partner, which might be a long and tedious process and we are not certain that we will be able to achieve it .
it. In case such separation would not be achieved it may cause a significant impairment to the value of the property and may cause significant difficulties to find aanother third party buyer to this plot taking into account that there is no clean title on the Property.property. This may have a material adverse effect on our operations, cash flow and in turn, our ability to repay our debts in timely manner.
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Even if we are able to properly execute the separation mechanism (in particular with respect to the transfer of the local partner’s 10% undivided interest in our favor) and/or exercise the guarantees placed by the local investor, there is no guarantee that we will be able to dispose of the land in the Bangalore project to a third party on efficient economic terms due to proprietary claims to certain parts of the Bangalore project, and other third party holdings on parts of the land within the Bangalore project thus making the holdings in the land a non-contiguous property. In addition, legal and regulatory restrictions placed by local authorities can materially impede our ability to dispose of the land on optimal commercial terms which may materially adversely affect our ability to dispose of the land to third parties which may jeopardize our business strategy, planning and operations, and could cause severe delays in disposition of the plots and could have a material adverse effect on our operations, cash flow and in turn, our ability to repay our debts in timely manner.
Our ability to generate short term cash flow from our Chennai project in the short term is limited
Our strategy in respect of our projects in India is to liquidate our assets at the most commercially optimal prices. However, we have entered into a Joint Development Agreement (“JDA”) transaction with a local developer in order to develop our project in Chennai, India. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement with respect to our Plot in Chennai, India”.As. As per the terms of the JDA, we are entitled to receive an agreed upon percentage of the proceeds from sales to third parties of villas and plots developed by the local developer.
As of the date of this current report, the commencement of the project is still subject to obtaining an access road to the project which as of the date of this filling has not yet been obtained. If an accesses road will be achieved, our estimations are that sales in the Chennai, India project will commence in approximately 24 months from the completion of the construction of the access road,obtained, and the completion of the full scale project (including obtaining all permits, construction works, marketing and collections of sales proceeds) will occur within a period of approximately 6 years from commencement.Company is examining its options.
As a consequence, our cash flow from the Chennai, India project in the near term is very limited. In addition, our ability to sell the project to other third party developers is limited since new developers would likely to ask that we terminatedterminate our JDA with the local developer, which is possible only under certain events detailed in the JDA.
Additionally, we are fully dependent on the local developer’s skills and efforts to complete the Chennai, India project in the most efficient way. If the local developer will not duly perform its obligations we may experience a delay in our expected cash flow, and may need to terminatedterminate the JDA and seek alternative existexit strategies from the Chennai, India project which may not be on optimal terms.
We rely on our local joint development partner’s performance, financial capability and reputation in our project in Chennai. Any significant decline in the reputation of the local joint development partner’s capabilities or the existence of conflicts of interest could adversely affect our results of operation and cash flow.
Our project in Chennai, India is subject to a JDA with a local partner. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement with respect to our Plot in Chennai, India”.The. The Chennai, India project is to be developed by the local partner who is responsible for the construction of the Chennai, India project at its own costs, as well as marketing the Chennai, India project to third partiesparty buyers. Any significant decline in the financial capabilities of the local partner might cause delays in the construction and marketing of the Chennai, India project by the local partner in the expected timeline. In addition, any significant decline in the reputation of the local partner could cause delays in the marketing of the project to third partiesparty buyers. Since the local partner has another project in Chennai in close proximity to our Chennai, India project, there may be a conflict of interest in the construction and marketing of our Chennai, India project since the local partner may have other business interests that are inconsistent with ours.
Consequently, disputes or disagreements with the local partner could result in interruption to the business operations of our project and may materially impact our financial condition, cash flow, and results of operations.
Our plots located in India are subject to a highly regulated legal regime which is burdensome for foreigner investors
Our plots are located in India, and are subject to the Indian Foreign Exchange Management Act, 1999, and the regulations framed thereunder with respect to the construction development sector in India. That sector is governed by provisions of the Foreign Exchange Management Act and the consolidated Foreign Direct Investment (“FDI”FDI”) policy issued by the Department of Industrial Policy and Promotion (“DIPP”DIPP”) of the Indian Ministry of Commerce and Industry, and updated/revised from time to time through various Press Notes (“FDI Policy”Policy”). The latest release with respect to the FDI Policy was a Consolidated FDI Policy circular issued by the DIPP, with effect from June 7, 2016.August 28, 2017. These regulations forbid the sale of undeveloped land in view of blocking speculative real-estate investments by foreigners, and require a minimum lock-in period of 3 years for each tranche of an investment. Additional regulations promulgated under the FDI Policy and the Reserve Bank of India (“RBI”RBI”) subject the repatriation of capital to strict regulatory procedures and time-consuming bureaucratic processes. Failure to comply with the requirements of the FDI Policy or RBI regulations will require us to receive governmental approvals which we may not be able to obtain or which may include limitations or conditions that will make the investment unviable or impossible, and non-compliance with investment and/or repatriation restrictions may result in the imposition of penalties and the inability to dispose of our projects. Such limitations block or limit our ability to separate and walk away from unsuccessful joint ventures, terminate land acquisition contracts, dispose of land inventory that the development thereof is not economical for us or control the timing of such disposition. In addition, that legislation is subject to continuous rapid and unexpected changes that can jeopardize our business strategy, planning and conduct, and can cause severe delays in timetables for the disposition of the plots and could have a material adverse effect on our operations, cash flow and in turn, our ability to repay our debts in timely manner. For additional information regarding the relevant regulation to our business in India see “Item 4B – Business Overview – Governmental Regulation.”
Real estate legislation in India does not assure clear title and ownership status.
Under Indian law, the registration of ownership in land with the land registration offices does not automatically guarantee the absence of third party rights to such land. In contrast to other countries, India does not have a central title registry for real property. Title registries are maintained at the state and district level and, since the process of storing such records digitally has only recently started, such records may not be available online for inspection. In addition, because it is common practice in some parts of India (especially in villages) for transfers of title upon deaths of family members and in certain other circumstances to be made only by notation in local revenue records, changes in the ownership of land may not be registered with the relevant land registry in a timely manner or at all. Title registries and local revenue records may not be updated or complete. As such, legal defects and irregularities may exist in the title to the properties on which our existing facilities and/or future facilities are or may be located. While we utilize all reasonable efforts to ensure integrity of title in the real estate properties acquired by us, the system of recording ownership and rights in and to immovable property is not conclusive. Our rights in respect of such properties may be threatened by improperly executed, unregistered or insufficiently stamped conveyance instruments, unregistered encumbrances in favor of third parties, rights of adverse possessors, ownership claims of family members of prior owners, or other defects of which we may not be aware. These defects may arise after land is acquired by us, and are not necessarily revealed by due diligence, due to various factors, including incomplete land records, transactions without registered documents, the decentralized nature of land registries and local revenue records, property-related litigation in India and family disputes in previous sellers’ families. Any defects or irregularities of title may result in litigation and/or the loss of development rights over the affected property. With respect to projects on leasehold land, revocation/expiry of the lease and any defect or irregularity in the lessor’s title may result in loss of our rights over affected property. This would have an adverse effect on our business and results of operations.
The new order issued by the National Green Tribunal and the proposed Master Plan may significantly limit the ability of a prospective purchaser to develop the land in the most efficient way and may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in BangaloreBangalore.
On May 4, 2016, the National Green Tribunal (“NGT”NGT”) issued a new order in which it directed that specified areas surrounding bodies of water are to be treated as “no construction zones”. See “Item 4 - Government regulation4B – Business Overview – Governmental Regulation – Plots in India -– National Green Tribunal – New Order”.
Our project in Bangalore is in proximity to the Varthur Lake and has several water drains crossing it, and may therefore be subject to the NGT order. Consequently, a third party prospective buyer may claim that the new NGT order may cause significant limitations on the development of the project which in turn may limit our ability to dispose of this property at its fair market value or at all. Such issues may have a material adverse effect on our cash flow position and the value of this property in our consolidated financial statements.
On February 2018 the Company was informed about the preparation of a new master plan in the State of Karnataka, India (”Master Plan”) which effects major portions of the Varthur Land. Under the Master Plan a major portion of the Varthur Land is classified as “buffer/valley/open space/park”. This could change if an objection filed is considered and accepted, and this may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in Bangalore. For additional information see “Item 4B – Business Overview – Governmental Regulation – Plots in India – Master Plan”.
Our Partner has filed objections to the Master Plan to seek the re-classification of the proposed zoning of the buffer zone and the zoning of areas within the buffer zone.
We may have difficulties disposing our projects in India which may significantly affect our ability to complete our strategy relating to our plots in India
Due to regulatory and legal restrictions in India which make it difficult to register athe transfer of ownership rights in our Indian projects, our ability to secure full title to our projects in India may be significantly restricted.
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There are ongoing court cases with respect to third party proprietary claims to certain parcels of land within our projects in India which further impede our ability to dispose of the asset. Physical and geographical limitations, such as the lack of an access road leading to the Chennai project territory, NGT order claims, theft of sand and destruction of property, and third party holdings throughout our Indian project territory (which we are unable to purchase from such third parties at all or on reasonable market terms) may also impede our ability to dispose of projects on optimal commercial terms.
RISKS RELATING TO THE COMMERCIAL CENTERS BUSINESS, TO THE HOTEL BUSINESS AND TO THE PLOTS IN INDIA BUSINESSWe have capital needs and additional financing may not be available.
Real estate investments are relatively illiquid.
Substantially allIf and to the extent that we will engage in the development of any of our portfolio’s total consolidatedreal estate assets consist of investments(rather than sale it AS IS), we require up-front expenditures for land development and construction costs for our existing plots in real properties, one ofIndia which are operationaldesignated for sale. Accordingly, we require certain amounts of cash and allfinancing for our operations in India. We cannot be certain that our own capital will be sufficient to support such future development or that such external financing would be available on favorable terms, on a timely basis or at all. Furthermore, any changes in the rest are undeveloped. Becauseglobal economy, real estate investments are relatively illiquid,or business environments in which we operate, any negative trend in the capital markets, any restrictions on the availability of credit and/or decrease in the credit rating of PC, might have a material adverse effect on our ability to quickly sell one or more propertiesraise capital.
GENERAL RISKS
Most of our assets (including those of our subsidiaries) are managed in foreign currencies while our liabilities (including those of our subsidiaries) are denominated in NIS.
We are impacted by exchange rate fluctuations as a significant part of our cash flow is dependent on our assets and investments which are acquired and managed in foreign currencies (mainly EUR, US Dollar and Rupee) while our debts (mainly our Notes, Elbit Medical Notes and PC Notes) are mainly incurred in NIS. As a result of this currency discrepancy, the proceeds from the realization of our assets and investments may significantly fluctuate and we may be adversely affected by such discrepancy. Currently we do not have any material hedges against exchange rate fluctuations. If a devaluation of the foreign currency against the NIS will occur when we will realize these assets and investments our cash flow may be significantly harmed and it may cause us not to serve our indebtedness in full and on timely manner. In addition such exchange rate fluctuations will affect our shareholders equity and our net asset value in the portfolioevent we will have currency exchange losses that are attributed to the profit and loss or directly to our shareholders equity in responseaccordance with accounting standard.
Delays in the realization of our assets could result in significant harm to changing economic,our financial condition and investmentour ability to repay our indebtedness in a timely manner.
Our business objective is to create value with our assets and, as a result, following the realization of such assets, to create value for our company. Our cash flow is dependent upon maintaining synchronization between the realization timetables to the payment schedules of our indebtedness. Delays or inability to realize our assets could harm our cash flow and our ability to serve our indebtedness.
Difficulties in realizing our assets may be attributed to a number of factors, including: (i) regarding our medical companies - The conditions is limited. Moreover,for realizing the saleholdings have not yet matured, with an emphasis on the existence of undeveloped land to third parties will involve additional difficulties compared to selling of operationalsignificant improvement potential; (ii) regarding our real estate assets such as the lack of financing for development, the risk of notbusiness - delays in obtaining the building permits and approvallicenses from municipal and planning authorities, a tougher approach and stricter demands by banks and financial institutions for the authorities and the like. The real estate market is affected by many factors, such as general economic conditions, availabilityfinancing of financing, interest ratespotential purchasers and other factors including supply and demand for space, trends, that are beyond our control. AsWe are dependent on realizing a significant part of our projects are subjectassets in order to numerous factors that are not underserve our control, theredebts in a timely manner. There is no assurance that we, Elbit Medical and PC will succeed in the realization of our predictionsassets in synchronization with the maturity date of our debts, which may lead us to an event of default under our various notes (the “EI Notes”) and/or the Elbit Medical notes (the “Elbit Medical Notes”) and/or PC’s notes (the “PC Notes”).
Conditions and estimationschanges in the local and global economic environments may adversely affect our business and financial results including our ability to comply with certain financial covenants.
Adverse economic conditions in the markets in which we operate can harm our business. Such adverse economic conditions may result in economic factors including diminished liquidity and tighter credit conditions, leading to decreased credit availability, as well as declines in economic growth, employment levels, purchasing power, and the size and amount of transactions.
In particular, adverse economic conditions may have the following consequences on our business: (i) slowdown in our business resulting from potential buyers experiencing difficulties in raising capital from financial institutions in order to finance the purchase of our assets from us, which may significantly impact our cash flow and our ability to serve our debts in a timely manner (ii) decrease in asset values that are deemed to be permanent, which may result in impairment losses and possible noncompliance with certain financial covenants in credit and loan agreements to which we are a party, (iii) negative impact on our liquidity, financial condition and share price, which may impact our ability to raise capital in the market, obtain financing and other sources of funding in the future on terms favorable to us, which would harm our ability to finance the development of our projects and engage with co-investors, and (iv) imposition of regulatory limitations on financial institutions with respect to their ability to provide financing to companies such as us and/or projects such as those in which we are engaged and/or to potential buyers of our assets, while creating a credit crunch. If such financial and economic uncertainty shall occur, it may materially adversely affect our results of operations and cash flow.
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We are highly leveraged.
We are highly leveraged and have significant debt service obligations. As of the timingbalance sheet date our consolidated debt toward note holders amount to NIS 1083 million ($312 million), out of which a corporate -level debt (i.e.: debts of the Company on a standalone balance sheet) amounted to NIS 572 million (approximately $165 million).
As a result of our substantial indebtedness: (i) we could be more vulnerable to general adverse economic and industry conditions; (ii) we may find it more difficult to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; (iii) we may not be able to refinance our outstanding indebtedness, and (iv) we may have limited flexibility in whichplanning for, or reacting to, changes in our business and in the industry.
We cannot guarantee that our projected cash flow will actually materialize in a manner that will allow us to serve our debt in a timely manner or fund our planned capital expenditures. In addition, we may need to refinance some or all of our indebtedness on or before maturity. We cannot guarantee that we will be able to sellrefinance our indebtedness on commercially reasonable terms or at all.
Our ability to satisfy our obligations under certain notes depends on the value of our assets.
Although the use of borrowings is intended to enhance the returns on our invested capital when the value of our underlying assets increases, it may have the opposite effect where the value of underlying assets falls. Any fall in the value of any propertyof our assets, may significantly reduce the value of our equity investment in the entity which holds such asset, meaning that we may not make a profit, may incur a loss on the sale or impairment of any such asset and/or increase the pricelikelihood of breaching certain financial covenants and trigger potential cross defaults. The occurrence of one or termsmore of these factors may have a material adverse effect on our business, financial condition, prospects and/or results of operations and cash flow.
We have and in the future may be exposed to liabilities under the Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, and any determination that we set will actually materialize as predicted. There is no assuranceor any of our subsidiaries has violated the Foreign Corrupt Practices Act or similar worldwide laws could have a material adverse effect on our business.
We are subject to compliance with various laws and regulations, including the Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-corruption laws, including Sections 290-295 of the Israeli Penal Code, which generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage. The FCPA also requires proper record keeping and characterization of such payments in our reports filed with the SEC.
While our employees and agents are required to comply with these laws, we operate in many parts of the world that have experienced governmental and commercial corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our commitment to legal compliance and corporate ethics, we cannot ensure that our predictionspolicies and estimations asprocedures will always protect us from intentional, reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in financial penalties, debarment from government contracts, third party claims and other consequences that may have a material adverse effect on our business, financial condition or results of operations.
On March 12, 2018 the Company announced that the Securities and Exchange Commission ("SEC") approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA. For additional information See “Item 4- Information on the Company – History and Development of the Company – Recent Events – Approval of an Offer of Settlement with the SEC in the matter of Alleged Violations of FCPA”.
Under the terms of the Notes we have limited flexibility in distributing dividends due to prepayment obligations.
The Notes include mandatory prepayment provisions in the event we pay a dividend or make any other distribution before the full redemption of the Notes, such that we will be obligated to prepay an amount equal to the lengthamount distributed by us, in the following order: (i) first, towards all unpaid amounts under the Series H notes, and (ii) secondly, towards all unpaid amounts under the Series I notes. Such provisions may substantially limit our ability to distribute dividends to our shareholders. In addition, such limitation could prove burdensome and limit our ability to raise equity investments due to the limited ability to avail our shareholders of the return of such investments by way of dividends or distributions.
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We have no controlling shareholders who are able to influence the composition of our Board of Directors.
Our largest shareholders include affiliates of York Capital Management Global Advisers LLC and affiliates of Davidson Kempner Capital Management LLC who beneficially own an aggregate of approximately 19.6% and 14.3% respectively, of our outstanding ordinary shares. To our knowledge, these shareholders are not party to a shareholders’ agreement between them or with any other shareholders. As a result, we have no controlling shareholder able to influence the composition of our Board of Directors. Consequently, following the next annual general meeting of our shareholders, a Board of Directors comprised of new individuals may be elected. Such new Board of Directors may have significantly different corporate strategies than our current Board of Directors, which may cause a material change in our operations and financial results.
The market price of our ordinary shares may suffer from fluctuation and may decline significantly.
There are a number of different major groups of shareholders with different and possibly opposing interests who may at any time needed to findsell their shares in the Company. There may be an adverse effect on the market price of our shares as a willing purchaser and to close the saleresult of a property will be correct. In addition, current economicsubstantial number of shares being sold or available for sale. If our shareholders sell substantial amounts of our ordinary shares, the market price of our ordinary shares may fall. Our ordinary shares are generally freely tradable, and capitalthe potential sales of such shares could cause the market conditionsprice of our ordinary shares to decline significantly. This might also make it more difficult for us to sell propertiesequity or might adversely affectequity-related securities in the future at a time and price we receive for properties that we do sell. Finally, attemptingdeem appropriate.
We are restricted from receiving dividends from Elbit Medical, PC and other subsidiaries.
The Elbit Medical Notes and the PC Notes include certain limitations on the distribution of dividends as well as subordination provisions, which would significantly limit our ability to sell any of our investments in real properties at an accelerated pace due togenerate cash flow needsfrom Elbit Medical and PC and may significantly affect our cash flow and operations. In addition, other subsidiaries of ours are subject to limitations on the payment of dividends by virtue of legal or regulatory restrictions in their respective jurisdictions. These limitations may have material adverse effects on our cash flow and in turn our ability to service our debts in timely manner.
If Elbit Medical or PC fail to comply with the provisions of the Elbit Medical Notes or the PC Notes, respectively, they may enter into liquidation or we may lose our control over Elbit Medical or PC
Both Elbit Medical and PC have a considerable amount of debt to serve in the coming year to the Elbit Medical Noteholders and the PC Noteholders. If Elbit Medical or PC will not be able to meet its obligations under the Elbit Medical or PC Notes the applicable party will enter into a default under its Notes and there is no obligation or assurance that we will be able to further support Elbit Medical or PC. Such defaults may lead to creditors realizing liens imposed on the assets of Elbit Medical and PC. In addition, PC’s audited financial statements for the year ended December 31, 2017 includes a going concern note. Such default may result in massive dilution of our receiving lower purchase price for such investments.holdings causing us to lose our control over PC or the liquidation of PC, which would result in the loss of our investment in PC. Furthermore, PC is already in default under its Notes and its Noteholders may decide to exercise their rights to exercise the liens they have on PC’s assets.
Our EI Notes and PC Notes are subject to changes in the consumer price index which may have a negative impact on our earnings, balance sheet and cash flows.
The principal and interest of most of our and PC debt instruments are determined by reference to the Israeli consumer price index (the “CPI”), which may entail significant risks not associated with similar investments in a conventional fixed or floating rate debt security. The historical value of the CPI is not indicative of future CPI performance and its value is affected by, and sometimes depends on, a number of interrelated factors, including direct government intervention and economic, financial, regulatory, and political events, over which we have no control. An increase in the CPI will result in additional financing expenses to our profits and losses and will have a negative impact on our cash flows. Currently we do not have any material hedges against fluctuations in the CPI.
The failure to comply with government regulation may adversely affect our business and results of operations.
Our business is subject to numerous national and local government regulations, including those relating to acquisition of real estate properties, building and zoning requirements, fire safety control, access for the disabled, environmental law and health board reviews and standards. In addition, we are subject to laws governing our relationships with employees, including overtime and working conditions. A determination that we are not in compliance with these regulations could result in the imposition of fines, an award of damages to private litigants and significant expenses in bringing our operations into compliance with such laws and regulations.
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Operating globally exposes us to additional and unpredictable risks.
We conduct our businesses in multiple countries. Our future results could be materially adversely affected by a variety of factors relating to international transactions, including changes in exchange rates, general economic conditions, regulatory requirements, dividend restrictions, tax structures or changes in tax laws or practices, and longer payment cycles in the countries in our geographic areas of operations. International operations may be limited or disrupted by the imposition of governmental controls and regulations, political instability, hostilities, natural disasters and difficulties in managing international operations. In the CEE region and India, laws and regulations, particularly those involving taxation, foreign investment and trade, title to securities, and transfer of title that are applicable to our activities, can change quickly and in a far more volatile manner than in developed market economies. We cannot assure you that one or more of these factors will not have a material adverse effect on our international operations and, consequently, on our business, financial condition results of operations and our cash flow. A failure to effectively manage the expansion of our business could have a negative impact on our business.
If we are characterized as a passive foreign investment company for U.S. federal income tax purposes, U.S. holders of ordinary shares may suffer adverse tax consequences.
Generally, if for any taxable year, after applying certain look through rules, 75% or more of our gross income is passive income, or at least 50% of the value of our assets, averaged quarterly, are held for the production of, or produce, passive income, we will be characterized as a passive foreign investment company (“PFIC”), for U.S. federal income tax purposes. Our PFIC status is determined based on several factors, including our market capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions and methodologies upon which we base our analysis. A determination that we are a PFIC could cause our U.S. shareholders to suffer adverse tax consequences, including having gains realized on the sale of our shares taxed at ordinary income rates, rather than capital gains rates, and being subject to an interest charge on such gain. Similar rules apply to certain “excess distributions” made with respect to our ordinary shares. A determination that we are a PFIC could also have an adverse effect on the price and marketability of our shares. If we are a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning our ordinary shares. Accordingly, you are urged to consult your tax advisors regarding the application of such rules.
Changes to the U.S. federal tax laws, including the recent enactment of certain tax reform measures, could have an impact on a shareholder’s investment in the Company.
U.S. federal income tax laws and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. On December 22, 2017, P.L. 115-97 was signed into law making significant changes to U.S. federal tax laws. The impact of these provisions on the Company’s operations and on its investors is uncertain, and may not become evident for some period of time. Prospective investors are urged to consult their tax advisors regarding the effect of these changes to the U.S. federal tax laws on an investment in our shares.
If we do not satisfy the NASDAQ requirements for continued listing, our ordinary shares could be delisted from NASDAQ and from the TASE.
Our listing on the NASDAQ Stock Market is contingent on our compliance with the NASDAQ’s conditions for continued listing. One of such conditions is the timely filing of our Annual Report on Form 20-F with the Securities and Exchange Commission, in accordance with the requirement of the SEC.
For example, in May 2017, the Company received a notice from NASDAQ that it was not in compliance with Rule 5250(c)(1) because it failed to timely file the Form 20-F for the period ending December 31, 2016. The delay in filing the Form 20-F was the result of a disclaimer contained in the report of the auditor of Plaza Centers N.V. (an indirect subsidiary (45%) of the Company) in PC’s annual financial statements for 2016. As a result of this disclaimer, the Company’s auditor notified the Company that it was unable to provide an audit opinion regarding the Company’s financial statements for 2016. After the Company submitted a plan to regain compliance and other information, among others, NASDAQ ultimately granted the Company an extension until November 13, 2017 to file its annual report on Form 20-F and thereby regain compliance with the Rule 5250(c)(1). The Company filed its annual report on Form 20-F on November 13, 2017.
If a delisting were to occur, and our shares did not thereafter qualify for trading on the Nasdaq Global Market or the Nasdaq Capital Market, trading in our shares in the United States may be conducted, if available, on the Over the Counter Bulletin Board or another medium. In the event of such delisting, an investor may find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of, our shares, and our ability to raise future capital through the sale of our shares could be adversely affected. Moreover, we would be unable to use the SEC’s “short form” Form F-3 to register the offering and sale of securities, even for limited primary offerings. In addition, in the event of such delisting, we may be required to comply with enhanced reporting obligations under the Israeli securities laws, in addition to the reporting obligations under the U.S. securities laws, which could require additional management attention, increase our legal and accounting expenses and raise our exposure to sanctions for possible violations of Israeli securities laws.
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In addition, if a delisting or suspension from the number of prospective buyers interested in purchasing real estate properties mayNASDAQ were to occur, the Company’s shares and Notes likely would be limited. Therefore, if we want to sell onesuspended or more of the properties in our portfolio, we may not be able to dispose of the property in the desired time period and may receive less consideration than the book value of the property in our consolidated financial statement.
Before a property can be sold, we may be required to make expenditures to correct defects or to make improvements. We cannot assure investors that we will have funds available to correct those defects or to make those improvements, and if we cannot do so, we might not be able to sell the property, or might be required to sell the property on unfavorable terms. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could adversely affect our financial condition and results of operations.delisted from TASE.
Environmental discoveries may have a significant impact onIf PC and Elbit Medical Technologies Ltd. do not satisfy the budget, schedule, viability and marketability of our assets.applicable stock exchange conditions for continued listing, their shares could be delisted.
WeThe shares of PC are listed for trading on the main board of the London Stock Exchange under the symbol “PLAZ”, on the main list of the Warsaw Stock Exchange under the symbol “PLZ”, and on the Tel Aviv Stock Exchange under the symbol “PLAZ”. The shares of our subsidiary Elbit Medical Technologies Ltd. are listed on the Tel-Aviv Stock Exchange under the symbol “EMTC”. If PC or Elbit Medical Technologies Ltd. do not satisfy the conditions of the applicable stock exchange for continued listing (such as, but not limited to, free-float requirements), their shares could be delisted. Such occurrences would make the realization of those investments or any part thereof by us more difficult and could limit the possibility to attract new investors to those portfolios.
If the convertible notes issued by Elbit Medical are converted into ordinary shares of Elbit Medical, our holdings in Elbit Medical will be diluted.
On February 19, 2018, we announced thatElbit Medical completed a public offering of notes with a principal amount of NIS 180 million convertible into ordinary shares of Elbit Medical. The notes bear annual interest at 5% in the first two years and 10% in the remaining period and are convertible at any time until the maturity date of the notes, March 1, 2022, at a price per Elbit Medical ordinary share equal to NIS 1.47 in notes. In the event the entire principal amount of the convertible notes is converted into Elbit Medical ordinary shares, our holdings in Elbit Medical will be diluted and assuming no additional ordinary shares are issued by Elbit Medical, our holdings in Elbit Medical will be reduced to 58% of the issued share capital of Elbit Medical. In addition, the price per ordinary share of Elbit Medical may encounter unforeseen construction delays or compliance defaults due to factors beyond our control suchdecline as delays or defaults caused by previously unknown soil contamination ora result of the discoveryissuance of archeological findings which may have a significant impactnumber of shares.
If Elbit Medical defaults in its obligations to the holders of its convertible notes, the holders may foreclose on development budgetElbit Medical’s holdings in InSightec and schedulesGamida.
As described above, on February 19, 2018, we announced thatElbit Medical completed a public offering of notes with a principal amount of NIS 180 million convertible into ordinary shares of Elbit Medical. The notes bear annual interest at 5% in the first two years and which may,10% in turn, have a detrimental effectthe remaining period and are convertible into Elbit Medical ordinary share. The trust agreement of the notes includes certain limitations, including on the viability or marketabilityability of Elbit Medical to distribute dividends and raise additional debt. In addition, the development or cause legal liabilitynotes are secured by a pledge on a portion of Elbit Medical's holdings in connection with a portfolio asset. We may be liable for the costs of removal, investigation or remedy of hazardous or toxic substances located on orInSightec and Gamida in a site owned by us, regardless"value to loan" ratio of whether we were responsible for200%. In the presence of such hazardous or toxic substances. The costs of any required removal, investigation or remedy of such substances may be substantial and/or may resultevent Elbit Medical defaults in significant budget overruns and critical delays in construction schedules. The presence of such substances, or the failure to remedy such substances properly, may also adversely affect our ability to sell or lease such property or to obtain financing using the real estate as security. Additionally, any future sale of such property will be generally subject to indemnities to be provided by usits obligations to the purchaser against such environmental liabilities. Accordingly, weholders of its convertible notes, the holders may continue to face potential environmental liabilities with respect to a particular property even after such property has been sold. Any environmental issue may significantly increase the cost of a development and/or cause delays,foreclose on Elbit Medical's holdings in Insightec and Gamida, which couldwould have a material adverse effect on our business.
Our Ordinary Shares are traded on different markets and this may result in price variations.
Our ordinary shares are traded on the profitabilityTel Aviv Stock Exchange and on the Nasdaq Stock Market. Trading in our ordinary shares on these markets will be made in different currencies (NIS on the Tel Aviv Stock Exchange and USD on the Nasdaq) and will take place at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel). The trading prices of that developmentour ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our resultsordinary shares on any of operations and cash flows.these markets could cause a decrease in the trading price of our ordinary shares on the other market.
RISKS RELATING TO OUR MEDICAL COMPANIESISRAEL
Our medical companies are subject to extensive governmental regulation, which can be costly and subject our business to disruption, delays and potential penalties.
Our medical companies are subject to extensive regulation by the FDA and various other U.S. federal and state authorities and the EMA and other foreign regulatory authorities. The process of obtaining regulatory approvals to market a drug or medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, future products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues and substantial additional costs. In addition, no assurance can be given that our medical companies will remain in compliance with applicable FDA and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and post marketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns. Our medical companies’ facilities are subject to ongoing regulation, including periodic inspection by the FDA and other regulatory authorities, and they must incur expense and expend effort to ensure compliance with these complex regulations. Failure to comply with all applicable regulatory requirements may subject our medical companies to operating restrictions and criminal prosecution, monetary penalties and other disciplinary actions, including, sanctions, warning letters, product seizures, recalls, fines, injunctions, suspension, shutdown of production, revocation of approvals or the inability to obtain future approvals, or exclusion from future participation in government healthcare programs. Any of these events could disrupt our medical business.
InSightec’s future growth substantially depends on its ability to develop and obtain regulatory clearance and reimbursement for additional treatment applications for the ExAblate.
Our associate, InSightec Ltd. (“InSightec”), has received regulatory approvals to market the ExAblate in the United States, Israel, Canada, Russia, Korea, Taiwan, Australia, New Zealand, Singapore, Japan, China and the European Union Economic Area (“EEA”), which is comprised of the member nations of the European Union and certain additional European nations, solely for the treatment of uterine fibroids. In addition, InSightec received CE-marking (approval to market in the EEA), Israeli Ministry of Health approval and FDA approval for pain palliation of bone metastases, and in December 2016, CE approval was received for prostate cancer treatment as well. In December 2012, InSightec’s ExAblate Neuro system received the CE-marking for the treatment of neurological disorders in the brain including essential tremor, Parkinson’s disease and neuropathic pain. In July 2016, Insightec’s ExAblate Neuro system received FDA approval for the non-invasive treatment of essential tremor (ET) in patients who have not responded to medication. Similar approvals were received in Israel, Korea, Canada and Japan.
However, clinical experience for the approved applications is still in the early stages, and InSightec is in the process of obtaining reimbursements, therefore wide commercial acceptance is expected to take few years. InSightec’s objective is to expand the use of the ExAblate by developing and introducing new treatment applications, particularly for neurological applications. InSightec is currently in various stages of product development and clinical studies for a number of new treatment applications for the ExAblate. It will be required to obtain FDA approval in the United States and other regulatory approvals outside of the United States before marketing the ExAblate for these additional treatment applications. InSightec cannot guarantee that its product development activities for these other applications will be successful and if not, InSightec’s future growth will be harmed. In particular, InSightec’s future curative oncology treatment applications are subject to significant risks since these applications must be able to demonstrate complete ablation of malignant tumors, or meet or exceed the current medical standard related to the oncology application in question. If InSightec is unable to demonstrate this degree of efficacy, its future treatment applications may not prove to be successful. In addition, assuming product development is successful, the regulatory processes can be lengthy, lasting many years in some cases, and expensive. We cannot assure that FDA approval or other regulatory approvals will be granted.
In order to obtain FDA clearance and other regulatory approvals, and to obtain reimbursement coverage for use of the ExAblate treatment for additional applications, InSightec is required to conduct extensive clinical studies which may take several years to demonstrate the therapeutic benefits, absence of dangerous adverse side effects and cost-effectiveness of these new treatment applications and products. Clinical trials are expensive and may take several years to complete. If future clinical trials indicate that the ExAblate is not as beneficial or cost-effective as existing treatment methods, or that such products cause unexpected complications or other unforeseen adverse events, InSightec may not obtain regulatory clearance to market and sell the ExAblate for these additional treatment applications or obtain reimbursement coverage, and InSightec’s long-term growth would be seriously harmed.
Gamida’s future growth substantially depends on its ability to develop and obtain regulatory clearance for additional treatment applications for their products.
Our associate Gamida Cell Ltd. (“Gamida”), a leader in stem cell expansion technologies and therapeutic products, is substantially dependent on receiving FDA and other applicable regulatory approval of its products and is also required to conduct extensive clinical studies that may take several years to demonstrate the therapeutic benefits, absence of dangerous adverse side effects and cost-effectiveness of these new treatment applications and products.
In the event that Gamida does not receive regulatory approval to market and sell their products it would have a material adverse effect Gamida’s valuation and its ability to continue its current operations.
If the ExAblate systems do not achieve broad market acceptance, InSightec will not be able to generate sufficient sales to support its business.
InSightec must achieve broad market acceptance of the approved ExAblate systems among physicians, patients and third-party payors in order to generate sufficient sales to support its business. Physicians will not recommend the use of any of the approved systems unless InSightec can demonstrate that it produces results comparable or superior to existing alternative treatments. If long-term patient studies do not support InSightec’s existing clinical results, or if they indicate that the use of the particular approved systems has negative side effects on patients, physicians may not adopt or not continue to use them. Even if InSightec demonstrates the effectiveness of the approved systems, physicians may still not use the systems for a number of other reasons. Physicians may continue to recommend traditional treatment options simply because those methods are already widely accepted and are based on established technologies. Patients may also be reluctant to undergo new, less established treatments. If, due to any of these factors, the approved ExAblate systems do not receive broad market acceptance among physicians or patients, InSightec will not generate significant sales. In this event, InSightec’s business, financial condition and results of operations would be significantly harmed, and InSightec’s ability to develop additional treatment applications for the ExAblate would be adversely affected.
If physicians, hospitals and other healthcare providers are unable to obtain coverage and sufficient reimbursement from third-party healthcare payors for treatment procedures using the ExAblate, InSightec may be unable to generate sufficient sales to support its business.
In July 2016 some USA health insurance providers updated their policies to include treatments conducted by MRgFUS technologies and specifically treating pain palliation of bone metastases. In addition, in November 2016 the CMS organization (Centers of Medicare and Medicaid services) decided to rule the Exablate Essential Tremor treatment as entitled to reimbursement. The Decision of the CMS is an initial ruling at the national level and is the one of the steps required. It is a positive step but does not directly translate to coverage and payment. Additional decisions at the regional level need to take place in order to receive reimbursement. Reimbursement practices vary significantly from country to country and within some countries, by region. InSightec believes that third-party payors will not provide reimbursement on a national basis for treatments using the ExAblate, unless InSightec can generate a sufficient amount of data through long-term patient studies to demonstrate that such treatments produce favorable results in a cost-effective manner relative to other treatments. Furthermore, InSightec could be adversely affected by changes in reimbursement policies of private healthcare or governmental payors to the extent any such changes affect reimbursement for treatment procedures using the ExAblate. If physicians, hospitals and other healthcare providers are unable to obtain sufficient coverage and reimbursement from third-party payors for treatment procedures using the ExAblate, InSightec may be unable to generate sufficient sales to support its business.
Our medical companies’ operations (which include clinical trials) may lead to exposure to legal claims.
Our medical companies’ activities in the field of medical equipment and devices development include clinical trials, which raise exposure to legal claims due to bodily injury or side effects resulting from the usage of such medical devices or treatment or the negligence or improper usage of such equipment by our treatment staff. Any such claims could result in harm to our business and results of operations.
If the ExAblate is subject to a product recall, InSightec will not be able to generate sufficient sales to support its business.
If the ExAblate does not comply with regulatory standards or if it is subject to reports of damaging effects to patients, it may be subject to a mandatory recall by the relevant authorities and sales may be stopped until it can clear regulatory approvals once again. A recall may harm the reputation of InSightec and its products and its ability to generate additional sales of the ExAblate may be adversely affected.
InSightec and Gamida are dependent on further capital investments.
Until InSightec achieves broad market acceptance of the ExAblate and is able to generate sufficient sales to support its business and its research and development expenses, and until Gamida begins selling its products and generating positive cash flow, each of them will need to obtain additional capital investments to support its business in general and, in particular, its significant research and development costs and expenses. The current volume of sales and backlog of InSightec will not suffice to maintain its current cash burn-rate and expenditure levels. Each of InSightec’s or Gamida’s inability to obtain additional funding sources, particularly capital investments, might have a material adverse effect on its business and/or ability to continue its operations.
If InSightec and Gamida are unable to protect their intellectual property rights, their competitive position could be harmed. Third-party claims of infringement could require InSightec and Gamida to redesign their products, seek licenses, or engage in future costly intellectual property litigation, which could impact InSightec’s and Gamida’s future business and financial performance.
InSightec’s and Gamida’s success and ability to compete depends in large part upon their ability to protect their proprietary technology. InSightec and Gamida rely on a combination of patent, copyright, trademark and trade secret laws, and on confidentiality and invention assignment agreements, in order to protect their intellectual property rights. The process of seeking patent protection can be long and expensive, and there can be no assurance that InSightec’s and Gamida’s existing or future patent applications will result in patents being issued, or that InSightec’s and Gamida’s existing patents, or any patents, which may be issued as a result of existing or future applications, will provide meaningful protection or commercial advantage to InSightec and Gamida.
Claims by competitors and other third parties that InSightec’s or Gamida’s products allegedly infringe the patent rights of others could have a material adverse effect on InSightec’s or Gamida’s business. Any future litigation, regardless of outcome, could result in substantial expense and significant diversion of the efforts of InSightec’s and Gamida’s technical and management personnel. An adverse determination in any such proceeding could subject InSightec and Gamida to significant liabilities or require InSightec or Gamida to seek licenses from third parties or pay royalties that may be substantial.
InSightec’s and Gamida’s technology may become obsolete, which could materially adversely impact InSightec’s and Gamida’s future business and financial performance.
InSightec’s and Gamida’s success and ability to compete depends in large part upon their ability to develop and maintain unique and leading technologies and capabilities, providing medical solutions superior to alternative treatments and technologies. The discovery or development of more advanced, efficient or cost-effective treatments or technologies by third parties providing better solutions to the same diseases, could make InSightec’s or Gamida’s technologies or solutions inferior, obsolete or irrelevant. The rapid development and massive research and development activities in the medical areas in which these companies operate creates constant risk of such occurrence, which could adversely impact InSightec’s and Gamida’s future business and financial performance.
InSightec is dependent on General Electric until compatibility is reached with other parties.
As of the date of this annual report, ExAblate is compatible only with certain Magnetic Resonance Imaging (MRI) systems of GE Healthcare, a division of the General Electric Company (“GE”), which may limit InSightec’s potential market. A significant portion of the MRI systems in use in the United States and elsewhere are not GE MRI systems. On October 17, 2012, InSightec and GE entered into a Technology, Cooperation, and Distribution Agreement as amended on June 26, 2014, on March 30, 2015, and December 31, 2015 (the “Cooperation Agreement”) relating,inter alia, to product exclusivity, cooperation with respect to the development and sale of the parties’ complementary products, distribution, marketing and sales, intellectual property rights and licenses, sale terms and conditions, and similar items. We are no longer obligated to work exclusively with GE. In that regard, we announced on April 15, 2016, that InSightec signed a non-exclusive cooperation agreement with Siemens Healthcare GmbH (“Siemens”), a leading manufacturer and developer of diagnostic imaging equipment in general and Magnetic Resonance scanners specifically, to develop compatibility between InSightec’s MRI guided Focused Ultrasound Systems (MRgFUS) and Siemens’ MRI scanners with the intention to expand the MRgFUS market globally. Although we are no longer exclusively linked to GE, we are not fully compatible with Siemens due to technical and regulatory efforts and processes that need to be implemented. Until such time as our systems are compatible with Siemens, we remain dependent on GE.
In light of the above, although InSightec is contractually entitled to engage with third parties, it still depends on its collaboration with GE to ensure the compatibility of the ExAblate with new models of GE MRI systems and upgrades to existing GE MRI systems. GE regularly develops new models of its MRI systems, as well as new capabilities for its existing MRI systems, which could affect their compatibility with the ExAblate. If InSightec is unable to receive information regarding new models of the GE MRI systems or upgrades to existing GE MRI systems, and coordinate corresponding upgrades to the ExAblate to ensure continued compatibility with new and existing GE MRI systems, and if InSightec is unable to achieve collaboration with other MRI manufacturers and adjust its products to other MRI machines, its ability to generate sales of its system will be adversely affected. In addition, if InSightec is unable to coordinate new applications or upgrades with GE’s research and development team (or such teams of other MRI manufacturers), it may be unable to develop such applications or upgrades in a timely manner and its future revenue growth may be seriously harmed.
RISKS RELATING TO ISRAEL
Security and economic conditions in Israel may affect our operations.
We are incorporated under Israeli law and our principal offices are located in Israel. In addition, our operations in our other lines of business, such as Elbit Medical, operate in Israel. Political, economic and security conditions in Israel directly affect our operations. Since the establishment of the State of Israel in 1948, various armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon), and a state of hostility, varying in degree and intensity, has led to security and economic problems for Israel.
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In addition, acts of terrorism, armed conflicts or political instability in the region could negatively affect local business conditions and harm our results of operations. We cannot predict the effect on the region of any diplomatic initiatives or political developments involving Israel or the Palestinians or other countries in the Middle East. Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and have raised concerns regarding security in the region and the potential for armed conflict. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons, and the Islamic State of Iraq and Levant (ISIL), a violent jihadist group, is involved in hostilities in Iraq and Syria and have been growing in influence. Although ISIL’s activities have not directly affected the political and economic conditions in Israel, ISIL’s stated purpose is to take control of the Middle East, including Israel. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. This situation may potentially escalate in the future to violent events which may affect Israel and us.
Furthermore, some neighboring countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli firms and others doing business with Israel or with Israeli companies. Restrictive laws, policies or practices directed towards Israel or Israeli businesses could have an adverse impact on the expansion of our business. In addition, we could be adversely affected by the interruption or curtailment of trade between Israel and its trading partners, a significant increase in the rate of inflation, or a significant downturn in the economic or financial condition of Israel.
Service and enforcement of legal process on us and our directors and officers may be difficult to obtain.
Service of process upon our directors and officers, all of whom reside outside the United States, may be difficult to obtain within the United States. Furthermore, since the majority of our assets and all of our directors and officers are located outside the United States, any judgment obtained in the United States against us or these individuals or entities may not be collectible within the United States. Additionally, it may be difficult to enforce civil liabilities under U.S. federal securities law in original actions instituted in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that Israel is not the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing these matters. For more information, see below under “Enforceability of Civil Liabilities.”
Furthermore, theour Debt Restructuring included an exemption from personal civil liability with respect to our then-current officers and directors, other than Mr. Mordechai Zisser, for actions and omission during the period preceding the consummation of the Debt Restructuring. This also limits the ability to pursue legal action against such individuals.
Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.
Provisions of Israeli corporate law may have the effect of delaying, preventing or making more difficult a merger or acquisition involving us. The Companies Law generally provides that a merger be approved by the board of directors and a majority of the shares present and voting on the proposed merger. For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares not held by the other party to the merger (or by any person who holds 25% or more of the shares or the right to appoint 25% or more of the directors of the other party or its general manager) have voted against the merger. Upon the request of any creditor of a party to the proposed merger, a court may delay or prevent the merger if it concludes that there is a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations of the surviving company. Finally, a merger may not be completed unless at least (i) 50 days have passed since the filing of a merger proposal signed by both parties with the Israeli Registrar of Companies and (ii) 30 days have passed since the merger was approved by the shareholders of each merging company.
The Companies Law also provides that an acquisition of shares of a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become (i) a 25% or greater shareholder of the company unless prior to such acquisition there is already another 25% or greater shareholder of the company or (ii) a 45% or greater shareholder of the company unless prior to such acquisition there is already a 45% or greater shareholder of the company. These requirements do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval or (ii) was from a 25% or 45% shareholder, as the case may be. The tender offer may be consummated only if (i) at least 5% of the company’s outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer. In addition, under our amended articles of association, a person seeking to cross the 25% ownership threshold is required to offer to purchase at least 10% of our outstanding ordinary shares in such a tender offer. In any event, if as a result of an acquisition of shares the purchaser will beneficially own more than 90% of a company’s shares, the acquisition must be made by means of a tender offer for all of the remaining shares. Shareholders may request an appraisal in connection with a tender offer for a period of six months following the consummation of the tender offer, but the purchaser is entitled to stipulate that any tendering shareholder surrender its appraisal rights.
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Finally, Israel tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges its ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
The described restrictions could prevent or make more difficult an acquisition involving us, which could depress our share price.
RISKS RELATING TO EASTERN EUROPE
We are subject to various risks related to our operations in Eastern Europe, including economic and political instability, political and criminal corruption and the lack of experience and unpredictability of the civil justice system.
Many of the Eastern European countries in which we operate are countries which were allied with the former Soviet Union under a communist economic system, and subject us to various risks. Certain Eastern European countries, in particular those countries that are not expected to join the European Union in the near future, are still economically and politically unstable and suffer from political and criminal corruption, lack of commercial experience, unpredictability of the civil justice system, land expropriation, changes in taxation legislation or regulation, changes to business practices or customs, changes to laws and regulations relating to currency repatriation and limitations on the level of foreign investment or development. These risks could be harmful to us and are very difficult to quantify or predict. We will be affected by the rules and regulations regarding foreign ownership of real and personal property. Such rules may change quickly and dramatically and thus may have an adverse impact on ownership and may result in a loss without recourse of our property or assets. Domestic and international laws and regulations, whether existing today or in the future, could adversely affect our ability to market and sell our properties and could impair our profitability. With respect to our operations in Romania, any foreign company or litigant may encounter difficulties in prevailing in any dispute with, or enforcing any judgment against, the Romanian government or officers or directors under the Romanian legal system. The joint venture in relation to the Casa Radio site in Bucharest is governed by the public-private partnership laws of Romania pursuant to which no projects have yet been implemented in Romania. There is a risk that the legal structure of this partnership may be challenged in the future and that the development and exploitation rights to be granted by the Romanian government to the joint venture company are more restrictive than currently anticipated, leading to us being unable to obtain the development profits predicted for the project. Recent political changes in Romania have resulted in delays in receiving required communications, regulatory approvals and permits from the Romanian government, which may affect our ability to develop and sell our projects there. Furthermore, third parties could challenge the Romanian government’s decision, following the failure of the original partners to fulfill their obligations or to put the contract out to tender or to carry out a new site valuation. A successful challenge on either count could result in us having to enter a new tender process, which would lead to an increase in associated expenses and uncertainty.
Certain Post-Communist Eastern Europe countries initiated legislation that cancels and nullifies transactions involving real estate that were subject to confiscation, condemnation or eminent domain proceeding by the former communist regime. While we make every effort to conduct thorough and reliable due diligence investigations, in some countries where former communist regimes carried out extensive land expropriations in the past, we may be faced with restitution claims by former land owners in respect of project sites acquired by it. If upheld, these claims would jeopardize the integrity of our title to the land and our ability to develop the land.
ExpropriationWe may be faced with restitution claims by former land owners in respect of landproject sites acquired by some countries by expropriation
While we make every effort to conduct thorough and reliable due diligence investigations, in some countries where former Communist regimes carried out extensive land expropriations in the past, we may be faced with restitution claims by former land owners in respect of project sites acquired by it. If upheld, these claims would jeopardize the integrity of our title to the land and our ability to develop the land, which may have a material adverse effect on our business, financial condition and/or results of operations.
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RISKS RELATING TO INDIA
Hostilities in India and other countries in Asia could have a material adverse effect on our financial conditions and results of operations.
India has from time to time experienced instances of internal terror attacks and hostilities with neighboring countries, including Pakistan and China. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel more difficult and such political tensions could create a greater perception that companies operating in India are usually involved in higher degrees of risk. Events of this nature in the future, as well as social and civil unrest within other countries in Asia or within India, could influence the Indian economy and could have a material adverse effect on our financial condition and results of operations. In addition, India has from time to time experienced social and civil unrest due to religious strife.
Changes in the economic policies of the Government of India or political instability could have a material adverse effect on our business.
Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector and significantly reducing the roles of the state governments in the Indian economy as producers, consumers and regulators. The Indian Government has announced policies and taken initiatives that support the continued economic liberalization pursued by previous governments. However, this trend of liberalization may not continue in the future. The rate of economic liberalization could change, and specific laws and policies generally affecting, among other things, foreign investments, currency exchange, local taxation legislation, repatriation of profits and other matters affecting our investments, as well as specifically affecting the sectors of commercial activity in which we operate, could also change. A significant shift in India’s economic liberalization and deregulation policies could materially adversely affect business and economic conditions in India generally, as well as our business operations in particular. In addition to potential economic instability, the Indian economy and business practices are relatively unsophisticated and lacking in experience, and there have been some instances of political and criminal corruption. Furthermore, India continues to suffer from high unemployment, low wages and low literacy rates. These risks could be harmful to us and are very difficult to quantify or predict. Indian governments are democratically elected, but are invariably comprised of a coalition of several political parties. The withdrawal of one or more of these parties from the coalition could cause the government to fall, resulting in political instability or stagnation pending new elections. Such events could delay or even halt the progress and development of the Indian economy and its receptiveness to foreign investment, and may have a material adverse effect on our business.
ITEM 4. | INFORMATION ON THE COMPANY |
A. | HISTORY AND DEVELOPMENT OF THE COMPANY |
Elbit Imaging Ltd. was incorporated in 1996 under the laws of the State of Israel. Our shares are listed on the NASDAQ Global Select Market (ticker symbol: EMITF) and on the Tel Aviv Stock Exchange (“TASE”TASE”). Our executive offices are located at 5 Mota Gur3 Shimshon Street, Petach Tikva 4952801, Israel. You may reach us by telephone at (972-3) 608-6000 or by fax at (972-3) 608-6050. Our address in the U.S. is c/o Elscint, Inc., 747 Third Avenue, 4th Floor, New York, N.Y. 10017-2803.
For a summary of our recent acquisitions, dispositions and other activities and of our capital expenditures and divestitures during the years 2014, 2015, 2016 and 2016,2017, and that are currently in progress, see “Item 5.5 – Operating and Financial Review and Prospects -– Overview.”
Recent Events
LOIInSightec’s Medical Updates
See “Item 4B – Business Overview – Medical Companies – Insightec – Clinical and Regulatory Development in InSightec’s Products”.
Gamida Medical Updates
See “Item 4B – Business Overview – Medical Companies- Gamida – Clinical and Regulatory Development”.
Approval of an offer of Settlement with the SEC in the matter of Alleged Violations of FCPA
On March 12, 2018, we announced that the SEC approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA, as follows:
In March 2016, PC announced that its board of directors became aware of certain issues with respect to certain agreements that were executed in the past by PC in connection with the Casa Radio Project in Romania that may indicate potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.
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In addition, in April 2017, the Company’s board of directors and PC’s board of directors became aware of certain issues with respect to an agency and commission agreement from 2011 regarding the sale in 2012 of property in the U.S. jointly owned by PC and the Company. The characteristics of the said agreements could raise red flags that this agreements may be a potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.
Upon the discovery of each of the cases described above, the Company appointed an internal committees to examine these events and at the same time updated the SEC.
The internal committees has concluded their examination of these matters and submitted their recommendations to the Company’s board of directors. The Company’s board of directors fully adopted the committee’s recommendations, and is working to implement them. Following discussions with the SEC regarding the potential violation of the requirements of the FCPA, the Company submitted an Offer of Settlement (“Offer”).
Solely for the purpose of the proceedings brought by or on behalf of the SEC and without admitting or denying the findings in the Offer (except as to the SEC’s jurisdiction over it and the subject matter of these proceedings, which are admitted) the Company consented to the entry of an order containing the SEC’s findings.
The SEC has determined to accept the Offer and ordered that:
● | Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), the Company cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. |
● | The Company paid a civil money penalty in the amount of $500,000 to the SEC for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). |
In determining to accept the Offer, the SEC considered remedial acts that the Company promptly undertook, its self-reporting, and its cooperation afforded to the SEC staff, including having conducted a thorough internal investigation, voluntarily providing detailed reports to the staff, fully responding to the staff’s requests for additional information in a timely manner, and providing translations of certain documents.
On March 29, 2018 we announced that further to our announcement regarding a settlement with the SEC involving concerns of violations of the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977), that a shareholder of the Company (the “Plaintiff”) has filed a motion with the Financial Department of the District Court in Tel-Aviv, Israel against the Company (the “Claim”) requesting the court to instruct the Company to disclose to the Plaintiff documents in connection with the events underlying the settlement.
The Company is currently examining the Claim with its legal advisors and intend to respond in due time. The Company is unable to estimate what will be the outcome of the Claim and/or how it will evolve.
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Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company
On February 19, 2018, the Company announced thatElbit Medical completed a public offering of notes convertible into ordinary shares of Elbit Medical and secured by a pledge on a portion of Elbit Medical’s holdings in InSightec and Gamida.
The main terms of the Notes are: (i) the total amount raised was NIS 180 million; (ii) the maturity date is March 1, 2022; (iii) the notes bear annual interest of 5% in the first two years and 10% in the remaining period, payable twice a year - in March and September; (iv) each NIS1.47 par value in notes are convertible into one Elbit Medical ordinary share; (v) the trust agreement of the notes includes certain limitations, including on the ability of Elbit Medical to distribute dividends and raise additional debt; and (vi) the Notes are secured by a pledge on a portion of Elbit Medical’s holdings in InSightec and Gamida in a “value to loan” ratio of 200%.
The use of proceeds from the Notes were as follows: (a) payment of all expenses in connection with the issuance of the notes (approximately NIS6 (approximately US$ 1.7 million)); (b) NIS18 million (approximately $ 5 million) to be deposited with the trustee and used for interest payments due on the notes for the first two years; (c) NIS 4 million (approximately $ 1 million) for ongoing operational expenses; and (d) the remaining proceeds will be used to repay Elbit Medical’s intercompany debt to the Company in the amount of approximately NIS 154 million (approximately $ 43 million). The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS2 million (approximately USD 580 thousand) will be converted to approximately NIS2 million par value Notes. The Notes were not registered under the U.S. Securities Act of 1933.
On March 9, 2018 the Company announced that following the completion of the offering of Elbit Medical Notes, Elbit Medical hadtransferred approximately NIS 151 million (approximately $ 43.7 million) to the Company as an early repayment on account of its debt to the Company. The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS 2 million (approximately $ 580 thousand) will be converted into approximately NIS 2 million of par value notes.
Agreement to sell a Plot in Bangalore, India
On June 19, 2017 we announced that Elbit Plaza India Real Estate Holdings Limited (“EPI”) signed a revised agreement in relation to the holdingsale of a 100% interest in a special purpose vehicle which holds a site in Bangalore, India to third party purchaser. The purchaser and EPI agreed that the purchase price will be amended to INR 338 Crores (approximately €44.2 million and approximately $47 million) instead of the INR 321 Crores (approximately €42 million and approximately $47 million) agreed to in the previous agreement signed in December 2015. As part of the revised agreement, INR 110 Crores (approximately €14.4 million and approximately $15 million) will be paid by the Purchaser in installments until September 1, 2018, when the final installment of INR 228 Crores (approximately Euro 29.8 million) will be paid to EPI. If the purchaser defaults prior to such date, EPI will be entitled to forfeit certain amounts paid by the purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement, signed in December 2015, will remain in place until the final closing.
On January 19, 2018 we announced that the purchaser announced that the remaining payments under the revised agreement will not be made due to certain change proposed by the Indian authorities that could potentially impact the development of the plot.
On February 21, 2018 we announced that despite the purchaser’s January 2018 announcement, the purchaser paid the January installment in the amount of INR 5 Crores (approximately €0.62 million).
On March 22, 2018 an amended revised agreement was signed and the Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8 million). Following the signing of the revised agreement the Purchaser paid EPI an additional INR 11 Crores (approximately €1.3 million) further to the INR 45 Crores (approximately €5.9 million) that were already paid during the recent year. An additional INR 82 Crores (approximately €10.8 million) will be paid by the Purchaser in unequal monthly installments until the final closing. The final closing is scheduled to take place on August 31, 2019 when the final installment of approximately INR 212 Crores (approximately €27.8 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
If the Purchaser defaults before the final closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the final closing.
InSightec Equity Round
See “Item 4B – Business Overview – Medical Companies–Insightec –Preferred stock investment round E”.
Gadish Settlement
On September 27, 2017, we announced that the district court in Israel approved in principle a settlement with the plaintiffs in a November 1999 claim initiated against us and certain other third parties, including former directors of the Company and Elscint Ltd. (our former subsidiary), in connection with the change of control in our Company and in Elscint and the acquisition of the hotel businesses and the Arena Commercial Center in Israel by Elscint in September 1999 from Europe Israel (our former controlling shareholder) (Gadish et al v. Elscint et al). This lawsuit was later certified in part as a class action.
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According to the settlement, the plaintiffs will receive compensation in the total amount of NIS 50 million (approximately $14 million). The Company is expected to pay NIS 4.65 million (approximately $ 1.3 million) of the said amount.
On January 17, 2018 the Company announced that the court has given its final approval of the settlement.
However, one of the plaintiffs initiated a motion for leave to appeal against the settlement claiming, rather superficially, that the settlement agreement is a result of a conspiracy in which the defendants “bought” the plaintiffs in order to dismiss their claim.
On April 20, 2018 The Supreme Court decided that the appellant is exempted from paying court fees but obligated to pay a 5,000 NIS deposit until May 6, 2018. Failing to pay the deposit could lead to striking out the appeal.
On that same day - April 20, 2018 - the District Court’s decided that the compensation for the plaintiffs will be held by the Plaintiff’s attorney in escrow and will not be distributed until it is clear that: (a) the appellant did not initiate an appellate procedure; or (b) an appellate procedure, if filed, and it ended without significantly changing the settlement agreement.
For further information with regards to the class action, please see Note 13A.(1) of our Annual Consolidated Financial Statements as of December 31, 2017.
Settlement between PC and its Israeli Noteholders
On September 27, 2017, we announced that PC announced that a dispute has arisen between PC's Israeli (Series A) bondholders and PC's Israeli (Series B) bondholders (the “Bondholders”) as to the allocation of funds received from sale of PC's real estate assets. Therefore PC announced that it intends to repay to its bondholders in Poland and the Bondholders (during October 2017), an aggregate amount of approximately €18,800,000 million, representing 75% of the funds Plaza received in the last quarter from sale of real estate assets.
On December 14, 2017, we announced that PC announced that the Israeli court has instructed that the mandatory repayment amounts due to the Bondholders should be allocated according to the ratios set out in PC’s restructuring plan. The court has also acknowledged that PC is not an interested party in this bondholder dispute and has granted PC a protective order from any claims in this respect.
On December 21, 2017, we announced that PC announced that the Israeli (Series A) bondholders triggered the immediate repayment of the entire outstanding debt under the Series A trust deed.
On January 11, 2018, the Company announced that PC announced that a settlement agreement has been reached and approved between the Bondholders regarding the allocation of funds to be repaid by PC among the Bondholders. As part of the settlement agreement, the (Series A) Bondholders have agreed to withdraw their demand for immediate repayment which resulted from a dispute between the Bondholders as to the allocation of funds received from the sale of PC’s real estate assets.
Sale of our holdings in the Radisson complex in Bucharest, Romania
In December 2017, we signed an amendment to the trust deed of (Series H) and (Series I) note according to which the collateral relating to Elscint Holding and Investment NV (“EH”) was canceled, and in return the Company undertook to use 75% of the net proceeds from the future sale of the Radisson Hotel Complex in Bucharest, Romania for an early repayment of Series H notes. In addition, the Company undertook to pledge the repayment of the vendor loan (which will be given to the purchaser) in favor of (Series H) and (Series I) bondholders.
On August 18,December 19, 2017, we announced that a Company’s wholly owned indirect subsidiary (“Seller”) has signed a non-binding LOI with an international investment fund (the “Purchaser”) to sell its entire shareholding (approximately 98.2%)we completed the sale of our holdings in a company owningSPV that held the Radisson complexHotel Complex in Bucharest, Romania (“Target Shares”), based on a Property Valueproperty value of Euro 169.2 million so that the net proceeds received by the SPV was approximately Euro 81 million.
The following amounts were deducted from the net proceeds (as a result of which the SPV received total cash of approximately €177.5 million (approximately $187Euro 61.4 million) (the “Transaction”). The consummation of the Transaction, which expected to occur within three to four months from the signing of the LOI, is subject to the fulfillment of certain conditions, including inter alia:: (i) the successful conclusion by the Purchaser of its due diligence investigations; (ii) the signing of a binding share purchase agreement (“SPA”); and (iii) the fulfillment of certain conditions precedent as will be finally determined in the SPA, including obtaining the approval of the Romanian Competition Council, and the obtaining of an externally sourced financing by the Purchaser. Our net proceed will be calculated following the repayment of our outstanding loan to Bank Hapoalim Ltd. in the secured bankamount of approximately Euro 11.6 million (the “Loan”); (ii) €8 million used to finance a vendor loan customary working capital adjustments and other agreed adjustments aswhich has been provided by the SPV to the purchaser for a period of three years, bearing interest at a rate of 5% per annum.
In accordance with the provisions of the closing date. During the period starting on the dateAmended Trust Deed of our Series H and Series I notes, we used 75% of the signing of the LOI and terminating on the earlier to occur of the date of the execution of the SPA, or the date of the termination of the LOI by either party, the Seller and its representatives have undertaken to refrain from negotiating with any other third party other than the Purchaser for the purpose of selling the Target Shares or the Radisson complex.
On November 8, 2017, we announced that after the completion by the Purchaser of its due diligence investigations, agreement has been reached with the Purchaser so that the estimated net proceeds to the Company deriving from the sale thereof for an early repayment of its Target Shares is anticipated to be approximately Euro 80 million,our Series H notes on January 5, 2018 in the total amount of which a certain amount will be granted as an interest bearing Vendor Loan to the Purchaser. In addition, the Company and the Purchaser agreed that the signing and execution of the Share Purchase Agreement between the parties shall take place not by later than November 23, 2017 and that the exclusivity period will be extended till that date. The Company anticipates that the closing and consummation of the transaction will take place during the course of the month of December 2017.NIS 240 million.
Completing the sale of plots in Timisoara and Constanta, Romania, by PC
On August 7, 2017, we announced that PC has completed the sale of a plot totaling approximately 32,000 sqm in Timisoara, Romania, for €7.25 million (approximately $7.65 million) and a plot totaling approximately 30,000 sqm in Constanta, Romania, for €1.3 million (approximately $1.37 million).
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Investment in Gamida Cell
On July 10, 2017, we announced that an approximately $40 million private financing investment round in Gamida Cell has been completed (the “Investment”“). The Investmentinvestment was led by Shavit Capital Fund joined by the pharmaceutical company Novartis and additional investors, including VMS Investment Group, Israel Biotech Fund, IHCV and Clal Biotechnology Industries (the “Investors”). Following the Investment, a preferred shares were allotted to the Investors, based on $120 million pre-money valuation to Gamida Cell (the “Allotted Shares”). In addition, the investors received options to preferred shares in the amount of 60% of the Allotted Shares. The exercise price of the options is 120% of the shares price which have been paid on the Investment closing date. The options will expire 5 years after the Investment closing date. Elbit Medical didn’t take part in the Investment. Following the closing of the Investment, Elbit Medical holds approximately 17.87% of the share capital in Gamida (13.63% on a fully diluted basis). As of the date herein, there is no certainty that the Investors will exercise their options. Gamida informed the Company that the Investment proceeds will be used to (i) complete Nicord©’s Phase III clinical trial andtrial; (ii) to prepare for product commercialization by expanding its in-house manufacturing capacity,capacity; (iii) expanding Gamida’s presence in the US, as well asUS; (iv) continuing to develop additional pipeline products.
FDA approval of Insightec’s Phase III clinical trial for the treatment of dyskinesia symptoms or motor fluctuations of advanced Parkinson’s disease
On October 25, 2017 we announced that the FDA has approved the commencement of Phase III clinical trial for the treatment of neuropathic pain by Insightec’s Exablate Neuro system, for treating dyskinesia symptoms or motor fluctuations of advanced Parkinson’s disease patients who have not responded to medication. Insightec estimates that Parkinson’s disease afflicts millions of people worldwide, including approximately one million in the United States alone with 60,000 additional diagnoses each year. Treatment with the Exablate Neuro is intended to improve motor function and reduce dyskinesia, one debilitating symptom that presents as uncontrolled, involuntary movement of the arms and/or legs.
FDA approval of Insightec’s Phase I clinical trial for the treatment of Neuropathic Pain
On June 26, 2017, we announced that the FDA has approved the commencement of Phase I clinical trial for the treatment of neuropathic pain by Insightec’s Exablate Neuro system (the “Trial”). The Trial will include 10 patients and will be fund by the Focused Ultrasound Foundation. Insightec is the regulatory sponsor of the clinical Trial. The purpose of the Trial is to examine the safety and the efficiency of the treatment.
LOI regarding the saleSale of Torun Plaza
On June 21 November, 2017 we announces that PCone of PC’s subsidiaries has signed a non-binding LOI with an investment fund (the “Purchaser”) regardingcompleted the sale of Torun Plaza shopping and entertainment center in Poland (the“Asset”). Should the transaction proceed towards a signed share purchase agreement, following a due diligence process, PC will receive approximately €70 million (approximately $74 million) followed by additional payments up to a maximum potential amount of €4 million (approximately $4.2 million) after an additional earn out period following the closing of the transaction. The expected net proceeds to PC, following the repayment of the related bank loan are estimated to be approximately €27 to 29 million (approximately $28 to 30 million). On August 31, 2017, we announced that the completion of the transaction has been postponed and is now expected to conclude in the fourth quarter of this year. On October 25, 2017 we announced that private investment fund.
PC has concluded the final terms regarding the sale of shares in the SPV holding the Asset to the Purchaser. The signing of the transaction has been set for the beginning of November 2017, with final closing and settlement expected by the end of November, conditional on the Purchaser receiving bank financing, which was already approved andreceived circa EUR 28.3 million. This net cash is expected to be concluded during November 2017. The agreement reflects an estimated value for the Asset of €70.6 million including an additional forecasted payment at the end of May 2018 for new leases signed by the end of April 2018 (if and to the extent that such agreements will be signed) (“earn out period”). The total expected net proceeds to PC, followingafter the deduction of the related bank loan earn out period,(circa EUR 43.3 million), and other working capital adjustments in accordance with the balance sheet of the SPV are estimated to be approximately €29.4 million. On November 6, we announced that PC has signed a definitive Share Purchase Agreement regarding the sale of shares in the SPV holding the Asset toProject. The above-mentioned sums do not include the Purchaser.earn-out payments in an amount of EUR 0.35 million, reduced by NAV adjustment of EUR 0.2 million. PC anticipates thatrecorded revenue of EUR 71.6 million from the closingdisposal and settlementa loss of circa EUR 1.5 million (not including the transaction will take place by the end of November.earn-out payment mentioned).
Agreement to sell aSale of Land plot in Bangalore, IndiaBudapest, Hungary
On June 19,October 2, 2017, we announced that EPI signedPC’s subsidiary concluded a revisedtransaction with an international investor, NEPI Rockcastle (the “Buyer”), regarding the termination of land use rights and a preliminary easement agreement which created certain easement rights over the Arena Plaza plot registered in relation to the salefavor of a 100% interest in a special purpose vehicle which holds a site in Bangalore, India to a local investor (the “Purchaser”). The Purchaser and EPI have agreed that the purchase price will be amended to INR 338 Crores (approximately €47 million and approximately $50 million) insteadPC’s subsidiary. In consideration for termination of the INR 321 Crores (approximately €44.6land use rights and the preliminary easement agreement, PC’s subsidiary received the net sum of EUR 2.5 million (NIS 10.4 million) and approximately $50 million) agreedrecorded revenue in the previous agreement, signed on December 2015. As partamount of the agreement, INR 110 Crores (approximately €15.3EUR 2.5 million and approximately $16(NIS 10.4 million) will be paid by the Purchaser in installments until the Final Closing. The Final Closing will take place on September 1, 2018, when the final installment of INR 228 Crores (approximately €31.7 million and approximately $33 million) will be paid to EPI. If the Purchaser defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement, signed on December 2015, will remain in place until the Final Closing.
Gadish Settlement
Please see Item 3 “Key Information”, Section D “Risk Factors”, under “We are subject to a class actions proceeding that may have a material adverse effect on our results of operations and cash flow”.
Delay in Filing Form 20-F for 2016
In May 2017, the Company received a notice from NASDAQ that it was not in compliance with Rule 5250(c)(1) because it failed to timely file this Form 20-F for the period ending December 31, 2016. The delay in filing the Form 20-F was the result of a disclaimer contained in the report of the auditor of PC in PC’s annual financial statements for 2016. As a result of this disclaimer, the Company’s auditor notified the Company that it is unable to provide an audit opinion regarding the Company’s financial statements for 2016. After the Company submitted a plan to regain compliance and other information, among others, NASDAQ ultimately granted the Company an extension until November 13, 2017 to file its annual report this Form 20-F and thereby regain compliance with the Rule 5250(c)(1).
Insightec’s extension of FDA approval for treatment of Essential Tremor
On April 24, 2017 we announced that the FDA has extended its approval of Exablate Neuro system for a non-invasive treatment of essential tremor in patients who have not responded to medication and now it’s including the usage on 1.5 Tesla MRI systems (the former FDA approval, which was announced on July 12, 2016, was given for the usage of the Exablate Neuro on 3 Tesla magnet strength MRI systems).
Belgrade Plaza opened to the public
On April 21, 2017 we announced that PC has successfully opened Belgrade Plaza shopping center to the public. In line with the binding share purchase agreement with BIG Shopping Centers Ltd., as announced on March 2, 2017, PC received €2 million (approximately $2.1 million) for fulfilling its conditions around the successful opening of the center.
First treatment under Insightech’s Phase I clinical trial for opening the blood brain barrier in patients with early Alzheimer’s disease
On March 27, 2017 we announced that the first treatment was performed under Phase I clinical trial to investigate the use of Magnetic Resonance Imaging guided by Focused Ultrasound (MRgFUS) technology for opening the blood brain barrier in patients with early Alzheimer’s disease. The treatment was conducted at Sunnybrook Health Sciences Centre in Toronto, Canada and use the Insightec’s Exablate Neuro system. Insightec is the regulatory sponsor of the clinical trial.
Orphan Drug by the EMA for Nicord of Gamida
On March 23, 2017 we announced that the orphan drug designation which has been granted by the European Medicines Agency’s (EMA) Committee for Orphan Medicinal Products (COMP) regarding NiCord® has been broadened and now includes any treatment which based on blood system stem cells (haematopoetic stem cells) transplant. The EMA grants an orphan drug designation to promote the development of products that demonstrate promise for the treatment of rare diseases. EMA Orphan drug designation provides 10 years of market exclusivity in the EU, as well as, prospective grants receiving easement and assistant with developing and registration of drugs for marketing.
Sale of Belgrade Plaza commercial center–center
On March 2, 2017 we announced that PC has completed the sale of Belgrade Plaza commercial center to BIG Shopping Centers Ltd. (the “Purchaser”“Purchaser”). The commercial center was opened in April 2017 and PC remained responsible for the development and leasing of the asset until the opening. FollowingUpon the successful sale,completion of the transaction PC has received an initial advance payment of approximately €31.5€31.7 million ($33 million) from the Purchaser for the sale of 100% of the SPV. This will be followed bySPV, further payments of EUR 13.35 ($ 16 million) million has been received during the first 12 months of operation, whichSeptember 2017.
Additional payments are subject tocontingent upon certain operational targets and milestones being met. BIG Shopping Centers Ltd.The purchaser has provided a guarantee to secure these future payments. The final agreed value of Belgrade Plaza, will be calculated based on a general cap rate of 8.25% on the sustainable NOI after 12 months of operation, which PC estimates will be approximately €7.2-7.5€6.2-6.5 million per annum. Parts of the NOI will be re-examined again after 24 months and 36 months of operation, which may lead to an upward adjustment of the final purchase price.
On September 14, 2017 we announced that Plaza has received a further payment of €13.4 million from the Purchaser, having met certain pre-agreed milestones
Sale of Suwałki Plaza commercial center
On February 1, 2017, we announced that PC completed the sale of Suwałki Plaza shopping and entertainment center in Poland to an investment fund for € 42.3 million (approximately $45 million). PC received approximately €16€17 million (approximately $17$18 million) net cash, after the repayment of the bank loan, and other working capital adjustments
Enrolling Phase III for Nicord and transplant of first patient
On December 12, 2016, Gamida announced that it has been cleared by the U.S. Food and Drug Administration to begin enrolling for the Phase 3, international, multicenter trial of Gamida’s NiCord® for patients with high risk hematological malignancies (blood cancers). (the “Trial”). In addition, Gamida has informed that clearance to begin enrolling for the NiCord study has also been received for an additional European territory. The Trial is planned to be a randomized-controlled study comparing transplantation of NiCord to that of un-manipulated umbilical cord blood. A total of 120 patients will be enrolled at transplantation centers throughout the US and Europe. Gamida estimates that patient recruitment will take approximately two years to complete. The primary endpoint of the study is to examine the time from transplant to engraftment of neutrophils. On February 28, 2017, we announced that the first patient has been transplanted in Gamida’s Phase 3 study of NiCord®, in development as a cure for patients with blood cancer. On October 10, 2016, Gamida announced that the FDA granted Breakthrough Therapy Designation status to NiCord, due to improvement in absorption of neutrophils blood cells in bone marrow transplant for patients with high risk hematological malignancies (blood cancers). Breakthrough therapy designation is granted to a drug that is intended to treat serious or life-threatening diseases, and that preliminary clinical evidence indicates that the drug may demonstrate substantial improvement on a clinically significant endpoint(s) over available therapies. A breakthrough therapy designation entitles the company to various benefits, such as: intensive FDA guidance, involvement of senior FDA managers in the process, option for a FDA rolling review of Nicord marketing approval application in the U.S (i.e. the FDA may agree to review parts of the application file which are submitted in phases, with no obligation of filling the whole file prior to the review commencement). .
Acquiring bank loan for PC’s plot in Brasov, Romania
On December 6, 2016, we announced that PC has acquired a bank loan of approximately €10 Million (approximately $10.5 million), which is held against PC’s plot in Brasov, Romania, for athe total consideration of €1.35 million (approximately $1.42 million). The transaction represents a discount of approximately 86.5% on the outstanding bank loan and the Lenderlender has transferred all the collateral granted with respect of the loan to PC, while also releasing PC from its recourse loan. As part of the terms of the transaction, the Lender has been granted a purchase option for a term of three years, to acquire the plot for €1.1 million.
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Klepierre Settlement
On December 6 , 2016, we announced, that we and Klepierre S.A. (“Klepierre”Klepierre”) reached a settlement relating to the International Court of Arbitration’s ruling on July 7, 2016, with respect to a transaction agreement between the parties, according to which PC is liable for an indemnification claim totaling approximately €2 million (approximately $2.1 million), including costs arising from the legal process. Since Klepierre is deemed a creditor under PC’s ongoing Restructuring Plan, payment of the principal amount due by PC under the indemnification claim is deferred to July 2018. However, due to our guarantee under the original transaction and according to Dutch law, we were obliged to pay the amount determined by the International Court of Arbitration. The settlement states, inter alia, that we will pay €1.2 million (approximately $1.3 million) to Klepierre and Klepierre shall release all of its claims against us, and our fully owned subsidiary, Elbit Ultrasound (Luxembourg) B.V./S.À.R.L. (who was also guarantor to PC) and PC.
Sale of Riga Plaza Center
On September 15, 2016 we announced that PC completed the sale of Riga Plaza shopping and entertainment center in Riga, Latvia, to a global investment fund. The agreement reflects a value for the business of €93.4 million (reflecting 100%)( approximately (approximately $99 million). Following a price adjustment mechanism and costs incurred in respect of the completion of the sale, PC received €17.8 million ( approximately(approximately $19 million) in cash after repayment of banks loan (representing PC’s share of the sale of the business), with an additional €0.7 million ( approximately(approximately $0.74 million) expected to be received within 24 months of the closing of the transaction.
Debt repayment agreement and Sale of Zgorzelec Plaza Commercial Center
On September 14, 2016 we announced that itPC completed the sale of the shares in Zgorzelec Plaza commercial Center in Poland. PC had previously signed a Debt Repayment Agreement (“DRA”DRA”) with the financing bank (the “Bank”“Bank”) of Zgorzelec Plaza commercial Center in Poland, which provides that, among other things, PC will make a payment of €1.1 million (approximately $1.16 million) (in escrow) to the Bank and the Bank will deposit (in escrow) Release Letters for: (i) releasing a mortgage in favour of the Bank from a plot of land of PC in the city of Leszno, Poland; (ii) releasing of a recourse right obligation (of €1.1 million) under the corporate guarantee of PC and an additional subsidiary of PC; (iii) subordination agreement; and (iv) submission for enforcement on the loan. A share purchase agreement was signed between PC and an appointed shareholder nominated by the Bank, after which the remainder of the DRA process was completed, including delivery of a Release Letters to PC, and removing a mortgage over an asset of PC in Leszno, Poland (valued at €0.8 million). PC recognizerecognized an accounting profit of approximately €9.2 million, stemming from the release of €23 million of the outstanding (and partially recourse) loan (including accrued interest thereof), against an outstanding asset valued at €12.7 million (approximately $13.4 million) and other working capital adjustments.
Notes Repurchase Programsbuy-back plans
On June 1, 2016 and August 18, 2016, we approved two new programs to repurchase up to NIS forty (40) million (approximately $10.4 million) and NIS 50 million (approximately $13.3 million), respectively of the Notes, which are traded on the Tel Aviv Stock Exchange. Our board of directors has determined that until further notice, we will purchase only Series H notes. The repurchases will be made from time to time in the open market on the Tel Aviv Stock Exchange, in privately negotiated transactions or in a combination of the two, commencing the date of the announcement of each of the programs and for a period of 12 months. The repurchase programs do not require us to acquire any or a specific amount of notes, and it may be modified, suspended, extended or discontinued without prior notice. Repurchase Notes under these programs depends on factors such as market conditions and legal compliance. Notes repurchased by us will be canceled and removed from trading.
The above mentioned repurchase programs are in addition to repurchase programs published by the Company in 2015 which were in the total amounts of NIS 90 million.
Notes | Date of approval of the plan | Maximum amount approved for the buyback | Amount of notes repurchased (in par value) | Actual amount used for the buyback | ||||
(Series H) | October 12, 2015 | NIS 50 million | 56 million | NIS 50 million | ||||
(Series H) | February 1, 2016 | NIS 40 million | 43 million | NIS 40 million | ||||
(Series H) | June 1, 2016 | NIS 40 million | 34 million | NIS 36 million | ||||
(Series H) | August 18, 2016 | NIS 50 million | 15 million | NIS 15 million | ||||
(Series I) | February 28, 2018 | NIS 50 million | 42 million | NIS 49 million | ||||
(Series H) | March 15, 2018 | NIS 57.6 million | 7 million | NIS 7 million |
Since the issuance of the Notes (in February 2014) tilluntil the date of this annual report, the Company has published 45 programs for the repurchase of up to NIS 180237.6 million of Series H notes. As of the date of this report the Company has purchased par value NIS 150155 million Series H notes for a total cash considerations of NIS 138148 million.
Non-Exclusive Cooperation Agreement with Siemens
On August 15, 2016, we announced thatSee “Item 4B – Business Overview – Medical Companies – Insightec Ltd. signed a non-exclusive cooperation– Cooperation agreement with Siemens Healthcare GmbH (“Siemens”), a leading manufacturer and developer of diagnostic imaging equipment in general and Magnetic Resonance scanners specifically, to develop compatibility between INSIGHTEC’s MRI guided Focused Ultrasound Systems (MRgFUS) and Siemens MRI scanners (the “Systems”) with the intention to expand the MRgFUS market globally (the “Agreement”). According to the Agreement, the Parties will cooperate regarding the performance of R&D, integration, testing and approving the compatibility of the Parties’ Systems. Each Party shall be solely responsible, at its own cost, to obtain the regulatory approval for its systems, and InSightec shall be solely responsible, at its sole cost, to obtain the regulatory approval for the combined system. Each Party shall bear all of its internal and external costs relating to its performance under the Agreement, except that InSightec shall reimburse Siemens an amount agreed upon in the Agreement, for its R&D costs. The Agreement also determines that each Party shall act independently in the marketing and sales of its component portion of the Combined System, and determines the amount InSightec shall pay Siemens for sales of the Combined Systems.
The term of the Agreement is five (5) years from the first commercial sale of the combined system and shall automatically renew for additional 1-year periods, unless either Party has provided a notice for its non-renewal or of its termination, in accordance with the terms of the Agreement.
Joint Development Agreement with respect to our Plot in Chennai, India
On August 2, 2016, we announced that a subsidiary of EPI (“SPV”SPV”) signed a Joint Development Agreement (“JDA”JDA”) relating to the plot in Chennai, India project, owned 100% by EPI. Under the terms of the JDA, the SPV will confer the property development rights to a reputable local developer (the “Developer”“Developer”) who will carry full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices. Development will commence subject to the obtainment of the required governmental/municipal approvals and permits, and it is intended that 67% of the land will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale. The SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units. In order to secure its obligation, the Developer will pay a total refundable deposit of INR 35.5 Crores (approximately €4.8 million), with INR 10 Crores (approximately €1.35 million) paid following the signing and registration of the JDA, INR 17 Crores (approximately €2.3 million) payable when planning permission for the first phase of the development project is obtained (the “Project“Project Commencement Date”Date”), and the remaining INR 8.5 Crores (approximately €1.15 million) payable six months after the Project Commencement Date.
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Termination of lease agreement - plot in Tiberius, Israel.
On August 1, 2016, we announced that we received from the Israeli Land Administration (“ILA”ILA”) an amount of approximately NIS 7 million ( approximately $1.8 million) (in addition to the amount of approximately NIS 13 million, which related to the release of bank guarantees discussed below) following the termination of our lease agreement with respect to a plot near Tiberius, Israel. The lease agreement was signed on July 2007, with the ILA, according to which, we leased a plot of approximately 44,600 square meters near Tiberius, Israel for a term of 49 years (through 2056). Following the termination of the Agreement,lease agreement, the ILA released two bank guarantees in the aggregated amount of approximately NIS 13 million, (approximately $3 million) which have been provided to the ILA in order to secure our undertakings under the Agreement.lease agreement. In addition, on December 1, 2016 we announced that the LA reimbursed to us a gross amount of approximately NIS 1727 million (approximately $4$7 million) with respect to development fees paid by us on account of the plot.
FDA Approval of Exablate Neuro system
On July 12, 2016, we were informed by Insightec Ltd., that the FDA approved its Exablate Neuro system for a non-invasive treatment of essential tremor (ET) in patients who have not responded to medication. Exablate Neuro uses focused ultrasound waves to precisely target and ablate tissue deep within the brain with no incisions or implants. The treatment is done under Magnetic Resonance Imaging (MRI) guidance for real time treatment monitoring. Essential tremor is the most common movement disorder, affecting more than 5 million people in the United States, and millions more worldwide. Hand tremor is the most common symptom, but tremors can also affect the head, arms, voice, legs, and torso. For these patients, performing everyday tasks presents a challenge and impacts their quality of life.
Sale of Plot and Related Real Estate in Belgrade, Serbia
On June 29, 2016, we announced that PC completed the sale of its wholly owned subsidiary, which holds the “MUP” plot and related real estate in Belgrade, Serbia, for €15.75 million (approximately $16.2 million). that were paid in several installments until October 2017. MUP is a prominent development site at the location of the former Federal Ministry of Internal Affairs, at the entrance to Belgrade’s old town and on the city’s main thoroughfare. The purchaser has paid the initial amount of €11.3 million (approximately $12 million) in cash to PC, €4.05 million (approximately $4.2 million) were paid in January 2017. The consideration has been received in September 2017. In October 2017 PC has received the final payment of €1 million (approximately $1.1 million) for the sale of the MUP plot in Belgrade, Serbia. The final payment comprises the €400,000 (approximately $420,000) purchase price for the asset, together with an additional €600,000 (approximately $630,000) which had been conditional upon the purchaser receiving development rights for the plot of at least 69,000 sqm above ground.
Reverse Share Split
On June 28, 2016, following Board unanimous recommendation our shareholders authorized the effecting of a reverse share split of shares at a ratio of one-to-three in order to increase the per share trading price of our ordinary shares to satisfy Nasdaq’sNASDAQ’s Listing Rule 5450(a)(1) which requires that listed stocks maintain a closing bid price in excess of $1.00 per share for continued listing on the Nasdaq Global Select Market.NASDAQ. For more information, see “Item 3 – Risk Factors – General Risks -– If we do not satisfy the NASDAQ requirements for continued listing, our ordinary shares could be delisted from NASDAQ.”
Sale of Plot in Lodz, Poland
On June 28, 2016, we announced that PC signed an agreement for the sale of a 20,700 sqm.square meter plot of land in Lodz, Poland, to a residential developer, for €2.4 million (approximately $2.5 million). Following this transaction, the Company owns a remaining 4,000 sqm site.
The conditional agreement will be followed by a transfer agreement which is expected to be signed by the end of August 2016. On transfer, PC will receive an initial payment of €1.04Company received €1.44 million (approximately $1.1 million), followed by €180,000 (approximately $190,000) in November 2016 €220,000 (approximately $230,000) in December 2016installments, and a final instalmentinstallment of €0.96 million (approximately $1 million)was received in June 2017.
Loan Agreement for Belgrade Plaza Shopping and Entertainment center
On June 21, 2016, we announced that PC signed a €42.5 million (approximately $45 million) loan agreement to support the development of Belgrade Plaza (Visnjicka) in the Serbian capital, Belgrade, from a consortium of banks led by the Hungarian bank OTP Bank Plc. As for the sale of Belgrade Plaza and the repayment of the loan agreement.
Approval of Exablate Neuro by Health Canada
On May 24, 2016 we announced that Health Canada has approved its Exablate Neuro system for the treatment of essential tremor. INSIGHTEC’s Exablate Neuro platform is transforming medicine by presenting a non-invasive treatment alternative that combines two technologies: Focused Ultrasound, which is used to lesion the targeted tissue deep in the brain, and Magnetic Resonance Imaging (MRI), which is used to guide the ultrasound waves to the specific target tissue and provide real-time feedback on treatment progress and outcomes.
Sale of Liberec Plaza Commercial Center
On March 31, 2016, we announced that PC has completed the sale of its subsidiary holding Liberec Plaza, commercial center in the Czech Republic, for €9.5 million (approximately $10 million). Following net asset value adjustments related to the subsidiary’s balance sheet, PC received net €9.37 million (approximately $10 million).
Addendum to Loan Agreement with Bank Hapoalim
On March 22, 2016, we announced that we had signed an addendum to the loan agreement with Bank Hapoalim B.M. (the “Bank”“Bank” and “Loan Agreement”“Loan Agreement”), that will cancel and replace the previous loan agreement (the “Addendum”“Addendum” and the “Loan”“Loan”). Under the Addendum, subject to the prepayment of €15.0 million (approximately $16 million) to the Bank by March 31, 2016, the following new terms will apply to the loan: (i) the repayment schedule of the Loan will be as follows: €7 million (approximately $8 million) will be repaid on November 30, 2016 and the balance will be repaid on November 30, 2017 instead of one single payment in February 20, 2017 in the existing Loan Agreement; (ii) we will not have prepayment obligations for the planned Notes repurchase program which will be executed by us during 2016 for an amount up to NIS 50 million (approximately $13 million); and (iii) any net cash flow that will be received by us from the refinancing of the Radisson Blu hotel in Bucharest Romania in an amount up to €97 million shall not have repayment obligations, and shall be used by us at our sole discretion.
The loan was repaid in full through the sale of our holdings in the Radisson complex in Bucharest, Romania. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania”
Refinance of Hotel in Bucharest
On March 10, 2016, we announced that our subsidiary Bucaresti Turism SA (Romania) (“BUTU”) entered into a definitive credit facility agreement with Raiffeisen Bank International A.G and Raiffeisen Bank S.A., leading international European banks, as lenders, (“Lenders”Lenders”) to amend the facilities agreement between the parties entered into on September 16, 2011, as amended. According to the definitive facility agreement, the lenders will increase the loan under the facilities agreement up to €97 million (approximately $102 million). The new facility can be drawn down in two Tranches, with the first Tranche in the amount of up €85 million, (approximately $89 million) and the second Tranche in the amount of up to €12 million (approximately $13 million). The proceeds of the new facility shall be used, inter alia, to prolong the outstanding facility under the existing facility agreement in the amount of approximately €60 million (approximately $63 million). The surplus of the new facility will be used for the repayment of all existing shareholder loans granted to BUTU by Elbit Group. On March 24, 2016, the first draw down in an amount of €85 million (approximately $93 million) was closed. The net cash received by us was approximately € 24.4 million (approximately $27 million). On November 21, 2016, we announced BUTU reached the effective date for the drawdown of the second tranche of the loan in the amount of €12 million (approximately $13 million).
An agreement for the sale of Land Plot in Kochi, India
On January 15, 2016, we announced that we signed an agreement to waive any of our rights and interest in a special purpose vehicle which holds a land plot in Kochi, India. The total consideration for us is INR 10 Crores (approximately €1.4 million), which will be paid to us upon the closing of the transaction. The transaction is subject to certain conditions precedent, and closing will take place once these conditions are met and no later than December 31, 2017. The local Investor has provided certain security in order to guarantee the aforementioned deadline.
PC Debt Restructuring
On November 18, 2013, our subsidiary PC announced that it had filed for reorganization proceedings (preliminary suspension of payments) with the District Court of Amsterdam in the Netherlands (the “Dutch Court”“Dutch Court”) and submitted a restructuring plan to the Dutch Court proposed to its creditors, which was further amended (the “Amended“Amended PC Plan”Plan”). The Amended PC Plan proposed,inter alia, that all principal payments of any unsecured debt due during 2013-2015 be deferred for three years from the date of approval of the Amended PC Plan by the Dutch Court (“Approval Date”Date”). If within two years from the Approval Date PC manages to repay 50% of such unsecured debt, then the remaining principal payments shall be deferred for an additional one year. Under the Amended PC Plan, following the removal of the suspension of payments order by the Dutch Court, PC will be required to assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of its unsecured debt, to be allocated among the holders of such unsecured debt. PC will be permitted to make investments only if its cash reserves contain an amount equal to general and administrative expenses and interest payments for such unsecured debt for a six-month period. The Amended PC Plan was made contingent upon a cash injection of approximately €20 million in PC, by way of a rights issuance (the “Rights Offering”“Rights Offering”), under which, we, PC, and its directors and officers would be fully released from all claims. On June 23, 2014, subject to the application of certain conditions precedent, we undertook to exercise (or procure that other persons will exercise) all of our rights in the proposed Rights Offering and to procure subscriptions for any unexercised portion of the Rights Offering (the “Undertaking”“Undertaking”). On June 26, 2014 PC announced that a majority of its creditors voted to approve the Amended PC Plan, and on July 10, 2014, the Dutch Court approved the Amended PC Plan, with the Approval Date being July 18, 2014, upon which PC’s management resumed full control of PC’s business. On December 19, 2014, PC announced that it had successfully completed the Rights Offering.
On December 1, 2016, we announced that the holders of PC’s Series A PC notes, Series B PC notes and Polish PC notes have approved the following proposed amendments by the required majorities, with immediate effect: The proposed amendments include, inter alia, the postponement of the early prepayments term, as determined in the Amended PC Plan, by up to four (4) months, and the reduction of the requested early prepayments term’s total amount to at least NIS 382,000,000.
As part of the proposed amendments, PC will pay, on March 31, 2018, a one-time payment of 0.25% of PC’s outstanding debt. In addition, PC agreed with the PC Noteholders that in the event of successful sale of the Casa Radio project in Bucharest, Romania (the “Project”“Project”), including by way of sale of PC’s holdings in the Project (but excluding the injection of monies into the Project by a third party), prior to the full repayment of the relevant PC Notes, and in no event later than December 31, 2019, and provided that the net proceeds actually received by PC from such sale exceed €45 million (the “Minimum Proceeds”“Minimum Proceeds”), PC will pay to the PC Noteholders additional one-time payment which is derived from the net proceeds actually received by PC on top of the Minimum Proceeds, which can be in a range of between €1 and approximately €11 million.
In addition, the Amended PC Plan includes other provisions which essentially prevent us from using the proceeds from realization of PC’s projects for the development of PC’s existing projects designated for development. As a result, any future development of existing projects by PC may not be executed due to insufficient cash for equity injection into such projects.
Amendment of the Restructuring Plan of PC
On December 1, 2016, we announced that the holders of PC Notes have approved the proposed amendments to the restructuring plan of PC by the required majorities. Under the original restructuring plan, principal payments under the PC Notes originally due in the years 2013 to 2015 were deferred for a period of four and a half years, and principal payments originally due in 2016 and 2017 were deferred for a period of one year (the “Extended“Extended Repayment Schedule”Schedule”). The restructuring plan further provides that, if PC does not prepay an aggregate amount of at least NIS 434 million on the principal of the PC Notes on or before December 1, 2016 (the “Early Prepayment”“Early Prepayment”), the principal payments due under the Extended Repayment Schedule will be advanced by one year (the “Accelerated“Accelerated Repayment Schedule”Schedule”). The proposed amendments sought by PC are comprised of the postponement of the Early Prepayment date by up to four months and the reduction of the total amount of the required Early Prepayments to at least NIS382 million (approximately $99 million) (a reduction of 12% on the original amount). In addition to the above, PC announced that as part of the approval of the proposed amendment, PC will pay on March 31, 2018 a one-time consent fee in the amount of approximately €488 thousand (approximately $515 thousand) (which is equal to 0.25% of the PC’s outstanding debt under the PC Notes at that time). Additional provisions in the restructuring plan were amended, among others, with respect to: (i) consideration on account of potential sales of the Casa Radio project in Romania, (ii) non-compliance with the amended and restated restructuring plan, (iii) reduction of the deferred debt ratio for the Series B notes, and (iv) commitment of PC to register the Polish notes for trade.
Our Debt Restructuring
During 2013, our Board resolved to suspend all payments to its unsecured creditors and to negotiate with its unsecured creditors on a restructuring plan for the unsecured financial debts. On October 17, 2013, our unsecured financial creditors approved a Plan of Arrangement (the “Arrangement”“Arrangement”) (as adjusted from time to time) and on January 1, 2014, the Israeli District Court approved the Arrangement. The closing of the Arrangement took place on February 20, 2014. The general terms of the Arrangement are: (i) in consideration of the extinguishment of our unsecured financial debts (i.e.: series A-G notes, series 1 note and our debts to Bank Leumi), we issued at the closing of the Arrangement the following instruments (A) New ordinary shares, representing immediately following such exchange 95% of our outstanding share capital on a fully diluted basis; and (B) Two series of new notes in the aggregate principal amount of NIS 666 million, (ii) the new Sharesshares and the new notes were allocated among the various unsecured financial creditors in proportion to the outstanding balance (principal, interest and CPI linkage) under each obligation as of the closing of the Arrangement. The new Sharesshares are listed for trading on both the Tel Aviv Stock Exchange and the NASDAQ Stock Market, and the new notes are listed for trading on the Tel Aviv Stock Exchange, and (iii) pursuant to the terms of the Arrangement, we amended our Articles of Association to include among other things that sa decision to engage in a new field of business which is material to us, in which neither the we nor any of our subsidiaries is engaged and which new field of business is not complementary to our business or our subsidiaries, shall require the unanimous approval of all of the members of the board.
B. | BUSINESS OVERVIEW |
WeTo date we operate primarily in the following principal fields of business:
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Following our Debt Restructuring and PC’s Debt Restructuring we are no longer focused on developing our principal fields of business, rather our focus is on disposing our assets at optimal market conditions.
Commercial Centers
This business includes operational commercial centers, plots designated for the construction and/or development of commercial centers in CEE as well as plots designated for sale without further development. Certain projects designated for development are mixed-use real estate projects which include predominantly commercial centers combined with other elements of operations, including offices, residential units, conference centers and leisure facilities. In this annual report, we refer to all projects mentioned above, as “commercial centers.” Construction or development of each such project is generally conducted through a special purpose project corporation, owned by PC.
As of the date of this annual report, our commercial centers segment includes one operating commercial center and two projects which are designated to be developed by PC in the coming years. In addition, we have ______ projects which are not designated to be developed by us in the foreseeable future. Our projects are located in Romania, Poland, Serbia, Bulgaria, Greece, and Hungary.
Business Concept and Strategy
Operational commercial centers
Our main goal is to sell the operational commercial centers subject to prevailing market conditions. Up to the consummation of a transaction for the sale of the operational commercial centers we will operateRadisson Hotel Complex in Bucharet, Romania, the commercial centers. During the operational period of the commercial centers we aim to improve their operational results by increasing the occupancy rates, the average rent rate as well as changing the mixture of the tenants.
The following are our operational commercial centers as of December 31, 2016:
Torun Plaza
As of the date of this annual report, PC operates and manages an operational commercial center in Torun, Poland whichCompany is comprised of approximately 40,000 Gross Lettable Area, and was opened in November 2011. PC intends to dispose of its interestno longer involved in the Torun Plaza commercial center during 2017. In June 2017 PC has signed a non-binding LOI with an investment fund regarding the sale of Torun Plaza. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – LOI regarding the sale of Torun Plaza “.
Suwlaki Plaza
As of December 31, 2016, PC has a 100% interest in the Suwałki Plaza commercial center in Poland with 20,000 Gross Lettable Area. In February 2017 PC completed the sale of the Suwałki Plaza to an investment fund for €42.3 million.hotel industry. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of Suwlaki Plaza”.
Projects Developed and/or Proposed for Development
Belgrade Plaza (Visnjicka)
Our plotour holdings in Belgrade Plaza (Visnjicka) is in the advanced stages of development and is currently the largest shopping and entertainment center development underway in Serbia. The shopping and entertainment center, which is currently over 90% pre-let was opened in April 2017. In March 2017 PC completed the sale of the commercial center to third party. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of Belgrade Plaza”
Projects (plots) designated for sale
Our main goal in respect of plots which are not designated for future development is to hold them in their current state without investments of significant financial and managerial resource. During the last few years we have executed several transactions for the sale of undeveloped plots and, subject to prevailing market condition, we will consider the sale of the additional undeveloped plots in their current state to third parties.
Casa Radio, Romania
One of PC’s most significant projects under development is the Casa radio project in Bucharest, Romania. The Casa radio Project cost in the Group’s financial statements as of December 31, 2016, amount to NIS 296 million (2015 - NIS 460 million).
In 2006 PC entered into an agreement according to which it acquired 75% interest in a company (“Project SPV”) which is under a PPP agreement with the Government of Romania to develop the Casa radio site in the center of Bucharest (“Project”). After signing the PPP agreement, PC holds indirectly 75% of the shares in the Project SPV, the remaining 25% are held by the Romanian authorities (15%) and a third party private investor (10%).
As part of the PPP, the Project SPV was granted with development and exploitation rights in relation to the site for a period of 49 years, starting December 2006 (38 years remaining at the end of the reporting period). As part of its obligations under the PPP, the Project SPV has committed to construct a Public Authority Building (“PAB”) measuring approximately 11.000 square meters for the Romanian Government at its own cost.
Large scale demolition, design and foundation works, financed by loans given to the Project SPV by PC were performed on the construction site until 2010, when current construction and development was put on hold due to lack of progress in the renegotiation of the PPP agreement with the Romanian authorities, as discussed in the paragraphs below (“Co-operation with Romanian authorities regarding potential irregularities”), and the global financial crisis. These circumstances (and mainly the bureaucratic deadlock with the Romanian authorities to deal with the issues specified below caused the Project SPV not to meet the development timeline of the Project, as specified in the PPP. However, PC management believes that it had legitimate reasons for the delays in this timeline, as discussed in paragraphs below (“Co-operation with Romanian Authorities Regarding potential irregularities”).
Obtaining of the Detailed Urban Plan (“PUD”) permit
The Project SPV obtained the PUD related to this project in September 2012. Furthermore, on December 13, 2012, the Court took note of the waiver of the claim submitted by certain plaintiffs and rejected the litigation aiming to cancel the approval of the Zonal Urban Plan (“PUZ”) related to the Project. The court decision is irrevocable.
As the PUD is based on the PUZ, the risk that the PUD would be cancelled as a result of the cancellation of the PUZ was removed following the date when the PUZ was cleared in court on December 13, 2012.
Discussions with Romanian authorities on construction time table deferral
Following the Court decision with respect to the PUZ, the Project SPV was required to submit a request for building permits within 60 days from the approval date of the PUZ/PUD and commence development of its project within 60 days after obtaining the building permit. The building permits have not been obtained.
However, due to substantial differences between the approved PUD and stipulations in the PPP agreement as well as changes in the EU directives concerning environmental considerations in buildings used by public authorities the Project SPV attempted to renegotiate the future development of the Project with the Romanian authorities on items such as time table, structure and milestones as well as adaptation of the PAB development to the current EU requirements. Despite several notifications sent to the Romanian authorities expressing a wish to renegotiate the existing PPP agreement no major breakthrough could be achieved. PC could be subject to significant delay penalties under the terms of the PPP agreement if it is determined that PC was at fault in causing the delays.
Because of the failure of the public authorities to cooperate, negotiate and adjust the PPP agreement, the Project SPV was not able to meet its obligations under the PPP. This resulted in a situation where the Project SPV could not “de facto” continue the execution of the Project and created a risk that the public authorities could attempt to terminate the PPP agreement. As of the date of approval of PC’s consolidated financial statements the Project SPV did not receive any termination notification by the public authorities.
PC believes that although there is no formal obligation for the Romanian authorities to renegotiate the PPP agreement, such obligation is implicitly provided for the situation when significant unexpected circumstances arise and that the unresponsiveness of the authorities is a violation of the general undertaking to support the Project SPV in the execution of the Project as agreed in the PPP agreement.
PC believes that the risk that the public authorities may seek to terminate the PPP and/or relevant permits on the basis of the perceived breach of the PC’s commitments and/or may seek to impose delay penalties on the basis of the PPP contract is unlikely given the public authorities have not sought to do such since the perceived breach in 2012 and given PC believes that it has basis for counter claims against the relevant public authorities.
In the case of termination for breach under the PPP agreement the relationship and compensation between the parties is to be decided by a competent court of arbitrations. PC’s management believe that, in the case of termination, PC has a strong case to claim compensation for damages.
During 2016 PC’s management has taken a number of steps in order to unblock the development of the project and mitigate the risk of termination of the PPP agreement, including commencing a process to identify third party investors willing and capable to join PC for the development of the project. PC’s management believes that partnering with reputable investors with considerable financial strength can enhance PC’s negotiation position vis-à-vis the public authorities and assist in advancing an amicable agreement with the relevant authorities with respect to the development of the Project.
PC’s management considers the risk of termination of the PPP agreement and/or the imposition of penalties by the authorities to be unlikely and the audited consolidated financial statements do not include any provision in respect to any potential future penalties in respect to the breach of the PPP agreement. The increased risk arising from the above matters has been reflected in the valuation of the Project.
Co-operation with the Romanian Authorities regarding potential irregularities
In 2015, PC’s board and management became aware of certain issues with respect to certain agreements that were executed in the past in connection with the Project. In order to address this matter, PC’s board appointed the chairman of it’s Audit Committee to investigate the matters together with an independent law firms and to analyze the available alternatives in this respect. The chairman of PC’s Audit Committee did not conclude the investigation as the person with key information was not available to answer questions. PC’s Board, among other steps, implemented a specific policy in order to prevent the reoccurrence of similar issues and appointed the chairman of PC’s Audit Committee to monitor the policy’s implementation by PC’s management. In addition, it was decided that in the future certain agreements will be brought to PC’s board’s approval prior to signing.
PC has approached and is co-operating fully with the relevant Romanian authorities regarding the matters that have come to its attention and it has submitted its initial findings in March 2016 to the Romanian authorities. PC, during this process has been verbally informed by the Romania authorities that it has received immunity from certain potential criminal charges and received further verbal assurance that the mentioned investigation should have no effect on the PC’s existing legal rights to the Project and the PPP Agreement. As the investigation by the Romanian authorities is still on-going, PC in unable to comment further on any details related to this matter. PC’s management is currently unable to estimate any monetary sanctions in respect to the potential irregularities, consequently no provision has been recorded in connection with these matters.
Provision in respect of PAB
As mentioned above, when PC entered into an agreement to acquire 75% interest in the Project SPV it assumed a commitment to construct the PAB at its own costs for the benefit of the Romanian Government. Consequently, the statement of financial position includes a provision in the amount of EUR 13.2 million (NIS 53 million) in respect of the construction of the PAB (December 31, 2015: EUR 14.9 million). During 2016, the Company recorded income in total amount of EUR 1,667 thousand from change in PAB provision as part of write down of trading properties (in 2015 - EUR 686 thousand).
PC’s management believes that the current level of provision is an appropriate estimation in the current circumstances. Upon reaching concrete agreements with Romanian authorities, PC will be able to further update the provision.
For further information regarding certain issues with respect to certain agreements that were executed in the past in connection with the project see “Item3.D – RISK FACTORS – GENERAL RISKS”
In addition to the Casa Radio project, the following table provides additional information in respect of our plots which are designated for sale, as of December 31, 2016:
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(1) On June 19, 2017 PC announced it has signed the final sale agreement for the disposal its plot in Kielce, Poland, for €2.28 million.
(2) On February 23, 2017 PC announced it has concluded the sale of its plot of land in Shumen, Bulgaria for approaxamtly €1 million.
(3) On August 7, 2017 PC announced it has completed the sale of its plot in Constanta, Romania, for €1.3 million.
(4) On 19 September 2017 PC announced that regarding the disposal of a plot in Piraeus, Greece, an amendment to the agreement has been signed in which new long stop date of 29 September, 2017 has been agreed for the conclusion of the transaction. A EUR 0.145 million increase in the price of the development plot has also been agreed, bringing the value of the asset to EUR 3.545 million.
In order to secure the prolonged validity of the initial agreement, the purchaser has paid a EUR 0.14 million non-refundable extension fee to PC and had an option to extend the long stop date to 20 October 2017 for an additional EUR 0.03 million which were paid. Following the receipt of an additional EUR 0.08 million extension fee, PC has now received a total of EUR 0.25 million from the purchaser in non-refundable advance payments in connection with this transaction.
(5) On December 21, 2016 PC announced the long stop date for the conclusion of the transaction has passed without a final agreement having been signed for the sale of a development plot in Greece for €3.4 million. PC will continue to consider all opportunities for the disposal of the plot.
(6) On June 13, 2017 PC announced it has signed a preliminary sale agreement for the disposal of its plot in Lodz, Poland, for €1.2 million. As part of the agreement, the purchaser will pay advance payments totalling 10% of the sale price, comprising an immediate instalment of €35,000 followed by an instalment of €85,000 when the purchaser obtains zoning. The remaining balance will be paid once a building permit has been obtained for development of the land which is expected to be granted within 12-15 months from the signing of this preliminary sale agreement.
(7) On June 30, 2017 PC announced that following its announcement in september 2016 in respect of sale completion of part of its Residential plot in Lodz, the Company received final instalment of €0.96 million.
(8) On August 7, 2017 PC announced it has completed the disposal of its plot in Timisoara, Romania, for €7.25 million.
(9) On July 28, 2017 PC announced it has signed the final sale agreement for the disposal of its plot in Leszno for €810,000.
(10) On October 2, 2017 PC announced that it has concluded an agreement with an international investor on the termination of land use rights over a circa 21,788 sqm land plot adjoining Arena Plaza in Budapest, Hungary, registered to a subsidiary of PC, Kerepesi 5 Irodaépület Kft (“K5”). The transaction also includes the termination of the preliminary easement agreement, which provided K5 with certain easement rights over the plot. As a result of the agreement, K5 received a net sum of EUR 2.5 million.
Hotels
General
Our goal in respect of the Radisson Blu Complex is to hold and operate, and enhance its value until its sale to third parties which is expected to occur in 2017. We hold approximately 98.2% in a SPV that holds the Radisson Blu complex in Bucharest, while the rest is owned by various unrelated third parties. In August 2017, we have signed a non-binding LOI with an international investment fund to sell our holding (approximately 98.2%) in a company owning the Radisson complex in Bucharest, Romania, based on a Property Value of approximately €177.5 million (approximately $187 million)Romania”. see “Item 4 - Information on the Company – History and Development of the Company – Recent Events – LOI to sell the holding in Radisson complex in Bucharest, Romania “.
Management of Hotels
Rezidor manages our hotel complex in Romania, comprised of our Radisson Blu and Park Inn hotels, and other apartments. Under the management agreement signed with Rezidor, we undertook to pay Rezidor certain agreed upon fees which are calculated as a percentage of the hotel’s revenue as well as a certain agreed upon percentage from the gross operating profit of the hotel. We also undertook to participate in certain portions of the expenses incurred by Rezidor in the course of performance of their obligations (mainly marketing and advertising expenses), up to a certain percentage of the room revenues, and to invest in the hotel’s capital expenditures. In regards to the agreement to manage the Radisson Blu and the Park Inn hotels we can terminate the agreement only in limited circumstances set forth in the agreement.
Radisson Blu complex- additional information
The tables below provide information with regard to our Radisson Blu Complex:
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Name | Average Room Rate (€) | Average Occupancy Rates (%) | Revenue Per Available room (RevPar) | |||||||||
Radisson Complex Bucharest Romania | 90 | 77 | % | 69 |
Medical Companies
Our Medicalmedical portfolio is held by Elbit Medical Technologies Ltd. (an Israeli company traded on the TASE (“Elbit Medical”Medical”). Elbit Medical is the largest shareholderholds shares in two medical companies: InSightec Ltd. (“InSightec”) and Gamida Cell Ltd. (“Gamida”).Gamida. As of the date of this annual report, we hold 89.9%89% of Elbit Medical’s share capital (85.6%(88.7% on a fully diluted basis).
In addition to our holding in the shares of Elbit Medical, we provided throughout the yearyears credit lines and services to Elbit Medical. As of December 31, 2016,2017, Elbit Medical has a total of NIS 15.1151 million (approximately $3.9$43 million) outstanding loans and current accounts due to us withus. However, on February 2018, Elbit Medical raised a total of NIS180 million through a public offering of a new series of notes convertible into shares of Elbit Medical and used the following terms:proceeds to repay its debt to the Company.
For more information regarding the new convertible notes of Elbit Medical see “Item 4 – Information on the Company – History and Development of the Company – Recent Events – Payment of Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company”.
InSightec
We directly andHoldings in InSightec’s shares
As of the date of the report’s publication, we hold, indirectly through Elbit Medical, hold approximately 31.3%22.0% of InSightec’s issued capital (approximately 19% at full dilution.), as listed below:
Share types | Issued share capital | Number of stock held by the Company | Number of stock held by the Company of the same class of shares | Number of shares held by the Company of the same class of shares on a fully diluted basis | ||||||||||||
Common stock | 14,243,462 | 8,993,762 | 63.1 | % | 18.5 | % | ||||||||||
Type B preferred stock | 14,037,888 | 9,039,612 | 64.4 | % | 64.4 | % | ||||||||||
Type B1 preferred stock | 32,201,524 | 24,242,023 | 75.3 | % | 75.3 | % | ||||||||||
Type C preferred stock | 27,519,390 | - | - | - | ||||||||||||
Type D preferred stock | 48,473,238 | - | - | - | ||||||||||||
Type E preferred stock | 55,970,149 | - | - | - | ||||||||||||
Employee options | 35,696,755 | - | - | - | ||||||||||||
Total | 228,142,406 | 42,275,397 | 22.0 | % | 18.5 | % |
In addition, the Company holds 450,000 Ordinary Shares of InSightec.
The following is a summary of certain provisions in the articles of association of InSightec:
Dividends
The Articles of Association provides that the holders of Series E, Series D and Series C Preferred Shares, in that order, have dividend preference based on the original issue price for their shares plus 8% per annum.
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Liquidation Preference
Upon the occurrence of an exit event (including, among others, (i) the sale, lease, exchange, grant of a perpetual exclusive license or other transfer or disposition of all or substantially all of the property, assets or business of InSightec, (ii) liquidation, dissolution nor winding up of InSightec, (iii) any consolidation or merger or any other business combination of InSightec with or into another corporation or other business organization in which the majority of the shareholders of InSightec do not beneficially own the majority of the equity interest of the surviving company after such transaction; (iv) any sale of shares or other transaction or series of transactions which results in any person or group of persons, other than the holders of Ordinary Shares and Preferred Shares beneficially owning securities of the company representing 50% or more of the voting securities of the company then outstanding and (v) purchase of all remaining shares by a shareholder or an affiliate:
(a) The holders of the Series E Preferred Shares shall be entitled to receive, prior to and in preference to any distribution of any of the assets or surplus funds of InSightec to the other shareholders, an amount per Series E Preferred Share equal to ($2.68 plus any declared but unpaid dividends thereon.
(b) Thereafter, the holders of the Series D Preferred Shares shall receive an amount per Series D Preferred Share equal to $1.7845 plus any declared but unpaid dividends thereon.
(c) Thereafter, the holders of the Series C Preferred Shares shall receive an amount per Series C Preferred Share equal to U.S. $1.12 plus any declared but unpaid dividends thereon, subject to various adjustments.
(d) Thereafter, the holders of the Series B Preferred Shares and the Series B-1 Preferred Shares shall receive an amount per Series B Preferred Share and Series B-1 Preferred Share equal to U.S. $6.00 (in the case of Series B Preferred Shares) and U.S. $1.446 (in the case of Series B-1 Preferred Shares) plus any declared but unpaid dividends thereon.
(e) After the aforesaid preferences entire remaining assets and surplus funds of InSightec legally available for distribution, if any, shall be distributed ratably to all holders of Series E Preferred Shares, Series D Preferred Shares, Series C Preferred Shares and Ordinary Shares in proportion to the number of Ordinary Shares then held by each such holder of such class of shares on an as converted basis.
Notwithstanding the preferences stated in (d) and (e) above, if after distribution of the preferences pursuant to (a) - (c) above, the total value of the assets and funds to be distributed between all of the shares of InSightec on a pro rata, as converted, basis (without distribution of any preferences to the holders of Series B Preferred Shares or Series B-1 Preferred Shares) would result in the holders of each Series B Preferred Share and Series B-1 Preferred Share receiving an amount per Series B Preferred Share and Series B-1 Preferred Share equal to or greater than U.S. $6.00 (in the case of Series B Preferred Shares) and U.S. $1.446 (in the case of Series B Preferred Shares), then the provisions of (d) and (e) above shall not apply and the entire assets and surplus funds of InSightec legally available for distribution to the shareholders after distribution of the respective preference amounts for Series E Preferred Shares, Series D Preferred Shares and Series C Preferred Shares shall be distributed to all holders of shares of InSightec on a pro rata, as converted, basis, and in such case no preference amount shall be payable on the Series B Preferred Shares and the Series B-1 Preferred Shares.
Conversion
At any time, the holders of B Preferred Shares and Series B-1 Preferred Shares may convert all or any portion of their shares into the number of Ordinary Shares computed by dividing U.S. $6.00 (per Series B Preferred Share) and U.S. $1.446 (per Series B-1 Preferred Share) by the applicable conversion price which, subject to adjustments, shall originally be U.S. $6.00 (per Series B Preferred Share) and U.S. $1.446 (per Series B-1 Preferred Share). In addition, there are additional conversion rights with respect to other Preferred Shares that Elbit does not hold.
All preferred shares shall automatically convert upon a Qualified IPO, which is defined as the initial underwritten public offering pursuant to an effective registration statement under the Securities Act or similar laws in effect in the State of Israel that (i) raises at least $75.0 million of gross proceeds, (ii) public offering which will result in the Ordinary Shares being listed either on the New York Stock Exchange or NASDAQ; and (iii) if such public offering were to occur prior to December 27, 2021, then such public offering would result in a per share issue price of not less than $4.02 per Ordinary Share.
Subject to adjustments, each Series B Preferred Share shall be converted into Ordinary Shares upon the consent of holders of 66% of the outstanding Series B Preferred Shares, and each Series B-1 Preferred Share shall be converted into Ordinary Shares upon the consent of the holders of 66% of the outstanding Series B-1 Preferred Shares.
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The Series E Preferred Shares, the Series D Preferred Shares and the Series C Preferred Shares have broad based weighted average protection.
Other Restriction of Transferability of Shares in InSightec
The shares in InSightec (with certain standard exceptions) are subject to right of first refusal, co-sale and (if approved by 85% of the Preferred Shares voting together as a single class) drag-along rights.
Board of Directors
The number of directors in InSightec shall be not more than nine. Elbit Medical is entitled to appoint one member to the board so long as it holds in the aggregate 5% or more of the outstanding share capital (25.3%of InSightec on an as-converted basis.
The Elbit Medical board member together with the board members appointed by KDT Medical Investments Corporation and York Global Finance II S.À R.L. are entitled to unanimously appoint four board members.
The CEO of InSightec will act as a fully diluted basis) of InSightec.director.
Business ConceptSpecial Consents/Veto Rights
Certain actions require the approval of the holders of at least 85% of the Preferred Shares voting together as a single class on an as converted basis, including the following: (a) the payment of dividends; (b) issuing shares which are equal to or senior to the Preferred Shares; (c) amending the terms of the Preferred Shares; (d) making any loans, advances to or guarantees, for the benefit of, or investments in third parties (subject to exceptions); (e) merging or consolidating with a third party (other than a wholly-owned subsidiary); (f) selling, leasing or otherwise disposing of all or substantially all of InSightec’s assets or intellectual property; (g) liquidating, dissolving or effecting a recapitalization or reorganization; (h) acquiring any interest in any company or entering into any joint venture with consideration to be paid in excess of $15,000,000; (i) making any material changes to its lines of business; (j) entering into any new leases or other rental agreements with consideration to be paid on an annual basis in excess of $4,000,000; (k) issuing or selling any shares of its capital stock or rights to acquire shares of its capital stock; (l) initiating an initial public offering other than a qualified IPO that will result in the Ordinary Shares being listed either on the New York Stock Exchange or NASDAQ; (m) establishing or adopting, or make any modification to, any stock ownership, stock option, stock bonus, stock purchase, restricted stock or other equity-based plan; (n) altering, increasing, decreasing or otherwise impacting or changing in any way, InSightec’s authorized share capital; (o) consummating an exit event; and (p) any amendment to InSightec’s Articles of Association.
In addition, various actions require the approval of the holders of at least 66% of the Series E Preferred Shares, including the following: (a) creating or authorizing the creation of, or issuing or obligating InSightec to issue shares or other securities (or any securities convertible into or exchangeable for securities ranking equal or senior to the Series E Preferred Shares), unless the same ranks junior to the Series E Preferred Shares in all respects; (b) any amendment of the employment terms or arrangements governing the engagement of InSightec’s Chief Executive Officer, including hiring and termination (constructive or otherwise) of the employment of the Chief Executive Officer; (c) prior to December 27, 2021, consummating or consenting to or obligating InSightec to consummate at any time in the future any exit event, resulting in receipt of a price per share of Series E Preferred Shares of less than $4.02; and (d) prior to December 27, 2021, initiating an initial public offering of capital stock of InSightec pursuant to an effective registration statement under the Securities Act, or pursuant to similar laws in any other jurisdiction other than a Qualified IPO.
Right to participate in fundraising
Each of the stakeholders has a right to participate in assignment of additional securities carried out by InSightec in order to protect his holdings from dilution.
Business Concept
InSightec develops and markets Exablate, the first FDA approved magnetic resonance imaging guided focused ultrasound treatment platform (“MRgFUS”MRgFUS”) for a variety of neurosurgery, oncology and gynecology indications. Treatments are non-invasive and are performed in an ambulatory setting.
InSightec’s objective is to transform the surgical environment for the treatment of a limited number of forms of benign and malignant tumors by replacing invasive and minimally invasive surgical procedures with an incision-less surgical treatment solution. The system is designed to deliver safe and effective non-invasive treatments while reducing the risk of disease, potential complications, as well as the direct and indirect costs associated with surgery.
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InSightec’s MRgFUS technology integrates the therapeutic effects of focused ultrasound energy with the precision guidance and treatment outcome monitoring provided by MRI systems. Ultrasound is a form of energy that can pass harmlessly through skin, muscle, fat and other soft tissue, and is widely used in diagnostic applications. The ExAblate uses a phased-array transducer that generates a high intensity, focused beam of ultrasound energy, or a sonication, aimed at a small volume of targeted tissue. The focused ultrasound energy provides an incision-less therapeutic effect by raising the temperature of the targeted tissue mass high enough to ablate, or destroy it, while minimizing the risk of damage to overlaying and surrounding tissue.
InSightec believes that by combining the non-invasive therapeutic effects of focused ultrasound energy and the precise “real-time” data provided by the MRI system, it has developed an effective, non-invasive treatment solution for its approved applications.
InSightec also believes that its MRgFUS technology can be applied to the treatment of other medical conditions, providing similar advantages by presenting both physicians and patients with a safe and effective incision-less surgical treatment option for several medical conditions, including a number of indications for which there are currently few effective treatment options.
Investments in InSightec capital
Below are details regarding investments in InSightec capital in the last two years:
Preferred stock investment round D
As part of the agreement dated 26/06/2014, as amended from time to time, the Company, InSightec, and additional InSightec shareholders (including the current CEO, Mr. Maurice R. Ferré), its additional investors, and York Global Finance II S.a.r.l, a company owned by York Foundation, which has an interest in the Company (Hereinafter:“York Foundation”), have signed a series of agreements for a round of investment in InSightec for a total sum of 86.5 million United States dollars, by means of purchase of 48,473,238 Series D share of InSightec at a price of 1.78 United States dollars per share1. A total of approximately 2 million dollars of the total investment amount has been invested during 2016.
On January 31, 2018, we announced that InSightec completed the second (and final) closing of its Series E investment round in a total amount of $150 million, approximately $90 million, in the first closing and approximately $60 million in the second closing in return for the issuance of 55,970,149 preferred Insightec stock from a new Series E (with a price of 2.68 dollars per share). The lead investor in the round was KDT Medical Investments Corporation (a subsidiary of Koch Industries, Inc.) which invested in total $ 100 million in InSightec (York participated in this round as well in the total investment of $ 6 million). Immediately following the closing, the Series E Preferred Shares of InSightec issued in the first and second closings represented approximately 29.1% (24.7% on a fully-diluted basis) of InSightec’s share capital. Following the completion of the second closing, the Company holds (directly and indirectly through its subsidiary Elbit Medical) approximately19.8% (16.7% on a fully-diluted basis) of InSightec’s share capital.
As part of the investment agreement, it was agreed that holders of the preferred stock E will have privileges in cases of dividend distribution and material events. Furthermore, an amendment to the shareholders agreement was signed between the Investor and other major shareholders in InSightec and an amendment to InSightec’s bylaws was approved.
Clinical and regulatory Development in InSightec’s Products
ExAblate Neuro(“Brain System”)
The ExablateExAblate Neuro indication is designated to preform treatment for Essential Tremor, Tremor dominate Parkinson’s disease and Neuropathic pain and others.
The brain system is based on the MRgFU technology, which relies on MRI imaging to plan, guide execution, and receive real-time response during treatment, adopted for use on the brain.
The patient interface in this system consists of a helmet-like acoustic projection system with the patient’s head held within the helmet. The projector allows electronic shaping of the acoustic beam, as required for intracranial treatment.
1 It will be clarified that the share price listed above, is after an adjustment carried out pursuant to the terms of the investment agreement, which resulted in the reduction of the share price by 8%, thus the share price was updated to 1.78 United States dollars per share (compared to the initial price of 1.94 United states dollars per share), and, moreover, participants in the agreement were assigned an additional 3,788,289 preferred stock.
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The brain system has been given approval for commercial use in the USA, Europe, Japan, Korea, Canada, Taiwan, and Israel for treatment of functioning disorders (essential tremors, tremors resulting from Parkinson’s disease, and neuropathic pain). So far, about 600 patients have received treatment on a commercial basis.
In addition to the existing commercial approval, we continue the technological and clinical research and development in order to obtain approval for combination of the device with a Siemens MRI in Europe and in the USA. As of the date of this report, our products are approved for use in combination with MRI devices of General Electric Company Healthcare Division (“GE Healthcare”). Clinical studies for treatments continue at a range of research facilities in the USA, Europe, Asia and Canada.
The system is also used for clinical studies in the preliminary feasibility studies, e.g. treatment of advanced Parkinson’s disease, epilepsy and compulsive functioning disorders, as well as drug-based and immunological treatment by means of temporary and transient opening of the blood-brain barrier for treatment of brain tumors and Alzheimer’s disease.
As of the date of the publication of this report, 47 brain systems exist in leading hospitals around the world.
The following items describe the significant clinical and regulatory events inregarding the ExablateExAblate Neuro:
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● | On December 14, 2017, we announced that we were informed by InSightec, that the CMS updated the reimbursement code for ExAblate Neuro treatment for essential tremor, as follows: (i) on November 2016 the CMS decided to associate InSightec’s ExAblate Neuro system (for essential tremor treatment), a reimbursement code with a payment level of $ 9,751; (ii) beginning January 1, 2018, the primary procedure code for Movement Disorders (essential tremor) is assigned to a new technology level and will be paid at $17,500.50 for medicare beneficiaries (if deemed medically appropriate); and (iii) the CMS decision is one of several steps toward gaining appropriate reimbursement for MRgFUS for essential tremor. This needs to be followed by CMS regional offices approval to the reimbursement for the ExAblate Neuro treatment for their patients. |
● | On November 23, 2017 we announced that InSightec informed us that the Taiwanese Food and Drug Administration (TFDA) has approved its Exablate Neuro system for the treatment of essential tremor in patients who do not respond to medication. |
● | On October 25, 2017, we announced that the FDA has approved the commencement of Phase III clinical trial for the treatment of neuropathic pain by InSightec’s ExAblate Neuro system, for treating dyskinesia symptoms or motor fluctuations of advanced Parkinson’s disease patients who have not responded to medication. InSightec estimates that Parkinson’s disease afflicts millions of people worldwide, including approximately one million in the United States alone with 60,000 additional diagnoses each year. Treatment with the ExAblate Neuro is intended to improve motor function and reduce dyskinesia, one debilitating symptom that presents as uncontrolled, involuntary movement of the arms and/or legs. | |
● | On June 26, 2017, we announced that the FDA has approved the commencement of Phase I clinical trial for the treatment of neuropathic pain by |
● | In April 2017, the FDA has extended its approval of |
● | In March 2017, the first treatment was performed under Phase I clinical trial to investigate the use of MRI guided by Focused Ultrasound (MRgFUS) technology for opening the blood brain barrier in patients with early Alzheimer’s disease. |
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● | In May 2016 InSightec informed us that Health Canada approved its Exablate Neuro system for the treatment of ET For further information see “Item 4 - |
● | In November 2015 InSightec informed us that the Korean Ministry of Food and Drug Safety (MFDS) has approved its Exablate Neuro system to treat movement, pain and behavioral disorders which allows Korean patients suffering from neurological disorders which cause significant disability access to a new, non-invasive treatment option that does not require open surgery. |
● | In November 2015, InSightec informed us that they are investigating the use of MR Guided Focused Ultrasound technology to temporarily open the blood brain barrier which is a protective barrier that restricts the passage of substances from the bloodstream into the brain, protecting it from toxic chemicals and preventing the delivery of essential medication to reach the brain. |
● | In March 4, 2014, focused ultrasound was successfully used for the first time in the treatment of a brain tumor. The patient had a recurrent glioma, a portion of which was thermally ablated using InSightec’s ExAblate Neuro. The treatment was conducted at the FUS Center of University Children’s Hospital Zurich. Since then, three more patients were treated successfully in the treatment of brain tumor. |
● | In October 2013, the Israeli Ministry of Health approved ExAblate Neuro for the treatment of neurological movement disorders including Essential Tremor and tremor-dominant Parkinson’s disease. |
● | In December 2012, ExAblate Neuro, was awarded the European CE mark for the treatment of neurological disorders in the brain including essential tremor, Parkinson’s disease and neuropathic pain. |
ExAblate Forfor Body Platform (“Body System”)
ExablateThe body system, like the brain system, is based on the MRgFU technology, which relies on MRI imaging to plan, guide execute, and receive real-time response during treatment. As of the date of the report, the body system is adapted for Body Platformuse with MRI machines manufactured by GE Healthcare only.
The body system constitutes a multi-application treatment platform. The system is designatedbeing sold to treatcustomers interested in treating various body applications, requiring the Uterine fibroids, Pain palliationuse of different types of transducers (a component converting a physical signal into an electric one). The system has been planned for treatment of uterine myoma, prostate cancer and metastatic growth in the bone metastasisin various configurations, and others. in the future also in cancer of the kidneys, pancreas, and liver (subject to performing clinical trials and obtaining all the required regulatory approvals). Some of the indications have received regulatory approval in various parts of the world, and some are still in the research and development stage.
The body system is a treatment system incorporating an MRI bed converted to contain a robotic system broadcasting a focused, high-energy (up to 1,000 Watt) ultrasound beam aimed at the area where the affected tissue (tumor) is located. The transducer heats the tissue in the beam’s focus and destroys it non-invasively, and without damaging the tissues en route, and thus, essentially, eliminates the benign or malignant tumor.
In the second (second-generation) system, unlike the first system, the crib holding the patient can be separated and replaced based on the application for which treatment is required. This structure is expressed also in the product’s pricing, with the principal sum being paid for the basic platform (treatment bed), and smaller sums will be paid for every application that the customer may wish to purchase, thus, enabling the customer to purchase all the products step by step.
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The following items describe the significant clinical and regulatory events inregarding the Exablate for Body Platform:
● | In October 2015 InSightec informed us that the FDA approved InSightec’s Exablate For Body Platform to treat symptomatic uterine fibroids and changed the labeling to allow consideration for women who desire to maintain fertility. The updated labeling specifies that ablation of uterine fibroid tissue can now be considered for women with symptomatic uterine fibroids, who desire to retain fertility and spare their uterus. InSightec estimates that such change in labeling provides younger women suffering from symptomatic fibroids access to a new, non-invasive treatment option that is safe, effective and keeps their uterus intact without compromising their existing ability to get pregnant. The approval is based on accumulated, documented clinical data on 118 patients’ pregnancies post Exablate MRgFUS treatments. |
● | In October 2004, InSightec received FDA approval to market the ExAblate For Body Platform in the United States for the treatment of uterine fibroids, a type of benign tumor of the uterus. InSightec also has regulatory approval to market the ExAblate For Body Platform for the treatment of uterine fibroids in Israel, Canada, Russia, Brazil, Mexico, Korea, Taiwan, Australia, New Zealand, Singapore, Japan, China and the European Union Economic Area (“ |
ExAblate Forfor Body Platform is currently the only non-invasive treatment for uterine fibroids approved for use in Japan. InSightec is also in various stages of development and clinical research for the application of its MRgFUS technology to the treatment of other types of benign and malignant tumors. These additional applications are being developed to take advantage of the modular design of the ExAblate for Body Platform, which enables it to function as a common platform for multiple MRgFUS-based surgical applications. Currently, InSightecSo far the brain system has an installed base of more than 130 units in academic hospitals, community hospitals, MRI clinics and physician-formed joint ventures. Currently, the ExAblate For Body Platform is operable onlybeen operated with certain MRI systems manufacturedmade by GE.GE Healthcare only. In 2016 we signed a cooperation agreement with Siemens to develop an interface that allows operation with Siemens’ MRI system. The system combined with a Siemens MRI is currently engaged in a process of evaluation and submission for regulatory approval, which commenced in early 2018.
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Products
Below is a table listing the main products of InSightec including products/applications in development stages:
The medical product | The indication for which the medical product is intended as of the date of the report | The stage of the medical product developments’ as of the date of the report | Milestones expected in the coming 12 months | The nearest milestone and the expected date of its achievement | Cost estimate for achieving the nearest milestone | InSightec’s estimate regarding the size of the expected target audience (no. of patients or procedures) and the expected financial extent of the potential target market for the medical product in development correct at the date of the report. | InSightec’s estimate regarding the date approval for the commercialization of the medical product under development | Insightec’s estimate regarding the expected market segment for the medical product under development, assuming commercialization approval is received2 | ||||||||
The brain system3 | Essential tremors4 | The following approvals exist: for the integration of the device in Europe and in the USA with the GE Healthcare MRI: Medical Device Approval5, CE, FDA6, TFDA, Taiwanese Food and Drug Administration, Japanese Ministry of Health, Canadian Food and Drugs Administration, and Korean Ministry of Health. | Approval of FDA and CE approval for the integration of the device with a Siemens MRI in Europe and in the USA. | December 2018 | 2M$ | The prevalence of the disease in the USA is approximately 10 million patients.7 InSightec estimates that approximately 1% - 5% patients will form the potential target market (approximately 100-500 thousand patients). The estimated cost of the treatment is 10,000-30,000 United States dollars. | December 2018 | Insightec estimates that at the stage of market penetration, the relevant segment will be approximately 10% of the relevant target market. | ||||||||
Parkinson’s disease | Medical Device Approval and CE approval exist. Submission of the treatment for Parkinson’s disease tremors for FDA approval is planned. Additional studies for product development are described in the table in the development chapter. | Submission of the treatment for Parkinson’s tremors treatment for FDA approval | Submission of the treatment for Parkinson’s disease tremors for FDA approval is planned for the first part of 2018 | None | The number of Parkinson’s sufferers in the USA is estimated at about 1 million.8Of their number, approximately 150 thousand patients require surgical treatment9, for whom the InSightec treatment is relevant and who comprise the target population. The estimated cost of the treatment is 10,000-30,000 United States dollars. | The Company estimates that FDA approval for Parkinson’s disease tremors is probable in late 2018. | Insightec estimates that at the stage of market penetration, the relevant segment will be approximately 40% – 60% of the relevant target market. | |||||||||
Neuropathic pain | CE approval and Medical Device Approval exist. | No plans for FDA approval exist as of the date of the report. | None | None planned | The target market in the USA is approximately 75,000 patients for whom treatment with the brain system may be appropriate10. The estimated cost of the treatment is 10,000-30,000 United States dollars. | The date for FDA approval in the USA cannot be estimated at this stage. | Insightec estimates that at the stage of market penetration, the relevant segment will be approximately 50% of the relevant target market. | |||||||||
Opening of the blood-brain barrier fdor treatments of tumors. | Preliminary programming studies after FDA approval is received for Phase I study and its implementation in the USA and additional countries. | Recruitment of 10 patients. | FDA approval for beginning of Phase 1 study during 2018. | Patient recruitment is funded by the executing site. | The target market in the USA is approximately 50,000 patients for whom treatment with the brain system may be appropriate11. The estimated cost of the treatment is 10,000-30,000 United States dollars. | Cannot be estimated at this stage | Cannot be estimated at this stage | |||||||||
Epilepsy | Planned phase I preliminary feasibility studies. | Completing recruitment of the first 5 patients. | Recruitment of the first of 5 patients. | Patient recruitment is funded by the executing site. | The target market is approximately 17,000 patients for whom treatment with the brain system may be appropriate12. The estimated cost of the treatment is 10,000-30,000 United States dollars. | Cannot be estimated at this stage | InSightec estimates that at the stage of market penetration, the relevant segment will be approximately 80% of the target market | |||||||||
Body system | Uterine myomas13(including adenomyosis where approvei exists) | FDA and CE approval and Medical Device Approval exist. | No expected milestones | No plans | No plans | Every year, approximately 1.3 surgeries for treatment of uterine myomas are carried out in the USA. InSightec estimates that approximately 30% – 50% of the patients will be able to benefit from the treatments and they are the target market. To date the annual cost of uterine myoma treatments in the USA (direct costs of surgical treatment) is approximately 3 billion dollar14. The estimated cost of the treatment is approximately 5,000-15,000 United States Dollars | Commercialization and treatment approvals have been issued in the USA, Israel, and Europe | Marketing approval has been obtained and InSightec aspires to achieve a market share of approximately 40% – 60% of the target market. | ||||||||
Treatment of metastases and tumors in bone.15 | CE approval and Medical Device Approval exist for treatment of metastases and tumors in bone. FDA approval exists for treatment of metastases in bone.16 *An additional configuration of the device (CBS) has CE approval only. | No expected milestones | No expected milestones | Negligible costs | There are approximately 320,000 patients a year globally that suffer from metastatic-induced bone pain17. The annual financial scope of treatment of cancer metastases in bones in the USA is currently estimated at approximately 10 billion dollars. Approximately 50% of the patients with pain induced by metastases (that are not in the spine) will be a fit for treatment with the product and form the target market. The estimated cost of treatment is approximately 5,000-15,000 United States Dollars. | CE approval and Medical Device Approval exist for commercialization in Europe and Israel. FDA approval exists in the USA. | Marketing approval has been obtained and InSightec aspires to achieve a market share of approximately 14% of the target market. | |||||||||
Prostate cancer | CE approval exists. FDA Phase I study protocol has been approved in the USA and in additional countries. | Patient recruitment for Phase I study to be completed in 2018 | Patient recruitment for Phase I to be completed in 2018 | $ 2 million | There are approximately 1.1 million patients a year diagnosed for prostate cancer, mostly in the developed countries18. To date the annual costs of treatment of prostate cancers in the USA is estimated at over 5 billion dollars19. Approximately 40% of the patients are diagnosed with intermediate-risk cancer and will be a fit for local treatment with InSightec product and form the target market20. The estimated cost of treatment is approximately 10,000-30,000 United States Dollars. | InSightec cannot currently estimate the date FDA approval for marketing of the product will be received in the USA (if at all). | InSightec estimates that, at the market penetration stage, its share will be approximately 80% of the intermediate-risk cancer cases forming the target market. |
2 | Insightec’s estimate is for the potential market segment for which treatment in its product only is appropriate. Except where this is stated explicitly, Insightec cannot evaluate the expected market segment for the medical product it is developing. The estimate for the disease’s prevalence pertains only to the USA with the assumption that in different geographies the prevalence of the various indications will be similar, proportionately to the country’s population. |
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3 | Insightec is developing an innovative treatment, which is not a direct replacement of the treatment existing today. Therefore, its estimates of the market’s size are based on data and articles regarding the number of potential patients, and Insightec’s evaluation regarding the number of patients for which treatment with the device is appropriate. For this reason, articles and publications central to each of the three indications are attached. |
4 | Insurance coverage for this application of the brain system has been approved, as stated in Section__ below. |
5 | Medical Accessories and Devices approved by the Ministry of Health (Hereinafter: “MAD”) |
6 | In April 2017, Insightec informed the company that the FDA’s approval for commercial use of the brain system in the USA for treatment of essential tremors in patients that do not respond to drug treatment has been expanded to include also use of the brain system on 1.5-Tesla MRI systems. The FDA approval reported in the past, on 12/07/2016, was given for use of the brain system with a 3-Tesla MRI system. (This is the magnetic power of the MRI machine). The expansion of the FDA approval as stated above is expected to broaden the market of products with which Insightec’s brain system is compatible, in a manner in which it will be possible to integrate it both in an MRI machine of 1.5 Tesla as well as in MRI machines of 3 tesla. |
7 | http://www.essentialtremor.org/wp-content/uploads/2013/07/FactSheet012013.pdf. The estimate for the disease’s prevalence pertains only to the USA with the assumption that in different geographies the prevalence of the various indications will be similar, proportionately to the country’s population. |
8 | http://www.healthcommunities.com/parkinsons-disease/incidence-prevalence.shtml |
9 | The estimations regarding the amount of patient’s requiring a surgical treatment is based on InSightec’s own estimates. |
10 | The data is based on InSightec estimates. |
11 | The data is based on InSightec estimates. |
12 | The data is based on InSightec estimates. |
13 | Insurance coverage for this application has been approved. |
14 | 1)http://www.ahrq.gov/research/womenh2.htm; |
2)http://www.cdc.gov/chronicdisease/resources/publications/fact_sheets/cancer.htm; | |
3) Saigal CA, Litwin MS. Economic costs of early stage prostate cancer. Pharmaeconomics 2002:20:869-78. figures ($4.75B) interpolated for 2009 based on 1990 CPI (Consumer Price Index) of 193 and 2009 CPI of 379.www.bls.gov; | |
4) LaVallee RW, Simpson KN, LaVallee RL; International Society of Technology Assessment in Health Care. Meeting Breast cancer, bone metastasis and episodes of care: a basis for cost effectiveness analysis. https://www250.safesecureweb.com/hcvadvocate/hepatitis/About_Hepatitis_pdf/1.1_Hepatits_C/Burden.pdf | |
15 | Insurance coverage for this application has been approved. |
16 | It shall be clarified that no FDA approval has been received for treatment of tumors and the approval is to treat metastases in bone only. |
17 | Cancer induced bone pain. Kane et al. BMJ 2015; 350 doi: http://dx.doi.org/10.1136/bmj.h315 |
18 | WHO Cancer report 2014 |
19 | Kommu SS, Eden CG, Luscombe CJ, Golash A, Persad RA. Initial treatment costs of organ-confined prostate cancer: a general perspective Int. 2011 Jan;107(1):1-3 |
20 | He et al. European Urology 2016; pii: S0302-2838(16)30883-1. doi: 10.1016/j.eururo.2016.11.031 |
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Regulatory approvals
Below is a table listing the approvals received by InSightec products from the Ministry of Health in Israel:
Name of the product approved | Indication | Medical Device Approval number | Medical Device Approval date | Approval term | ||||
Body system | General surgery – treatment (heating destruction – ablation and pain removal) in soft tissue, including adenomyosis, uterine myomas, bone and nerve growth by focused heating of segments using ultrasonic energy. | 8960000 | August 2002 | May 2019 | ||||
Brain system | Functional disorders (essential tremor, Parkinson’s disease, neuropathic pain) | 8960401 | October 2013 | December 2019 |
Below is a table listing the approvals received by InSightec products from the FDA21:
Name of the product approved | Indication | Approval process | Approval number | Approval date | Predicate device | |||||
Body system | Uterine myomas | FULL PMA | P04000322 | October 2004 | None | |||||
Body system | Metastases in bone | PMA | P11003923 | October 2012 | None | |||||
Brain system | Essential tremor | PMA | P15003824 | July 2016 | None |
Below is a table listing the approvals received by InSightec products from the CE:
Name of the product approved | Indication | Notified Body | Approval number | Approval date | Approval term | Last date of notified body inspection and its results | ||||||
Body system | Uterine myomas | DEKRA | 2110597CE01 | October 2002 | January 2023 | December 2017 | ||||||
Body system | Adenomyosis | DEKRA | 2110597CE01 | May 2010 | January 2023 | December 2017 | ||||||
Body system | Bone tumors | DEKRA | 2110597CE01 | May 2007 | January 2023 | December 2017 | ||||||
Body system | Uterine myomas, adenomyosis, bone tumors | DEKRA | 2110597CE01 | September 2009 | January 2023 | December 2017 | ||||||
Body system | Expanding bone treatment indications and approval for CBS system. | DEKRA | 2110597CE01 | June 2013 | January 2023 | December 2017 | ||||||
Body system | Prostate cancer | DEKRA | 2110597CE01 | December 2016 | January 2023 | December 2017 | ||||||
Brain system | Functional disorders (essential tremor, Parkinson’s disease, neuropathic pain) | DEKRA | 2110597CE01 | November 2012 | January 2023 | December 2017 | ||||||
Brain system | Compatibility with 1.5 MRI | DEKRA | 2110597CE01 | October 2015 | January 2023 | December 2017 | ||||||
Brain system | Software update version 7.0 | DEKRA | 2110597CE01 | April 2016 | January 2023 | December 2017 |
** The notified body inspection for each indication is carried out soon after the approval date. Beyond this, at least one inspection is carried out each year, and an overall inspection is carried out every 3 years, renewing the certificate.
21 | The table present the regulatory approvals given granted by the FDA for InSightec systems and does not contain all the expansions and updates of technical systems made for the same indication over the years. |
22 | It shall be clarified that this approval has been granted 18 expansions since the date of its original issue, which do not substantially affect the Company. |
23 | It shall be clarified that this approval has been granted 18 expansions since the date of its original issue, which do not substantially affect the Company. |
24 | It shall be clarified that this approval has been granted 3 expansions since the date of its original issue, which do not substantially affect the Company. |
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Below is a table listing the approvals received by InSightec products in Japan, China, Korea, Taiwan and Canada:
Japan
Name of the product approved | Indication | Approval process | Approval date | Predicate device [bilingual text] | ||||
Japan | ||||||||
Body system | Uterine myomas | Full registration | August 2009 | None | ||||
Body system | Bone metastases and UF updates | Partial change | November 2014 | None | ||||
Brain system | Essential tremors | Full registration | December 2016 | None | ||||
China | ||||||||
Body system | Uterine myomas | Full registration | July 2013 | Yes | ||||
Body system | Uterine myomas Compatibility with additional MR systems | Full registration | December 2014 | Yes | ||||
Korea | ||||||||
Brain system | Movement, pain, and psychiatric disorders | Full registration | November 2015 | None | ||||
Body system | Uterine myomas, breast cancer | Full registration | November 2005 | None | ||||
Body system | Adenomyosis | Partial change | June 2011 | None | ||||
Body system | Metastases in bone | Full registration | March 2009 | None | ||||
Taiwan | ||||||||
Brain system | Essential tremor | Full registration | November 2017 | None | ||||
Canada | ||||||||
Brain system | Essential tremor | Full | May 2016 | אין | ||||
Body system | Uterine myomas and metastases in bone | Full | August 2013 | אין |
Insurance coverage
As to InSightec’s best knowledge, as of the date of the report, insurance coverage is available for (a) Treatment of uterine myomas, by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket); (b) treatment by pain caused by cancer metastases in bones by the body system, by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket); (c) Insurance coverage for treatment of essential tremor by the brain system , by a number of health insurers in the USA and in Europe and by the HMOs in Israel (included in the medicine basket);
In July 2016 a range of American insurance companies25 providing insurance coverage for about 99.8 million members have published updates in their policies regarding treatment with the MRgFUS technology so as to include coverage for MRI-guided focused ultrasound treatment for pain caused by bone cancer. InSightec estimates that the aforementioned updates will enable access of these insurance coverage for treatments for this indication with InSightec’s ExAblate, as a treatment option approved by the FDA.
In November 2016, the CMS has decided to give treatment of essential tremor using InSightec’s brain system (hereinafter:“the treatment”) the status of a treatment for which refunds are available. This changes the treatment’s status from the status of a treatment for which insurance compensation is not available to one that enables insurance compensations to a level of 9,751 dollars.
Later, the CMS decided that starting on 01/01/2018 the primary code for movement disorders (essential tremors) will be assigned to a new technology level enabling an insurance compensation of 17,500 dollars t for those insured for whom the aforementioned treatment is appropriate.
25 | The publications are pursuant to a change of the insurance policy by insurance companies from the Blue Cross Blue Shield Association Health Care Service Corporation Group. |
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The CMS decision is only one of the necessary conditions necessary to receive an insurance compensation for the treatment. Pursuant to the CMS approval, the approval of each of the regional CMS representatives in the USA is required in order to receive insurance compensation for patients for the treatment. As of the date, an approval from a CMS representative in one area only (National Government Services Medicare, Local Medicare Contractor (MAC) for jurisdiction 6andK26) has been received and the Company is acting to receive the rest of the CMS representatives’ approvals, but cannot estimate when whether these approvals will be received.
InSightec is acting to expand the number of health insurance providing insurance coverage as described above, as well as the geographical area where the aforementioned health insurance will be provided to insured patients. For this purpose, InSightec is acting in a range of avenues, as follows: (1) Working with hospitals in the USA and Europe and supporting them in the process of applying to local insurance companies in order to receive insurance coverage (2) Forming a call center for support for patients whose applications for coverage from the insurance companies that are insuring them; (3) Direct activity with insuring entities, as well as entities setting policy in the matters of insurance coverage. In addition, in this context InSightec is also evaluating the possibility to make use of existing insurance codes, to receive insurance coverage as described for oncological applications. Expenses for this InSightec activity are included in InSightec sales and marketing expenses, as described in the financial reports.
InSightec believes that third-party payors will not provide reimbursement on a national basis for treatments using the ExAblate, unless InSightec can generate a sufficient amount of data through long-term patient studies to demonstrate that such treatments produce favorable results in a cost-effective manner relative to other treatments. Furthermore, InSightec could be adversely affected by changes in reimbursement policies of private healthcare or governmental payors to the extent any such changes affect reimbursement for treatment procedures using the ExAblate.
Distribution and Marketing
InsightecInSightec has two main distributing channels; the first one is Insightec’InSightec’s independent business department and the second one is by distributors and local agencies among them is GE healthcare representatives as a non-exclusive distributor,(usually without exclusivity) and other distribution agreements with third parties. Distribution agreements are generally for a term of between one and five years, with an option to extend the agreement based on the performance of the distributor.
Accumulated orders
As of 31/2017, InSightec has contractedaccumulated orders resulting from obligating orders (Which can be canceled pursuant to the conditions of the contract with several non-exclusive distributorsthe distributor/client) for its products (in millions of dollars):
Period | Revenues | |
2018 – Q1 | 2.8 | |
2018 – Q2 | 2 | |
2018 – Q3 | 0.9 | |
2018 – Q4 | 8.4 | |
Total for 2018 | 14.1 | |
Revenues for 2019 | 0.4 | |
Total accumulated orders | 14.5 |
Material agreements
InSightec is a party to a number of substantial agreements that are outside of the normal scope of business and were valid in Europe and Asia who market and sellthe period described in this report, or affected its systems.activities in this period:
Business StrategyShareholders agreement
InSightec’s strategic objective is to continue to expand its approved applications, as well asThe Company, KDT, GE, MTA, the product development effortsYork Foundation, GEOC, Ferré, Focused Holdings LP, InSightec, and clinical studies for additional applications, particularly with respect to its neurological applications. If the results of its clinical studies are positive, InSightec intends to pursue regulatory approval in the United States and other targeted jurisdictions to market the ExAblate for these additional treatment applications.
In addition, InSightec aims to become the market leader in MRgFUS systems and to achieve a significant improvement in the quality and efficacy of the treatment while demonstrating cost effectiveness. To achieve this goal, InSightec intends to pursue a number of operatingadditional shareholders are a party to a shareholder agreement, as amended from time to time, establishing the relationship between the parties and growth strategies, which include:their rights.
The cooperation agreement with GE Healthcare
On December 5, 2012 an agreement for cooperation between InSightec and GE was signed, and subsequently amended. This agreement provides the following as of the date of the report.
InInSightec appointed GE as a non-exclusive distributor of its products, for the period ending at the end of 2020. The Agreement sets prices for InSightec products and the rates of the sales commission, refunds, and supports development of ties to radiologists using its products.
It shall be noted that, until the agreement was first amended (in June 2014), the cooperation agreement included, among other provisions, a commitment of InSightec to grant GE exclusivity, so that InSightec’s products would only be compatible with MRI machines made by GE. This exclusivity has been subsequently been terminated with the parties consent, and InSightec even entered into, in August 2016, a non-exclusive cooperation agreement with Siemens, an international company that is a leading manufacturer and developer of MRI imaging machines, for the purpose of adapting InSightec’s systems for work with the MRI imaging machines made by Siemens, in order to expand the marketingmarket of products that InSightec systems are compatible with.
That said, correct to the date of the report, InSightec’s products are still only regulatory approved as compatible with GE MRI machines. From a technological point of view, InSightec is capable, subject to investing financial resources (the costs of developing hardware and software interface) and within an appropriate time period, to make changes to InSightec products so as to make them compatible also with other manufacturers’ MRI machines, as well as receive regulatory approval for the new system. As per InSightec’s estimate, it may require approximately two years in order to enable compatibility with non-GE imaging systems, and to create an agreement infrastructure for distribution of such products, similar to the relationship currently in place with GE Healthcare, also with another MRI system supplier. As per InSightec’s estimate, a termination of the relationship with GE Healthcare will not cause its activity to stop, but may lead to a slowdown in activity during the aforementioned period of adaptation. For compatibility between InSightec’s MRI guided Focused Ultrasound Systems (MRgFUS) and Siemens MRI scanners please refer to Section __.
It has been established in the agreement that InSightec carries the sole liability for defects in the manufacturing, planning, and initial assembly of the products. Moreover, InSightec is obligated to compensate GE Healthcare, its employees and representatives, for any damage, costs, or obligations resulting from a third-party suit resulting from the contract between the parties. GE Healthcare, on the other hand, is obligated to compensate InSightec, its employees and representatives, for damages caused by GE Healthcare products and/or changes made to these products without InSightec’s authorization. For the implementation of the provisions of this agreements, the parties have obligates themselves to purchase (each) an insurance policy to the extent of at least 5,000,000 dollars.
Moreover, the agreement originally established that InSightec will serve as a non-exclusive distributor of GE MR scanners, in order to enable InSightec to sell the scanners as part of its combined treatment system. This section was terminated with the consent of both parties in December 2017. The agreement establishes the price per unit and technological compatibility with InSightec products, to which GE is obligated
Cooperation agreement with Siemens
On August 15, 2016, we announced that InSightec Ltd. signed a non-exclusive cooperation agreement with Siemens, Healthcare GmbH (“Siemens”), a leading manufacturer and developer of diagnostic imaging equipment in general and Magnetic Resonance scanners specifically, to develop compatibility between INSIGHTEC’s MRI guided Focused Ultrasound Systems (MRgFUS)InSightec’s MRgFUS and SiemensSiemens’ MRI scanners (the “Systems”“Systems”) with the intention to expand the MRgFUS market globally. (the “Agreement”). According to the Agreement,co-operation agreement, the Parties will cooperate regarding the performance of R&D, integration, testing and approving the compatibility of the Parties’ Systems.systems of the parties. Each Partyparty shall be solely responsible, at its own cost, to obtain the regulatory approval for its systems, and InSightec shall be solely responsible, at its sole cost, to obtain the regulatory approval for the combined system. Each Partyparty shall bear all of its internal and external costs relating to its performance under the Agreement,co-operation agreement, except that InSightec shall reimburse Siemens an amount agreed upon in the Agreement,co-operation agreement, for its R&D costs. The Agreementco-operation agreement also determinesprovides that each Partyparty shall act independently in the marketing and sales of its component portion of the Combined System, and determines the amount InSightec shall pay Siemens for sales of the Combined Systems.Systems and in case of sales for installed MR base.
The term of the Agreementco-operation agreement is five (5) years from the first commercial sale of the combined system and shall automatically renew for additional 1-year periods, unless either Party has provided a notice for its non-renewal or of its termination, in accordance with the terms of the Agreement.co-operation agreement.
Business Strategy
Insightec’s vision is global leadership in the field of non-invasive treatment using magnetic resonance guided focused ultrasound technology (MRgFUS), made available for broad use for the benefit and welfare of the patients.
Insightec’s strategy is focused on development of two product lines, a product line in the field of body systems (oncology and gynecology) and a line of products in the field of brain treatment systems (neurological disorders and tumors).
In the field of brain systems, Insightec intends to develop applications that will make use of advanced mechanisms of interactions between tissues and acoustic fields (for example, Targeted Drug Delivery), neuromodulation, and more. The brain applications currently supported by Insightec’s current systems and those planned in the future are based on thermal ablation. Insightec utilizes the technology used in this system in non-invasive brain treatments. To the best of Insightec’s knowledge, this field was a research field only in the first years of Insightec’s activity. As technology allowing brain treatment without trepanation became possible, this field became central for Insightec.
In order to realize its vision, Insightec intends to continue developing the MRgFUS technology and the systems based thereon, which will allow the replacement of surgical procedures, minimally-invasive procedures, and radiation treatment. Moreover, Insightec intends to continue searching for strategic partners acting in the markets relevant for its products in order to cooperate with them on entering the markets in an efficient, low-cost, broad entry of its technology into the target markets. In addition, Insightec is also working to raise funding from existing shareholders or from new sources of funding, which will support the acceleration of business and other activities.
Insightec intends to develop a future surgical system that will replace the invasive operating room currently in use. The system will allow treatment in a variety of clinical applications, all of this while generating more value for its products and Insightec itself. Moreover, Insightec is evaluating the use of MRgFUS technology as an additional tool for Radiation Oncology departments, which will enable treatment of patients for whom radiation treatments are not currently providing a satisfactory response, or for whom a combination of MRgFUS treatment and radiation treatments will serve as a preferable treatment solution.
Insightec aspires to expand the marketing of its systems in additional countries in America, Europe, Asia and Oceania. For this purpose, Insightec intends to expand its distribution network, as well as evaluating various possibilities for marketing the product in the USA – by means of distribution agreements, direct marketing, or partnership with a strategic partner. Beyond that, Insightec intends to expand the volume of its activities in China and Japan, for which purpose Insightec has set up a fully owned subsidiary company in China and in Japan, and recruited a number of local employees.
Insightec aspires to complete the development of additional applications for its products, so that every product purchase can serve for the treatment of a great number of disorders, which will significantly increase the profitability of purchasing it.
Gamida Cell Ltd.
WeHoldings in Gamida’s shares
As of the date of the report’s publication, we indirectly hold, through Elbit Medical, approximately 17.9%16% of the outstanding share capital (13.6%(12% on a fully diluted basis) of Gamida.Gamida, as listed below:
Share types | Issued share capital | Number of stock held by the Company | Number of stock held by the Company of the same class of shares | Number of shares held by the Company of the same class of shares on a fully diluted basis | ||||||||||||
Common stock | 549,990 | 450,000 | 81.8 | % | 43.5 | % | ||||||||||
Type B common stock | 139,908 | - | - | - | ||||||||||||
Type A preferred stock | 600,000 | - | - | - | ||||||||||||
Type B preferred stock | 1,453,846 | 517,637 | 35.6 | % | 35.6 | % | ||||||||||
Type C preferred stock | 2,827,430 | 990,460 | 35.0 | % | 25.0 | % | ||||||||||
Type D preferred stock | 3,473,345 | 265,343 (5,380following adjustment (*)) | 7.8 | % | 7.8 | % | ||||||||||
Type E-1 preferred stock | 571,478 | - | - | - | ||||||||||||
Type E-2 preferred stock | 1,023,312 | 436,681 | 42.7 | % | 42.7 | % | ||||||||||
Type F-1 preferred stock | 4,274,363 | - | - | - | ||||||||||||
Type C preferred stock options | 1,129,008 | |||||||||||||||
Common stock options for investors, employees, and consultants | 1,506,510 | - | - | - | ||||||||||||
Type F-2 preferred stock options | 2,564,619 |
(*) It should be noted that, as of the date of this filing, 265,343 of the abovementioned Type D preferred shares are convertible to 270,723 ordinary shares, and this comes following the increase in the conversion ratio resulting from the activation of the anti-dilution mechanism included in Gamida’s Articles, within the scope of previous rounds of raising capital that Gamida has performed.
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The following is a summary of the material provisions in the Articles of Association of Gamida (and the rights attached to its shares):
ClinicalLiquidation and Regulatory DevelopmentDividend Preference
Upon the occurrence of a distribution, liquidation or deemed liquidation, including (a) the merger or consolidation or other reorganization of the company with or into any other corporate entity; or (b) a sale or perpetual exclusive license (in any two of the following territories: (i) substantially all of North America, (ii) substantially all countries in Europe, taken as a whole, and (iii) substantially all other countries (i.e., other than North America and Europe, taken as a whole) or (c) other irrevocable disposition of all or of substantially all of the company’s shares or intellectual property or assets, subject to certain exceptions:
(a) The holders of the Series F Preferred Shares shall first be entitled to receive $9.44 for each Preferred F-1 Share and $11.33 for each Preferred F-2 Share;
(b) Thereafter, the holders of the Series E Preferred Shares shall be entitled to receive $3.1503 per each Preferred E-1 Share and $3.7288 per each Preferred E-2 Share; provided that each of the holders of the Ordinary C Shares shall be entitled to receive out of the aggregate amount paid to the Series E Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series E Preferred Shares under this section multiplied by the ratio that such Ordinary C Share bears to the total number of the outstanding shares of Gamida on a fully diluted basis (the “Gamida Share Ratio”);
(c) Thereafter, the holders of the Series D Preferred Shares shall be entitled to receive $6.3111 for each Series D Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to receive out of the aggregate amount paid to the Series D Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series D Preferred Shares under this section multiplied by the Gamida Share Ratio;
(d) Thereafter, the holders of the Series C Preferred Shares shall be entitled to receive $1.9553 for each Series C Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to receive out of the aggregate amount paid to the Series C Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series C Preferred Shares under this section multiplied by the Gamida Share Ratio;
(e) Thereafter, the holders of the Series B Preferred Shares shall be entitled to receive $1.8052 for each Series B Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to received out of the aggregate amount paid to the Series B Preferred Shares under this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series B Preferred Shares under this section multiplied by the Gamida Share Ratio;
(f) Thereafter, the holders of the Series A Preferred Shares shall be entitled to receive $1.3720 for each Series A Preferred Share; provided that each of the holders of the Ordinary C Shares shall be entitled to received out of the aggregate amount paid to the Series A Preferred Shares in this section an amount for each Ordinary C Share equal to the product of the aggregate amount paid to the Series A Preferred Shares in this section multiplied by the Gamida Share Ratio;
Under no circumstances shall the aggregate preference amounts payable in respect of any outstanding Preferred Shares, or that are underlying any outstanding convertible securities , as of July 3, 2017, exceed US$ 36,078,000.
(g) After the aforesaid preferences the remaining distributable assets, if any, shall be distributed among the holders of Ordinary Shares, Ordinary B Shares, Ordinary C Shares and Preferred Shares on a pro rata, pari passu, and as-converted basis.
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Conversion
At any time, the holders of Preferred Shares may convert all or any portion of their shares into the number of Ordinary Shares computed by dividing the applicable original issue price paid for the class of Preferred Share held by such holders (“Original Issue Price”) by the applicable conversion price for such Preferred Share, which initially is the Original Issue Price (other than the Preferred D Shares for which the Original Issue Price is $9.56 and the conversion price is $9.37).
The preferred shares shall convert: (i) immediately prior to and conditioned upon the consummation of a public offering that yields gross proceeds of at least $30,000,000 at a pre-money value of at least $150,000,000, (ii) on the date specified in a written consent of the holders of at least a majority of voting power represented by the then issued and outstanding Preferred Shares (voting together as one class, on an as-converted basis), including the consent of the holders of at least a majority (or, in the case of the Preferred F Shares – 60%) of each of the series of Preferred Shares (other than the Series A Preferred Shares) then outstanding; or (iii) upon the date specified in a written consent of the holders of at least a majority (or, in the case of the Preferred F Shares – 60%) of the voting power represented by the then issued and outstanding shares of a certain series of Preferred Shares (with the shares of such series of Preferred Shares voting together as one class, on an as-converted basis), delivered to the Company, all issued and outstanding shares of such series of Preferred Shares shall automatically be converted.
The Preferred Shares have broad based weighted average protection formula (the Preferred F Shares are subject to a special anti-dilution mechanism).
Other Restriction of Transferability of Shares in Gamida
The shares in Gamida (with certain standard exceptions) are subject to a right of first refusal, co-sale and bring-along rights (if approved by 60% of the shares voting together as a single class).
Board of Directors
The number of Directors in Gamida shall not exceed 10 directors.
Any one or more shareholder(s) (with certain exclusions) who hold(s), together with its or their permitted transferees, shares of Gamida (other than Preferred F Shares) representing an aggregate of 11% or more of the voting power of Gamida on an as-converted basis, shall have the right to appoint, replace and remove one (1) director by virtue of such aggregate 11% holdings.
Special Voting Provisions/Veto Rights
Among other special voting rights, Gamida shall not effect a deemed liquidation in which holders of Gamida’s leading product, NiCord®,Preferred Shares receive equity in a private corporation in consideration for the transaction, other than such a transaction in which holders of Preferred Shares receive no less than their entire preference amounts in cash and/or publicly-traded securities, without the consent or vote of 60% of the Preferred F Shares.
The board of directors shall not undertake certain actions, including the following, without consent of a majority of the members of the Board appointed by the holders of the Preferred F Shares or shareholders holding an aggregate of 11% or more of the voting power represented by the then issued and outstanding share capital: (a) make any fundamental changes to the business of Gamida; or (b) any transaction out of the ordinary course of business not contemplated by the company’s budget then in effect.
Business Concept
Gamida deals in the research and development of medical products based on stem cells, the source of which is mainly from umbilical cord blood (hereinafter: “Umbilical Blood”).
Gamida operates in the field of research, development and manufacture of products designated for bone marrow transplants in leukemia or lymph node cancer sufferers, non - malignant blood diseases such as Sickle Cell Anemia and Thalassemia, metabolic genetic diseases. In addition, Gamida is in clinicalfurther advanced stages of research development (Phase I/II)and manufacture of products for potential use as a hematopoietic (blood) stem cell (HSC) transplantationthe immunological treatment of cancer sufferers by means of Natural Killer Cells27 (hereinafter: “NK Cells”) (hereinafter together: “Field of Activities”).
The main product in patients with hematological malignancies (blood cancer) such as leukemia and lymphoma. HSC transplantation from bone marrow (also called bone marrow transplantation)that Gamida is currentlydeveloping is the standard of care treatment for many of these patients, but we believe there is a significant unmet need for patients who cannot rapidly find a fully matched bone marrow donor. NiCord is derived from a unit® (hereinafter “NiCord”), based upon the enrichment of umbilical cord blood whose HSCwith stem cells, in technology process that makes use of Nicotinamide molecules (hereinafter: “NAM”). It would be prudent to state that Gamida is working to develop additional products, which are also based on the NAM technology, including the CordIn and the NK cell product. These products are also in clinical development, but at a less advanced stage of development than the NiCord.
27 | NK Cells are white blood cells which act to kill off body cells that have been infected with viruses or have developed into cancerous cells. |
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Investments in Gamida’s capital
Below are details regarding investments in Gamida’s capital in the last two years:
In July 2017, Gamida completed a round of fundraising of a scope of approximately 40 million dollars (Hereinafter in this paragraph: “The Investment”) in consideration for 4,274,363 f-1 shares. Immediately following the closing: (i) the Series F-1 Preferred Shares issued represented approximately 28.7% (21.9% on a fully-diluted basis) of Gamida’s share capital; (ii) the options to Series F-2 Preferred Shares issued represented approximately (13.1 on a fully-diluted basis) of Gamida’s share capital. The Investment was led by the Shavit Capital Fund, which was joined by Novartis and other investors, including the VMS Investment Group, IHCV, Israel Biotech Fund and the Company (hereinafter in this paragraph: “The Investors”). In return for the investment, Gamida issued preferred shares to the investors (hereinafter: “The Allocated Shares”) pursuant to a value of 120 million dollars (before the money). The portion of the company in the investment was 1.5 million dollars. In addition, options were allocated to the investors to purchase preferred shares in a quantity constituting 60% of the number of the preferred shares allocated (hereinafter in this paragraph: “The Options”). The exercise price of the options is 120% of the preferred share price paid by the investors at the time of the completion of the investment. The options are exercisable during the course of a period of up to 5 years from the date of completion of the investment. It would be prudent to state that as at this date, there is no certainty that the investors will exercise the options.
Products
Following is a table detailing the main products being developed by Gamida:
Name of the Medical Product under Development | Outline for which the medical product under development is designated | Development stage of the medical product as at the date of the report | Milestones expected over the next 12 months | Next milestone and the expected date of achieving it. | Estimated cost of achieving the next milestone | Size of the potential target market – the number of sufferers, patients or procedures, and the annual financial scope of the potential target market of the medical product under development as at the date of publication of the report | Gamida’s estimate regarding the date of commencement of the marketing of the medical product under development | Gamida’s estimate regarding the expected market share for the medical product under development under the assumption of obtaining authorization to market it | ||||||||
NiCord | Malignant Hematology diseases | Phase III | Continuation of recruiting patients for Phase III trials. | Completion of the recruiting of patients in Phase III trials in the second half of 2019. | About $ 30 million | The market potential in the USA, Europe and Japan is estimated to be about 30,000 – 40,000 patients per annum requiring transplants from a unrelated28. As at the date of the report, Gamida has no estimate regarding the annual financial scope of the target market. | Gamida estimates that the marketing commencement date will be at H1 of 2021. | Gamida hired consultants and conducting market research in order to examine the matter. | ||||||||
CordIn29 | Non - malignant hematology diseases, genetic diseases | Phase I / II | The continuation of the recruitment of patients for Phase I / II trials, for Sickle Cell Anemia and Thalassemia (in a configuration of one or two units of cord blood) | Completion of the recruitment of patients for Phase I / II trials during the course of 2019 | About $ 1 million | About 100,000 patients per year are diagnosed in the USA with Sickle Cell Anemia.30 Each year about 2,000 – 3,000 new cases are diagnosed.31 As at the report date, there is no estimate as to the financial scope of the target market. | Gamida has no ability to accurately estimate, at this stage, the date of receipt of the authorization to market. | Gamida has no ability to accurately estimate, at this stage, the specific market size (out of this market) to which the product will be aimed. | ||||||||
Continuation of the recruitment of patients for Phase I / II Acute Aplastic Anemia and Myelodysplastic diseases. | Completion of the recruitment of patients in 2020 | About $ 1 million |
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Name of the Medical Product under Development | Outline for which the medical product under development is designated | Development stage of the medical product as at the date of the report | Milestones expected over the next 12 months | ext milestone and the expected date of achieving it. | Estimated cost of achieving the next milestone | Size of the potential target market – the number of sufferers, patients or procedures, and the annual financial scope of the potential target market of the medical product under development as at the date of publication of the report | Gamida’s estimate regarding the date of commencement of the marketing of the medical product under development | Gamida’s estimate regarding the expected market share for the medical product under development under the assumption of obtaining authorization to market it | ||||||||
Product based on NK Cells which have been enhanced using NAM technology | Malignant hematology diseases | Phase I | Continuation of recruitment of patients or Phase I trials in multiple myeloma and NHL type lymphoma. | Completion of the recruitment of patients in 2019 | About $ 2.5 million | Gamida has not, at this stage, estimated the size and / or the financial scope of the potential market. | Gamida has no ability to accurately estimate, at this stage, the date of receipt of the authorization to market. | Gamida has no ability to accurately estimate, at this stage, the specific market size (out of this market) to which the product will be aimed. |
Due to the inherently unpredictable nature of the research and development processes, we are unable to estimate with any certainty the estimated cost of achieving the next milestone.
28 | WMDA Report 2015. |
29 | Another product based on the technology, makes use of the NAM molecules and is adapted for treatment of non - malignant diseases. |
30 | https://www.cdc.gov/ncbddd/sicklecell/data.html August 19 2017 Centers for Disease Control Atlanta GA USA. |
31 | Modell B & Darlison M. Global epidemiology of hemoglobin disorders and derived service indicators. Bull World Health Organ. 2008 June; 86(6): 480-487 |
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Clinical and Regulatory Development
Nicord
NiCord is the lead product of Gamida Cell for the treatment of patients with Hematological Malignancies such as Leukemia and Lymphoma who require a donor derived (allogeneic) bone marrow transplantation.
NiCord is composed from stem cells derived from umbilical cord blood which were expanded and enriched using Gamida’s proprietary NAM technology.
NiCord is enrolling patients in culture using our NAM platform technology. Clinical results obtained to date suggest thata Phase III registration study. NiCord may effectively address this unmet need.received a breakthrough Therapy designation from the FDA and Orphan drug designation from the FDA and EMA.
The following items describe the significant clinical and regulatory events related to NiCord®:
● | On March 20, 2018, Gamida presented new data on immune reconstitution (IR) from its phase I/II study of NiCord® in high-risk hematologic malignancies (the “Study”). The IR findings of a random subgroup of 22 adults patients (median age approximately 22 years) from the Study, as compared to 47 young patients (median age approximately 22 years) with hematologic malignancies treated by unmanipulated CB and unrelated bone marrow without ATG (the “Comparison Group”), were presented. The primary endpoint was the probability of achieving CD4+ IR within the first 100 days, a level indicating a significant reconstitution of the immunity system. Additional cellular components of the immunity system were evaluated. Key findings include: · More than 90% of patients have met the primary endpoint (achieved successful CD4+ IR at 100 days after transplantation with NiCord). · T-cell IR with NiCord was similar to that observed in the Comparison Group, in which younger patients typically achieved better results after stem cell transplantation. · Immune reconstitution of NK cells, B cells and monocytes, was faster, in a statistically significant manner, after transplantation with NiCord when compared to the Comparison. |
● | On February 28, 2017, Gamida announced that that the first patient has been transplanted in Gamida’s Phase 3 study of NiCord® which is in development as a cure for patients with blood cancer. The trial will evaluate the safety and efficacy of transplanting NiCord® as compared to transplanting un-manipulated cord blood in patients with hematological malignancies (blood cancers). The primary end point is the time estimation to neutrophil engraftment. |
● | On January 17, 2018, Gamida announced its initiation of a Phase I study evaluating its proprietary NAM-expanded natural killer cells (NAM-NK Cells) in patients with relapsed or refractory CD20+ non-Hodgkin lymphoma (NHL) and multiple myeloma. The Phase I study will be conducted at the medical center of the University of Minnesota Health and is designed to determine the maximum tolerated dose of NAM-NK Cells. Secondary endpoints of the study include overall antitumor response and toxicity. The study is currently recruiting and will enroll approximately 24 patients aged 18 to 70 years old. Participants will undergo a lymphodepleting preparative regimen, and then receive two doses of NAM-NK Cells. |
● | On December 12, 2017 the Company announced that Gamida has presented final results from the phase I/II trial evaluating NiCord® (the “Trial”) at the annual meeting of the American Society for Hematology (ASH).The Trial that included 36 patients with hematologic malignancies, met its primary endpoint as well as safety and efficiency targets, as follows: (i) Participants treated with NiCord® had rapid and durable engraftment of neutrophils and platelets, as we all as prompt immune reconstitution; (ii) The Trial met its primary endpoint - median time to neutrophil engraftment was 11 days (95% CI: 9-13 days); (iii) Patients treated with NiCord® had a median time to platelet engraftment of 34 days (95% CI: 32-42 days); (iv) NiCord® demonstrated an acceptable safety profile, with moderate/severe cGvHD of 9.8% at one year following transplantation. By day 100 20.2% of participants experienced grade 2-3 bacterial or grade 3 fungal infections; and (v) Results from the Trial participants were compared to a database of matched patients from the Center for Internal Blood and Marrow Transplant Research (CIBMTR). According to the CIBMTR data, patients who received UCBT had a median time to neutrophil engraftment of 21 days and a median time to platelet engraftment of 46 days. Gamida highlighted that the final results of the Trial supports the basis for the global phase III trial of Nicord®. |
● | In March 2017, the orphan drug designation which has been granted by the European Medicines Agency’s (EMA) Committee for Orphan Medicinal Products (COMP) regarding NiCord® has been |
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● | In December 12, 2016, Gamida announced that it has been cleared by the |
● | On October 10, 2016, Gamida announced that the FDA granted Breakthrough Therapy Designation status to NiCord®, due to improvement in absorption of neutrophils blood cells in bone marrow transplant for patients with high risk hematological malignancies (blood cancers). Breakthrough therapy designation is granted to a drug that is intended to treat serious or life-threatening diseases, and that preliminary clinical evidence indicates that the drug may demonstrate substantial improvement on a clinically significant endpoint(s) over available therapies. A breakthrough therapy designation entitles the company to various benefits, such as: (i) intensive FDA guidance; (ii) involvement of senior FDA managers in the process; and (iii) option for a FDA rolling review of Nicord® marketing approval application in the U.S (i.e. the FDA may agree to review parts of the application file which are submitted in phases, with no obligation of filling the whole file prior to the review commencement). |
● | In December 2015, Gamida announced that following the initial data analysis of 16 patients who were treated with NiCord® in the Phase I/II study for treating patients with hematological malignancies (leukemia or lymphoma), NiCord® demonstrated absorption in all patients and in an average timeframe of 10 days. This timeframe is significantly shorter than absorption timeframes reported in transplanted untreated cord blood, where reported absorption timeframes averaged 23-27 days. The clinical study demonstrated a positive drug safety profile, and proper rehabilitation of blood systems post-transplant. On January 8, 2015, the first person was successfully transplanted with cryopreserved (frozen) NiCord® in Gamida’s ongoing Phase I/II clinical study for blood cancer patients. After thaw the cryopreserved product maintained the advantage of NiCord® in demonstrating very rapid engraftment (white blood cell recovery). Gamida expects that this rapid engraftment will reduce the risk of opportunistic infections, will lower the morbidity associated with cord blood transplantation and shorten hospitalization. |
● | On January 8, 2015, the first person was successfully transplanted with cryopreserved (frozen) NiCord® in Gamida’s ongoing Phase I/II clinical study for blood cancer patients. After thaw the cryopreserved product maintained the advantage of NiCord® in demonstrating very rapid engraftment (white blood cell recovery). Gamida expects that this rapid engraftment will reduce the risk of opportunistic infections, will lower the morbidity associated with cord blood transplantation and shorten hospitalization. |
● | In January 2014, orphan drug designation has been granted to NiCord® by The US Department of Health and Human Services, The FDA Office of Orphan Products Development, for treatment of several medical conditions. The Orphan Drug Act of 1983, or Orphan Drug Act, encourages manufacturers to seek approval of products intended to treat “rare diseases and conditions” with a prevalence of fewer than 200,000 patients in the U.S. or for which there is no reasonable expectation of recovering the development costs for the product. For products that receive Orphan Drug designation by the FDA, the Orphan Drug Act provides tax credits for clinical research, FDA assistance with protocol design, eligibility for FDA grants to fund clinical studies, waiver of the FDA application fee, and a period of seven years of marketing exclusivity for the product following FDA marketing approval. |
● | In February 14, 2013 Gamida announced successful results of NiCord’s Phase I/II study for treating patients with hematological malignancies. On September 9, 2013 Gamida announced the successful transplantation of the first patient in Gamida’s Phase I/II study of NiCord using a single unit of cord blood. Additional indications and products are in development for cancer, genetic l diseases, immune therapy for cancer and refractory autoimmune diseases. |
Gamida’s is alsoCordin
Another product based on the technology used in clinical development (Phase I/II) of Cordin which uses technology based onthe NAM molecules for the treatment through transplantationby means of the transplants of umbilical cord blood enriched umbilical blood inwith stem cells forin patients with non-cancerous bloodnon - malignant hematological diseases such as SCD, thalassemia,(such as: Thalassemia, Sickle Cell Anemia, and serious metabolic genetic diseases and serious autoimmune diseases. As of the date of this report, Cordin is in a Phase I/II clinical study which is transplanted along with untreated umbilical blood. Gamida expects, during 2017, to recruit patients for an additional Phase I/II study with transplantation of Cordin only.Aplastic Anemia).
At the date of the publication of the report, Gamida is conducting a Phase I / II trial with CordIn, which is transplanted in patients with Sickle Cell Anemia, together with a unit of umbilical blood which has not undergone any treatment (in a configuration of two units of umbilical blood).
Furthermore, in July 2016, Gamida began Phase I / II trials on patients with Sickle Cell Anemia and Thalassemia using CordIn (in a configuration of one umbilical blood unit).
In addition, in August 2017, a transplant was performed on the first patients as part of the Phase I / II trial on patients with severe Aplastic Anemia, and Myelodysplastic diseases (Hypoplastic Myelodysplastic syndromes – MDS) using CordIn.
The following items describe the significant clinical and regulatory events related to CordIn:
● | On February 21, 2018, Gamida presented additional data from its phase I/II study in sickle Cell Disease (the “Study”) at the 2018 BMT Tandem Meetings (the “Meeting”). The results of 13 patients with SCD treated with CordIn in combination with an unmanipulated unrelated umbilical cord blood (UCB) were presented at the Meeting. The primary endpoint of the Study was evaluating the safety and efficacy of CordIn and cumulative incidence of neutrophil engraftment following transplantation. Key results include: (i) Rapid engraftment was observed in all 13 patients at a median of seven days (range: 6-20 days); (ii) 11 of 13 (84.6%) patients were alive at a median follow-up of 22 months (range: 1-63 months). Two patient deaths were observed due to secondary graft failure and severe GvHD respectively; (iii) 8 participants experienced grade II-IV acute GvHD; (iv) 2 participants experienced extensive chronic GvHD; (v) The 9 patients with long-term follow-up achieved transfusion independence with normal hemoglobin profile and no active GvHD. It should be noted that as of this date, the Study has not been completed yet |
● | in August 2017, a transplant was performed on the first patients as part of the Phase I / II trial on patients with severe Aplastic Anemia, and Myelodysplastic diseases (Hypoplastic Myelodysplastic syndromes – MDS) using CordIn. |
● | in July 2016, Gamida began Phase I / II trials on patients with Sickle Cell type Hemoglobinopathy Anemia and Thalassemia using CordIn (in a configuration of one umbilical blood unit) |
Material agreements
The Lonza Agreement
On February 13, 2016, Gamida entered into a framework agreement, for a five year period, with Lonza Walkersville Inc (“Lonza”) for the supply of service and operation of manufacturing facilities, as well as a service agreement for purposes of the manufacturing of NiCord and CordIn (mainly for the Phase III clinical trials of the NiCord product). The parties agreed that, in the event that Gamida will want to commercialize NiCord, the parties will discuss between them (with no obligations), the continuation of manufacturing for such commercial stage. The period of service agreement is until to December 2018 and Gamida has the option of extending the agreement period by an additional 6 months against additional payment. The total cost of the agreement is several millions of dollars. Gamida can terminate the agreement by means of a 6 month prior notice. Lonza can terminate the agreement as of December 31, 2017, by means of a 12 month prior notice. Likewise, the two parties can terminate the agreement by means of a two month prior notice in the event that the clinical trial is suspended by the FDA.
In Gamida’s opinion, in the case of the replacement of Lonza, a great deal of resources will be required, both from the aspect of locating alternate vendors that comply with the stringent standards as well as from the aspect of preparing a new production facility, the transfer of technology training workers, etc., which is estimated to be a period of approximately one year and, as a result, Gamida is liable to be dependent on this vendor.
The Kiryat Gat Premises Lease Agreement
In December 2017, Gamida entered into a lease agreement of a property in Kiryat Gat of 5,000 sq. m. designated for use as a production site for the commercial stage. The lease agreement is for a 10 year period and includes an option to extend it for an additional 5 years.
Plots in Eastern Europe initially designated for development of commercial centers
plots in Eastern Europe (and in Greece) held by our subsidiary Plaza Centers N.V. (“PC“) whose business strategy is to no longer develop commercial centers but to dispose its real estate assets at optimal market conditions.
Business Concept and Strategy
PC business concept and strategy is to no longer develop commercial centers, but to solve existing bureaucratic or legal issues and dispose its real estate assets.
PC’s financial reports for 2017 indicate the existence of a material uncertainty that casts significant doubt about PC’s ability to continue as a going concern.
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Plots owned by PC
Casa Radio, Romania
One of PC’s most significant projects is the Casa Radio project in Bucharest, Romania. The carrying amount of this project in the company’s financial statements as of December 31, 2017, amounts to NIS 263 million (2016 - NIS 263 million).
In 2006 PC entered into an agreement according to which it acquired a 75% interest in a company (“Project SPV”) which is under a Public Private Partnership (“PPP”) agreement with the Government of Romania to develop the Casa Radio site in the center of Bucharest (“Project”). After signing the PPP agreement, PC holds indirectly 75% of the shares in the Project SPV, the remaining 25% are held by the Romanian authorities (15%) and a third party private investor (10%).
As part of the PPP, the Project SPV was granted with development and exploitation rights in relation to the site for a period of 49 years, starting December 2006. As part of its obligations under the PPP, the Project SPV has committed to construct a Public Authority Building (“PAB”) measuring approximately 11.000 square meters for the Romanian Government at its own expense.
Large scale demolition, design and foundation works (financed by loans given to the Project SPV by PC) were performed on the construction site until 2010, when construction and development was put on hold due to lack of progress in the renegotiation of the PPP agreement with the authorities, as detailed below, and the global financial crisis. These circumstances (and mainly the bureaucratic deadlock with the Romanian Authorities to deal with the issues detailed below) caused the Project SPV not to meet the development timeline of the Project, as specified in the PPP. However, PC’s management believes that it had legitimate reasons for the delays in this timeline, as detailed below.
Obtaining of the Detailed Urban Plan (“PUD”) permit
The Project SPV obtained the PUD related to this project in September 2012. Furthermore, on December 13, 2012, the Court took note of the waiver of the claim submitted by certain plaintiffs and rejected the litigation aiming to cancel the approval of the Zonal Urban Plan (“PUZ”) related to the Project. The court decision is irrevocable.
As the PUD is based on the PUZ, the risk that the PUD would be cancelled as a result of the cancellation of the PUZ was removed following the date when the PUZ was cleared in court on December 13, 2012.
Discussions with Authorities on construction time table deferral
Following the Court decision with respect to the PUZ, the Project SPV was required to submit a request for building permits within 60 days from the approval date of the PUZ/PUD and commence development of its project within 60 days after obtaining the building permit. The building permits have not been obtained.
Additional information in respect of PC’s trading property:
However, due to substantial differences between the approved PUD and stipulations in the PPP agreement as well as changes in the EU directives concerning environmental considerations in buildings used by public authorities the Project SPV attempted to renegotiate the future development of the Project with the Romanian Authorities on items such as time table, structure and milestones as well as adaptation of thePAB development to the current EU requirements. Despite many notifications sent to the Romanian Authorities expressing a wish to renegotiate the existing PPP agreement no major breakthrough could be achieved. PC could be subject to significant delay penalties under the terms of the PPP agreement if it is determined that PC was at fault in causing the delays.
Because of the failure of the public authorities to cooperate, negotiate and adjust the PPP agreement, the Project SPV was not able to meet its obligations under the PPP. This resulted in a situation where the Project SPV could not “de facto” continue the execution of the Project and created a risk that the public authorities could attempt to terminate the PPP agreement. In the event that the public authorities seek to terminate the PPP Agreement and/or seek to impose penalties, PC may incur penalties and/or recover less than the carrying amount of the Casa radio asset recorded in the consolidated financial statements as at year end (€ 50.4 million). As of the date of approval of PC's consolidated financial statements for 2017 the Project SPV did not receive any termination notification by the public authorities.
PC believes that although there is no formal obligation for the Romanian Authorities to renegotiate the PPP agreement, such obligation is implicitly provided for the situation when significant unexpected circumstances arise and that the unresponsiveness of the authorities is a violation of the general undertaking to support the Project SPV in the execution of the Project as agreed in the PPP agreement.
PC also believes that the risk that the public authorities may seek to terminate the PPP and/or relevant permits on the basis of the perceived breach of the PC’s commitments and/or may seek to impose delay penalties on the basis of the PPP contract is unlikely given the public authorities have not sought to do such since the perceived breach in 2012 and given PC believes that it has basis for counter claims against the relevant public authorities.
In the case of termination for breach under the PPP agreement the relationship and compensation between the parties is to be decided by a competent court of arbitrations. PC’s management believe that, in the case of termination, PC has a strong case to claim compensation for damages.
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Since 2016 PC’s management has taken a number of steps in order to unblock the development of the project and mitigate the risk of termination of the PPP agreement, including commencing a process to identify third party investors willing and capable to join PC for the development of the project and/or potential buyers for the Project. PC’s management believes that reputable investors with considerable financial strength can enhance PC’s negotiation position vis-à-vis the authorities and assist in advancing an amicable agreement with the relevant authorities with respect to the development of the project.
Whereas PC’s management considers the risk of termination of the PPP agreement and/or the imposition of penalties by the authorities to be unlikely, the consolidated financial statements do not include any provision in respect to any potential future penalties in respect to the breach of the PPP agreement. The increased risk arising from the above matters has been reflected in the valuation of the Project.
Co-operation with the Romanian Authorities regarding potential irregularities
In 2015, PC’s board and management became aware of certain issues with respect to certain agreements that were executed in the past in connection with the Project. In order to address this matter, PC’s board appointed the chairman of its Audit Committee to investigate the matters and independent law firms to analyze the available alternatives in this respect. The chairman of the Audit Committee did not conclude the investigation as the person with key information was not available to answer questions. PC’s Board, among other steps, implemented a specific policy in order to prevent the reoccurrence of similar events and appointed the chairman of the audit committee to monitor the policy’s implementation by PC’s management. In addition, it was decided that in the future certain agreements will be brought to PC’s board’s approval prior to signing.
PC has approached and is co-operating fully with the relevant Romanian Authorities regarding the matters that have come to its attention and in March 2016 it has submitted its initial findings to the Romanian Authorities. During this process PC has been verbally informed by the Romania Authorities that it has received immunity from certain potential criminal charges and received further verbal assurance that the mentioned investigation should have no effect on the PC’s existing legal rights to the Project and the PPP Agreement. As the investigation by the Romanian Authorities is still on-going, the Company in unable to comment further on any details related to this matter. Management is currently unable to estimate any monetary sanctions in respect to the potential irregularities, consequently no provision has been recorded in connection with these matters.
As mentioned above, when PC entered into an agreement to acquire 75% interest in the Project SPV it assumed a commitment to construct the PAB at its own expense for the benefit of the Romanian Government. Consequently, the statement of financial position includes a provision in the amount of EUR 12.8 million ($ 15 million) in respect of the construction of the PAB (December 31, 2016: EUR 13.2 million). During 2017, the Company recorded income in total amount of EUR 0.4 million from change in PAB provision as part of write down of trading properties (in 2016 - EUR 1.7 thousand).
In addition to the Casa Radio project, the following table provides additional information in respect ofPC plots which are designated for sale, as of December 31, 2017:
Name of Project | Location | Designation | Title | PC Share % | ||||
Csiki Plaza | Miercurea Ciuc, Romania | Commercial and Entertainment Center | Ownership | 100 | ||||
Pireas Helios Plaza (1) | Athens, Greece | Offices/Retail | Ownership | 100 | ||||
Lodz Plaza(2) | Lodz, Poland | Retail and Entertainment Center | Perpetual Usufruct | 100 | ||||
Lodz (Residential) | Lodz, Poland | Ownership/Perpetual Usufruct | 100 | |||||
Brasov, | Romania | Retail and entertainment scheme | Ownership | 100 | ||||
Krusevac | Serbia | Retail and entertainment scheme | Ownership | 100 | ||||
Casa Radio | Romania | Mixed-use retail and leisure plus office scheme | Remained Lease period 37 years | 75 |
(1) Following the preliminary agreement regarding the disposal of a plot in Piraeus, Greece, several amendments were signed during 2016-2017. The latest amendment deadline expired on January 20, 2018. In order to secure the prolonged validity of the initial agreement, the purchaser made advance payments in a total amount of EUR 0.3 million (non-refundable) to PC. The completion of the transactions are expected to be concluded during 2018 as an asset deal (instead of the original agreement regarding a share deal) with a lower sales price of EUR 3.35 million.
(2) On June 13, 2017, PC announced that it has signed a preliminary sale agreement for the sale of a 13,770 square meter plot at its second land holding in Lodz, Poland, (representing 22% of this holding) to a retail developer, for €1.2 million. The purchaser made a down payment of EUR 0.035 million and a second payment of EUR 0.085 million shall be paid when the purchaser obtains environmental permit for investing in the access road to the plot. The remaining balance minus 50% of the sum invested in the road (up to maximum amount of EUR 0.12 million) will be paid once a building permit is obtained for development of the plot which is expected to be granted till the end of 2018.
Plots in India
Joint Venture with PC in respect of Plots in India
Our plots in India are owned by our subsidiary, Elbit Plaza India Real Estate Holdings Limited, or EPI.Limited("EPI"). EPI is held 47.5% directly by us and 47.5% by our subsidiary PC.EPIPC (the remaining 5% are held by the Company's former Executive Vice Chairman (VC) of the Board). EPI holds two plots in India (in Bangalore and Chennai).
Business concept and strategy
Our business concept and strategy in respect of our Bangalore, India project is to transfer our proprietary interests in the plot to third parties.
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With respect to our Chennai, India project, our main goal and strategy is to find a commercially suitable exit from the project and liquidate our interest in the project in the most efficient manner. Until such time, we are developing, through a local Joint Development Agreement with a local partner, the plot in the Chennai, India project. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Joint Development Agreement with respect to our Plot in Chennai, India “.
Additional information in respect of the Chennai Project
In December 2007 EPI executed agreements for the establishment ofestablished a special purpose vehicle (“Chennai Project SPV”) together with a local developer in Chennai (“Local Partner”). The Chennai Project SPV”) which acquired 74.73 acres of land situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai (“Property”Property”).
On September 16, 2015, EPI has obtained a backstop commitment from the Local Partner for the purchase of its 80% shareholding in the Chennai SPV by January 15, 2016, for a net consideration of approximately INR 161.7 Crores (NIS 91 million). Since the Local Partner had breached its commitment, EPI exercised its rights and forfeited the Local Partner’s 20% holdings in the Chennai Project SPV. Accordingly, as of the balance sheet date EPI has 100% of the equity and voting rights in the Chennai Project SPV.
On August 2,July 21, 2016, Chennai Project SPV has signed a Joint Development Agreement with a local developer (“Developer”Developer” and “JDA”“JDA”, respectively) with respect to the Property.
Under the terms of the JDA, the Chennai Project SPV granted the property development rights to the Developer who shall bear full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices.
Development will commence subject to the obtainment of the required governmental/ municipal approvals and permits, and it is intended that 67% of the Property will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale.
The Chennai Project SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units.
In order to secure its obligation, the Developer will paypaid a total refundable deposit of INR 35.5 Crores (NIS 20 million), with INR 10 Crores (NIS 5.5($ 1.6 million) were paid asfollowing the signing and registration of the balance sheet date, INR 17 Crores (NIS 9.5 million) payable when planning permission for the first phase of the development project is obtained (the “Project Commencement Date”), and the remaining INR 8.5 Crores (NIS 5 million) payable six months after the Project Commencement Date (“Refundable Deposit”).JDA.
The JDA may be terminated in the event that the required governmental approvals for establishment of an access road to the Property has not been achieved within the 12 (twelve) monthsmonth period from the execution date of the JDA. The required approvals were not obtained by the target date (and as of this date they have not yet been obtained at the target date,obtained), but none of the parties has canceled the agreement at this juncture. Upon such termination, the Developer shall be entitled to thea refund of the relevant amounts paid as Refundable Depositrefundable deposit and any other cost related to such access road or the title over the Property. The JDA may also be terminated by the Chennai Project SPV, inter alia, if the Developer has not obtained certain development milestone and/or breached the terms of the JDA.
Additional information in respect of Bangalore project
2008 Agreement:
In March, 2008 a wholly owned subsidiary of EPI (“SPV”), entered into a share subscription and framework agreement (the “Agreement”“Agreement”), with a third party local developer (the “Partner”“Partner”), and a wholly owned Indian subsidiary of EPI which was designated for this purpose (“SPV”), to acquire together with the Partner, through the SPV, up to 440 acres of land in Bangalore, India (the “Project”“Project”) in certain phases as set forth in the Agreement. As of December 31, 2016,2017, the Partner has surrendered sale deeds to the SPV for approximately 54 acres (the “Plot”“Plot”). In addition, under the Agreement the Partner has also been granted with 10% undivided interest in the Plot and have also signed a Joint Development Agreement with the SPV in respect of the Plot.
2015 Agreement:
On December 2, 2015 EPI has signed an agreement to sell 100% of its interest in the SPV to the Partner (the “Sale Agreement”“Sale Agreement”). The total consideration upon completion of the transaction was INR 3,210 million (approximately NIS 181EUR 42 million) which should have been paid no later than September 30, 2016 (“Long Stop Date”). On September 30, 2016, the Company announced that the transaction has not been completed and the parties have reached to preliminary understanding with the partner that the Long Stop Date will be extended subject to payments of advances by the Partner. Accordingly, on the same day the Partner has advanced an amount of INR 5 Crores (approximately NIS 2.8 million) to the SPV.”). On November 15, 2016, the Partner informed EPI that it will not be able to execute the next advance payments due, in the fourth quarter of 2016.payments.
As a result of the foregoing, the Company has received from the escrow agent the sale deeds in respect of additional 8.3 acres (the “Additional |Property”“Additional Property”) which has been mortgaged by the Partner in favor of the SPV in order to secure the completion of the transaction on the Long Stop Date. The Additional Property has not yet been registered in favor of the SPV. In addition, as per the Sale Agreement, the Company is acting in order to get full separation from the Partner with respect to the Plot and specifically the execution of the sale deed with respect of the 10% undivided interest, all as agreed in the Sale Agreement.
Through the end of the third quarter of 2016 the Company has included the investment in the SPV as investment in joint venture (50%) under the equity method since under the Agreement the partner was entitled to receive 50% shareholding in the SPV in case he will comply with all of his obligations under the Agreement and specially with respect to the purchase of all the acres included in the Agreement. As a result of the failure of the Partner to complete the transaction under the Sale Agreement and in accordance with the provisions thereto, EPI has 100% control over the SPV and the partner is no longer entitled to receive the 50% shareholding. Accordingly the Company has consolidated the financial statements
New payment structure for sale of the SPV with the Company financial statementProject in this annual report.Bangalore, India
In connectionJune 2017, EPI signed a revised sale agreement with the revised Saleformer Partner according to which the parties have agreed that the purchase price will be amended to INR 338 Crores (approximately Euro 44.2 million) instead of the INR 321 Crores (approximately Euro 42 million) agreed in the previous Agreement. As part of the new agreement, INR 110 Crores (approximately Euro 14.4 million) will be paid in instalments until the final closing that is scheduled to take place on September 1, 2018 (the "Final Closing"), when the final instalment of INR 228 Crores (approximately Euro 29.8 million) will be paid to EPI.
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If the Partner defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Partner as stipulated in the new agreement. All other existing securities granted to EPI under the previous Agreement signed after this Balance sheet date, please see note 20 F.will remain in place until the Final Closing.
NGT order affectingIn January 2018, the Plot:Partner has notified EPI that due to a proposed zoning change (initiated by the Indian authorities) which could potentially impact the development of the land, all remaining payments under the new agreement will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the Partner’s claims, having no relevance to the new agreement, and started to evaluate its legal options.
Since the signing of the revised new agreement, the Partner has paid non-refundable advance payments totaling INR 46 Crores (approximately € 5.9 million).
In March 2018, an amended to the agreement was signed and the Partner and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately €45.8 million). Following the signing of the new agreement, the Partner paid EPI an additional INR 9 Crores (approximately €1.3 million) further to the INR 46 Crores (approximately €5.9 million) that were already paid during the recent year. Additional INR 83 Crores (approximately €10.8 million) will be paid by the Partner in unequal monthly installments until the Final Closing that will take place on August 31, 2019 (the “New Final Closing”) when the final installment of approximately INR 212 Crores (approximately €27.8 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
If the Partner defaults before the new Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the New Final Closing.
Environmental update on Bangalore project - India
On May 4, 2016, the National Green Tribunal (“NGT”NGT”), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as “no construction zones” due to its proximity to water reservoirs and water drains (“Order”Order”). The restrictions in respect of the “no construction zone” are applicable to all construction projects.
The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company’s project which is adjacent to the Varthur Lake and have several storm-water crossing it.
An appeal was filed before the Supreme Court of India against the Order. The Supreme Court has stayed the operation of certain portions of the Order. At this stage, it is difficult to predict the amount of time that the Supreme Court of India will take to decide on the matter.
On June 16, 2017 EPI signed a revised agreement in relation to the sale of a 100% interest in a special purpose vehicle which holds a site in Bangalore, India to the Partner.
The Partner and EPI have agreed that the purchase price will be amended to INR 338 Crores (approximately Euro 47 million) instead of the INR 321 Crores (approximately Euro 44.6 million) agreed in the previous agreement. As part of the agreement, INR 110 Crores (approximately Euro 15.3 million) will be paid by the Purchaser in instalments until the Final Closing. The Final Closing will take place on September 1, 2018, when the final instalment of INR 228 Crores (approximately Euro 31.7 million) will be paid to EPI.
If the Partner defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement will remain in place until the Final Closing.
See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Agreement to sell a plot in Bangalore, India”.
Additional information in respect of the Kochi project
The Company has rights under certain share subscription agreement to hold 50% shareholding in Indian SPV (“Project SPV”SPV”). The Project SPV has entered into an agreement for the purchase of a land located in Kochi, India according to which it has acquired 13 acres (“Property A”A”) for a total consideration of INR 1,495 million (NIS 84($ 23 million) payable subject to fulfillment of certain obligations and conditions by the seller. Up to the balance sheet date the Project SPV has paid INR718INR 718 million (NIS40($ 11 million) to the seller in consideration for the transfer of title in Property A to the Project SPV.SPV and as advance towards for property. Our share in such acquisition amount to approximately NIS 20$ 6 million.
On January 14, 2016, the Company signed an agreement to waive any of its rights and interest in the Project SPV, subject to receipt of agreed upon consideration. The total consideration for the Company is INR 10 Crores (approximately €1.4 million and approximately $1.5 million), which will be paid to the Company upon the closing of the transaction. The transaction is subject to certain conditions precedent, and closing will take place once these conditions are met and no later than December 31, 2017.June 30, 2018.
.
Revenues classified by geographical markets and by business segments
The following table sets forth our breakdown of revenues by each geographic market in which we operate, for each of the last three years (in NIS thousands):
2016 | 2015 | 2014 | Convenience Translation in U.S. Dollars for 2016 | |||||||||||||
Western Europe | - | 27,743 | 72,537 | - | ||||||||||||
Central and Eastern Europe | 328,275 | 253,774 | 435,355 | 85,377 | ||||||||||||
India | - | 150,296 | 4,348 | - | ||||||||||||
Other and Allocations | - | 6,712 | 11,301 | - | ||||||||||||
Total Revenues | 328,275 | 438,525 | 523,540 | 85,377 |
2017 | 2016 | 2015 | Convenience Translation in U.S. Dollars for 2017 | |||||||||||||
Central and Eastern Europe | 814,826 | 328,275 | 133,631 | |||||||||||||
India | - | - | 150,296 | 235,023 | ||||||||||||
Other and Allocations | - | - | 6,712 | - | ||||||||||||
Total Revenues | 814,826 | 328,275 | 290,639 | 235,023 |
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The following table sets forth our breakdown of revenue by business segments for each of the last three years (in NIS thousands):
2016 | 2015 | 2014 | Convenience Translation in U.S. Dollars for 2016 | |||||||||||||
Commercial and Entertainment Centers | 210,014 | 309,302 | 341,937 | 54,620 | ||||||||||||
Hotels | 135,839 | 147,886 | 197,007 | 35,329 | ||||||||||||
Medical Companies* | 96,333 | 69,432 | 92,026 | 25,054 | ||||||||||||
Plots in India | - | - | - | |||||||||||||
Other and Allocations* | (113,911 | ) | (88,095 | ) | (107,430 | ) | (29,626 | ) | ||||||||
Total | 328,275 | 438,525 | 523,540 | 85,377 |
2017 | 2016 | 2015 | Convenience Translation in U.S. Dollars for 2017 | |||||||||||||
Commercial and Entertainment Centers | 814,826 | 210,014 | 309,302 | 235,023 | ||||||||||||
Medical Companies* | 117,488 | 96,333 | 69,432 | 33,888 | ||||||||||||
Plots in India | - | - | - | - | ||||||||||||
Other and Allocations* | (117,488 | ) | (113,911 | ) | (88,095 | ) | (33,888 | ) | ||||||||
Total | 814,826 | 192,436 | 290,639 | 235,023 |
* Other and Allocations includes equity method adjustments to eliminate revenues of our equity method investments that are reviewed on a full basis. Seebasis.See Note 18 to our consolidated financial statements.
SeasonalityInSightec
Radisson Blu Complex
The business activities of our Radisson Blu Complex is influenced by several factors that affect our revenues and profit. These factors include (i) fluctuations in business activity in certain seasons, which affects the volume of traffic in the business community, (ii) holiday seasons, such as Christmas and Easter and (iii) weather conditions. These factors generally cause the first and third quarters to be weaker than the second and fourth quarters.
The first quarter, which is the period immediately following the Christmas season and the height of the European winter, is traditionally characterized by lower revenues and gross operating profit resulting from lower occupancy rates and reduced room rates. During the third quarter, there is generally a decrease in local business activities due to the summer holidays, which, together with a tendency for local tourist traffic to seek out resort destinations, also generates slower results. This is offset somewhat by increase in international tourism, but the impact of this increase is, in turn, offset by lower room rates, particularly for groups.
However, during the second quarter, there is generally a marked increase due to more favorable weather conditions (spring to early summer), the Easter holiday and the corresponding revival of both business and tourist activity. The first two months of the fourth quarter is usually the strongest period due to increased business in October and November, however, December usually shows significant decrease due to a slowdown in business traffic due to the Christmas and New Year’s holiday season which is partially offset by the increase of the tourist traffic at this time.
Commercial Centers
The commercial center business is, to some extent, seasonal in nature. Tenants typically achieve their highest levels of sales during the fourth quarter due to the holiday season, which generally results in a higher percentage rent income for PC in the fourth quarter. Additionally, shopping and entertainment centers earn most of their ’‘temporary’’ rental income (income from short-term tenants) during the same holiday period. As a result, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of PC’s fiscal year.
InSightec
Most of InSightec’s revenue is derived from sale of systems to hospitals and research centers that are generally funded by public budget. As such the business activities of InSightec is characterized by low level of sales in the first quarter and increasing in each quarter such that the sales in the fourth quarter are usually the highest in the year.
Patents and Proprietary Rights; Licenses
PC is the registered owner of a European Community trademark “Plaza Centers + figures.” The trademark is also registered in India.
Pursuant to our agreements with Rezidor, our hotels are managed under the name: “Radisson Blu” and “Park Inn”.
InSightec’s intellectual property includes ownership of 156171 patents. In addition, InSightec has submitted 3657 patent applications, which remain pending and in process. InSightec has registered trademarks for “ExAblate,” ExAblate 2000”“ExAblate” and “InSightec” in the United States, European Union, Canada and Israel.Israel as well as “INSIGHTEC BRINGING THERAPY INTO FOCUS & DESIGN” (Old company logo) in the United States..
Gamida’s patent portfolio is comprised of 7 issued U.S. patents, 2125 issued non-U.S. patents, 32 pending U.S. patent applications, 1410 pending non-U.S. patent applications, and 01 pending patent applications under the Patent Cooperation Treaty.
Competition
Commercial centers
Our commercial centers in Torun Poland is in direct competition with several significant groups operating commercial centers in CEE namely Globe Trade Center SA, ECE Projekt Management GmbH TriGranit Holding Limited, NEPI and Atrium European Real Estate. We compete in attracting tenants to occupy our spaces in the commercial center and to attract customers to visit and to shop in our commercial center.
Radisson Blu Complex
Our Radisson Blu Bucharest Hotel is rated a five-star luxury hotel and our Park Inn hotel is rated a four-star hotel.
Each of our hotels competes with other hotels in its geographic area for clientele. We compete with other facilities on various bases, including room prices, quality, service, location, reservation service, marketing tools and amenities customarily offered to the traveling public. Levels of demand are dependent upon many factors, including general and local economic conditions and changes in levels of tourism and business-related travel. Our hotels depend upon both business and tourist travelers for revenues.
We believe that our hotels nevertheless offer quality and value for competitive prices. In addition, our cooperation with Rezidor, using the Radisson Blu brand and the Park Inn assists us in gaining recognition.
Medical Companies – InSightec
Competition to MRgFUS treatments includes traditional surgical modalities, minimally invasive surgery, and competing image guided high intensity focused ultrasound (HIFU) systems. Minimally invasive procedures involving tissue ablation methods include radiofrequency ablation where electromagnetic energy is inserted into the body with a special needle, microwave ablation, laser, cryoablation which ablates tissue through freezing, embolization of the blood vessels, and irreversible electroporation, are potential competitors of InSightec. Depending upon the medical indication treated, these methods may have regulatory approval in various geographies, including CE marking in Europe and FDA approval in the US.
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InSightec faces competition from both traditional and minimally invasive treatments of uterine fibroids and the other medical conditions that InSightec has targeted for its future applications. Traditional treatment methods for uterine fibroids and other medical conditions that InSightec has targeted for product development are more established, accepted and practiced widely among physicians, and reimbursed by healthcare insurance.
Competitive treatments for uterine fibroids, which are approved by the FDA and CE marked include hysterectomy, myomectomy, uterine artery embolization, and radiofrequency ablation. Competitive treatments for bone metastases include external beam radiation therapy, radiofrequency, cryoablation and microwave ablation.
Similar to uterine fibroids, Insightec’s neurosurgery product faces competition from invasive or minimally invasive surgical options. For the approved indication of Essential Tremor, those options are invasive ablation techniques with radiofrequency energy delivered via an inserted probe, or chronic deep brain stimulation via an implanted brain electrode and pacemaker. For indications under development but not yet approved competition would be invasive respective surgery, non-invasive ablation with radiation (radiosurgery), or minimally invasive ablation with laser probes.
In recent years, GE’s main competitors in magnetic resonance imaging, Philips and Siemens, have developed MRgFUS devices; Philips has designed and manufactures its own system, Sonalleve, whereas Siemens has partnered with Chongqing Haifu, a Chinese manufacturer of therapeutic ultrasound systems, a partnership that has since dissolved. In December 2009 Philips announced that their MRgHIFU Sonalleve device for treatment of uterine fibroids received CE Mark and is available commercially in Europe and other countries that recognize the CE regulation. In 2011 ECR Philips also announced that Sonalleve has been cleared for treating painful bone metastases. Due to inability to recruit patients for their FDA PMA uterine fibroids study, Philips stopped last year the FDA study. They are conducting a clinical trial for CFDA approval in China. This validates the uterine fibroid application for which InSightec’s ExAblate received FDA approval in 2004. There are several ultrasound-guided HIFU approved in China, including Chongqing. According to recent publications more than 10,000 UF treatments were performed in China using these systems. Treatments however are limited to relatively small fibroids, and reports regarding the safety of the procedures significantly vary between less than 1% and more than 28% serious complications. At present, to our knowledge, the Chinese ULSgFUS companies have focused their marketing efforts in Asia.
In 2008, YDME (US-guided HIFU system) received FDA IDE to start a phase I pancreatic cancer study in the United States but terminated that study due to its own financial reasons.
Two US-guided systems for treatment of prostate cancer, Ablatherm (EDAP TMS) and Sonablate (SonaCare Medical) have registered a CE Mark. Recently SonaCare succeeded the changing of the category of their device into category II, and approved the Sonablate for treatment of prostate tissue.
Profound Medical offers a CE approved (since April 2016) transurethral MR-guided HIFU system, which is currently under FDA 510K evaluation for treatment of locally confined prostate cancer. The system was evaluated initially for whole gland ablation in patients with low risk prostate cancer that are currently not considered as candidates for any treatment, and is currently under evaluation for focal therapy in patients with low and intermediate risk prostate cancer.
In the area of treating brain disorders (tremor, tumors, CNS, mediated drug delivery) using MRgFUS, InSightec faces potential competition from the French company Supersonic Imagine. The company has been developing a product similar in capabilities to InSightec’s ExAblate Neuro device. The Supersonic Imagine device is still in a pre-clinical development stage
Medical Companies – Gamida
NiCord®
NiCordNiCord® may face indirect competition from other pharmaceutical and biotechnology companies that develop products for the treatment of the diseases that we target. If these therapies are successful in curing these diseases, they may reduce the number of patients undergoing hematopoietic (blood) stem cell transplantation (HSCT) procedures. Other new medications may allow more patients to be eligible to transplant.
HSCT from cord blood in general may face additional competition from haplo-identical peripheral blood transplantation, another therapeutic approach currently being studied. This approach uses bloodcells from a non-matched family related donor and is not currently regulated by the FDA. Companies like MolMed S.p.A. and Kiadis Pharma B.V. and Bellicum are developing technologies aiming to improve the clinical outcomes of haplo-identical transplantation.
Other companies are developing clinical-stage technologies that aim to improve the clinical outcomes of HSCT from cord blood by expanding HSCT from cord blood. These companies include Mesoblast Limited, NohlaTherapeuticsMagenta, Nohla and Cellerant Therapeutics.Targazyme.
In addition, the bio-medical field is characterized by rapid development and massive research and development activities, having potential for direct or non-direct competition resulting from the discovery or development of more advanced, efficient or cost-effective treatments or technologies by third parties providing better solutions to the same diseases, while making InSightec’s (or Gamida’s) technologies or solutions inferior, obsolete or irrelevant. Such occurrence could adversely impact InSightec’s (and Gamida’s) future business and financial performance.
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CordIn
In the field of treatment of non - malignant hematology diseases and, in particular, Thalassemia and Sickle Cell Anemia, Gamida has, at this stage, two main competitors, who are at stages of clinical trials, BlueBird Bio and Bellicum. In addition, it is possible that the other technologies for the expansion of stem cells, will also suit a similar treatment use as that of CordIn.
Plots in India
Our plot in Bangalore, India is relatively larger in size when compared to other plots available in its vicinity. Further, our plot is irregularly -shapedshaped and non- contiguousnon-contiguous as there are pockets of land parcels within our plot which are owned by third parties. Our plot is in close proximity to the Varthur Lake with water drains crossing it, and is therefore subject to the NGT order. Consequently, a third party prospective buyer may claim that the new NGT order may create significant limitations on the development of our plot. The presence of residential developments by reputed developers near our plot exposes us to increasing residential competition in the local market.
Our residential development in Chennai faces competition from other developers who have readily available inventory for sale, and have larger resources and larger market presence thenthan our local partner. The Chennai market has been adversely impacted due to repeated floods in the last few years and certain political uncertainty in recent months. Our plot does not have a designated access road and there are high power tension lines running adjacent to our plots which may cause significant limitations on the development of our plot.
Governmental Regulation
Plots in Eastern Europe initially designated for Commercial centers
The development, construction and operation of commercial centers are subject to various regulatory controls,directives, which vary according to the country of activity. Some countries require that a developer provide an environmental report for the land before building permit applications are considered.examined. In certain European countries, antitrust permits must be obtained before a foreign investor is allowed to acquire shares of a local entity. In most Eastern European countries, construction work may only begin after the lapse of the objection period provided for third parties whose interests may be affected by such permits, at which time the contestation permit becomes final. If restitution claims made by former land owners in respect of project sites are upheld, these claims can jeopardize the integrity of title to the land and the ability to develop the land. Generally, construction must commence within a specified period following issuance of the permit, otherwise, the construction permit may expire.
Generally, the approval process for construction projects requires compliance with local zoning plans which state the conditions for construction and development and the designated permitted uses for the property. After review by the relevant authorities to verify that the developer complies with the local zoning plan, the developer must apply for a building permit, which includes the building design, permits, utility plans, surveys, environmental reports and any other documentation required by applicable law. Construction may commence upon receipt of a final valid building permit. Building permits are usually limited in time, and if construction does not commence before the expiration of the building permit, a developer will have to obtain a new building permit prior to construction. After completion, finished buildings are subject to operational inspection by applicable authorities such as environmental, sanitation, labor, utility and fire authorities. Once all approvals are obtained, an occupancy permit can be obtained for the building.
Plots in India
Foreign Exchange Management Act
In order for a nonresident entity (i.e. person resident outside India) to invest in the capital of an Indian company (under Indian Law, holding a real estate property by a nonresident entity can only be done through an entity) it needs to meet the provisions of the Foreign Exchange Management Act, (“FDI”), in the construction development sector is subject toand certain conditions under the Foreign Direct Investment Policy (“FDI”). According to the FDI, Policy. FDI is allowed upa nonresident entity has two alternatives to 100% underinvest in the capital of an Indian company: (i) Automatic Route that doesn’t require approval from Government of India for the investment; or (ii) Government Route, that requires prior approval of the Government of India.
The automatic route into construction-development projects,is subject to meeting certain restrictions pertaining, inter alia, to the following matters: (a) the investor will be permitted to exit on the earlier of (i) completion of the project, (ii) development of trunk infrastructure, i.e. roads, water supply, street lighting, drainage and sewerage, or (iii) expiry of 3 years (lock-in period); (b) project completion schedule; (c) conformance with local laws and applicable standards; (d) obtaining necessary approvals; (e) supervision by the state government/municipal/local body concerned, and (f) ability to sell developed plots only (developed plots has been defined to mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage has been made available).
The Reserve Bank Of India (“RBI”) has from time to time, amended certain provisions under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations (2000), relating to the pricing norms for issuance of shares by an Indian company to persons residing outside India. These regulations include provisions stipulating that the shares of an unlisted company have to be issued at a price not less than the fair valuation of the shares (arrived at by adopting an(calculated in accordance with international pricing methodology), in case of issuance on preferential allotment, and such issue price cannot be less than the relevant price. Also, in case of transfer of shares of an unlisted company from resident to non-resident, the relevant price will serve as the minimum price payable by the non-resident to the resident. In the case of transfer of shares of an unlisted company from a non-resident to a resident, the relevant price will serve as the maximum price payable by the resident to the non-resident. Furthermore, certain provisions of the Companies Act, 2013 have also recently been amended, which pertain to compliance by Indian companies in relation to the issue and allotment of shares on rights or preferential basis. These provisions include a new requirement of obtaining a valuation report from a registered value agency where shares are to be issued on a preferential basis.
National Green Tribunal – New Order
The new order by the National Green Tribunal(“NGT”Tribunal (“NGT”) which passed on May 4, 2016, may significantly limit the ability of the prospective purchasers to develop the land in the most efficient way, and may significantly affect our ability to dispose of such asset and complete our strategy relating to our plots in Banglore.Bangalore. The NGT established that the following areas are to be treated as “no construction zones”: (a) In the case of lakes, 75 meters from the periphery of the water body; (b) in the case of primary storm water drains, 50 meters from the edge of such primary storm water drains; (c) in the case of secondary storm water drains, 35 meters from the edge of such secondary storm water drains; and (d) in the case of tertiary storm water drains, 15 meters from the edge of such tertiary storm water drains.
An appeal was filed before the Supreme Court of India objecting to the new NGT order. Accordingly, the impact of the new NGT order cannot be fully determined until the Supreme Court of India adjudicates upon the matter. The issues and the uncertainty arising upon potential implementation of the new NGT order may impede the disposal of our Bangalore plot.
Radisson Blu complexMaster Plan
The local authorities have proposed a revised master plan -2031 (provisional) (under the provisions of Section 9 of the Karnataka Town and Country Planning Act, 1961 (the “Act”) for Bangalore under which it is inter alia proposed to change certain regulations pertaining to zoning of the plot which if given effect might adversely affect the development prospects on the plot. The Company being aggrieved by the proposed change was entitled to and has filed the necessary objections with the concerned authorities and believes that the current zoning regulations will be maintained.
The development, construction, renovations and operation of hotels and leisure facilities, including advertising tariffs, health and safety issues, environmental regulations, activities conducted withinAct does not contemplate any compensation mechanism for persons affected by changes in master plans, as the premises ofzoning is supposed to achieve the hotels (such as restaurants, bars, shops, health clubs, and in particular the sale of alcohol, food and beverage to the public), installations and systems operating within the hotel (elevators, sprinkler systems, sanitation, fire department etc.), terms of employing personnel, as well as methods of rating the hotels, are all subject to various regulatory controls.common good.
In Romania, the operation of hotels requires licenses for the operation of the building as a hotel and the obtaining of local municipal and police approvals for the means of access to and egress from the hotel for motor vehicles. In addition, we are required to obtain licenses for the sale of alcohol on the premises and the operation of a restaurant and tourism services. We are also required to comply with regulations regarding food, hygiene, the operation and maintenance of the swimming pool, casino, elevators, health, sanitation, electricity and fire hazards prevention.
Hotels are required to have a fire protection authorization (including the specific technical documentation) to be obtained and maintained in accordance with applicable law, such as, fire safety scenarios and identification and assessment of fire risks.
In addition, we are required to comply with various Romanian labor regulations, in particular working hour regulations and overtime. Romanian labor legislation has a mandated minimum wage. Also, the aggregate obligations companies may incur as a result of the termination of employees cannot be predicted.
Medical Companies
InSightec
The testing, manufacture and sale of InSightec’s products are subject to regulation by numerous governmental authorities, principally the FDA, the EEC, and corresponding state and foreign regulatory agencies.
The U.S. Safe Medical Devices Act of 1990 (the “SMDA”“SMDA”) includes various provisions which are applicable to each of the existing products of InSightec and may result in the pre-market approval process (a process whereby the FDA approves high risk or a new system that has no predicate devices that have been approved in the past) for such products becoming lengthier and more costly. Under the SMDA, the FDA can impose new special controls on medical products. These include the promulgation of performance standards, post-market surveillance requirements, patient registries, and the development and dissemination of guidelines and other actions as the FDA may deem necessary to provide reasonable assurance and effectiveness.
In June 1993, directive 93/42/EEC for medical devices was adopted by the EEC. In June 1998, this directive replaced the local regulation and ensured free transfer of qualified medical equipment among member states. Medical devices that meet the established standards, receive certification represented by the symbol “CE”. There are two types of certifications that are granted: (1) general certification of a company and (2) CE certification for a specific product. InSightec decided to comply with Medical Device Directive 93/42/EEC (“MDD”MDD”) and with the international standard ISO 13485 entitled “Medical Devices - Quality management systems - requirements for regulatory purposes”. InSightec obtained a certification of compliance with the standard in May 2001, and is subject to annual audits by the European Notified Body to renew the certification in accordance with all applicable updates of the standard and the MDD.
The Japanese MHLW (Ministry of Health, Labor, and Welfare) with JPAL (Japan Pharmaceutical Affairs Law) also requires company registration and a device license. InSightec obtained a device license in September 2009. In December 2016 a full registration for was received for Essential Tremor . In Japan the ExAblate is classified as class 4 (highest risk category) and as such it is highly regulated.Tremor.
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The Chinese CFDA requires the ExAblate to be registered as high risk as well under the relevant regulatory orders. ExAblate has been registered in the Chinese CFDA since July 2013.
The ExAblate has been registered in Canada’s Food and Drugs Act &and Regulations “Health Canada” since August 2013 and from May 2016 a registration for Essential Tremor was received.
Gamida
In the United States, the FDA regulates biological products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHS Act, and related regulations. Biological products are also subject to other U.S. federal, state, and local statutes and regulations, as well as non-U.S. statutes and regulations. The FDA and comparable regulatory agencies in state and local jurisdictions and in countries outside the United States impose substantial requirements upon the clinical development, manufacture and marketing of biological products. These agencies regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, packaging, labeling, storage, distribution, record keeping, reporting, approval, advertising and promotion of our products. These requirements and regulations vary from country to country. Failure to comply with the applicable regulatory requirements at any time during the product development process, including during clinical testing, during the approval process, or after approval, in Israel, the United States and any other country in which Gamida conducts its operations or sells its products may subject us to administrative or judicial sanctions.
Government regulation may delay or prevent marketing of product candidates for a considerable period of time and impose costly procedures upon Gamida’s activities. The testing and approval process requires substantial time, effort, and financial resources, and Gamida cannot be certain that the FDA or any other regulatory agency will grant approvals for NiCord, CordIn, Gamida’s NK cell product, or any future product candidates on a timely basis, if at all. The FDA’s policies and the policies of comparable regulatory authorities in other countries may change and additional government regulations may be enacted that could prevent or delay regulatory approval of Gamida’s current product candidates or any future product candidates or approval of new disease indications or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative, judicial, or administrative action, either in the United States or elsewhere.
C. | ORGANIZATIONAL STRUCTURE |
Our significant subsidiaries and companies in which we have a significant interest as of the date of this annual report are as follows:
NAME OF COMPANY | COUNTRY OF ORGANIZATION | DIRECT/INDIRECT OWNERSHIP PERCENTAGE | ||||
Plaza Centers N.V. | The Netherlands | 44.9 | %(1) | |||
Elscint Holdings and Investment N.V. | The Netherlands | 100 | %(2) | |||
Elbit Medical Technologies Ltd. | Israel | 89 | %(3) | |||
Elbit Plaza India Real Estate Holdings Limited | Cyprus | 50 | %(4)(5) | |||
Elbit Ultrasound (Luxemburg) B.V./S.a r.l. | The Netherlands and Luxemburg | 100 | % |
(1) | Approximately 42.7% on a fully diluted basis. |
(2) | Under liquidation proceedings. |
(3) | Approximately |
We hold 47.5% of the shares in EPI directly, and an additional 47.5% through PC. For additional information as to the joint venture signed between us and PC regarding EPI, see “Item |
5% of the equity in EPI was allotted to Mr. Avraham (Rami) Goren who served as our former Executive vice chairman of the Board. The shares allotted are entitled to distribution only following their return of Investment of |
D. | PROPERTY, PLANTS AND EQUIPMENT |
Our operational portfolio consists of various freeholds, leaseholds and other tangible assets. For details as to such real estate portfolio, see “Item 4.B4B – Business Overview.”Overview”. Below we present information regarding certain tangible fixed assets including leasehold properties that do not form part of our operational portfolio, but rather serve as basis for our and our subsidiaries’ offices and management, as of March 31, 2016.2017.
On May 13, 2015,December 2017, we signed a lease agreement for approximately 300121 square meters of space, including storage area and parking spaces, for management and administrative purposes in an office building in Petach Tikva, Israel. The annual aggregate rental fee (including management fees and index linkage pursuant to the lease agreement, and excluding VAT) to be paid by us will be approximately NIS 430,000150,000 (approximately $111,000) on an annual basis. On November 2016, we reduce the office area into approximately 197 square meters of space. The annual aggregate rental fee (including management fees and index linkage pursuant to the lease agreement, and excluding VAT) to be paid by us will be approximately NIS 270,000 (approximately $70,000) on an annual basis.$43,000).
PC’s headquarters are located in an office located on Bajcsy-Zsilinszky út, Budapest, Hungary. The buildingrental area is located on 9055 square meter plot. The annual aggregate rental fee (including management fees and index linkage pursuant to the lease agreement, and excluding VAT) to be paid by us will be approximately €30,000€26,100 (approximately $31,700)$31,264) on an annual basis.
On June 29, 2015 Elbit Plaza India Management Services Pvt. Ltd. signed a lease agreement for approximately 70 square meters of office space in Bangalore, Karnataka, India, for its management and administration activities. The term of the lease iswas until June 14, 2016, and was thereafter renewablerenewed by mutual consent of both parties.parties until April 30, 2018. The annual lease payments payable by Elbit Plaza India Management Services Pvt. Ltd. is INR 2,40,0002,90,400 (approximately $3,582)$4,470), with an annual increase in the monthly rental fees of 10%.
ITEM 4A. | UNRESOLVED STAFF COMMENTS. |
Not applicable.
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS. |
Overview
WeTo date we operate primarily in the following principal fields of business:
Medical Industries – through our indirect holdings in two companies which operates in the field of life science: (i) InSightec Ltd. (“InSightec”) - InSightec operates in the field of development, production, and marketing of treatment-oriented medical systems, based on a unique technological platform combining the use of focused ultrasound and magnetic resonance imaging for the purpose of performing noninvasive treatments in human beings; (ii) Gamida Ltd. (“Gamida”) – Gamida operates in the field of research, development and manufacture of products designated for certain cancer diseases.
Plots in India – we have holdings in plots of land in India which are designated for sale (and which were initially designated for residential projects).
Plots in Eastern Europe initially designated for development of commercial centers - plots in Eastern Europe (and in Greece) held by our subsidiary Plaza Centers N.V. (“PC”) whose business strategy is to no longer develop commercial centers but to dispose its real estate assets at optimal market conditions.
PC’s financial reports for 2017 indicate the existence of a material uncertainty that casts significant doubt about PC’s ability to continue as a going concern.
Following our sale of the Radisson Hotel Complex in Bucharest, Romania, the Company is no longer directly involved in the hotel industry. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania.”
Our revenues from the sale of real estate and trading property are subject to the execution and consummation of sale agreements with potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial amounts and as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period comparisons of our historical results of operations may not necessarily be meaningful or indicative and that investors should not rely on them as a basis for future performance.
Our functional currency is NIS and our consolidated financial statements are also presented in NIS. Since our revenues and expenses are recorded in various currencies, our results of operations are affected by several inter-related factors, including the fluctuations of the NIS compared to other currencies at the time we prepare our consolidated financial statements.
Financial data included in this discussion were derived from our consolidated financial statements and the analysis herein is based on our general accounting records and published statistical data. Such financial data have been rounded to the nearest thousand or million. Unless otherwise indicated, we have translated NIS amounts into U.S. dollars at an exchange rate of NIS 3.8453.467 to $1.00, the representative exchange rate on December 31, 2016,2017, and we have translated € amounts into U.S. Dollars and NIS at the respective exchange rates of $1.056$1.1978 to €1.00 and NIS 4.0444.1526 to €1.00, the representative exchange rates on December 31, 2016.2017.
The following activities affected our operational results for 2014, 2015, 2016 and 2017 (to date) and may continue to affect our operational results and cash flow in the coming years.
20172018
● | On March 22, 2018 we announced that EPI signed a revised agreement for the sale of the SPV which holds a plot in Banglore, India in consideration for approximately EURO 45.8 million. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Agreement to sell a plot in Bangalore, India”. | |
● | On March 15, 2018, we announced the Company’s buy-back plan for our Series H Notes. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Notes Buy-back plan.” | |
● | On March 12, 2018 we announced that the SEC approved an offer of settlement by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA. See “Item 4- Information on the Company – History and Development of the Company – Recent Events – approval of an Offer of Settlement with the SEC in the matter of Alleged Violations of FCPA”. | |
● | On March 9, 2018 we announced a buy-back plan for the Company’s Series I Notes. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Note (Series I) Buy-back plan.” | |
● | On | |
● | On January 15, 2016, we announced that we signed an agreement to waive any of our rights and interests in a special purpose vehicle which holds a land plot in Kochi, India. The total consideration for us is INR 10 Crores (approximately €1.4 million), which will be paid to us upon the closing of the transaction. On March 20, 2018 we announced that the long stop date will be extended to June 30, 2018. See “Item 4 - Information on the Company – Business Overview – Plots in India – Additional information in respect of the Kochi project.” |
2017
● | On December 18, 2017 we announced the completion of the transaction for the sale of our rights in the Radisson Hotel Complex in Bucharest, Romania. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson Hotel Complex in Bucharest, Romania.” | |
● | On November 21, 2017 we announced that PC has completed the sale of the Torun Plaza shopping and entertainment center in Poland (the “Project”) to a private investment fund for a purchase price reflecting a total forecasted value for the Project of Euro 70.6 million (approximately $ 84 million). See “Item 4- Information on the Company – History and Development of the Company – Recent Events – Sale of Torun Plaza”. | |
● | On October 2, 2017 we announced that PC’s has concluded the transaction with an international investor, NEPI Rockcastle. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of land plot in Budapest, Hungaria.” |
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● | On September 27, 2017, we announced that
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● | On August 31, 2017, we announced, in further to our announcement dated June 21, 2017, regarding the sale of Toruń Plaza commercial center in Poland, that the completion of the transaction has been postponed and is now expected to conclude in the fourth quarter of this year. | |
● | On August | |
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● | ||
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On September 2017 the court approved in principle a revised settlement with the plaintiffs according to which the plaintiffs will receive compensation in the total amount of NIS 50 million (approximately USD14 million) (the “Settlement”). The Company is expected to pay NIS 5 million (approximately USD1.4 million) of the said amount. The main changes from the original settlement relate to the amount of the Settlement and the manner in which the Settlement funds will be allocated. The court instructed the parties to provide a final settlement agreement according to the changes approved in its decision, and further decided that it will provide final approval of the Settlement upon submission to such a final settlement agreement.
On March 2, 2017, we announced that PC completed the sale of Belgrade Plaza shopping and entertainment center, to a subsidiary of BIG Shopping Centers Ltd. On September 14, 2017 we announced that Plaza has received a further payment of €13.4 million from the Purchaser. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of Belgrade Plaza Commercial Center”. | ||
● | On February 1, 2017, we announced that PC completed the sale of Suwałki Plaza shopping and entertainment center in Poland to an investment fund for €42.3 million (approximately $45 million). See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of Suwalki Plaza Commercial |
2016
● | On December 6, 2016, we announced that PC has acquired a bank loan of approximately €10 Million (approximately $10.5 million), which is held against PC’s plot in Romania, for a total consideration of €1.35 million (approximately $1.43 million). See “Item 4 - Information on the Company – History and Development of the Company – Recent Events |
● | On December 6 , 2016, we announced, that we and Klepierre S.A. (“ |
● | On December 1, 2016, we announced the proposed amendments to the |
● | On September 15, 2016 we announced that PC completed the sale of Riga Plaza shopping and entertainment center in Riga, Latvia, to a global investment fund. The agreement reflects a value for the business of €93.4 million (approximately $98.6 million) (reflecting 100%). See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of Riga Plaza |
● | On September 14, 2016 we announced that it completed the sale of the shares in Zgorzelec Plaza commercial Center in Poland. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Debt Repayment and Sale of Zgorzelec Plaza Commercial |
● | On June 1, 2016 and August 18, 2016, we approved two new programs to repurchase up to NIS forty (40) million (approximately $10.4 million) and NIS 50 million (approximately $13.3 million), respectively of the Notes, which are traded on the Tel Aviv Stock Exchange. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Notes Repurchase |
61 |
● | On August 2, 2016, we announced that an Indian subsidiary (“ |
● | On August 1, 2016, we announced that we received from the ILA an amount of approximately NIS 7 million |
● | On June 29, 2016, we announced that |
● | On June 28, 2016, we announced that PC signed an agreement for the sale of a 20,700 |
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● | On March 31, 2016, we announced that PC has completed the sale of its subsidiary holding Liberec Plaza, a shopping and entertainment center in the Czech Republic, for €9.5 million (approximately $10 million). See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of Liberec Plaza Commercial Center”. | |
2015
● |
On December 15, 2015, we announced, that our |
● | On November 4, 2015, we announced that we successfully closed a transaction for sell of Elbit Medical shares. At closing, we sold and transferred 41,000,000 Elbit Medical Shares (the |
● |
In September 2015, we announced that our subsidiary EPI obtained a commitment for the purchase of the Chennai, India project which was due to be completed by January 15, 2016 (the |
● | On September 29, 2015, we announced that PC won a tender to buy the loan in respect of the Liberec Plaza commercial center in the Czech Republic. The €20.4 million bank loan was granted by two commercial banks which PC has agreed to buy for €8.5 million reflecting a discount of 58%. |
● | On June 11, 2015, we announced that we closed the Share Purchase Agreement with Astrid JV Sarl with regards to the sale of our entire (100%) holdings in our wholly owned subsidiary which owns and operates our hotels in Antwerp, Belgium. The asset value reflected in the transaction was approximately €48 million for both hotels subject to working capital and other adjustments as specified in the agreement. The total net consideration paid to the Company’s wholly owned subsidiary, following the repayments of the target’s banks loan, and the aforementioned adjustments, was approximately €27 |
● | On May 13, 2015, we announced that PC reached an agreement to sell Koregaon Park Plaza the retail, entertainment and office scheme located in Pune, India for approximately INR 250 crore. The net cash proceeds (after repayment of the related bank loan, other liabilities and transaction costs) from the sale were INR 51.6 |
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● | On February 18, 2015, the shareholders of our subsidiary Bucuresti Turism S.A. (“BUTU”), whose shares were traded on the RASDAQ market, |
2014
Critical Judgment in Applying Accounting Policies and Use of Estimates
General
In the application of our accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In addition, in the process of applying our accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized in our consolidated financial statements.
The following are the critical judgments and key sources of estimation that management has made while applying our accounting policies and that have the most significant effect on the amounts recognized in our consolidated financial statements.
Use of estimates
Write-down of trading properties
The recognition of a write down to our trading properties is subject to a considerable degree of judgment and estimates, the results of which, when applied under different principles, conditions and assumptions, are likely to result in materially different results and could have a material adverse effect on our consolidated financial statements.
This valuation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of development in addition to the lack of transactions in the real estate market in the CEE and India for same or similar properties.
We are responsible for determining the net realizable value of our trading properties. In determining net realizable value of the vast majority of trading properties, we utilize the services of an independent third party recognized as a specialist in valuation of properties.
For special assumption see Note C(1)(e), 4 D, 4 F,note 4B, and note 4 G4C(1)(e) to our consolidated financial statements included elsewhere in this report.
Litigation and other contingent liabilities
We are involved in litigation, tax assessments and other contingent liabilities in substantial amounts including class actions concerns of a violation of the FCPA and potential legal actsproceedings (see note 4(C)(1), 13B13A and note 13C13B to our consolidated financial statements included elsewhere in this report). We recognize a provision for such litigation when it is probable that we will be required to settle the obligation, and the amount of the obligation can be reliably estimated. We evaluate the probability and outcome of such litigation based on, among other factors, legal opinions and consultation, and past experience. The outcome of such contingent liabilities may differ materially from management’s estimation. We periodically evaluate these estimations and makes appropriate adjustments to the provisions recorded in the consolidated financial statements. In addition, as facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the consolidated financial statements. In rare circumstances, when the case is unique, complicated and involves prolong and uncommon proceedings, we cannot reliably estimatepredict the outcome of said case.
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Accounting for income taxes
The calculation of our tax liabilities involves uncertainties in the application and/or interpretation of complex tax laws, tax regulations and tax treaties, in respect of various jurisdictions in which we operate and which vary from time to time. In addition, tax authorities may interpret certain tax issues in a manner otherdifferent than that which we adopted. Should such contrary interpretive principles be adopted upon adjudication of such cases, the tax burdenliabilities may be significantly increased. In calculating deferred taxes, we are required to evaluateevaluate: (i) the probability of the realization of our deferred income tax assets against future taxable income, and (ii) the anticipated tax rates in which our deferred taxes would be utilized.
Potential penalties, guarantees issued and expired building permits
Penalties and guaranties are part of the ongoing construction activities, and result from obligations we have towards third parties such as banks and municipalities. Our management is required to provide estimations regarding risks evolving from penalties that we may have to settle. In addition, our operations in the construction area are subject to valid authorizations and building permits from local authorities. Under certain circumstances we are required to determine whether the building permits we obtain have not yet expired. It may occur that building permits have expired which might impose on us additional costs and expenses, or delays, and may even cause us to abandon projects under constructionconstruction. For additional information see also note 4(C) (1) to our consolidated financial statements included elsewhere in this report.
Fair value of hotel
Our fair value of the Radisson Hotel Complex is determined based upon the discounted cash flows (“DCF”DCF”) approach. The assumptions underlying this model, as well as the ability to support them by means of objective and reasonable market benchmarks so they can be viewed as assumptions that market participants may have used, are significant in determining the fair value of the hotels. The predominant assumptions that may cause substantial changes in the fair value are: the capitalization rate, exit yield rate, the expected net operating income of the hotel (which is mainly affected by the expected average room rate and the occupancy rate as well as the level of operational expenses of the hotels) the level of refurbishments reserve and the capital expenditures that need to be invested in the hotel. Our fair value of the Radisson Hotel Complex is performed by independent appraisals with a local knowledgeable in the hotels business.
Critical judgment in applying accounting policies
De facto Control
As for December 31, 20162017 and 2015,2016, we held approximately 44.9% of PC’s share capital; DK hold approximately 26.3% of PC’s share capital and the rest is widely spread bythrough the public. We are of the opinion that based on the absolute size of our holdings, the relative size of the other shareholdings and due to the fact that PC’s directors are appointed by a regular majority ofin PC’s general meeting of shareholders, it haswe have a sufficiently dominant voting interest to meet the power criterion, therefore we have de facto control over PC.
New accounting standards and interpretation issued that are not yet effective
For information on recently issued accounting standards, amendments to standards and clarifications which are applicable or expected to be applicable, to us, and which have not yet become effective see note 2Xnote2X to our annual consolidated financial statements included elsewhere in this report.
A. | Operating Results |
Presentation method of financial statements
We are involved in investments in a wide range of different activities. Accordingly, management believes that its income statements should be presented in the “single-step form.”form”. According to this form, all costs and expenses (including general and administrative and financial expenses) should be considered as continuously contributing to the generation of overall income and gains. We also believe that our operating expenses should be classified by a function of: (i) those directly related to each revenue source (including general and administrative expenses and selling and marketing expenses relating directly to each operation); and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.
OurPC’s strategy in respect of PC’sits commercial centers iswas to dispose of the commercial centers upon completion, subject to certain exceptions. In responseHowever, as of this date of this report, PC’s strategy is to the lingeringsolve existing bureaucratic or legal issues and dispose its real estate and financing crisis in CEE in previous years, and following discussion with the SEC, our management determined that PCassets. The Group is lacking sufficient consistent historical experience of trading property exact time line realizations in orderunable to clearly identify theits actual operating cycle of selling itswith respect to trading property. Under such circumstances, we decided to utilize for accounting reporting purposes an assumed operating cycle of 12 months. Revenues from these commercial centers are mainly derived from their disposal to third parties, while until a disposal occurs we collect rental income from our completed commercial centers. Therefore, rental income from commercial centers (from the first day of their operations until the sale thereof) may not be sustainable in the future upon PC selling the commercial centers as part of its business cycle.
Our revenues from the sale of commercial centers and other real estate properties are subject to the execution and consummation of sale agreements with potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial amounts and as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period comparisons of our historical results of operations may not necessarily be meaningful or indicative and that investors should not rely on them as a basis for future performance.
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Consequently,All of the hotel’s results are presented as discontinued operations. See “Item 4 - Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson Complex is presented as part of our property, plant and equipmentcomplex in our consolidated financial statements.Bucharest, Romania”.
Translation of statements of income of foreign operations
The majority of our businesses, which operate in various countries, report their operational results in their respective functional currency which differs from the NIS (our reporting and functional currency). We translate our subsidiaries’ results of operations into NIS based on the average exchange rate of the functional currency against the NIS. Therefore, a devaluation of the NIS against each functional currency would cause an increase in our reported revenues and the costs related to such revenues in NIS while an increase in the valuation of the NIS against each functional currency would cause a decrease in our revenues and costs related to such revenues in NIS.
Statements of income
The following table presents our statements of income for each of the three years ended December 31, 2017, 2016 2015 and 2014:2015:
Year ended December 31 | ||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$’000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
Revenues and gains | ||||||||||||||||
Revenues | ||||||||||||||||
Revenues from sale of commercial centers | 126,019 | 200,078 | 201,571 | 32,775 | ||||||||||||
Revenues from Hotels operations and management | 135,839 | 147,886 | 197,007 | 35,328 | ||||||||||||
Total revenues | 261,858 | 347,964 | 398,578 | 68,103 | ||||||||||||
Gains and other | ||||||||||||||||
Rental income from Commercial centers | 66,417 | 83,849 | 113,661 | 17,274 | ||||||||||||
Gain from sale of investees | - | 6,712 | 11,301 | - | ||||||||||||
Total gains | 66,417 | 90,561 | 124,962 | 17,274 | ||||||||||||
Total revenues and gains | 328,275 | 438,525 | 523,540 | 85,377 | ||||||||||||
Expenses and losses | ||||||||||||||||
Commercial centers | 159,806 | 290,360 | 291,864 | 41,562 | ||||||||||||
Hotels operations and management | 115,367 | 126,849 | 173,918 | 30,004 | ||||||||||||
General and administrative expenses | 10,257 | 16,678 | 39,785 | 2,668 | ||||||||||||
Share in losses of associates, net | 54,313 | 42,925 | 17,298 | 14,125 | ||||||||||||
Financial expenses | 143,988 | 236,288 | 237,601 | 37,448 | ||||||||||||
Financial income | 1,056 | (2,154 | ) | (6,317 | ) | 274 | ||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | (2,707 | ) | 5,446 | 71,432 | (704 | ) | ||||||||||
Financial gain from debt restructuring | - | - | (1,616,628 | ) | - | |||||||||||
Write-down, charges and other expenses, net | 155,357 | 38,298 | 531,042 | 40,405 | ||||||||||||
637,437 | 754,690 | (260,005 | ) | 165,783 | ||||||||||||
Profit (loss) before income taxes | (309,162 | ) | (316,165 | ) | 783,545 | (80,406 | ) | |||||||||
Income taxes expenses (tax benefits) | 2,906 | 5,631 | (2,287 | ) | 756 | |||||||||||
Profit (loss) from continuing operations | (312,068 | ) | (321,796 | ) | 785,832 | (81,162 | ) | |||||||||
Profit (loss) from discontinued operations, net | - | 6,874 | (1,475 | ) | - | |||||||||||
Profit (loss) for the year | (312,068 | ) | (314,922 | ) | 784,357 | (81,162 | ) |
Year ended December 31 | ||||||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | 2 0 1 7 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$’000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
Revenues and gains | ||||||||||||||||
Revenues | ||||||||||||||||
Revenues from sale of commercial centers | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||
Total revenues | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||
Gains and other | ||||||||||||||||
Rental income from Commercial centers | 31,997 | 66,417 | 83,849 | 9,229 | ||||||||||||
Gain from sale of investees | - | - | 6,712 | - | ||||||||||||
Total gains | 31,997 | 66,417 | 90,561 | 9,229 | ||||||||||||
Total revenues and gains | 814,826 | 192,436 | 290,639 | 235,023 | ||||||||||||
Expenses and losses | ||||||||||||||||
Commercial centers | 805,523 | 159,806 | 290,360 | 232,369 | ||||||||||||
General and administrative expenses | 14,930 | 10,257 | 16,678 | 4,306 | ||||||||||||
Share in losses of associates, net | 20,202 | 54,313 | 42,925 | 5,827 | ||||||||||||
Financial expenses | 112,296 | 124,354 | 207,721 | 32,390 | ||||||||||||
Financial income | (1,811 | ) | 1,056 | (2,154 | ) | (522 | ) | |||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | - | (2,707 | ) | 2,568 | - | |||||||||||
Write-down, charges and other expenses, net | 101,120 | 162,318 | 99,292 | 29,166 | ||||||||||||
1,052,360 | 509,397 | (657,390 | ) | 303,536 | ||||||||||||
Profit (loss) before income taxes | (237,534 | ) | (316,961 | ) | (366,751 | ) | (68,513 | ) | ||||||||
Income taxes expenses (tax benefits) | 11,244 | 3,020 | (4,402 | ) | 3,243 | |||||||||||
Profit (loss) from continuing operations | (248,778 | ) | (319,981 | ) | (371,153 | ) | (71,756 | ) | ||||||||
Profit (loss) from discontinued operations, net | (152,903 | ) | 7,913 | 56,231 | (44,102 | ) | ||||||||||
Profit (loss) for the year | (401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) |
Year ended December 31 | ||||||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | 2 0 1 7 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$’000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | (338,034 | ) | (194,830 | ) | (186,150 | ) | (97,500 | ) | ||||||||
Non-controlling interest | (63,647 | ) | (117,238 | ) | (128,772 | ) | (18,358 | ) | ||||||||
(401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) | |||||||||
Profit (loss) from continuing operations | ||||||||||||||||
Equity holders of the Company | (185,132 | ) | (202,724 | ) | (242,709 | ) | (53,398 | ) | ||||||||
Non-controlling interest | (63,647 | ) | (117,257 | ) | (128,463 | ) | (18,358 | ) | ||||||||
(248,779 | ) | (319,981 | ) | (371,172 | ) | (71,756 | ) | |||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||
Equity holders of the Company | (152,903 | ) | 7,893 | 56,540 | (44,102 | ) | ||||||||||
Non-controlling interest | - | 20 | (309 | ) | - | |||||||||||
(152,903 | ) | 7,913 | 56,231 | (44,102 | ) | |||||||||||
Earnings (loss) per share - (in NIS) | ||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||
From continuing operation | (20.14 | ) | (22.05 | ) | (21.73 | ) | (5.80 | ) | ||||||||
From discontinued operations | (16.64 | ) | 0.85 | 1.48 | (4.80 | ) | ||||||||||
(36.78 | ) | (21.20 | ) | (20.25 | ) | (10.60 | ) | |||||||||
Diluted earnings (loss) per share: | ||||||||||||||||
From continuing operation | (20.14 | ) | (22.05 | ) | (21.73 | ) | (5.80 | ) | ||||||||
From discontinued operations | (16.64 | ) | 0.85 | (1.48 | ) | (4.80 | ) | |||||||||
(36.78 | ) | (21.20 | ) | (20.25 | ) | (10.60 | ) |
Year ended December 31 | ||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$’000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | (194,830 | ) | (186,150 | ) | 1,008,999 | (50,671 | ) | |||||||||
Non-controlling interest | (117,238 | ) | (128,772 | ) | (224,642 | ) | (30,491 | ) | ||||||||
(312,068 | ) | (314,922 | ) | 784,357 | (81,162 | ) | ||||||||||
Profit (loss) from continuing operations | ||||||||||||||||
Equity holders of the Company | (194,830 | ) | (193,024 | ) | 1,010,619 | (50,671 | ) | |||||||||
Non-controlling interest | (117,238 | ) | (128,772 | ) | (224,787 | ) | (30,491 | ) | ||||||||
(312,068 | ) | (321,796 | ) | 785,832 | (81,162 | ) | ||||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||
Equity holders of the Company | - | 6,874 | (1,620 | ) | - | |||||||||||
Non-controlling interest | - | - | 145 | - | ||||||||||||
- | 6,874 | (1,475 | ) | - | ||||||||||||
Earnings (loss) per share - (in NIS) | ||||||||||||||||
Basic earnings (loss) per share: | ||||||||||||||||
From continuing operation | (21.20 | ) | (21.00 | ) | 127.64 | (5.51 | ) | |||||||||
From discontinued operations | - | 0.75 | (0.19 | ) | - | |||||||||||
(21.20 | ) | (20.25 | ) | 127.45 | (5.51 | ) | ||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||
From continuing operation | (21.20 | ) | (21.00 | ) | 127.64 | (5.51 | ) | |||||||||
From discontinued operations | - | 0.75 | (0.19 | ) | - | |||||||||||
(21.20 | ) | (20.25 | ) | 127.45 | (5.51 | ) |
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2017 compared to 2016
Income - Revenues and Gains
Total income (revenues and gains) in 2017 amounted to NIS 815 million ($235 million), compared to NIS 192 million in 2016.
Total revenues in 2017 amounted to NIS 783 million ($225 million), compared to NIS 126 million in 2016. The decrease is mainly attributable to:
(i) | Revenues from the sale of commercial centers amounted to NIS 783 million ($225 million) in 2017 compared to NIS 126 million in 2016. Our revenues in 2017 were attributable to the consummations of transactions for the sale of Salwaki Plaza, Torun Plaza, Sport star Plaza and Timisoara plaza in Poland , Constanta Plaza in Romania, Shumen Plaza in Bulgaria and Arena Plaza Extension in Hungary. In 2016, such revenues were attributable to the sale of the Liberec Plaza in the Czech Republic in Serbia, Romania and Poland. |
(ii) | Total gains in 2017 amounted to NIS 32 million ($9 million), compared to NIS 66 million in 2016. The decrease of total gains in 2017 compared to those in 2016, mainly attributable to Rental income from commercial centers as a result of selling the commercial centers as detailed above. |
Expenses and losses
Our expenses and losses in 2017 amounted to NIS 1,052 million ($303 million), compared to income NIS 509 million in 2016. Set forth below is an analysis of our expenses and losses:
(i) | Expenses of commercial centers amounted to NIS 805 million ($232 million) in 2017, compared to NIS 160 million in 2016. Such increase was mainly attributable to: (i) an increase in the amount of NIS 659 million in the cost of trading property sold, that was partially offset by. (ii) a decrease in operational expenses of commercial centers in the amount of NIS 8 million mainly due to the sales of the commercial centers during 2016 and 2017. | |
(ii) | General and administrative expenses increased to NIS 15 million ($4 million) in 2017, compared to NIS 10 million in 2016. The increase was mainly attributable to additional costs incurred by the Company due to the delay in filling of the Company's annual financial statements for December 31, 2016 and the replacement of its auditors. | |
(iii) | Share in losses of associates, net decreased to NIS 20 million ($6 million) in 2017, compared to NIS 54 million in 2016. The decrease is mainly attributable to the Company's share in InSightec's losses and in Gamida's losses of which were taken in 2017 only in amounts that set the investments in InSightec and Gamida into zero. |
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(vi) | Financialexpenses decreased to NIS 112 million ($32 million) in 2017, compared to NIS 124 million in 2016. Such decrease of approximately NIS 12 million is mainly due to the followings: a. Decrease in loss from foreign currency exchange rates and other in the amount of NIS 23 million ($7 million). The exchange rate losses are mainly attributable to the effect of the variation in the exchange rate between the € and NIS on the PC Notes, which are recorded in NIS and are measured in €, as well as a decrease in the level of debt due to repayment of notes and on the company € loans which are recorded in € and are measured in NIS. b. Decrease in the interest and CPI-linked expenses in the amount of NIS 67 million ($19 million) which was mainly attributable to a decline in PC debt due to the realization of assets and the repayment of loans in respect thereof, as well as early repayments of notes. Off set by: c. In 2016 there was Gain from a buyback of bank loans and Notes (as mention above) in the amount of NIS 78 million. | |
(vii) | Write-down, charges and other expenses, net, decreased to NIS 101 million ($29 million) in 2017, compared to NIS 162 million in 2016. The write-down was mainly attributable to the write-down in PC’s trading property in Eastern Europe and India in the amount of NIS 90 million ($26 million) in 2017 compared to NIS 190 million in 2016. The following table provides information in respect of the write-down of the trading property in each of the years ended on December 31, 2017 and 2016: |
Year ended December 31 | ||||||||
2017 | 2016 | |||||||
(In thousand NIS) | ||||||||
Project name (City, Country) | ||||||||
Non-Operational: | ||||||||
Chennai (Kadavantara, India) | 7,879 | 24,564 | ||||||
Banglore (Ayyas, India) | 35,178 | - | ||||||
Helios Plaza (Athens, Greece) | - | 2,992 | ||||||
Lodz Plaza (Lodz, Poland) | 4,983 | 1,618 | ||||||
Krusevac (Krusevac, Serbia) | 1,661 | 809 | ||||||
Casa radio (Bucharest, Romania) | 40,305 | 130,376 | ||||||
Constanta (Constanta, Romania) | - | 3,445 | ||||||
Ciuc (Ciuc, Romania) | - | 3,842 | ||||||
Timisoara (Timisoara, Romania) | - | 10,514 | ||||||
Lodz residential (Lodz, Poland) | 415 | |||||||
Kielce (Kielce, Poland) | - | 4,448 | ||||||
BAS (Romania) | - | 3,235 | ||||||
Arena Plaza extention (Budapest, Hungary) | 336 | 3,749 | ||||||
Others | - | - | ||||||
90,757 | 189,592 | |||||||
90,757 | 189,592 |
The above expenses for 2016 were offset by income of NIS 35 million which was attributable mainly to firstly consolidation of the Bangalore project in India.
As a result of the foregoing factors, we recognized a loss before income tax in the total amount of NIS 238 million ($68.6 million) in 2017, compared to loss before income tax in the total amount of NIS 317 in 2016.
Income taxes expenses amounted to 11 million ($3 million) related to previous years in 2017 compared NIS 3 million in 2016.
The above resulted in a loss from continuing operations in the amount of NIS 249 million ($72 million) in 2017, compared to a loss from continuing operations in the amount of NIS 320 million in 2016.
Loss from discontinued net operation amounted to NIS 153 ($44 million) in 2017 compared profit from discontinued net operation amounted to NIS 8 million in 2016. The loss in 2017 was attributable mainly to realization of foreign currency translation reserves to profit and loss in the total amount of NIS 213 million.The discontinued operations was attributable to our former hotel operations.
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The above resulted in a loss of NIS 402 million ($116 million) in 2017, of which a loss of NIS 338 million ($97 million) was attributable to our equity holders and a loss in the amount of NIS 64 million ($18 million) was attributable to the non-controlling interest. Loss of NIS 312 million in 2016, of which a loss of NIS 195 million was attributable to our equity holders and a loss in the amount of NIS 117 million was attributable to the non-controlling interest.
The deficit in the shareholders’ equity attributable to our equity holder as of December 31, 2017 amounted to NIS 194 million ($56 million). Our total deficit in the shareholder equity as of December 31, 2017 amount to NIS 149 million ($43 million).
The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2017 (in NIS million):
Segment | Commercial Centers | Medical Industries | India plots | Other and Allocations | Total | |||||||||||||||
Revenues | 783 | 117 | - | (117 | ) | 783 | ||||||||||||||
Rental income from commercial centers | 32 | - | - | - | 32 | |||||||||||||||
Total revenues and gains | 815 | 117 | - | (117 | ) | 815 | ||||||||||||||
Costs and expenses | 806 | 252 | - | (252 | ) | 806 | ||||||||||||||
Other expenses (income), net | 46 | - | 56 | 102 | ||||||||||||||||
Segment profit (loss) | (37 | ) | (135 | ) | (56 | ) | 135 | (93 | ) | |||||||||||
Financial (expenses) income, net | (5 | ) | - | - | - | (5 | ) | |||||||||||||
Share in losses of associates, net | - | (15 | ) | - | (5 | ) | (20 | ) | ||||||||||||
Unallocated general and administrative expenses | (15 | ) | ||||||||||||||||||
Unallocated other expenses | (1 | ) | ||||||||||||||||||
Unallocated financial expenses | (107 | ) | ||||||||||||||||||
Financial income | (2 | ) | ||||||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | - | |||||||||||||||||||
Loss before income taxes | (238 | ) | ||||||||||||||||||
Income taxes | (11 | ) | ||||||||||||||||||
Loss from continuing operations | (249 | ) | ||||||||||||||||||
Income from discontinued operation | (153 | ) | ||||||||||||||||||
Loss for the year | (402 | ) |
2016 compared to 2015
Income - Revenues and Gains
Total income (revenues and gains) in 2016 amounted to NIS 328192 million, ($ 85 million), compared to NIS 438290 million in 2015.
Total revenues in 2016 amounted to NIS 262126 million, ($ 68 million), compared to NIS 348200 million in 2015. The decrease is mainly attributable to:
(i) | Revenues from the sale of commercial centers amounted to NIS 126 million, |
(iii) | Total gains and other in 2016 amounted to NIS 66 million, |
a. | Rental income from commercial centers decreased to NIS 66 million, |
b. | Gain from a sale of investee companies decreased to nil in 2016, compared to NIS 7 million in 2015. The gain in 2015 is attributable to the closing of Gamida’s investment rounds with Novartis, as described above. |
Expenses and losses
Our expenses and losses in 2016 amounted to NIS 637509 million, ($165 million), compared to income NIS 755657 million in 2015. Set forth below is an analysis of our expenses and losses:
(i) | Expenses of commercial centers amounted to NIS 160 million |
(iii) | General and administrative expenses decreased to NIS 10 million |
(iv) | Share in losses of associates, net increased to NIS 54 million |
(v) | Financial expenses decreased to NIS |
a. | Gain from a buyback of bank loans and Notes (as mention above) in 2016 in the amount of NIS 78 | |
b. | Decrease in interest and CPI-linked expenses in our headquarters of NIS 16 million as a result of the decrease in the level of our corporate debts following partial repayment of bank loan and buyback of debenture. | |
c. | Decrease in loss from foreign currency translation exchange and other in the amount of NIS 44 | |
d. | Decrease in the interest and CPI-linked expenses of PC in the amount of NIS 10 |
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(vi) | Losses from changes in fair value of financial instruments (including derivatives, embedded derivatives and marketable securities) amounted to NIS 3 million |
(vii) | Write-down, charges and other expenses, net, increased to NIS |
Year ended December 31 | ||||||||
2 0 1 6 | 2 0 1 5 | |||||||
(In thousand NIS) | ||||||||
Project name (City, Country) | ||||||||
Operational: | ||||||||
Koregaon Park (Pune, India) | - | 6,547 | ||||||
Zgorzelec (Zgorzelec, Poland) | - | 6,233 | ||||||
Liberec (Liberec, Czech Republic) | - | 26,466 | ||||||
- | 39,246 | |||||||
Non-Operational: | ||||||||
Chennai (Kadavantara, India) | 24,564 | - | ||||||
Helios Plaza (Athens, Greece) | 2,992 | 1,913 | ||||||
Sportstar Plaza Visnjicka (Belgrade, Serbia) | - | (23,814 | ) | |||||
Lodz Plaza (Lodz, Poland) | 1,618 | 9,460 | ||||||
Krusevac (Krusevac, Serbia) | 809 | 3,401 | ||||||
Casa radio (Bucharest, Romania) | 130,376 | 36,139 | ||||||
Constanta (Constanta, Romania) | 3,445 | 1,701 | ||||||
Ciuc (Ciuc, Romania) | 3,842 | - | ||||||
Timisoara (Timisoara, Romania) | 10,514 | 1,110 | ||||||
Lodz residential (Lodz, Poland) | - | 9,070 | ||||||
Kielce (Kielce, Poland) | 4,448 | 723 | ||||||
BAS (Romania) | 3,235 | - | ||||||
Arena Plaza extention (Budapest, Hungary) | 3,749 | 5,323 | ||||||
Others | - | 2,716 | ||||||
189,592 | 47,742 | |||||||
189,592 | 86,988 |
The above expenses for 2016 were offset by income of NIS 32 million ($8 million) which was attributable mainly to firstly consolidation of the Bangalore project in India.
As a result of the foregoing factors, we recognized a loss before income tax in the total amount of NIS 309317 million ($79 million) in 2016, compared to loss before income tax in the total amount of NIS 316367 in 2015.
Income taxes expenses amounted to 3 million ($0.8 million) in 2016 compared to tax benefits amounted to NIS 6 million in 2015.
The above resulted in a loss from continuing operations in the amount of NIS 312319 million ($80 million) in 2016, compared to a loss from continuing operations in the amount of NIS 322371 million in 2015.
Profit from discontinued net operation amounted to nil comparingNIS 8 million in 2016, compared to profitloss from discontinued net operation amounted to NIS 756 million in 2015. In 2016 the discontinued operations was attributable to our former hotel operations. In 2015, the discontinued operations was attributable to our former Mango operation.operational hotel operations.
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The above resulted in a loss of NIS 312 million ($80 million) in 2016, [ofof which a loss of NIS 195 million ($51 million) was attributable to our equity holders and a loss in the amount of NIS 117 million ($28 million) was attributable to the non-controlling interest. Loss of NIS 321 million in 2015, of which a loss of NIS 193 million was attributable to our equity holders and a loss in the amount of NIS 128 million was attributable to the non-controlling interest.
The deficit in the shareholders’ equity attributable to our equity holder as of December 31, 2016 amounted to NIS 87 million ($23 million). Our total shareholder equity as of December 31, 2016 amount to NIS 52 million ($14million).
The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2016 (in NIS million):
Segment | Hotels | Commercial Centers | Medical Industries | India plots | Other and Allocations | Total | ||||||||||||||||||
Revenues | 136 | 126 | 96 | - | (96 | ) | 262 | |||||||||||||||||
Rental income from commercial centers | - | 84 | - | - | (18 | ) | 66 | |||||||||||||||||
Total revenues and gains | 136 | 210 | 96 | - | (114 | ) | 328 | |||||||||||||||||
Costs and expenses | 115 | 174 | 216 | - | (230 | ) | 275 | |||||||||||||||||
Other expenses (income), net | (7 | ) | 171 | - | (9 | ) | - | 155 | ||||||||||||||||
Segment profit (loss) | 27 | (135 | ) | (120 | ) | 9 | 116 | (101 | ) | |||||||||||||||
Financial (expenses) income, net | (20 | ) | 60 | - | - | - | 41 | |||||||||||||||||
Share in losses of associates, net | - | - | (8 | ) | - | (46 | ) | (54 | ) | |||||||||||||||
Unallocated general and administrative expenses | (10 | ) | ||||||||||||||||||||||
Unallocated other expenses | (1 | ) | ||||||||||||||||||||||
Unallocated financial expenses | (185 | ) | ||||||||||||||||||||||
Financial income | (1 | ) | ||||||||||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | 3 | |||||||||||||||||||||||
Loss before income taxes | (309 | ) | ||||||||||||||||||||||
Income taxes | (3 | ) | ||||||||||||||||||||||
Loss from continuing operations | (312 | ) | ||||||||||||||||||||||
Income from discontinued operation | - | |||||||||||||||||||||||
Loss for the year | (312 | ) |
2015 compared to 2014
Income - Revenues and Gains
Total income (revenues and gains) in 2015 amounted to NIS 438 million, compared to NIS 524 million in 2014.
Total revenues in 2015 amounted to NIS 348 million compared to NIS 399 million in 2014. The decrease is mainly attributable to:
Expenses and losses
Our expenses and losses in 2015 amounted to NIS 755 million, compared to income NIS 260 million in 2014. Set forth below is an analysis of our expenses and losses:
Offset by:
Year ended December 31 | ||||||||
2 0 1 5 | 2 0 1 4 | |||||||
(In thousand NIS) | ||||||||
Project name (City, Country) | ||||||||
Operational: | ||||||||
Kragujevac (Kragujevac, Serbia) | - | 16,040 | ||||||
Koregaon Park (Pune, India) (See description below) | 6,547 | 47,525 | ||||||
Zgorzelec (Zgorzelec, Poland) | 6,233 | 18,275 | ||||||
Liberec (Liberec, Czech Republic) | 26,466 | 9,827 | ||||||
39,246 | 91,667 | |||||||
Non-Operational: | ||||||||
Iasi (Iasi, Romania) | - | 20,221 | ||||||
Chennai (Kadavantara, India) | - | 28,988 | ||||||
Belgrade Plaza (Belgrade, Serbia) | - | 11,812 | ||||||
Helios Plaza (Athens, Greece) | 1,913 | 51,168 | ||||||
Sportstar Plaza Visnjicka (Belgrade, Serbia) | (23,814 | ) | 827 | |||||
Lodz Plaza (Lodz, Poland) | 9,460 | 5,134 | ||||||
Krusevac (Krusevac, Serbia) | 3,401 | - | ||||||
Casa radio (Bucharest, Romania) | 36,139 | 217,265 | ||||||
Constanta (Constanta, Romania) | 1,701 | 17,898 | ||||||
Ciuc (Ciuc, Romania) | - | 17,147 | ||||||
Timisoara (Timisoara, Romania) | 1,110 | 9,577 | ||||||
Lodz residential (Lodz, Poland) | 9,070 | 3,137 | ||||||
Kielce (Kielce, Poland) | 723 | (1,526 | ) | |||||
BAS (S Romania) | - | 27,269 | ||||||
Arena Plaza extention | 5,323 | - | ||||||
Others | 2,716 | 26,968 | ||||||
47,742 | 435,885 | |||||||
86,988 | 527,552 |
The above write down of expenses for 2015 were offset by income of NIS 56 million which was attributable to realization of foreign currency translation reserves to profit and loss mainly due to realization of the Euro activity in our Hotel segment.
As a result of the foregoing factors, we recognized a loss before income tax in the total amount of NIS 316 million in 2015, compared to profit of NIS 784 million in 2014.
Income tax amounted to 6 million in 2015 compared to tax benefits of NIS 2 million in 2014. The increase in tax expenses was attributable mainly to deferred taxes due to timing differences related to the PC Notes.
The above resulted in a loss from continuing operations in the amount of NIS 322 million in 2015, compared to profit in the amount of NIS 786 million in 2014.
Profit from discontinued net operation amounted to NIS 7 million comparing to loss amounted to NIS 1 million in 2014. The discontinued operations are attributable to our former Mango operation.
The above resulted in a loss of NIS 315 million in 2015, of which a loss of NIS 186 million was attributable to our equity holders and a loss in the amount of NIS 129 million was attributable to the non-controlling interest. Profit
The deficit in 2014 included NIS 1,009 millionthe shareholders’ equity attributable to our equity holders and a loss in the amountholder as of December 31, 2016 amounted to NIS 225 million attributable to the non-controlling interest.
88 million. Our shareholders’total shareholder equity as of December 31, 2015 amounted2016 amount to NIS 304 million of which an amount of NIS 19 million is attributable to our equity holders.49 million.
The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 20152016 (in NIS million):
Segment | Hotels | Commercial Centers | Medical Industries | India plots | Other and Allocations | Total | ||||||||||||||||||
Revenues | 148 | 200 | 63 | - | (63 | ) | 348 | |||||||||||||||||
Rental income from commercial centers | - | 109 | - | - | (25 | ) | 84 | |||||||||||||||||
Gain from changes of shareholding in investees entities | - | - | - | - | 7 | 7 | ||||||||||||||||||
Total revenues and gains | 148 | 309 | 63 | - | (81 | ) | 439 | |||||||||||||||||
Costs and expenses | 127 | 300 | 107 | 6 | (123 | ) | 417 | |||||||||||||||||
Research and development expenses | - | - | 59 | - | (59 | ) | - | |||||||||||||||||
Other expenses (income), net | - | 84 | - | 6 | - | 90 | ||||||||||||||||||
Segment profit (loss) | 21 | (74 | ) | (103 | ) | (12 | ) | 100 | (68 | ) | ||||||||||||||
Financial (expenses) income, net | (31 | ) | 30 | 1 | - | - | - | |||||||||||||||||
Share in losses of associates, net | - | - | (13 | ) | - | (29 | ) | (43 | ) | |||||||||||||||
Unallocated general and administrative expenses | (17 | ) | ||||||||||||||||||||||
Unallocated other expenses | 52 | |||||||||||||||||||||||
Unallocated financial expenses | (239 | ) | ||||||||||||||||||||||
Financial income | 2 | |||||||||||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | (3 | ) | ||||||||||||||||||||||
Loss before income taxes | (316 | ) | ||||||||||||||||||||||
Income taxes | (6 | ) | ||||||||||||||||||||||
Loss from continuing operations | (322 | ) | ||||||||||||||||||||||
Income from discontinued operation | 7 | |||||||||||||||||||||||
Loss for the year | (315 | ) |
Segment | Commercial Centers | Medical Industries |
India plots | Other and Allocations | Total | |||||||||||||||
Revenues | 126 | 96 | - | (96 | ) | 126 | ||||||||||||||
Rental income from commercial centers | 84 | - | - | (18 | ) | 66 | ||||||||||||||
Total revenues and gains | 210 | 96 | - | (114 | ) | 192 | ||||||||||||||
Costs and expenses | 174 | 216 | - | (230 | ) | 160 | ||||||||||||||
Other expenses (income), net | 171 | - | (9 | ) | - | 162 | ||||||||||||||
Segment profit (loss) | (135 | ) | (120 | ) | 9 | 116 | (130 | ) | ||||||||||||
Financial (expenses) income, net | 60 | - | - | - | 60 | |||||||||||||||
Share in losses of associates, net | - | (8 | ) | - | (46 | ) | (54 | ) | ||||||||||||
Unallocated general and administrative expenses | (10 | ) | ||||||||||||||||||
Unallocated other expenses | (1 | ) | ||||||||||||||||||
Unallocated financial expenses | (185 | ) | ||||||||||||||||||
Financial income | (1 | ) | ||||||||||||||||||
Changes in fair value of financial instruments measured at FVTPL | 3 | |||||||||||||||||||
Loss before income taxes | (317 | ) | ||||||||||||||||||
Income taxes | (3 | ) | ||||||||||||||||||
Loss from continuing operations | (320 | ) | ||||||||||||||||||
Income from discontinued operation | 8 | |||||||||||||||||||
Loss for the year | (312 | ) |
B. | Liquidity and Capital Resources |
General
Our capital resources include the following: (a) proceeds from sales of commercial centerstrading property and other real estate properties (hotel and plots in India)assets subject to market conditions;condition (b) proceedslines of credit obtained from salebanks, and others; (c) proceeded from sales of our holdingsshares in the Group held companies in the medical business subject to market conditions (c) issuance of securities by our subsidiary; andfield (d) available cash and cash equivalents.
Such resources are generally used for the following purposes:
(i) | Interest and principal payments on the notes and loans (including purchase of our debts); and |
(ii) | Payment of general and administrative expenses; |
See ” - Overview” above for information on the major transactions and events carried out by us in 2014, 2015, 2016 and 2016,2017, which resulted in material changes in our liquidity and capital resources.
Such resources are generally used for the following purposes:
Liquidity
OurPC's strategy in the fieldsrespect of its commercial centers was to dispose of the commercial centers upon completion, subject to certain exceptions. However, as of this date of this report, PC's strategy is to solve existing bureaucratic or legal issues and dispose its real estate business (commercial centers Hotels and plots in India) is to realize our operational real estate assets as well as realizations of plots which were previously designated to the development of real estate business since do not have an intention to develop these plots.assets. Therefore, we do not foresee significant investments by us in the development of our real estate business in the yearyears to come. Our medical business, however, require a substantial amount of cash in order to finance their R&D and other expenses. The major source to finance these operations will be by means of equity financing by other shareholders in these companies (both existing and new shareholders) while we will consider to partially participate (through our subsidiary – Elbit Medical) in these rounds subject to our cash resource at the that time as well as other factors.
The followings list describes major transactions and events in 2017, 2016 2015 and 2014,2015, which resulted in material changes in our liquidity:
Sources of Cash from Major Transactions and Events:
● | On March 22, 2018 we announced that EPI signed a revised agreement for the sale of the SPV which holds a plot in Banglore, India in consideration for approximately EURO 45.8 million. See "Item 4 - Information on the Company – History and Development of the Company – Recent Events – Agreement to sell a plot in Bangalore, India". |
● | On March 12, 2018 we announced that the SEC approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the FCPA. See "Item 4- Information on the Company – History and Development of the Company – Recent Events - Approval of an offer of Settlement with the SEC in the matter of Alleged Violations of FCPA" | |
● | On February 2018 Elbit Medical completed a public offering of a new series of notes. The trust deed of the notes includes,inter alia, provisions prohibiting Elbit Medical from distributing dividends until full repayment of the notes, unless it deposit in the trust account sums in the amount of the outstanding balance of the notes. |
● | On February 28, 2018 our Board of Directors approved a new plan for the repurchase of the Company's Series I Notes, for a total consideration of up to NIS 50 million (approximately $ 14.3 million). On March 9, 2018 we announced that the Company's buy-back plan for its Series I Notes, approved by the Board of Directors on February 28, 2018, had been completed in the total amount of NIS 49 million. See "Item 4- Information on the Company – History and Development of the Company – Recent Events – Notes Buy-back plan" |
● | On February 19, 2018 we announced that Elbit Medical completed a public offering of NIS 180 par value notes convertible into ordinary shares of Elbit Medical and secured by a pledge on a portion of Elbit Medical's holdings in InSightec and Gamida. The proceeds (in the amount of NIS 180 million were mainly used by Elbit Medical to repay its debt to the Company in the amount of approximately NIS 150 million. See "Item 4- Information on the Company – History and Development of the Company – Recent Events – Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company" |
● | On January 17, 2018, we announced that the district court in Israel granted its final approval to a settlement with the plaintiffs in a November 1999 claim initiated against us and certain other third parties, including former directors of the Company and Elscint Ltd. (our former subsidiary), in connection with the change of control in our Company and in Elscint and the acquisition of the hotel businesses and the Arena Commercial Center in Israel by Elscint in September 1999 from Europe Israel (our former controlling shareholder) (Gadish et al v. Elscint et al). See "Item 4- Information on the Company – History and Development of the Company – Recent Events - Gadish Settlement". |
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2017
● | On December 19, 2017, we announced that we completed the sale of our holdings in a SPV that held the Radisson Hotel Complex in Bucharest, Romania based on a property value of Euro 169.2 million so that the net proceeds received by the SPV was approximately Euro 81 million. €8 million were deducted from the net proceeds as it was used to finance a vendor loan which has been provided by the SPV to the purchaser for a period of three years, bearing interest at a rate of 5% per annum. See "Item 4 - Information on the Company – History and Development of the Company – Recent Events Sale of our holdings in the Radisson complex in Bucharest, Romania" |
● | On August 7, 2017, we announced that PC has completed the sale of a plot in Timisoara, Romania, for €7.25 million (approximately $7.65 million) and a plot in Constanta, Romania, for €1.3 million (approximately $1.37 million). See "Item 4- Information on the Company – History and Development of the Company – Recent Events – Completing the sale of plots in Timisoara and Constanta, Romania, by PC" |
● | On November 21, 2017 we announced that PC has completed the sale of the Torun Plaza shopping and entertainment center in Poland (the “Project”) to a private investment fund for a purchase price reflecting a total forecasted value for the Project of Euro 70.6 million (approximately $ 84 million). See "Item 4- Information on the Company – History and Development of the Company – Recent Events –Sale of Torun Plaza". |
● | On October 2, 2017 PC's subsidiary concluded a transaction with an international investor, NEPI Rockcastle (the "Buyer"), regarding the termination of land use rights and a preliminary easement agreement which created certain easement rights over the Arena Plaza plot. In consideration for the net sum of EUR 2.5 million (NIS 10.4 million) and recorded revenue in the amount of EUR 2.5 million (NIS 10.4 million). See "Item 4- Information on the Company – History and Development of the Company – Recent Events – Sale of Land plot in Budapest, Hungary" |
● | On March 2, 2017 we announced that PC has completed the sale of Belgrade Plaza commercial center to BIG Shopping Centers Ltd. See "Item 4- Information on the Company – History and Development of the Company – Recent Events – Sale of Belgrade Plaza commercial center" |
● | On February 1, 2017, we announced that PC completed the sale of Suwałki Plaza shopping and entertainment center in Poland to an investment fund for € 42.3 million (approximately $45 million). PC received approximately €17 million (approximately $18 million) net cash, after the repayment of the bank loan, and other working capital adjustments. See "Item 4- Information on the Company – History and Development of the Company – Recent Events - Sale of Suwałki Plaza commercial center". |
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2016
During 2016 PC has executed transactions for the sale of plots to third parties in Poland and Romania for the total amount of approximately €4 million ($4 million).
● | On December 6, 2016, PC has acquired a bank loan of approximately €10 Million (approximately $10.5 million), which is held against PC’s plot in Brasov, Romania, for a total consideration of €1.35 million (approximately $1.4 million) |
● | On December 1, 2016, the holders of PC Notes have approved a proposed amendments to the restructuring plan of PC. See “Item 4 – Information on the Company - |
● | On September 15, 2016 PC completed the sale of Riga Plaza shopping and entertainment center in Riga, Latvia, to a global investment fund. See “Item 4 – Information on the Company - |
● | On September 14, 2016 PC completed the sale of the shares in Zgorzelec Plaza commercial center in Poland. See “Item 4 |
● | On June 1, 2016 and August 18, 2016, we approved two new programs to repurchase up to NIS forty (40) million (approximately $10.4 million) and NIS 50 million (approximately $13.3 million), |
● | On August 2, 2016, a subsidiary of EPI (“ |
75 |
● | On August 1, 2016, we received from the Israeli Land Administration |
● | On June 30, 2016, PC has signed a Debt Repayment Agreement (“ |
● | On June 29, 2016, PC completed the sale of its wholly owned subsidiary, which holds the “MUP” plot and related real estate in Belgrade, Serbia, for €15.75 million (approximately $15.8 million). |
● | On June 28, 2016, PC signed an agreement for the sale of a 20,700 |
● | On June 21, 2016, PC signed a €42.5 million loan agreement to support the development of Belgrade Plaza (Visnjicka) in the Serbian capital, Belgrade, from a consortium of banks led by the Hungarian bank OTP Bank Plc. As for the sale of Belgrade Plaza and the repayment of the loan agreement. |
● | On March 31, 2016, PC has completed the sale of its subsidiary holding Liberec Plaza, a shopping and entertainment center in the Czech Republic, for €9.5 million ($10 million). |
2015
● | On June 11, 2015, we announced that we closed the Share Purchase Agreement with Astrid JV Sarl with regards to the sale of our entire (100%) holdings in our wholly owned subsidiary which owns and operates our hotels in Antwerp, Belgium. For more information see our Forms 6-K filed on May 10, 2015 and June 11, 2015 and |
● | On May 13, 2015, we announced that PC reached an agreement to sell Koregaon Park Plaza the retail, entertainment and office scheme located in Pune, India for approximately INR 250 crore. See |
2014
The following table sets forth the components of our cash flows statements for the periods indicated:
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||
2 0 1 6 | 2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 7 | 2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||||||||||||||||
Convenience translation in $ thousands | NIS Thousands | NIS Thousands | NIS Thousands | Convenience translation in $ thousands | NIS Thousands | NIS Thousands | NIS Thousands | |||||||||||||||||||||||||
Net cash provided by (used in) operating activities | 20,033 | 77,030 | 191,353 | 281,135 | 125,126 | 433,812 | 77,030 | 191,353 | ||||||||||||||||||||||||
Net cash provided by investing activities | 25,307 | 97,307 | 235,796 | 39,150 | 132,451 | 459,206 | 89,886 | 235,796 | ||||||||||||||||||||||||
Net cash used in financing activities | (60,664 | ) | (233,259 | ) | (579,557 | ) | (294,518 | ) | (149,911 | ) | (519,743 | ) | (233,259 | ) | (579,557 | ) | ||||||||||||||||
Increase (decrease) in cash and cash equivalents | (17,254 | ) | (66,343 | ) | (152,408 | ) | 25,767 | 107,665 | 373,275 | (66,343 | ) | (152,408 | ) |
Cash flow in or from operating activities
Our cash flow from operating activities is affected by our policy in respect of PC’s commercial centersreal estate assets which are classified as trading property since it is PC’s management goal to sell these commercial centers following their development.assets. Accordingly, our cash flow from operating activities includes all the costs of acquisition and construction of a trading property and also the proceeds from sale of trading properties after their disposition. Therefore, in periods in which our investments in construction and/or acquisition of trading properties are higher than the proceeds from the sale of trading properties, we will have a negative cash flow from operating activities.
Net cash provided infrom operating activities was NIS 77434 million (approximately $20$125 million) in 20162017 compared to net cash provided by operating activities of NIS 19177 million in 20152016 and net cash provided byfrom operating activities of NIS 281191 million in 2014.2015.
Our cash flow from operating activities in 2017, 2016 2015 and 20142015 was influenced by the following significant factors:
(i) | Cash flow from operating activities in 2017 included positive cash flow mainly attributable to the sale of trading properties in an amount of NIS 427 million ($123 million), mostly from the sale of Belgrade Plaza (Leisure) in Serbia, Torun, Swalallki Plaza in Poland and Timisoara in Romania. | |
(ii) | Cash flow from operating activities in 2016 included positive cash flow attributable to proceeds from sale of trading property mostly from the sale of “MUP” in Belgrade and Liberec Plaza commercial center in Czech in an amount of NIS 84 |
Cash flow from operating activities in 2015 included positive cash flow attributable to proceeds from sale of trading properties in an amount of NIS 182 million |
Cash from investment activities
Cash flow from investment activities in 2017, 2016 and 2015 amounted to NIS 459 million ($132 million), NIS 90 million and NIS 236 million, respectively.
Our cash flow from investing activities in 2017 was influenced by the following factors:
Cash provide from investing activities
Cash flow provided by investing activities in 2016, 2015 and 2014 amounted to NIS 97 million ($25 million), NIS 236 million and NIS 39 million, respectively.
(ii) | Purchase of property, plant and equipment and other assets in the amount of NIS 4 million ($1 million) mainly attributable to the Radisson Hotel Complex. |
(iii) | Proceeds from realization of property plant and equipment assets in the amount of NIS 4 million ($1 million), mainly attributable to Tiberius plot. |
(iv) | Proceeds from the sale of investment in a joint venture (sale of Riga Plaza commercial center) in an amount of NIS 2 million ($ 1 million). |
(v) | Proceeds from the realization of long-term deposits and long term loans in the amount of NIS 1 million ($0 million). | |
(vi) | Disposition of short-term deposits and marketable securities, net, in the amount of NIS 13 million ($4 million). |
Our cash flow provided by investingfrom investment activities in 2016 was influenced by the following factors:
(i) | Proceeds from sale of investment in a joint venture |
(ii) | Proceeds from sale of property, plant and equipment, mainly sell of Tiberius plot in an amounted of NIS 22 |
(iii) | Purchase of property, plant and equipment and other assets in the amount of NIS 3 million |
(iv) | Proceed from realization of long-term deposits and long term loans in the amount of NIS 7 |
(v) | Investment in long-term deposits and long term loans in the amount of NIS 11 |
(vi) | Disposition of short-term deposits and marketable securities, net, in the amount of NIS 10 |
Our cash flow provided by investingfrom investment activities in 2015 was influenced by the following factors:
(i) | Proceeds from realization of investments in subsidiaries (our hotel in Belgium) in an amount of NIS 192 million. |
(ii) | Proceeds from sale of property, plant and equipment, mainly sell of Cina and |
(iii) | Purchase of property, plant and equipment and other assets in the amount of NIS 24 million mainly attributable to the renovation which was executed in the |
(iv) | Proceed from realization of long-term deposits and long term loans in the amount of NIS 10 million. |
(v) | Disposition of short-term deposits and marketable securities, net, in the amount of NIS 5 million. |
Our cash flow provided by investing activities in 2014 was influenced by the following factors:
Cash flow from financing activities
Cash flow used in financing activities in 2017, 2016 2015 and 20142015 amounted to NIS 233520 million ($61150 million), NIS 580233 million and NIS 295580 million, respectively.
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Our cash flow used in financing activities in 20162017 was influenced by the following factors:
(i) | Interest paid in cash by us in the amount of NIS |
(ii) | Repayment of borrowings, net, of proceeds from loans in the amount of NIS 461 million ($133 million), mainly attributable to repayment of PC Notes and repayments of loans provided to our operating commercial centers and our hotels. |
(iii) | Proceeds from long-term borrowings in an amount of NIS 16 million ($5 million) which is attributed to Plaza Centers. |
Our cash flow used in financing activities in 2016 was influenced by the following factors:
(i) | Interest paid in cash by us in the amount of NIS 107 million on our borrowings (mainly notes issued by us and by PC and loans provided to our hotels and commercial centers). |
(ii) | Repayment of borrowings, net, of proceeds from loans in the amount of NIS 129 million, |
Our cash flow used in financing activities in 2015 was influenced by the following factors:
(iii) | Purchase of non-controlling interests in an amount of NIS 62 million which is attributed to shares acquired by BUTU during delisting process. |
(iv) | Interest paid in cash by us in the amount of NIS |
(v) | Repayment of borrowings, net, of proceeds from loans in the amount of NIS 377 million, mainly attributable repayment of PC Notes and repayments of loans provided to our operating commercial centers and our hotels. |
(vi) | Repayment of short-term credit in the amount of NIS 7 million. |
Our cash flow used in financing activities in 2014 was influenced by the following factors:
Major balance sheet changes
The following table discloses the balance sheet balances in NIS million and major balance sheet items as a percentage of total assets as of December 31, 2017, 2016 2015 and 2014:2015:
2017 | 2016 | 2015 | ||||||||||||||||||||||
NIS million | % | NIS million | % | NIS million | % | |||||||||||||||||||
Current assets | 483 | 47% | 179 | 8% | 218 | 8% | ||||||||||||||||||
Current liabilities | 847 | 83% | 1,210 | 54% | 806 | 30% | ||||||||||||||||||
Non-current assets | 534 | 53% | 2,083 | 92% | 2,486 | 92% | ||||||||||||||||||
Non-current liabilities | 319 | 31% | 1,003 | 44% | 1,593 | 59% | ||||||||||||||||||
Shareholders’ equity (Deficiency): | ||||||||||||||||||||||||
Attributable to our equity holders | (194 | ) | (19%) | (88 | ) | (4%) | 19 | 1% | ||||||||||||||||
Non-controlling interest | 46 | 5% | 137 | 6% | 285 | 10% |
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2017 compared to 2016
The increase in current assets in the amount of NIS 304 million ($88 million) in 2017 was mainly attributable to an increase in each of: (i) cash and cash equivalents in an amount of NIS 375 million ($108 million) mainly due to the completion of the sale of the Radisson Hotel Complex and Torun, (ii) decrease in trade account receivables in the amount of NIS 34 million ($10 million) due to the sale of all of PC’s commercial centers and the Radisson Hotel Complex, and (iii) a decrease in short term deposits in the amount of NIS 30 million ($9 million).
2016 | 2015 | 2014 | ||||||||||||||||||||||
NIS million | % | NIS million | % | NIS million | % | |||||||||||||||||||
Current assets | 179 | 8 | % | 218 | 8 | % | 489 | 13 | % | |||||||||||||||
Current liabilities | 1,210 | 54 | % | 806 | 30 | % | 359 | 10 | % | |||||||||||||||
Non-current assets | 2,083 | 92 | % | 2,486 | 92 | % | 3,173 | 87 | % | |||||||||||||||
Non-current liabilities | 1,003 | 44 | % | 1,593 | 59 | % | 2,589 | 71 | % | |||||||||||||||
Shareholders’ equity (Deficiency): | ||||||||||||||||||||||||
Attributable to our equity holders | (88 | ) | (4 | %) | 19 | 1 | % | 232 | 6 | % | ||||||||||||||
Non-controlling interest | 137 | 6 | % | 285 | 10 | % | 481 | 13 | % |
The decrease in current liabilities in the amount of NIS 363 million ($105 million) in 2017 was mainly attributable to: (i) repayment of our bank loan in the amount of NIS 59 million ($17 million), (ii) repayment of PC loans in the amount of NIS 333 million ($96 million), (iii) early redemption of PC notes in the amount of NIS 31 million ($9 million) due to asset sales, and (iv) decreases in amount due to suppliers and service providers in the amount of NIS 236 million ($68 million) due to the sale of all of PC's commercial centers and the Radisson hotel.
The said decrease in current liabilities was partially offset by: (i) the classification of current maturities of Series H debentures in the amount of NIS 296 million ($85 million) and (ii) an increase in payables in respect of transactions in India in the amount of NIS 12 million ($3 million) and in provisions to government authorities in the amount of NIS 12 million ($ 3 million).
The decrease in non-current assets in the total amount of NIS 1,549 million ($447million) in 2017 was mainly attributable to: (i) the write-down of PC trading properties in an amount of NIS 91 million ($26 million); (ii) sale of all the commercial centers and other plots of PC in the total amount of NIS 750 million ($216 million) and (iii) disposal of the Radisson Hotel Complex, net of depreciation and foreign currency adjustments, during the year in the total amount of NIS 720 million ($208 million).
The said decrease in current liabilities was partially offset by: (i) increase of foreign currency adjustments in the amount of NIS 16 million ($5 million)
The decrease in non-current liabilities in the amount of NIS 683 million ($197) in 2017 was mainly attributable to: to (i) the classification of our notes in the amount of NIS 296 million ($85 million) from non-current liabilities to current liabilities, (ii) repayment of our hotel’s loan in an amount of NIS 353 million ($101 million) as part of the sale of the Radisson Hotel Complex and (iii) the decrease of deferred taxes due to the sale of the Radisson Hotel in an amount of NIS 92 million ($27 million).
The said decrease in non-current liabilities was partially offset by: (i) the reducing of our bond discount, net, in amount of NIS 40 million ($12 million) and (ii) an increase in advances on account of India transactions in the amount of NIS 22 million ($6 million).
2016 compared to 2015
The decrease in current assets in the amount of NIS 39 million ($11 million) in 2016 was mainly attributable to a decrease in each of: (i) cash and cash equivalents in an amount of NIS 68 million ($19 million) mainly due to repayment and buyback of the Notes and loans, payment of interest on notes and loans and general and administrative expenses; offset by (ii) increase in trade account receivable in the amount of NIS 21 million ($6 million) due to receivable from sale of PC’s plots in the amount of NIS 23 million (iii) increase in short term deposits in the amount of NIS 9 million ($3 million).
The increase in current liabilities in the amount of NIS 404 million ($113 million) in 2016 was mainly attributable to: (i) increase in current maturities of PC project company loans in the amount of NIS 62 million ($17 million);million; (ii) classification of our bank loans in an amount of NIS 59 million ($16 million) from non- current liabilities to current liabilities due to current maturities (iii) classification of PC notes and loans in the amount of NIS 666 million from non-current liabilities to current liabilities due to the risk that PC’s bondsnotes holders could argue there exists a substantial suspicion with respect to PC’s ability to repay its obligations to its noteholders that entitles them to demand immediate repayment of the notes. Should this occur there is a risk that the banks that provided loans to PC will demand immediate repayment of the loans made to PC. The said increase in current liabilities was partially offset by (i) classification of our hotel’s loans in an amount of NIS 238 million ($66 million) from current liabilities to non - current liabilities due to refinance of the loan during 2016; (ii) decrease in the PC Notes in the total amount of NIS 145 million due to repayments made ($40 million);made;
The decrease in non-current assets in the total amount of NIS 403 million ($112 million) in 2016 was mainly attributable to (i) write-down of PC trading properties in an amount of NIS 190 million ($53 million);million; (ii) sale of Liberace Plaza in Czech republic commercial center and other plots of PC in the total amount of NIS 166 million ($ million);million; (iii) foreign currency in translation adjustments in the amount of NIS 65 million ($ million);million; The sale of our plot designated for hotel in TeberiasTiberius in the amount of NIS 15 million; (iv) sale of our Investments in joint venture in the amount of NIS 85 million ($24 million);million; (v) our share in losses of associates, net, in the amount of NIS 54 million; offset by (i) the revaluation of our hotel net of depreciation and foreign currency translation adjustment during the year in the total amount of NIS 33 million ($ ___ million) ;million; (ii) Increase in construction costs in our trading property mainly due to our activity in Serbia in the amount of NIS 109 million ($30 million);million; increase in our investment in the plot of Bangalore in the total amount of NIS 30 million ($8 million) due to firstly consolidation.
The decrease in non-current liabilities in the amount of NIS 590 million ($165 million) in 2016 was mainly attributable to (i) classification of PC notes and loans in the amount of NIS 666 millionfrommillion from non-current liabilities to current liabilities due to the risk that PC’s bonds holdersnoteholders could argue there exists a substantial suspicion with respect to PC’s ability to repay its obligations to its noteholders that entitles them to demand immediate repayment. Should this occur there is a risk that the banks that provided loans to PC will also demand immediate repayment of the loans made to PC (ii) repayment of our Notes (net from increase in bearing interest) and loan in the amount of NIS 153 million and classification of our loan to current liabilities in the amount of NIS 59 million; and (iii) decrease in the PC Notes and loans, net, in the total amount of NIS 65 million ($18 million).million. The said increase in non - current liabilities was partially offset by classification and increase of our hotel’s loan in an amount of NIS 353 million ($98 million) from current liabilities to non - current liabilities due to refinance of the loan during 2016.
2015 compared to 2014
The decrease in current assets in the amount of NIS 271 million in 2015 was mainly attributable to a decrease in each of: (i) cash and cash equivalents in an amount of NIS 165 million mainly due to buyback of the Notes and loans, payment of interest on the Notes and loans, investments made by us during the year (mainly the renovation of part of Radisson Blu Complex and the purchase of the minority) and general and administrative expenses; and (ii) assets related to discontinued operation in the amount of NIS 63 million, due to the sale of our Mango operation
The increase in current liabilities in the amount of NIS 447 million in 2015 was mainly attributable to: (i) classification of our hotel’s loans in an amount of NIS 245 million from non-current liabilities to current liabilities as the loan is due in June 2016 (as for refinancing of this loan see note 22 (4) to our financial reporting); (ii) PC Notes in the total amount of NIS 338 million were classified from non-current liabilities to current liabilities as PC is planning to generate sufficient cash flow which will enable it to repay this amount by December 1, 2016 (refer to note 8 B (1) to our financial reporting), offset by (A) a decrease in current maturities of PC project company loans in the amount of NIS 54 million; (B) decrease in payable and other payable in the amount of NIS 35 million mainly due to advances received in 2014; (C) decrease in liabilities related discontinued operation in the amount of NIS 30 million due to the sale of Mango operation.
The decrease in non-current assets in the total amount of NIS 651 million in 2015 was mainly attributable to (i) write-down of PC trading properties in an amount of NIS 87 million; (ii) sale of Koreagon Park commercial center and other plots of PC in the total amount of NIS 200 million; (iii) foreign currency in translation adjustments in the amount of NIS 247 million; (iv) sale of our hotel in Belgium in the amount of NIS 211 million offset by the revaluation of hotels during the year in the total amount of NIS 102 million.
The decrease in non-current liabilities of NIS 996 million in 2015 was mainly attributable to (i) classification of PC Notes in an amount of NIS 338 million from non-current liabilities to current liabilities (refer to note 8 B (1) and 12 E to our consolidated financial statements); (ii) classification of our hotel’s loans from current liabilities to non-current liability in an amount of NIS 245 million as the loan is due in June 2016 (as for refinancing agreement see note 22 (4) to our consolidated financial statements); and (iv) repayment of the PC Notes and loans and the hotels loans in an amount of NIS 377 million mainly due to the sale of Koreagon Park commercial center our hotel in Belgium and buyback of Liberec loan (see note 12 C (2) to our consolidated financial statements).
Derivative Instruments
For information on financial instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative and Qualitative Disclosure about Market Risks” below..
Other Loans
We have entered into or assumed liability for various financing agreements, either directly or indirectly through our subsidiaries, to provide capital for the purchase, construction, and renovation and operation of commercial and entertainment centers and hotels as well as for various investments in our other operations. Set forth below is certain material information with respect to material loans extended to us, our subsidiaries and our jointly controlled companies as of December 31, 2016.2017.
The loans granted to our jointly controlled companies, as of December 31, 2017, are presented in the following table at their 100% amount, unless otherwise specified.
For information regarding notes issued by our subsidiary, Elbit Medical, in February 2018, see Item 4 – Information on the Company – Recent Events – “Issuance of a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company “.
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Borrower | Lender | Original Amount (par value) | Amount Outstanding on Dec. 31, (par value) | Interest | Payment Terms | |
EI | Series | NIS | NIS 260 million (approximately | 6% per annum, linked to the Israeli CPI. |
| |
Principal Security and Covenants | ● ●
● ● Negative Pledge by each of the Company ● Corporate guaranty by
It should be noted that the collaterals securing the Series I notes are subordinated to the collaterals securing the Series H
It should also be noted, that on December 2017 we signed an amendment to the Trust Deed of (Series I) notes, so that all collateral relating to our wholly owned subsidiary EH were canceled and in return the Company undertook to use 75% of the net proceeds from the sale of the Radisson Hotel Complex for an early repayment on account of the (Series H) notes. The early repayment was made in January 2018. | |||||
Other Information | The Notes are registered for trade on the TASE.
The Notes are not registered under the Securities Act.
Events of default include, among other things, the occurrence of an event of default under the Notes or an event that would entitle the Trustees under the Notes or the noteholders to accelerate and redeem the Notes, as well as cross default with
On July
|
Borrower | Lender | Original Amount | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
EI | Series I public notes issued to the Public as part of the debt Arrangement | NIS 218 million (approx. | NIS 260 million (approximately | 6% per annum, linked to the Israeli CPI. | Principal and accrued interest is paid in one installment on December 1, 2019. |
Principal Security and Covenants | Second ranking floating charge over all the Company’s assets
● Second ranking fixed pledges granted by each of the Company and EH over the current and future shares of EH and all rights associated therewith. ● Second ranking fixed pledges granted by each of the Company and EH over all intercompany receivables and shareholders loans provided or that will be provided by us to EH. ● Second ranking fixed pledges granted by each of the Company and EUL over the current and future shares of EUL and all rights associated therewith. ● Second ranking fixed pledges granted by each of the Company and EUL over all intercompany receivables and shareholders loans that may be provided by us to EUL. ● Negative Pledge by each of the Company, EH and EUL, while with respect to EH the Negative Pledge shall apply to all its current and future assets and with respect to EUL the Negative Pledge applies to EUL’s share in PC that have not already been pledged to Bank Hapoalim B.M. (“Bank ● Corporate guaranty by each of EH and EUL, by which each of them guarantees the Company’s obligations to the Series H and Series I Trustees.
It should be noted that the collaterals securing the Series I notes are subordinated to the collaterals securing the Series H notes and that all the noteholders’ pledges are subordinated to the pledges granted to Bank Hapoalim or any successor thereof. It should be noted, further, that those pledges are recorded in Israel, the Netherlands and Luxemburg, where applicable. The pledges include exemptions allowing the disposition of the pledged assets so long as the Company is not in default under the Notes nor Material Adverse Event (as defined under the Notes) shall have been occurred.
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Other Information
| The Notes are registered for trade on the TASE.
The Notes are not registered under the Securities Act.
Events of default include, among other things, the occurrence of an event of default under the Notes or an event that would entitle the Trustees under the Notes or the noteholders to accelerate and redeem the Notes, as well as cross default with other series of notes and delisting from both the TASE and NASDAQ Global Select Market.
On July 10, 2017, the series “I” noteholders approved a resolution to waive their immediate repayment right, pursuant to the delay in publications of the financial statements and to extend the submission date of the Company’s annual financial statements for the year of 2016 until December 31, 2017 (the “Resolution”).
Series “H” noteholders already approved the Resolution by the required majority in the meeting held on July 3, 2017. Therefore, their approval became valid as result of the series “I” noteholders Resolution. |
Borrower | Lender | ||||
| |||||
| |||||
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Adjusted Original Amount following debt restructuring (par value) | Amount Outstanding on Dec. 31, (par value) | Interest | Payment Terms | ||
PC
| Series A notes issued to the public | NIS Interest payments accrued and not paid until the end of 2013 were added to the principal and are paid together with it. | NIS
| ● 6% per annum, linked to the Israeli CPI. | The Principal Balance of the notes shall be called for repayment in five (5) equal payments to be paid as follows: on December 31, 2017, on July 1, and December 31, 2018 and on July 1, 2019 and 2020
The interest shall be paid in semi-annual payments on July 1st and December 31st of each of the years between 2015 and 2019 and on July 1, 2020, each payment for the interest accrued in the six months ending on the date preceding each payment date as stated and subject to prepayment and deferral of payments.
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Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
On November 29, 2016, PC's Noteholders approved a postponement of the Early Prepayment date by up to four months and the reduction of the total amount of the required Early Prepayments to at least NIS 382 million (€94.5 million,
In addition, PC agreed to pay to its
Casa radio proceeds – If PC shall sell the Casa radio project located in Romania (hereinafter: the During first three months of 2017, PC paid to its noteholders a total amount of NIS 191.7 million (EUR 49.2 million) as an early redemption. Upon such payments, PC complied with the Early Prepayment Term (early redemption at the total sum of at least NIS 382,000,000) and thus obtained a deferral of one year for the remaining contractual obligations of the notes. |
Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
In January 2018, a settlement agreement was signed by and among PC and the two Israeli Series of notes ("Settlement Agreement"). In the Settlement Agreement it was agreed, inter alia, to approve: • New repayment ratios between the two Israeli Series of notes (new ratio: notes A- 39% notes B- 61%); • An increase in the level of the mandatory early repayments from 75% to 78% of the relevant net income; • New repayment schedule; • An increase in the compensation to be paid to the noteholders in the event of successful disposal of Casa Radio Project; • A waiver of claims to PC and its directors and officers; and • To waive the request for publication of quarterly financial reports by PC. As a result of settlement agreement signing, Series A noteholders withdraw their request for immediate repayment. It is clarified that the Settlement Agreement is a separate agreement among the parties thereto with respect to PC's restructuring plan, and as such has no effect on the Polish noteholders. On January 21, 2018 the PC paid the noteholders a total amount of principal and interest of EUR 38,487 thousand. |
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Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, 2017 | Interest | Payment Terms |
Principal Security and Covenants | Negative pledge on all of the real estate assets of
“Net asset value” coverage ratio - In case the up-to-date and adjusted “net asset value” coverage ratio against debt is lower than 118% (“Minimal Coverage
The “net asset value” coverage ratio is the ratio between: (a) the value of all assets including balances of cash and cash equivalents deducting preceding / specific bank debts, and (b) the
In the event that the Coverage Ratio is lower than the Minimum Coverage Ratio, then commencing on the first Examination Date in which a breach of the Coverage Ratio covenant has been established and for as long as the breach is continuing, | ||||
Other Information | The notes have been registered for trade on the TASE.
Prepayments – PC is allowed at any time to prepay any debt balance at the adjusted par value of the note, but it will have to execute prepayment upon disposal, raising new financial debt or refinancing of assets (see
The notes are not registered under the Securities Act.
The Coverage Ratio Covenant ("CRC"), as defined in the restructuring plan, as at December 31, 2017 the CRC was 103%, in comparison with 118% minimum ratio required. As a result of covenants breach, PC classified its notes in the total amount of EUR 116,914 thousand as current liabilities in the financial statements as of 31 December 2017. On September 28, 2017 Standard & Poor's Maalot ("Maalot"), the Israeli credit rating agency which is a division of International Standard & Poor's, has reduced its credit rating of PC’S two series of Notes traded on Tel Aviv Stock Exchange from "ilCCC" to "ilCC" with negative outlook on a local Israeli scale. In January 2018, Maalot has discontinued tracking PC's rating at the PC's request. |
Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
During first three months 2017, the Company paid to its bondholders a total amount of NIS 191.7 million (EUR 49.2 million) as an early redemption. Upon such payments, the Company complied with the Early Prepayment Term (early redemption at the total sum of at least NIS 382,000,000) and thus obtained a deferral of one year for the remaining contractual obligations of the bonds. In January 2018, a settlement agreement was signed by and among the Company and the two Israeli Series of Bonds (“Settlement Agreement”). In the Settlement Agreement it was agreed, inter alia, to approve: ● New repayment ratios between the two Israeli Series of Bonds (new ratio: Bond A- 39% Bond B- 61%); ● An increase in the level of the mandatory early repayments from 75% to 78% of the relevant net income; ● New repayment schedule; ● An increase in the compensation to be paid to the Bondholders in the event of successful disposal of Casa Radio Project; ● A waiver of claims to the Company and its directors and officers; and ● To waive the request for publication of quarterly financial reports by the Company. As a result of settlement agreement signing, Series A Bondholders withdraw their request for immediate repayment. It is clarified that the Settlement Agreement is a separate agreement among the parties thereto with respect to the Company’s restructuring plan, and as such has no effect on the Polish Bondholders. On January 21, 2018 the Company paid the bondholders a total amount of principal and interest of EUR 38,487 thousand. |
88 |
Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, 2017 | Interest | Payment Terms |
Principal Security and Covenants | Negative pledge on all of the real estate assets of PC and its subsidiaries. “Net asset value” coverage ratio - In case the up-to-date and adjusted “net asset value” coverage ratio against debt is lower than 118% (“Minimal Coverage Ratio”) in two consecutive examination dates after the first examination date (in which a decline under the minimal coverage ratio was created) then cause for immediate prepayment will be created. The “net asset value” coverage ratio is the ratio between: (a) the value of all assets including balances of cash and cash equivalents deducting preceding / specific bank debts, and (b) the PC’s debts that are not preceding / specific and/or debts subordinate to the debts included in the restructuring. In the event that the Coverage Ratio is lower than the Minimum Coverage Ratio, then commencing on the first Examination Date in which a breach of the Coverage Ratio covenant has been established and for as long as the breach is continuing, PC shall not perform any of the following: (a) a sale, directly or indirectly, of a Real Estate Asset owned the PC or a Subsidiary, with the exception that it shall be permitted to transfer Real Estate Assets in performance of an obligation to do so that was entered into prior to the said Examination Date, (b) investments in new Real Estate Assets; or (c) an investments that regards an existing project of PC or of a subsidiary, unless it does not exceed a level of 20% of the construction cost of such project (as approved by the lending bank of these projects) and the LTC Ratio of the project remains equal to or greater than the Minimum LTC Ratio. | ||||
Other Information | The notes have been registered for trade on the TASE. Prepayments – PC is allowed at any time to prepay any debt balance at the adjusted par value of the note, but it will have to execute prepayment upon disposal, raising new financial debt or refinancing of assets (see "Item 5 - Operating and Financial Review and Prospects"). The notes are not registered under the Securities Act. The Coverage Ratio Covenant ("CRC"), as defined in the restructuring plan, as at December 31, 2017 the CRC was 103%, in comparison with 118% minimum ratio required. As a result of covenants breach, PC classified its notes in the total amount of EUR 116,914 thousand as current liabilities in the financial statements as of 31 December 2017. On September 28, 2017 Standard & Poor's Maalot ("Maalot"), the Israeli credit rating agency which is a division of International Standard & Poor's, has reduced its credit rating of PC’S two series of Notes traded on Tel Aviv Stock Exchange from "ilCCC" to "ilCC" with negative outlook on a local Israeli scale. In January 2018, Maalot has discontinued tracking PC's rating at the PC's request. |
89 |
Borrower | Lender | Adjusted Original Amount following debt restructuring (par value) | Amount Outstanding on Dec. 31, 2017 (par value) | Interest | Payment Terms |
PC | Series B notes issued to the public | NIS (*) Following treasury notes cancellation
Interest payments accrued and not paid until the end of 2013 were added to the principal and will be paid together with it. | NIS
| 6.9% per annum, linked to the Israeli CPI | The Unpaid Principal Balance of the Notes shall be called for repayment in two (2) equal payments to be paid on July 1, 2018 and July 1,
Notwithstanding the above, in the event where PC did not pay, by December 1, 2016 the Principal of the PC Notes for the Three Series’ in a total amount of at least NIS 434 million excluding linkage differentials and including repayment of principal of PC notes (Series B) in a total amount of at least NIS 305,000,000 (excluding linkage differentials), then the repayment dates of the Unpaid Principal Balance of the PC notes (Series B) shall be automatically advanced by one year in relation with the repayment dates.
The interest shall be paid for the Unpaid Principal Balance in biannual payments on July 1st and December 31stof each of the years between 2015 and 2018 and on July 1, 2019, each payment for the interest accrued in the six months ending on the date preceding each payment date as stated, and subject to prepayment and deferral of payments.
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Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
On November 29, 2016, PC’s Noteholders approved a postponement of the Early Prepayment date by up to four months and the reduction of the total amount of the required Early Prepayments to at least NIS 382 million (€94.5 million, $107 million) (a reduction of 12% on the original amount).
In addition, PC agreed to pay to its noteholders, on March 31, 2018, a one-time consent fee in the amount of approximately €488 thousand (which is equal to 0.25% from PC’s outstanding debt under the PC Notes at that time) (the
Casa radio proceeds – If PC shall sell the Casa radio project located in Romania (hereinafter: the
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Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
Deferred debt ratio of Series B notes – were reduced to 68.24% from 70.44% following the cancellation of the During first three months 2017, PC paid to its noteholders a total amount of NIS 191.7 million (EUR 49.2 million) as an early redemption. Upon such payments, PC complied with the Early Prepayment Term (early redemption at the total sum of at least NIS 382,000,000) and thus obtained a deferral of one year for the remaining contractual obligations towards the notes. |
92 |
Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, 2017 | Interest | Payment Terms |
In January 2018, a settlement agreement was signed by and among PC and the two Israeli Series of notes ("Settlement Agreement"). In the Settlement Agreement it was agreed, inter alia, to approve: • New repayment ratios between the two Israeli Series of notes (new ratio: notes A- 39% notes B- 61%); • An increase in the level of the mandatory early repayments from 75% to 78% of the relevant net income; • New repayment schedule; • An increase in the compensation to be paid to the noteholders in the event of successful disposal of Casa Radio Project; • A waiver of claims to PC and its directors and officers; and • To waive the request for publication of quarterly financial reports by PC. As a result of settlement agreement signing, Series A noteholders withdraw their request for immediate repayment. It is clarified that the Settlement Agreement is a separate agreement among the parties thereto with respect to PC's restructuring plan, and as such has no effect on the Polish noteholders. On January 21, 2018 PC paid the noteholders a total amount of principal and interest of EUR 38,487 thousand. |
93 |
Borrower | Lender | Adjusted Original Amount following debt restructuring | Amount Outstanding on Dec. 31, 2017 | Interest | Payment Terms |
Principal Security and Covenants | Negative pledge on all of the real estate assets of
“Net asset value” coverage ratio - In case the up-to-date and adjusted “net asset value” coverage ratio against debt is lower than 118% (“Minimal Coverage
In the event that the Coverage Ratio is lower than the Minimum Coverage Ratio, then as from the first Examination Date on which a breach of the Coverage Ratio covenant has been established and for as long as the breach is continuing,
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Other Information | The notes have been registered for trade on the TASE.
Prepayments – PC is allowed at any time to prepay any debt balance at the adjusted par value of the note, but it will have to execute prepayment upon disposal, raising new financial debt or refinancing of assets (see
The notes are not registered under the Securities Act.
The CRC as at December 31, 2017 the CRC was 103%, in comparison with 118% minimum ratio required. As a result of covenants breach, PC classified its notes in the total amount of EUR 116,914 thousand as current liabilities in the financial statements as of 31 December 2017. On September 28, 2017 Standard & Poor's Maalot ("Maalot"), the Israeli credit rating agency which is a division of International Standard & Poor's, has reduced its credit rating of PC’S two series of Notes traded on Tel Aviv Stock Exchange from "ilCCC" to "ilCC" with negative outlook on a local Israeli scale. In January 2018, Maalot has discontinued tracking PC's rating at PC's request |
Borrower | Lender | Adjusted Original Amount Following debt restructuring (par value) | Amount Outstanding on Dec. 31, (par value) | Interest | Payment Terms |
PC | Private | PLN 62.76 million
Interest payments accrued and not paid until the end of 2013 were added to the principal and are paid together with it. | PLN
| 6 Month WIBOR + 6% | “Redemption Date” shall mean the day falling seven and a half years after the Issue Date
On November 29, 2016, PC’s
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Borrower | Lender | Adjusted Original Amount Following debt restructuring | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
In addition, PC agreed to pay to its Noteholders, on March 31, 2018, a one-time consent fee in the amount of approximately €488 thousand (which is equal to .25% from PC’s outstanding debt under the PC Notes at that time) (the
Casa radio proceeds – If PC shall sell the Casa radio project located in Romania (hereinafter: the
During first three months 2017, the PC paid to its noteholders a total amount of NIS 191.7 million (EUR 49.2 million) as an early redemption. Upon such payments, PC complied with the Early Prepayment Term (early redemption at the total sum of at least NIS 382,000,000) and thus obtained a deferral of one year for the remaining contractual obligations of the notes. |
Borrower | Lender | Adjusted Original Amount Following debt restructuring | Amount Outstanding on Dec. 31, | Interest | Payment Terms |
Principal Security and Covenants | ● Certain circumstances shall be deemed events of default by giving the note holders the right to demand early redemption, which include, inter alia, the following covenants (in addition to the abovementioned covenant under debt restructuring): ● Breach of the Cash Position as a result of the payment of dividends or the buy-back program falling below €50 million. “Cash Position” means the sum of cash and cash equivalent of: cash, short and long interest bearing deposits with banks or other financial institutions, available for the sale of marketable securities, and restricted cash, calculated based on the consolidated financial statements. ● Breach of financial ratios – the Net Capitalization Ratio exceeds 70%; “Net Capitalization Ratio” is the Net Debt divided by the Equity plus the Net Debt, as calculated by PC’s auditor; “Net Debt” mean PC’s total debt under: loans and borrowings, lease agreements, PC Notes, other debt securities and other interest bearing or discounted financial instruments in issue, less related hedge derivatives, cash and cash equivalents, short and long-term interest bearing deposits with banks or other financial institutions, available for sale marketable securities and restricted cash, calculated based on the consolidated financial statements. ● Breach of Minimum Coverage Ratio – a breach of the Minimum Coverage Ratio has occurred and continued throughout a period comprising two (2) consecutives Examination Dates following the first Examination Date on which such breach has been established; ● Incurrence of Financial Indebtedness by PC - PC incurred new Financial Indebtedness, unless certain conditions are met; ● Breach of PC’s negative pledge; ● Establishment of encumbrances by Subsidiaries – a Subsidiary created any Encumbrance on any of its assets, unless the relevant Encumbrance meets one of the conditions detailed under restructuring plan; ● Occurrence of Non-Permitted Disposal - the Issuer: (a) procured or permitted the occurrence of an Exercise Event with respect to any Real Estate Asset of the Group where the Net Cash Flow resulting from such Disposal was not used for Mandatory Prepayment upon Exercise Event in accordance with Clause 8 above; or (b) performed or permitted a Disposition, directly or indirectly, or a refinancing of the Shopping Malls, where the cumulative Net Cash Flow resulting from such Disposition or refinancing amounted to less than €70 million. If the Disposition or the refinancing occurs only with respect to some but not all of the Shopping Malls, then such Disposition or refinancing shall constitute an Event of Default unless the Net Asset Value of the Unsold Shopping Malls plus the aggregate Net Cash Flows received from the intended Disposition or refinancing and from any previous Disposition or refinancing of a Shopping Mall amounts to at least €70 million; ● Occurrence of Non-Permitted Investment - PC made an investment in new or existing Real Estate Assets of the Group where following such investment the Cash Reserve was less than the Minimum Cash Reserve or the Coverage Ratio was less than the Minimum Coverage Ratio; ● Exclusion from trading or listing of PC’s shares; ● Failure to repay material debt – PC fails to repay any matured and undisputable debt in the amount of at least €100 million within 30 days of its maturity; ● Distributions to the shareholders by PC – PC made a Distribution, despite the fact that (i) less than 75% of the outstanding balance of the nominal value of the Plan Debt Securities as per the Plan Amendment Date has been repaid or the Coverage Ratio on the last Examination Date prior to such Distribution was less than 150% following such Distribution, or (ii) no Majority consented to the proposed Distribution. Notwithstanding the aforesaid, in the event an Additional Capital Injection occurs, then after one year following the date of the Additional Capital Injection, no restrictions other than those under the applicable law shall apply to dividend distributions in an aggregate amount up to 50% of such Additional Capital Injection. | ||||
The CRC as at December 31, 2017 the CRC was 103%, in comparison with 118% minimum ratio required. As a result of covenants breach, PC classified its notes in the total amount of EUR 116,914 thousand as current liabilities in the financial statements as of 31 December 2017. |
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Financial Instruments
For information on financial instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative and Qualitative Disclosure about Market Risks” below.
Material Commitments for Capital Expenditure
See “Tabular Disclosure of Contractual Obligations” below.
Designated Disclosure with Respect to the Company’s Projected Cash Flows
Whereas the Company was incorporated in Israel and its securities are also traded in the Tel Aviv Stock Exchange (“TASE”TASE”), it is subject to certain reporting requirements under the Israeli Securities Law, 1967, inter alia, the requirement to publish a projected cash flow for a period of 24 months (the “Projected“Projected Cash Flow”Flow”) if and to the extent that a Warning Signs(asSigns (as defined below) exists in the Company’s financial statements; and also provide explanations on differences between previously disclosed Projected Cash Flow with actual cash flowflow.
“”Warning Signs”Signs” are defined under the Securities Regulations (Immediate and Periodic Notices) 5730-1970 (the “Regulations”“Regulations”), as one of the following: (i) A deficit in shareholders ‘equity; (ii) An opinion or review by the corporation’s auditors as of the report date that includes reference to the corporation’s financial condition; (iii) A deficit in working capital or in working capital for a period of twelve months together with a persistent negative cash flow from ongoing activity; (iv) A deficit in working capital or in working capital for a period of twelve months or an ongoing negative cash flow from ongoing activity and the Board of Directors of the corporation has not determined that this is not an indication of a liquidity problem in the corporation; (v) An opinion or review by the corporation’s auditors as of the report date which includes reference to any material doubts concerning the continuation of the corporation’s activities as a going concern;
The first three Warning Signs as described above exists in the Company’s financial statements for 31.12.2016..December 31, 2017. Therefore the Company publishes this Projected Cash Flow of the Company (on a standalone basis) and the assumptions upon which it is based:
January 1, 2018- December 31, 2018 (NIS Thousands) | January 1, 2019- December 31, 2019 (NIS Thousands) | |||||||
Opening balance: Cash and cash equivalents | 269 | 52 | ||||||
Projected Sources | ||||||||
Sources from realization of assets and business: | ||||||||
Cash flow from sale of our holdings in plot in India (Bangalore site) (1) | 8 | 43 | ||||||
Cash flow from sale of our holdings in plot in India (Chennai site) (2) | - | 28 | ||||||
Cash flow from selling our medical business (3) | - | 196 | ||||||
Cash flow from repayment of Elbit Medical loan (4) | 149 | - | ||||||
Total Sources | 426 | 319 | ||||||
Projected uses: | ||||||||
Debt service: | ||||||||
Buy back of Series H (5) | 7 | - | ||||||
Buy back of Series I (6) | 49 | - | ||||||
Principal payment to Series H note holders (7) | 289 | - | ||||||
Interest payment to Series H note holders (7) | 2 | - | ||||||
Principal payment to Series I note holders (8) | - | 250 | ||||||
Payments to our subsidiary Plaza centers NV (9) | 7 | - | ||||||
Other operating expenses | ||||||||
General and administrative expenses | 9 | 8 | ||||||
Other non-recurring expenses (10) | 11 | 8 | ||||||
Total Uses | 374 | 266 | ||||||
Closing balance: Cash and cash equivalents | 52 | 53 |
98 |
January 1, 2017- December 31, 2017 (NIS Thousands) | January 1, 2018- December 31, 2018 (NIS Thousands) | |||||||
Opening balance: Cash and cash equivalents | 44 | 9 | ||||||
Projected Sources | ||||||||
Sources from realization of assets and business: | ||||||||
Cash flows from selling our holdings in the Radisson Hotel(1) | 275 | - | ||||||
Cash flow from sale of our holdings in plot in India (Bangalore Project)(2) | 10 | 79 | ||||||
Cash flow from selling part of our medical business(3) | - | 50 | ||||||
Sources from Subsidiary: | ||||||||
Withdrawal of net operating cash flow from the Radisson Hotel | 14.5 | - | ||||||
Total Sources | 343.5 | 138 | ||||||
Projected uses: | ||||||||
Debt service: | ||||||||
Principal payment to Bank Hapoalim(4) | 60 | - | ||||||
Interest payment to Bank Hapoalim(4) | 1.5 | - | ||||||
Principal payment to Series H note holders(4) | 240 | 56 | ||||||
Interest payment to Series H note holders(4) | 18 | 1 | ||||||
Payments to our subsidiary Plaza centers NV(6) | - | 7 | ||||||
Other operating expenses | ||||||||
General and administrative expenses | 10 | 9 | ||||||
Other non-recurring expenses (7) | 5 | 3 | ||||||
Total Uses | 334.5 | 76 | ||||||
Closing balance: Cash and cash equivalents | 9 | 62 |
Assumptions and explanations pertaining to the above table:
General assumption: the projected cash flow was prepared based on the exchange rates, interest rates and the quoted market price of Elbit medical shares known close to the date of the approval of this annual report as follow:
USD/NIS Exchange rate | 3.52 | |||
Euro/NIS exchange rate | 4.33 | |||
Indian Rupee/NIS exchange rate | 0.0532 | |||
Euro Libor rate (%) | - | |||
Elbit Medical share price on the TASE | 0.961 |
(1) | The value of the The main assumptions with respect to this |
(2) | This amount are based on realization of our shares in the company holds the Chennai project, the value of the plot was determined based on appraisal done by external valuator for the financial statements as of December 31, 2017. The main assumptions with respect to this valuation are: (i) the ability of a potential Buyer to overcome certain architectural difficulties (i.e.: achieving the access road) to the project; (ii) general trend of the residential market in Chennai; (iii) execution of offshore payments from India are subject to substantive regulations. Changes in the regulations (as was done in previous years) might cause delays in payments or even inability to execute the transaction in its current structure; and (iv) The transaction is quoted in Indian Rupee (“INR”) and therefore any change in the INR/NIS exchange rate might affect the net proceed in NIS. |
(3) | Those amounts are based on |
(4) | On February 19, 2018 Elbit Medical has completed a public offering of a new series of notes convertible into ordinary shares in a total amount of NIS 180 million. NIS 149 million from the proceeds were used to repay Elbit Medical’s debt to the Company. |
(5) | During March, 2018 the Company executed a buyback plan for its (Series H) notes and purchased NIS 7 million par value notes in consideration for NIS 7 million. According to the buyback plan that was approved by the board of directors, the Company may purchase (Series H) notes for a total consideration of up to NIS57.6 million. |
99 |
(6) | During February, 2018 the Company executed a buyback plan for its (Series I) notes and purchased NIS42 par value notes in consideration for NIS 49 million. |
(7) | In accordance with the terms of The outstanding (Series H) notes (after the buyback and the early repayment) in the total amount of approximately NIS 51 million |
The outstanding (Series I) notes (after the buyback) in the total amount of NIS 250 million is due in November, 2019. |
(9) | The Company has an outstanding debts to PC in the amount of approximately Euro 1.7 million. The debt (principal and interest) is due on |
The non-recurring expenses include mainly expenses due to: (i) |
The Company has additional cash generating abilities that were not taken in to account in preparing the Projected Cash Flow detailed above. The following describes the Company’s assumptions regarding these additional cash generating abilities:
Item | Amount (NIS million) | Additional information | ||
Plot in Kochi, India | 5 | Based on transaction signed on January 14, 2016_for the sale of this plot. For additional information see | ||
Shares in Olive | 4 | The | ||
Share in PC (45%) | - | Due to the significant debt burden of PC and the going concern note included in PC’s financial statements, the Company assume that its equity position in PC is negligible. | ||
Vendor loan in respect of the sale of our holding in Radisson | 36 | Represents the principal and interest payments with respect to the vendor loan which was granted by the Company to the Purchased of the Radisson Blu Hotel. The vendor loan is due 3 years from the closing date (i.e.: December 2020). | ||
Total | 45 |
There were no material differences between the projected cash flow and actual cash flow in 2017 and therefore the Company does not attach a comparison table between them.
100 |
The information detailed above, concerning the Company’s cash flow forecast, including the materialization, occurrence, consummation and execution of the events, transactions and of the assumptions on which such Projected Cash Flow is based, are forward looking information as defined in the Securities Law, 5728-1968. This information includes forecasts, subjective, assessments, estimates, etc. and is based, among other things, on the Company management’s past experience. Furthermore, some of such information is based on future data and internal estimates by the Company’s management made at the current time, and there is no certainty that they will materialize, in whole or in part, due to factors that are not in the Company’s control. It is hereby clarified that there is a likelihood that said forward looking information will not be realized in whole or in part, both with respect to the Company’s forecasts and with respect to the working assumptions on which they are based.
C. |
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. |
The Israeli government encourages industrial companies by funding theirgrants for research and development activities through grants by the National Authority for Technological Innovation, or ("NATI") (formerly known as the Office of the Chief Scientist of the Ministry of Economy and Industry, or the OCS).
Each of InSightec’s and Gamida’s research and development efforts hashad been financed, in part, through NATI grants. InSightec and Gamida (only for Gamida’s NiCord development) have received or were entitled to receive grants totaling $29$29.8 million and $27.6$25.3 million, respectively, from NATI since their respective inception and each of them is required to repay such grants through payment of royalties to NATI from itseach respective revenues until the entire amount is repaid.
Each of InSightec’s and Gamida’s technology developed with NATI funding is subject to transfer restrictions, which may impair itstheir ability to sell itstheir technology assets or to outsource manufacturing. The restrictions continue to apply even after InSightec or Gamida has paid the full amount of royalties’ payable for the grants. In addition, the restriction may impair InSightec’s orand Gamida’s ability to consummate a merger or similar transactions in which the surviving entity is not an Israeli company.
The total NATI grants received by InSightec during 2017, 2016 and 2015 and 2014 were $ 0.1millon, $1.5 million $2.6 million and $1.8$0.3 million, respectively, and the total NATI grants received by Gamida during 2017, 2016 and 2015 and 2014 were $1.5 million, $4.3 million $3.2 million and $2.5$3.2 million, respectively.
D. | TREND INFORMATION |
Commercial Centers
Our commercial centers business is affected by trends in each of the geographic areas in which we operate.
The volume of real estate investment transactions concluded across Central and Eastern Europe in H1 2016 amounted to approximately €5.1 billion. This represents a 69% increase over the same period last year and is the best H1 performance in CEE real estate investment volume since 2007. Out of the H1 2016 €5.1 billion, Poland accounted for €2.07 billion, followed by the Czech Republic (€950 million), Hungary (€910 million), Romania (€340 million) and Slovakia (€310 million). Other CEE markets registered €540 million in finalized deals.
Poland- 2016 was a period of active development of the Polish retail market. The retail market was expanded by 11 new commercial centers, and the extension of two existing commercial centers. In addition, two retail parks, two stand-alone retail warehouses and two outlet centers were opened.
In total 336,000 sqm. Of commercial center inventory was delivered to the retail market in 2016. This is less than in 2015, when the market grew by nearly 500,000 sqm. A slight increase is expected in 2017 to nearly 400,000 sqm., of which 360,000 sqm. are already under construction.
Total retail space in Poland reached 13.4 million sqm. There are 406 commercial centers, which account for more than 9.5 million sqm. (i.e. 71%). The remaining spaces are occupied by retail parks and warehouses, with 3.6 million sqm. of space (27%), and outlet centers, with 0.21 million sqm. (2%). As a result of recent openings, commercial center density now stands at the level of 248 sqm./1,000 inhabitants, which is above the European average of 206 sqm./1000 inhabitants, but still below the average for the Western European countries (264 sqm./1,000 inhabitants).
The retail market in Poland is maturing and becoming more competitive. Interesting and unique shopping & gastronomy projects, such as Hala Koszyki, Soho Factory and Koneser, are predominantly found in the capital city, although other cities are exhibiting similar projects (e.g. Off Piotrkowska in Łódź). There is an increasing trend of extending gastronomic, recreational and entertainment opportunities, which may reflect growing demand for those kinds of amenities.
The overall volume of retail investment transactions closed in 2016 amounted to €1.972 billion, compared to the €2.261 billion recorded in the whole of 2015. Prime yields for best-in-class commercial centers in Poland remain stable at 5.0%, and prime retail parks are expected to trade at approximately 7.0%.
Romania– Romania is a business destination for global investors enjoyingand enjoys a growing, stable economy, with theeconomy. In 2017, Romania registered GDP up by 6% for the second quarter of 2016 and forecasted growth of 4.2% (highest in EU). After a very strong 8.9% growth in 2015, retail sales surgedapproximately 7%, the highest in the first halfEuropean Union, following a strong 2016, when GDP increased by 4.8%, which was also the highest in the European Union. This was the seventh consecutive year of 2016, increasing by 16.8%. Moreover, retailgrowth. Retail sales, are expectedwhich registered one of the highest growths in the EU (10.7% in 2017, year on year), continue to continue their record growing trend forbe the restmain driver of 2016 as well,the economy, fueled by the increase in net average wages (11.7% year on year, reaching €567 in December 2017), although this is based on a low base.
In 2007/2008 Romania had a very liquid real estate investment market with total volumes of wagesover €2 billion and €1 billion respectively, despite the limited availability of modern products at the time. Romania was then the third largest investment market in terms of deal flow in the CEE (after Poland and the strong consumer confidence.Czech Republic). Between 2009 and 2013, volumes decreased significantly, as the number of active players plunged sharply. Transactional activity picked up in 2014, when approximately €1.17 billion was transacted (including a number of unique, very large deals) and 2015, when the property investment volume was approximately €670 million. The increasing trend continued in 2016 and 2017, when close to €900 million and €1 billion were transacted. Given its size in terms of population and forecasted GDP, it is expected that Romania should be second only to Poland in the CEE in terms of investment volumes at some point over the coming years.
Prime office yields are at 7.5%, prime retail yields at 7.25%, while prime industrial yields are at 8.5%. Yields for office and retail are at the same level as 12 months ago, while industrial yields have compressed by 50 bps over the year. There is soft downward pressure on yields and in 2018 there may be limited compression in case prime assets will transact.
Commencing in 2016, the special construction tax applied to immovable assets other than buildings was reduced to 1%, and as of 2017, that tax will be eliminated.
The property investment volume in the first half of 2016 is estimated at €340 million, 80% higher than that registered in the same period of 2015 (€187 million). Traditionally, Bucharest is the main destination for real estate investors in Romania, mainly due to the size of the market and the availability of higher quality products.
Prime yields are expected to remain stable by the end of the year, with 7.25% for retail, 7.50% for office, and 9.00% for industrial fields. Yields have compressed between 25 and 50 bps over the year.
Bucharest is considered the most attractive retail destination in Romania due to its large population and the significantly higher spending power than in the rest of the country. Over 50 new international brands opened units in Romania since 2014.
India
Amidst the uncertainty in the world economy and the challenges being faced by emerging economies, India’s macro-economic stability continues to improve. CPI inflation declined from 6% in July 2016Consumer Price Inflation (CPI) accelerated to 3.4%5.2% in December, 20162017 over the same month the previous year. CPI Inflation reached 4.88% in November and is expected to remain3.58 % in the range of 2% to 6%.October, 2017. India’s Current Account Deficit, declined from about 1% of GDP last yearon a cumulative basis, narrowed to 0.3%0.7 per cent of GDP in 2016-17 from 1.1 per cent in 2015-16 on the first halfback of 2016.the contraction in the trade deficit. India’s trade deficit narrowed to $ 112.4 billion in 2016-17 from $ 130.1 billion in 2015-16. Foreign Direct Investment (FDI) inflows to India in 2016-17 at $60.2 billion increased significantly from Rs 1,07,000 crores$55.6 billion in the first half of 2016 to Rs 1,45,000 crores in the first half of 2017.2015-16. A number of global reports and assessments, over the last two years, have shown that India has considerably improved its policies, practices and economic profile. These are reflected in Doing Business Report of the World Bank; Global Competitiveness Report of 2015-16 and 2016-17 of the World Economic Forum; and several other Reports. According to IMF forecast, India is expected to be one of the fastest growing major economies in 2017.2018.
On November 8, 2016,With the objective of doing away with the need for multiple indirect taxes and thereby making it easier for doing business, the government of India introduced the Goods and Service Tax (“GST”) effective from July 1, 2017. The GST is India’s biggest tax reform.
With the objective to safeguard consumer interests, the Government of India announcedenforced the demonetizationReal Estate (Regulation and Development) Act, 2016 nationwide on May 1, 2017. For a sector that did not have any regulatory structure, this historic move was heralded as an inflection point that will change the manner in which real estate is transacted in India. Provisions such as mandatory disclosures by promoters and prior approvals before launching the project, were targeted to weed out fly-by-night operators and bring financial discipline, which will spike investor interest.
The slew of Rs 1,000 and Rs 500 notes, stating thatsimultaneous policy reforms in the action was aimed at eliminating black money, counterfeit currency and terror financing. Since the Indian economy is heavily dependent on cash, as a majorityform of the population does not useReal Estate (Regulation and Development) Act, 2016 (RERA) and GST implementation have increased the banking systemgestation period for monetary transaction, demonetization has significantly impacted trade and consumption. Since availability of cash has decreased, the action is likelysale closures though buyers remaining positive about ready to negatively impact the country’s growth and fiscal outlook. Although India’s GDP forecast for 2016 was decreased, the IMF has projected a GDP growth of 7.2% and 7.7% in 2017 and 2018 respectively. The World Bank, however, is more optimistic and has projected a GDP growth of 7% in 2016-17, 7.6% in 2017-18 and 7.8% in 2018-19occupy products
After experiencing an economicIn 2017, Bengaluru’s residential market surrendered to the pressures of crumbling sales volume. From a peak
of 57,366 residential units sold in 2013, the citysales volume noted a stark 40% decline at the end of Bangalore2017, albeit green shoots of recovery were visible in the latter half of 2017. No longer bucking the trend, Bengaluru’s residential market has come under considerable pressurebeen impacted by a variety of factors impacting both demand and supply. The stress in 2015 and 2016. While real estate initiatives were on a decline, owing to factors such as the increasingmarket is also captured in the age of unsold inventory, which has progressively increased from 7.5 quarters in the city (driven by local authorities2014 to confront the encroachment of lake beds and other issues) the announcement of demonetization)13 quarters in Q4 2016 further led to the decline of real estate initiatives.2017.
Chennai’s growthThe Chennai residential market that had just begun to show some promise of a recovery during the second half of2017, once again broke new lows in terms of sales and supply numbers during the second half of 2017. The ongoing slowdown in the country in coupled with to its own issues ranging from political uncertainty to floods, the Chennai residential market had been in a downward slope over the past several years, spurred by heavy migration to the city of a skilled and educated work forcethree years. The 33% year-on-year (YoY) drop in the services and manufacturing sector, has created significant demandsecond half of 2017 residential supply levels, pushed down the annual supply number under 10,000 units for housing. During 2016, 4600 villas and 53,000 apartments were sold in Chennai. The outlook for Chennai’s residential property market will remain stable in 2017. Focus on improvement of public modes of transport has been one of the major highlights in Chennai.
Radisson Blu Complex
The Bucharest, Romania hotel market registered a positive track record for all indicators in 2016 continuing the trends experienced in 2015, revealing realistic perspectives for future growth. With sustained national economic performance and a growth of approximately 4.5% in the GDP of the Romanian economy, the hospitality industry in Bucharest showed elevated volumes of bothfirst time during this decade. Both supply and demand. In addition, positive macroeconomic influences affected both occupancy and average daily rate indicators which are slowly correctingsales for the Chennai residential market came in at their previous crisis hikes. We expect the hospitality sector to expand mainly due to the interest of large tourist groups in new markets as well as due to the growth in business activities and the increase of incoming flights to Bucharest.lowest levels since 2011.
E. | OFF-BALANCE SHEET ARRANGEMENTS |
The following are our off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors:
● | In the framework of the transactions for the sale of our holdings in certain subsidiaries or projects, or the realization and sale of certain business activities, we have undertaken to indemnify the respective purchasers for any losses and costs incurred in connection with the sale transactions. The indemnifications usually include: (i) Indemnifications in respect of integrity of title on the assets and/or the shares sold (i.e.: that the assets and/or the shares sold are owned by us and are free from any encumbrances and/or mortgage and the like). Such indemnifications generally survived indefinitely and are capped to the purchase price in each respective transaction. (ii) Indemnifications in respect of other representations and warranties included in the sales agreements (such as: development of the project, responsibility to defects in the development project, tax matters, employees and others). Such indemnifications are limited in time and are generally caped to certain percentages of the purchase price. |
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To our best knowledge as of the approval date of our consolidated financial statements, no claim of any kind which was not reflected in the financial statement was received by us with respect to these indemnifications.
● | A former subsidiary of PC incorporated in Prague (“ |
● | We and our subsidiaries have entered into indemnification agreements with our respective directors and officers. For more information, see Note 13C to our consolidated financial statements for the year ended December 31, |
● | As required under the lease agreement for our new and previous executive offices we provided bank guarantees to secure our compliance with the terms of the agreement in the total amount of approximately NIS 1.3 million ($ |
● | We have provided bank guarantees in the total amount of NIS 0.7 million ($0.2 million) and corporate guarantees for the benefit of the Israeli Customs Authority in the framework of a dispute between our subsidiary and the Israeli Customs Authority which was engaged in the Retail business regarding customs duties charged with respect to the importation of the Mango and GAP brands to Israel. The Customs Authority had agreed that the collection of the disputed customs charges will be put on hold until the resolution of our motion. |
● | PC has contractual commitments in respect of its project in Serbia (Visnjicka) in a total amount of € 19 million ($20 million) in respect of construction activities, to be paid during 2017. |
● | We have contractual commitments in respect of lease agreement in a total amount of NIS |
F. | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS |
Our contractual obligations consist mainly of: (i) long-term borrowings (mainly loans from banks and financial institutions and non-convertible notes); (ii) commitments towards suppliers, subcontractors and other third parties in respect of land acquisitions and operational lease; and (iii) other long term liabilities reflected in the balance sheet. Our contractual obligations are generally linked to foreign currencies (mainly Euro and U.S. dollar) and/or other indexes (such as the Israeli consumer price index). Below is a summary of our significant contractual obligations as of December 31, 20162017 in NIS, based upon the representative exchange rate of the NIS as of the balance sheet date, against the currency in which the obligation is originally denominated or based on the respective index of the Israeli consumer price index as of December 31, 2016.2017. Actual payments of these amounts (as are presented in our consolidated financial statements) are significantly dependent upon such exchange rates or indexes prevailing as at the date of execution of such obligation, and therefore may significantly differ from the amounts presented herein below.
Payments due by Period (in NIS thousands) | Payments due by Period (in NIS thousands) | |||||||||||||||||||||||||||||||
Contractual Obligations as of December 31, 2016 | Total | Less than 1 Year | 2-3 Years | 4-5 Years (and thereafter) | ||||||||||||||||||||||||||||
Contractual Obligations as of December 31, 2017 | Total | Less than 1 Year | 2-3 Years | 4-5 Years (and thereafter) | ||||||||||||||||||||||||||||
Long-Term Debt(1) | 2,396,510 | 590,606 | 1,264,538 | 541,366 | 1,215,010 | 612,410 | 602,599 | - | ||||||||||||||||||||||||
Operating Leases(2) | 3,166 | 1,088 | 1,411 | 667 | 2,263 | 589 | 951 | 723 | ||||||||||||||||||||||||
Purchase Obligations and Commitments(3) | 76,836 | 76,836 | - | - | ||||||||||||||||||||||||||||
Total | 2,476,512 | 668,530 | 1,265,949 | 542,033 | 1,217,272 | 612,999 | 603,550 | 723 |
(1) | Long term debt includes interest that we will pay from January 1, |
(2) | Our operating lease obligations are subject to periodic adjustment of the lease payments as stipulated in the agreements. This table includes the lease obligation based on the most recent available information. |
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. | DIRECTORS AND SENIOR MANAGEMENT |
The following table sets forth information regarding our directors, executive officers and other key employees of the company as of the date of this annual report except as otherwise noted below:
NAME | AGE | POSITION | ||
Ron Hadassi | CEO and Chairman of the Board of Directors and Director | |||
Alon Bachar(1) (2) | 47 | Director | ||
Director | ||||
Boaz Lifschitz(2) | 48 | Director | ||
Nadav Livni(1) | 43 | Director | ||
Yael Naftali | 38 | Chief Financial Officer |
(1) | Member of the audit committee |
(2) | Member of the compensation committee |
RON HADASSI. Mr. Hadassi serves as the Chairman of our Board of Directors since March 2014.2014 and as the Chief Executive Officer of the Company since January 2018. Mr. Hadassi also serves as the Chairman of Elbit Medical Technologies Ltd Board of Directors and its subsidiaries since March 2014. Mr. Hadassi serves as the Chairman of Plaza Centers N.V Board of Directors since March 2014. Mr. Hadassi has served as Senior Manager of the Bronfman-Fisher Group sinceuntil 2002, as well as the Vice Chairman of Super-Sol Ltd., Isralom Properties Ltd., and Shefa Success Logistic (B.P) Ltd. (former name - Palace Industries Ltd.). Mr. Hadassi also served until the summer of 2015 as Executive Chairman and until March 2014 as acting Chief Executive Officer of Nanette Real Estate Group N.V. From 2005 until 2012, Mr. Hadassi served as Chairman of the board of directors of Northern Birch Ltd. (IKEA Israel), and until 2015 as Chairman of a subsidiary. Mr. Hadassi serves as a director of the Carmel Winery. Mr. Hadassi has served on the boards of public companies, including Blue Square Israel Ltd., Blue Square Real Estate Ltd., Bet Shemesh Engines Holdings Ltd., Naaman Group N.V. Ltd. and Olimpia Real Estate Holdings (as well as its subsidiaries). Mr. Hadassi is a banking and finance professorlecturer at Hebrew University, Jerusalem, the Interdisciplinary Center, Herzeliya, and the College of Management, Rishon LeZiyon, holds a B.A in Economics and Political Science, an LL.B and a MBA, all from Tel Aviv University, and is a member of the Israeli Bar.
ALON BACHAR. Mr. Bachar, serves as a member of our Board of Directors since March 2014. Mr. Bachar serves as a member of Elbit Medical Board of Directors since March 2014. Mr. Bachar has served as the Chief Financial Officer of the Bronfman-Fisher Group since 2006, as the Chief Executive Officer of Isralom Properties Ltd. since 2012, and in addition currently serves as a Chief Executive Officer of Shefa Success Logistic (B.P) Ltd. Mr. Bachar served in the past as a director of various private and public companies, such as Sufersal Ltd. From 2003 until 2006, Mr. Bachar served as the Deputy Chief of the corporate division of Bank of Jerusalem Ltd. From 1999 until 2003, Mr. Bachar served as Credit Officer of the corporate division in the Industrial Development Bank of Israel Ltd. From 1996 until 1999, Mr. Bachar served as an Analyst and Credit Officer in the corporate division of Bank Leumi L’Israel B.M. Mr. Bachar holds a B.A in Economics from Tel Aviv University, as well as an MBA from Ben-Gurion University.
ZVI TROPPNITZAN GOZLANMr. Tropp has – Ms. Gozlan served as onea member of our external directorsBoard of Directors since September 2004December 2017. Ms. Gozlan is a co-founder of a company that provides lectures on the topics of financial management of companies, and is a lecturer at the MA program in Kibbutzim Education College, Tel Aviv. From 2011 until October 2016 Since October 2016 he serves as independent Board member. Since 2003, Mr. Tropp has been a senior consultant at Zenovar Consultant Ltd. From February 2006 until June 2007, Mr. TroppMs. Gozlan served as thean external director, chairman of the board of Rafael Advanced Defense Systems Ltd. From 2000 until 2003, Mr. Tropp served as the Chief Financial Officer of Enavis Networks Ltd. Mr. Tropp has served as a board member of various companies, including Rafael (Armament Development Authority) Ltd., Beit Shemesh Engines Ltd., Rada - Electronic Industries Ltd. and has also served as the Chairman of the investmentbalance committee of Bank Leumi Le’Israel Trust Company Ltd. Mr. Tropp holds a B.Sc. in agriculture and an M.Sc. in agricultural economics and business administration from the Hebrew University in Jerusalem.
ELINA FRENKEL RONEN. Mrs. Frenkel Ronen served as our external directors since December 2008. Ms. Frenkel Ronen currently serves as a Vice President and a member of the Boardaudit committee of the Institute of CPAs in Israel as the Chair of the CEOs, CFOs and Controllers Committee of the Institute of CPAs in Israel(since 1997), and as an external director of Tempo Beverages Ltd (since 2012) and as an external director of IDB DevelopmentIsralom Properties Ltd. From 1996 until 1998 Ms. Frenkel Ronen hasGozlan served as the ChairpersonHead of the Board of Directors of Haifa Port Ltd (2008-2011), and an External Director Tao Tsuot Ltd (2008-2011).Policy Production Department at Peltours Insurance Company Ltd. From 1994 until 1995 Ms. Frenkel RonenGozlan served as an External Director of Micromedic TechnologiesInternal Auditor in Bank Egud Ltd (2011-2014). Ms. Frenkel Ronenand from 1991 until 1994 she served as the Public Representative for the Public Utility Authority – Electricity (2004-2007).a business analyst in Dan and Bradstreet, Israel Ltd. Ms. Frenkel Ronen has headed her family’s real estate business (2005-2013). Ms. Frenkel Ronen professional experience includes financial management (CFO)Gozlan holds a BA in Tnuva IndustriesFinance and its 97 subsidiaries (1993-1999),Marketing and Orek Paper (2008-2012)an MA in Educational Management and Sherutey Hashomrim group (security, cleaning, and information technology (IT) systems security) (1999-2002). Ms. Frenkel Ronen also managed the financial aspects of Chapter 11 procedures - nomination receivedLeadership, both from the trustee appointed by the Court of law.Centre for Academic Studies, Or Yehuda, Israel. In addition, Ms. Frenkel RonenGozlan holds a B.A.Ph.D in accounting and economics and an Executive M.B.A., bothEducation from Tel-Aviv University. Ms. Frenkel Ronen is a Certified Public Accountant.the International University of Business & Law – IUBL, USA.
BOAZ LIFSCHITZ. Mr. Lifschitz has served as a member of our Board of Directors since March 2014. Mr. Lifschitz is a co-founder and General Partner of Peregrine Ventures, a venture capital fund founded in 2001. Mr. Lifschitz previously served as Chief Operating Officer and Chief Financial Officer of VisionCare Opthalmic Technologies. Mr. Lifschitz currently serves as Chairman of Cartiheal Ltd. and is a board member of other privately held companies. He previously served on the board of Neovasc Inc. (NVCN). Mr. Lifschitz holds a B.Sc. from Bar-Ilan University as well as a M.Sc. from Boston University jointly with Ben Gurion University.
NADAV LIVNI. Mr. Livnihas served as a member of our Board of Directors since March 2014. Mr. Livni is the founder and Managing Director of The Hillview Group, an independent Merchant Bank based in London. Since 2006, The Hillview Group has expertly managed over $3 billion of strategic capital market transactions and principal investments across Central and Eastern Europe, Russia, Africa and the U.S. During his 20 year career, Nadav has advised governments, controlling shareholders and entrepreneurs on all aspects of capital markets transactions. In previous roles at Deutsche Bank, Goldman Sachs and KPMG, Nadav participated in over $100 billion of transactions in the real estate, financial services, healthcare and consumer sectors, specializing in mergers and acquisitions, structuring innovative funds and all aspects of capital raising in the public and private markets. Nadav is a qualified Chartered Accountant, holds a Bachelor of Commerce from the University of the Witwatersrand, a MSc. in Finance from City University Business School and is a guest speaker at London Business School on the topics of private equity and real estate investment.
DORON MOSHE. On April 2, 2015, Mr. Moshe was appointed as our Acting Chief Executive Officer. On March 31, 2016 Mr. Moshe has been appointed as our Chief Executive Officer. In addition, Mr. Moshe served as our CFO from January 2010 and until April 2016. From January 2006 until January 2010, Mr. Moshe served as our Chief Controller. From 2001 until 2005, Mr. Moshe served as the Controller of our subsidiaries. Mr. Moshe also serves as Chief Finance Officer of Elbit Medical. From 2000 until 2001, he served as the Controller for a group of public companies in the fields of contracting, real estate, and technology, and from 1999 until 2000, he was a senior accountant at KPMG Israel. Mr. Moshe holds a B.A. in Accounting and Economics from the University of Haifa and is a Certified Public Accountant. Mr. Moshe and the Company have reached a mutual understanding regarding Mr. Moshe termination of office, considering the Company’s business status and its future objectives and therefore, Mr. Doron Moshe will cease to serve as the Company’s CEO, effective as of January 1, 2018.
DORI KEREN. On April 1, 2016, Mr. Keren was appointed as PC Acting Chief Executive Officer. Mr. Dori Keren joined PC in 2006 as financial director of Poland and Latvia and was appointed Poland country director in 2013. Prior thereto, he worked in Israel for 10 years in variety of financial jobs in positions which accompany business activity as economist, financial controller and CFO.
YAEL NAFTALI On May 1, 2016, Ms. Naftali was appointed as our Chief financialFinancial Officer. In addition, Ms. Naftali served as our Chief Controller from 2010 until 2016. Ms. Naftali.Naftali also serves as Chief FinanceExecutive Officer of Elbit Medical. From AprilMedical as of January 1, 2016.2018. From 2007 until 2010 Ms. Naftali served as the Controller for a public company in the field of real estate and from 2004 until 2007 she was an intern at KPMG Israel. Ms. Naftali holds a B.A. in Accounting and Economics from the Hebrew University of Jerusalem and is a Certified Public Accountant.
B. | COMPENSATION OF DIRECTORS AND OFFICERS |
Aggregate 20162017 Compensation of Directors and Officers
The aggregate compensation paid to or accrued on behalf of all persons as a group (8 persons – who served in the capacity of director or executive officer in the year ended December 31, 20162017 was approximately NIS 4.5 million6,024 (approximately $1.1 million)$1,738). Such aggregate amount includes management fees, director’s fees salaries and certain fringe benefits and accrued amounts in respect of pensions and retirement benefits, but does not include stock-based compensation expenses relating to options granted to our directors and officers.
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In addition, ourthe company issued option to its officers participate in share or option allocations pursuant to various plansEmployees Stock Option Plans adopted by us, our subsidiaries and our associates. For information regarding the terms of grant and exercise under all plans, see “Item 6.E.6E – Share Ownership.”Ownership".
The table below reflects the compensation granted (including accrued compensation) during the year ended December 31, 20162017 to office holders in the Company and its controlled companies in connection with their service in the Company and/or in its controlled subsidiaries. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the table below, “compensation” includes salary cost, consultancy fees, bonuses, equity-based compensation, retirement or termination payments, benefits and perquisites such as car, and social benefits and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized in our consolidated financial statements for the year ended December 31, 20162017 plus compensation paid to such Covered Executive following the end of the year in respect of services provided during the year. Each of the Covered Employees was covered by the respective D&O liability insurance policy and was entitled to indemnification and exculpation in accordance with applicable law.
Name and Principal Position(1) | Salary | Consultancy Fees | Bonus(3) | Equity-Based Compensation (4) | Termination cost (5) | Total (NIS Thousands) | ||||||||||||||||||
(NIS Thousands) | ||||||||||||||||||||||||
Maurice R. Ferre InSightec’s Chairman of the Board and CEO | 1,392 | - | 584 | 2,032 | - | 4,008 | ||||||||||||||||||
Kobi Vortman InSightec’s vice chairman of the Board and director | 1,853 | - | 511 | 1,864 | - | 4,228 | ||||||||||||||||||
Eyal Zadicario – INSIGHTEC Israel -General Manager | 1,173 | - | 396 | 489 | - | 2,085 | ||||||||||||||||||
Roni Yagel - InSightec’s VP of International Markets | 819 | 1,077 | - | 92 | - | 1,988 | ||||||||||||||||||
Jim (Jun) Tao - InSightec’s Chief Commercial Officer | 980 | - | 365 | 119 | - | 1,465 |
Name and Principal Position(1) | Salary Cost(2) | Consultancy Fees | Bonus(3) | Equity-Based Compensation (4) | Termination cost(5) | Total (NIS Thousands) | ||||||||||||||||||
(NIS Thousands) | ||||||||||||||||||||||||
Maurice R. Ferre InSightec’s Chairman of the Board and CEO | 1,288 | - | 532 | 2,188 | - | 4,008 | ||||||||||||||||||
Kobi Vortman InSightec’s vice chairman of the Board and director | 1,944 | - | 500 | 704 | - | 3,148 | ||||||||||||||||||
Ron Hadassi – Elbit Imaging's -Chairman of the Board | 487 | 773 | 619 | 399 | 62 | 2,278 | ||||||||||||||||||
Doron Moshe Elbit Imaging's CEO | 1,265 | 732 | - | 138 | 2,135 | |||||||||||||||||||
Jim (Jun) Tao - InSightec’s Chief Commercial Officer | 1,211 | - | 368 | 396 | - | 1,975 |
(1) | Unless otherwise indicated herein, all Covered Executives are employed on a full-time (100%) basis. The positions of the Covered Executives in this table represent their position as of the date of this filling. |
(2) | Salary cost includes the Covered Executive’s gross salary plus payment of social benefits made by the Company on behalf of such Covered Executive. Such benefits may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers’ Life Insurance Policy), education funds (referred to in Hebrew as “keren hishtalmut”), pension, severance, risk insurances (e.g., life, or work disability insurance), payments for social security and tax gross-up payments, vacation, car, medical insurances and benefits, convalescence or recreation pay and other benefits and perquisites consistent with the Company’s policies. |
(3) | Represents annual bonuses granted to the Covered Executives based on formulas set forth in their respective employment agreements. |
(4) | Represents the equity-based compensation expenses recorded in the Company’s consolidated financial statements for the year ended December 31, |
(5) | Termination costs include payment made to retired employees during the year ended December 31, |
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Independent TABLE OF CONTENTS
Director Compensation
The compensation of our external director is governed by regulations promulgated under the Companies Law (the “Compensation Regulations”). According to the Compensation Regulations, weWe pay our external director, Ms. Elina Frenkel Ronen, which have been designated as experts bydirectors (other than our Board of Directors, the maximum annual fee set forth in the Compensation Regulations for non-expertsChairman and the maximum meeting attendance fee set forth in the Compensation Regulations for experts. The amounts payable by a company to the external director under the Compensation Regulations areCEO, Ron Hadassi) based on the amount ofpayable to external directors under the company’sCompanies Regulations (rules regarding compensations and expenses to external directors), 2000 (the “Compensation Regulations”) taking into account our shareholders’ equity as of the end of the previous year. According to our Compensation policy, our board members’ compensation is linked to our external director’s compensation. Accordingly, in 2016,2017, we paid each of our directors (both external and others) NIS 37,115 (approximately $9,640)$ 10,705 per year and NIS 3,300 (approximately $857)$ 952 per meeting (or a smaller amount in case they did not physically attend the meeting).
Adoption of Compensation Policy
In August 2014, following our shareholders’ approval, we adopted a compensation policy for our officers and directors (the “Compensation Policy”“Compensation Policy”), in accordance with Amendment No. 20 to the Israeli Companies Law, pursuant to which we are required to determine the compensation of our officers and directors in accordance with a compensation policy. In March 2016 and in October 2016, following our shareholders’ approvals, we adopted an amendments to our compensation policy (the “Amendments”“Amendments”). The Compensation Policy and the Amendments was previously approved by our board of directors, upon recommendation of our Compensation Committee. An English translation of the Compensation Policy and the Amendments were filed with the Securities and Exchange Commission. For further discussion regarding the Compensation Policy and the Amendments, please see Item"Item 10B “Memorandum– Memorandum and Articles of Association”Association, below and our Reports on Form 6-K filed on July 10, 2014, August 14, 2014, February 24, 2016 and September 6, 2016 (as exhibit to the proxy statement of the March 31, 2016 extraordinary shareholders meeting and the October 13, 2016 annual shareholders meeting, respectively) which are incorporated herein by reference.
Services of ourOur Chairman and CEO, Mr. Ron Hadassi
In October 2016,December 2017, our shareholders approved a compensation plan for Ron Hadassi for his services as the Chairman of our Board of Directors and our Chief Executive Officer, effective as of January 1, 2018. The main terms of the consideration for such services are as follows:
In December 2017, our shareholders approved the terms of a compensation for Mr. Hadassi for his services as the Chairman of our Board of Directors and our Chief Executive Officer as part time position (80% of his working time), effective from March 18, 2017.as of January 1, 2018. The main terms of the consideration for such serviceshis compensation are as follows:
● | A fixed cash fee of NIS |
● | Annual bonus of up to In addition, And notwithstanding the provisions of the Company’s Compensation Policy, 1. If and to the extent that the Committee believes that the "going concern note" is due to 2. If and to the extent that the Committee believes that the "going concern note" is not due to a difficulty in |
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● | A |
● | The payment of |
● |
● | Mr. Hadassi shall be entitled to a |
● | Mr. Hadassi |
● | Mr. Hadassi shall be covered under the Company’s Directors and Officers |
Services of our CFO, Ms. Yael Naftali
In November 2017, our shareholders approved the terms of compensation for Ms. Naftali for her services as the Company's Chief Financial Officer and as the Chief Executive Officer of Elbit Medical, effective as of January 1, 2018. The main terms of her compensation are as follows:
● | A fixed salary of NIS 50,500 per month and | |
● | Annual bonus of up to 4 salaries (i.e. NIS 202,000 in 2018 and In addition, And notwithstanding the provisions of the Company’s Compensation Policy, in case there is a "going concern note", then the entitlement to a bonus for that year (beginning from the year 2016) will be brought for further discussion and the approval before the Compensation Committee, which will decide as follows:
2. If and to the extent that the Committee believes that the "going concern note" is not due to a difficulty in the cash flow of the |
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● | Ms. Naftali was granted 6,371,100 options exercisable into 3,185,550 shares of Elbit Medical and subsequently exercised all such options. During 2016 Ms. Naftali was granted 10,000,000 options exercisable (in consideration for an exercise price of NIS 0.1 per share) into 5,000,000 shares of Elbit Medical. One third of such options were vested and exercised. Another third of those options have vested but have not been exercised and another third of such options have not yet vested. | |
● | Ms. Naftali will be entitled to receive a retirement bonus equal to 6 salaries (3 salaries calculated based on the gross monthly salary and 3 salaries calculated based on the cost of salary to the Company). | |
● | Special bonus: (i) bonus for the realization of two main assets of the Company (one of them is the Radisson Blu Hotel that was sold and the other is the holdings in InSightec), and (ii) NIS 255,000 if and to the extent that the following two criteria are met: (i) Full repayment of the Company’s notes (series I); and (ii) continuous employment of Ms. Naftali by the Company until December 31, 2019 (provided however that Ms. Naftali’s term of office was not terminated by the Company except for termination for cause). A two month notice prior to termination of employment. | |
● | Ms. Naftali shall be covered under the Company’s Directors and Officers liability insurance policies and the Company’s indemnification to its officers. |
Services of our Director, Mr. Boaz Lifschitz
In October 2016,December 2017, our shareholders approved our entering into a one-year renewal (until October 2018) of the consultancy agreement with Mr. Lifschitz, for consultancyof his advisory services relating toin the field of life sciences field(i.e. InSightec and Gamida) (the “Services”“Services”) to be provided to the Company and its subsidiaries (and other related companies). In consideration for such services, the Company shall pay Mr. Lifschitz an annual fee of NIS 58,54029,270 plus VAT, payable in quarterly installments in arrears and a meetings attendance fee of NIS 930 per meeting with limitation of 6 meetings per year for each subsidiary as well as reimbursement for expenses incurred within the providing(i.e. meeting of the Services,board of directors of InSightec and Gamida and any of their committees). Such fees are in accordance withaddition to the Company’s policy regarding reimbursementfees Mr. Lifschitz is entitled to in his capacity as member of expenses. The total consideration shall not exceed NIS 70,000 per year. Thethe board of directors of the Company will have the option to terminate this arrangement upon 30 days’ notice.and of Elbit Medical.
Services of our CEO, Mr. Doron Moshe
In March 2016, our shareholders approved the terms of office and employment for Mr. Moshe for his services as the chief executive officer of our Company. The main terms of office and employment for his service are as follows:
● | A fixed cash fee of NIS 72,800 per month, which will be linked to the Israeli consumer price index (the |
● | Target-based Bonus, for each calendar year during | |
● | Special Bonus based on the realization of two main assets of the |
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● | Equity Incentive: Mr. Moshe holds the following - 19,851,000 Elbit Medical’s options exercisable in to 9,925,500 ordinary shares; 16,666 PC’s options exercisable in to 16,666 ordinary shares. |
● | Mr. Moshe shall be entitled to a period of three months’ notice prior |
● | Mr. Moshe shall be covered under the Company’s Directors and Officers Liability insurance policies and the Company’s indemnification undertaking shall remain valid and binding and shall not be changed, cancelled or nullified by virtue of the aforementioned engagement. |
C. | BOARD PRACTICES |
Corporate Governance Practices
We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as the audit committee, the internal auditor and approvals of interested-party transactions. These matters are in addition to the ongoing listing conditions of the Nasdaq Global Select Market and other relevant provisions of U.S. securities laws. Under the NASDAQ rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable NASDAQ requirements, except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. For further information, see “Item 16G. Corporate Governance.”
Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations promulgated under the Companies Law that our board of directors should have. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least two directors with the requisite financial and accounting expertise and that two of our directors fulfill the requirements promulgated under the Companies Law.
Election of Directors
Pursuant to our Amended and Restated Articles of Association, the size of our board of directors shall be no less than 4 persons but no more than 7, excluding ourany external directors. Our directors are generally elected by our shareholders at the annual meeting of the shareholders by a simple majority. The directors hold office until the next annual meeting of our shareholders. Our board of directors may appoint additional directors to our board of directors in the event of a vacancy on or an enlargement of the board of directors up to the maximum number provided in our articles of association. Any director so appointed will hold office until the next annual meeting of the shareholders. Our board of directors currently consists of six members.
In addition, the Companies Law provides that a person will not be elected and will not serve as a director in a public company if he or she does not have the required qualifications and the ability to dedicate an appropriate amount of time for the performance of his or her director position in the company, taking into consideration, among other factors, the special needs and size of the company. A general shareholders meeting of a company whose shares are publicly traded, at which the election of a director is to be considered, will not be held unless the nominee has declared to the company that he or she complies with the above-mentioned requirements, and the details of his or her applicable qualifications are provided, and in case such nominee is an “independent director” as defined in the Companies Law (see below), that such nominee has also declared that he or she complies with the independence criteria under the Companies Law. Each of our elected directors has declared to our board of directors that he or she complies with the required qualifications under the Companies Law for appointment as a member of our board of directors, detailing his or her applicable qualifications, and that he or she is capable of dedicating the appropriate amount of time for the performance of his or her role as a member of our board of directors.
Alternate Directors
Our Amended and Restated Articles of Association provide that any director, other than the external directors, may, by written notice to us, appoint another person, who is not a director, to serve as an alternate director, subject to the approval of the chairman of the board. In the case of an appointment made by the chairman, such appointment shall be valid unless objected to by the majority of other directors. The term of appointment of an alternate director is unlimited in time and scope unless otherwise specified in the appointment notice, or until notice is given of the termination of the appointment. No director currently has appointed any other person as an alternate director. The Companies Law stipulates that a person who serves as a director may not serve as an alternate director and that external director may not appoint alternate director, except under very limited circumstances. An alternate director has the same responsibility as a director, and shall possess all the required qualifications to serve as a director.
Adoption of Companies Regulation Leniency with Respect to Composition of Board of Directors
On August 18, 2016, our Board resolved to adopt the corporate governance structure set forth in Regulation 5D of the Israeli Companies Regulations (Relief for Public Companies with Shares Listed for Trading on a Stock Market Outside of Israel), 5760-2000. In accordance with such Regulation, a public company with securities listed on certain foreign exchanges, including NASDAQ, that satisfies the applicable foreign country laws and regulations that apply to companies organized in that country relating to the appointment of independent directors and composition of audit and compensation committees have noare exempt from the composition requirements set forth in the Israeli Companies Law.
In accordance with such resolution, for so long as the Company does not have a controlling shareholder as defined in the Companies Law, the Company shall comply with the NASDAQ Listing Rules in connection with the number of independent directors on the Board, and the composition of each of the Audit Committee and the Compensation Committee, in lieu of such requirements set forth under the Israeli Companies Law.
As a result of the Board’s resolution, Mrs. Elina Frenkel Ronen will continue to serve as director until the next annual general meeting in 2017 and Mr. Zvi Tropp has been elected to serve as director by our Board of directors after completing his 3-year term and 12 years tenure as an external director in our Company.
Under the NasdaqNASDAQ rules, a majority of our directors are required to be “independent directors” as defined in Nasdaq’sNASDAQ’s rules. The current composition of our board of directors consists of a majority of independent directors, who have been designated as such by the audit committee.
Board Committees
Our board of directors has established an audit committee and a compensation committee, as described below:
Audit committee
Due to recent amendments to Israel legislation, as mention above, “dual listed” companies are not required to comply with the Companies law requirement regarding the Audit committee composition, subject to full compliance with SEC and Nasdaq requirement.
The responsibilities of the audit committee include identifying and examining flaws in the business management of the company and suggesting appropriate course of actions, recommending approval of interested party transactions, assessing the company’s internal audit system and the performance of its internal auditor.
Our audit committee is comprised of four members, all of whom meet all requisite independence and other professional requirements. Our audit committee operates in accordance with a charter. Within the framework of such governing documents, the audit committee oversees the appointment, compensation, and oversight of the public accounting firm engaged to prepare or issue an audit report on our consolidated financial statements. The audit committee’s specific responsibilities in carrying out its oversight role include the approval of all audits and permitted non-audit services to be provided by the external auditor.
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Our audit committee is also authorized to act as our “qualified legal compliance committee”. As such, our audit committee will be responsible for investigating reports, made by attorneys appearing and practicing before the SEC in representing us, of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar material violations of U.S. law by us or any of our agents. Under NasdaqNASDAQ rules, the approval of the audit committee is also required to effect related-party transactions that would be required to be disclosed in our annual report.
NasdaqNASDAQ rules require that director nominees be selected or recommended for the board’s selection either by a committee comprised solely of independent directors or by a majority of independent directors. For a foreign private issuer, such as our company, NasdaqNASDAQ rules allow foreign private issuers to follow “home country practice”. On September 3, 2015 the board approved the exemption from the requirement to select board nominees by the nomination committee. The compensation of a company’s chief executive officer and other executive officers is required to be approved either by a majority of the independent directors on the board or a committee comprised solely of independent directors.
An “independent director” is defined as an external director or a director who meets the following conditions: (i) satisfies certain conditions for appointment as an external director and the audit committee has determined that such conditions have been met and (ii) has not served as a director of the company for more than nine consecutive years, with any interruption of up to two years in service not being deemed a disruption in the continuity of such service Or for a “dual listed” company like us and independent director may be considered as such through compliance with Nasdaq requirements.
Our audit committee has the authority to retain independent legal, accounting or other consultants as advisors, for which we will provide funding, and handle complaints relating to accounting, internal accounting controls or auditing matters.
The members of our audit committee are Zvi Tropp, Elina Frenkel Ronen,Alon Bachar, Nitzan Gozlan and Nadav Livni and Alon Bachar.Livni.
Compensation Committee
Due to recent amendments to Israeli legislation, as mentiondmentioned above, “dual listed” companies that: (i) has no Controlling (as such term is defined under the Companies Law) shareholder; and (ii) are in compliance with SEC and Nasdaq requirements regarding nomination of independent directors and regarding the composition of the audit committee and compensation committee); are exempt, inter alia, from the requirement to comply with the Companies law provisions regarding the compensation committee composition.
Under the Companies Law, the role of the compensation committee is to recommend to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders prior to approval by the board of directors, and to resolve whether to exempt the compensation terms of a candidate for chief executive officer from shareholder approval. The members of our compensation committee are Zvi Tropp,Nitzan Gozlan, Boaz Lifschitz and Elina Frenkel Ronen.Alon Bachar.
Financial Statements Review Committee
Pursuant to the Israeli Companies Regulations the financial reports of a public company such as our company may be brought for discussion and approval of the board only after such committee has discussed and formulated recommendations to the board in connection with: (1) the valuations and estimates used in connection with the consolidated financial statements; (2) the internal controls related to financial reporting; (3) the completeness and appropriateness of disclosure in the consolidated financial statements; (4) the accounting policy adopted and accounting treatment applied in the material matters of the company; and (5) valuations, including the assumptions and estimates underlying them, on which data in the consolidated financial statements is provided. The Financial Statements Review Committee must consist of at least three members, the chairperson of the committee must be an independent Director, and the majority of its members must be directors who meet certain independence requirements of the Companies Law, and, among other criteria, all of its members must be able to read and understand financial statements, with at least one of the members having “financial and accounting expertise” (as defined above).
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Pursuant to the Companies Regulations, the audit committee may serve as the Financial Statements Review Committee subject to fulfillment of the aforementioned conditions.
Internal Auditor
Under the Companies Law, our board of directors is required to appoint an internal auditor proposed by the audit committee. The role of the internal auditor is to examine, among other things, whether our actions comply with the law and proper business procedure. The internal auditor may not be an interested party, an office holder, or a relative of any of the foregoing, nor may the internal auditor be our independent accountant or its representative. The Companies Law defines the term “interested party” to include a person who holds 5% or more of our outstanding share capital or voting rights, has the right to appoint one or more directors or the general manager or who serves as a director or as the general manager. Our internal auditor is Mr. Daniel Shapira, a Certified Public Accountant in Israel.
For information on the duties of directors, officers and shareholders and requirements for the approval of related-party transactions, please see Item 10.B"Item 10B - “MemorandumMemorandum and Articles of Association and General Provisions of Israeli Law.”Association".
D. | EMPLOYEES |
As of March 31, 2018, we employed or contracted 5 persons as employees, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2018, PC had 11 employees and consultants in the Netherlands, Greece and India.
As of March 31, 2017, we employed or contracted 7 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2017, PC had 61 employees, consultants and part time employees in the Netherlands, CEE, Greece and India. As of March 31, 2017, our Hotel division had 402 employees.
As of March 31, 2016, we employed or contracted 9 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2016, PC had 83 employees, consultants and part time employees in the Netherlands, CEE, Greece and India. As of March 31, 2016, our Hotel division had 420 employees.
As of March 31, 2015, we employed or contracted 26 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2015, PC had 120 employees, consultants and part time employees in the Netherlands, CEE, Greece and India. As of March 31, 2015, our Hotel division had 509 employees.
We are not party to any collective bargaining agreement with our employees or with any labor organization.
E. | SHARE OWNERSHIP |
None of our officers and/or directors beneficially own at least 1% of the Company’s share capital.
Incentive Plan for the Chairman of our Board, Mr. Ron Hadassi
As part of the compensation plan for the Chairman of our Board, Mr. Ron Hadassi, approved at our General Meeting held in October 2016 (the “Chairman’s“Chairman’s Incentive Plans”Plans”), Mr. Hadassi was granted options exercisable in to 38,445 ordinary shares, no par value, of the Company, constituting approximately 0.4% of our issued and outstanding share capital on a fully diluted basis. In addition MrMr. Hadassi has been granted with 12,298,913 options convertible into maximum 6,149,456 shares of Elbit Medical constituting approximately 0.33% of our issued and outstanding share capital on a fully diluted basis.
2011 Employees and Officers Incentive Plan for Elbit Medical Technologies Ltd.’s Shares
In April 2011, our board of directors adopted the Elbit Employees and Officers Incentive Plan for Elbit Medical Technologies Ltd.’s shares (the “2011 Plan”“2011 Plan”) for the grant of up to 158,637,00019,829,625 options exercisable into 79,443,5009,930,437 ordinary shares of Elbit Medical for an exercise price of NIS 0.40. The exercise price of each option will be reduced upon distribution of dividends, stock dividends etc. The exercise mechanism of the options into Elbit Medical’s shares will be as follows: at the exercise date the Company shall transfer to each exercising option holder shares of Elbit Medical (owned by the Company) equal to the difference between (A) the price of Elbit Medical’s shares on the TASE on the exercise date, provided that if such price exceeds 100% of the exercise price, the opening price shall be set as 100% of the exercise price (the “Capped“Capped Exercise Price”Price”); less (B) the exercise price of the options; and the result (A minus B) will be divided by the Capped Exercise Price. In November 2012, our board of directors adopted an amendment to the 2011 Plan increasing the number of options issuable from 158,637,00019,829,625 to 187,708,00023,463,500 and resolved to grant an additional 29,071,0003,633,875 options to employees and officer of the Company. Further, the Board had decided to amend the exercise price per share to NIS 0.133 and extend the expiration date of such options to November 29, 2017 in respect of employees and officers who served at Elbit Group at that time.
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In September 2014, we granted an additional 14,400,0001,800,000 options to past and present officers of Elbit Medical with an exercise price of NIS 0.115 per share.
In March 2016, we granted an additional 10,000,0001,250,000 options to the new appointed chief financial officer of Elbit Medical at a price of NIS 0.10 per share.
In October 2016, we granted an additional 12,298,9131,537,364 options to our chairman of the Board with an exercise price of NIS 0.106 per share .In March 2017 our board of directors has approved a grant of additional 500,00062,500 options to an employee of the company and decided to extend the terms of the option to December 31, 2018 for the Company’s officers and June 30, 2019 for the company’s employees who served at Elbit at that time
As of March 31, 2017, 224,906,912 options were granted to our employees and officers. As of March 31, 2017, 150,342,4742018, 2,821,455 options were outstanding under the 2011 Plan of which 127,543,835 were vested.
All options under the 2011 Employees Stock Option plan has expired.
PC Share Option Scheme, as amended
PC’s Option Plan, as amended in August 2007, November 2008 and November 2011 (“PC’s First Option Plan”Plan”) provides for the grant of up to 338,385 options to employees, directors, officers and other persons who provide services to PC, including our employees for no consideration. In November 2012 the number of options to be granted was increased by 14,000,000 additional options.(“options (“PC’s Second Option Plan”Plan”). The exercise price per option is the average closing price of PC’s shares traded on the London Stock Exchange (“LSE”LSE”) during the fifteen-day period prior to the date of grant.
Under the terms of both of PC’s Option Plans, options vest over a period of three years, such that 33.33% of the options granted become exercisable on each of the first, second and third anniversaries of the date of grant.
Upon the occurrence of an event of change of control in PC (as defined in PC’s Option Plan), the vesting of all the outstanding options granted by PC that were not exercised or did not expire by such date, shall be fully accelerated.
As of March 31, 2017, 235,5202018, 253,520 options to purchase ordinary shares were outstanding under PC’s Option Plan of which 235,520253,520 options were vested.
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. | MAJOR SHAREHOLDERS |
We had 9,190,808 ordinary shares outstanding as of October 25, 2017.April 26, 2018. The voting rights of all shareholders are the same. The following table sets forth certain information as of July 25, 2017,April 26, 2018, unless stated otherwise, concerning (i) persons or entities who, to our knowledge, beneficially own more than 5% of our outstanding ordinary shares and (ii) the number of our ordinary shares beneficially owned by all of our directors and officers as a group:
Name and Address | Number of Shares Beneficially Owned | Approximate Percentage of Shares | Number of Shares Beneficially Owned | Approximate Percentage of Shares | ||||||||
York Capital Management Global Advisers LLC and/or certain funds and/or accounts managed by it or its affiliates(1) | 1,802,428 | 19.6% | 1,802,428 | 19.6 | % | |||||||
Davidson Kempner Capital Management LP and/or certain funds and/or accounts managed by it or its affiliates(2) | 1,313,180 | 14.3% | 1,314,528 | 14.3 | % | |||||||
All of our officers and directors as a group.(3) | 12,815 | 0.14% | 12,815 | 0.14 | % |
(1) | Based on |
(2) | Based on information |
(3) | Taking into account options that are vested. |
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York Capital Management Global Advisers LLC and Davidson Kempner Capital Management LLC, together with their respective affiliates, are holders of the Notes and PC Notes. For further detail, see note 18D to our annual consolidated financial statements incorporated herein by reference.
B. | RELATED PARTY TRANSACTIONS |
Repayment of Elbit Medical debt to the Company
On March 9, 2018, we announced that following Elbit Medical’s public offering of a new series of notes, Elbit Medical had transferred approximately NIS 151 million (approximately $ 43.7 million) to the Company as an early repayment on account of its debt to the Company. The balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS 2 million (approximately $ 580 thousand) was converted into approximately NIS 2 million of par value notes from the new series.
York’s investment in InSightec Series E Investment Agreement
See "Item 4B – Business Overview – Medical Companies – InSightec – Preferred stock investment round E."
InSightec Amendment to Series D Investment Agreement
In June 2014, InSightec has entered into a Series D Preferred Share Purchase agreement with York Global Finance II S.à r.l. (an affiliate of York Capital Management which is a related party of the Company) (“York”) and other investors for an investment of up to USD 62.5 Mmillion in series D preferred shares of InSightec which than constitutes approx.approximately 25% of InSightec’s issued and outstanding share capital on a fully diluted basis. By the end of May 2015 the entire amount was invested.(“invested (“Series D Preferred Share Purchase Agreement “).On“) ..On December 31, 2015, InSightec and some of its existing and new shareholders signed and executed an amendment to the Series D Preferred Share Purchase Agreement, as amended from time to time (the “Amendment“Amendment to the Share Purchase Agreement”Agreement”), under which InsightecInSightec completed an investment of $22 million in consideration for approximately 7.3% of InSightec’s outstanding share capital, on a fully diluted basis. The terms and conditions of the investment arewere the same as in the original Series D Preferred Share Purchase Agreement, based on the same pre-money valuation and subject to certain adjustments. For more information see “Item 4A – History and Development of the Company – Recent Events – InSightec Series D Share Purchase Agreement”.InSightec.
Joint venture agreement with PC Debt Restructuring
As detailed in Item 5 “Operating and Financial Review and Prospects”, on June 23, 2014, subject to the application of certain conditions precedent, we undertook to exercise (or procure that other persons will exercise) all of our rights in PC’s offering of shares and to procure subscriptions for any unexercised portion of such offering. In relation to the above, we entered into a back-stop agreement with BLML (an affiliate of our shareholder Davidson Kempner Capital Management LP), pursuant to which BLML agreed to purchase under the offering up to €10 million of shares of PC, subject to similar conditions precedent. On December 19, 2014, PC announced that it had successfully completed the Rights Offering, and we announced that our wholly owned subsidiary had purchased 122,847,376 new ordinary shares of PC under the Rights Offering for an aggregate amount of approximately €8.3 million and procured that BLML will purchase 163,803,197 new ordinary shares of PC for an additional amount of €11.05 million.
Joint venture agreement with PC
As detailed in Item 4B. “Business Overview”,4B – Business Overview, in August 2008 we entered into the EPI Agreement with PC, under which, amongst other things, PC was allotted 47.5% of the EPI.EPI share capital. EPI is holding two plots in India (in Bangalore and Chennai) in conjunction with local Indian partners and has engaged with certain third parties with respect of the Kochi Island project. As of the date of the execution of the EPI Agreement through the date of this annual report, the Kochi Island project was held through a special purchasepurpose vehicle other than EPI. We agreed that 50% of our rights in the Kochi Island project will be held in favor of PC, and we undertook and guaranteed to transfer the holdings in the Kochi project to EPI or 50% to PC within 12 months following the execution of the EPI Agreement, or alternatively to repay the consideration paid by PC for the rights in the project. This undertaking and guarantee have since been extended until August 25, 2013. On November 11, 2013, PC notified us of its demand that we repay the amount paid by PC for the Kochi Island project together with the interest accumulated thereupon, amounting to approximately €4.3 million (US$ 5.2 million) due to alleged failure to timely meet certain conditions set forth in the EPI Agreement. Following the approval of the Audit committee of PC and us we agreed that we will have the full rights in the Kochi Project and the amount outstanding from the Company to PC will be repaid in installments as scheduled in the agreement. As of the filing of this annual report the total amount outstanding under this loan is approximately €2.7million.€2.7 million.
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Relationship Agreement with PC
On October 27, 2006, we entered into an agreement with PC pursuant to which we undertook, as long as we hold at least 30% of the issued share capital of PC, that neither we nor any person connected with us will compete with the business of PC related to the development of commercial and entertainment centers in Central and Eastern Europe or India or the development of the Dream Island or Casa Radio projects. The Relationship Agreement terminates in the event that PC’s issued shareshares capital ceases to be admitted to the main market of the London Stock Exchange. In the framework of the Amended PC Plan we were required by the UK Listing Authority to enter into an amended and restated relationship agreement on basically the same terms, with minor adjustments due to regulatory changes not affecting the essence of the agreement.
Guarantee Agreement with PC
On October 27, 2006, PC agreed, with effect from January 1, 2006, to pay a commission to us in respect of any and all outstanding corporate and first demand guarantees which have been issued by us in favor of PC and which remain valid and outstanding (“EI Guarantees”Guarantees”). The amount of the commissions to be paid will be agreed upon between us and PC at the beginning of each fiscal year, and will apply to all EI Guarantees which remain outstanding during the course of that relevant fiscal year, subject to a cap of 0.5% of the amount or value of the relevant EI Guarantee, per annum. During 20162017, no guarantees were provided by us to PC.
Indemnification, Insurance and Exemption
For information regarding the grant of insurance, exemption and indemnification to our directors and officers, by us or our subsidiaries, see “Item 10.B."Item 10B – Memorandum and Articles of Association and General Provisions of Israeli Law -– Insurance, Indemnification and Exemption” below..
Inter-company Loans and Guarantees
From time to time we invest in our subsidiaries and jointly controlled companies, by way of equity or capital investments, or otherwise provide loans or guarantees to such companies, in order to finance their operations and businesses. All such investments are eliminated in our consolidated financial statements. Details as to material guarantees are provided in “Item 5.B.Item 5B – Operating and Financial Review and Prospects – Liquidity and Capital Resources - Loans”– “Loans” above.
Under the terms of a management agreement with Elbit Medical, we provide services of chairman of the board (20% working time) and chief executive officer and chief financial officer (each 50% working time) for a monthly payment of NIS 67,000 per month. The management agreement was approved by Elbit's audit committee, board of directors and shareholders and is in effect until November 9, 2020.
For amounts paid under our related party transactions, see note 27C to our annual consolidated financial statements incorporated herein by reference.
ITEM 8. | FINANCIAL INFORMATION |
A. | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION |
Legal Proceedings [update based on financial statements
For information regarding the legal proceeding we are involved in, see “Item 4.A"Item 4 – Information on the Company – History and Development of the Company – Recent Events”Events, and note 13B to our annual consolidated financial statements.statements".
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Dividend Distribution Policy
To date, we do not have a dividend distribution policy. Consequentially, our Board may issue dividends at its sole discretion.
It should be noted that under Bank Hapoalim refinancing agreement and the terms of the Series H and Series I notes certain limitations were imposed on the distribution of dividends prior to the redemption of such debt.
B. | SIGNIFICANT CHANGES |
There are no significant changes that have occurred since December 31, 2015, except as otherwise disclosed in this annual report and in our annual consolidated financial statements.
ITEM 9. | THE OFFER AND LISTING |
A. | OFFER AND LISTING DETAILS |
Our ordinary shares are listed on the NASDAQ Global Select Market under the symbol “EMITF” and on the TASE under the symbol “EMIT.” As stated in the Special Explanatory Note to this Annual Report, share and share price information have been adjusted to reflect the 1-for-20 reverse share split effected by us on August 21, 2014.
Information regarding the price history of the stock listed
The annual high and low sale prices for our ordinary shares for the five most recent full financial years are:
NASDAQ | TASE | NASDAQ | TASE | |||||||||||||||||||||||||||||
Year Ended December 31, | High ($) | Low ($) | High ($) | Low ($) | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||||||||||||||
2017 | 3.63 | 2.22 | 3.6 | 2.16 | ||||||||||||||||||||||||||||
2016 | 4.01 | 2.00 | 4.18 | 1.88 | 4.01 | 2 | 4.18 | 1.88 | ||||||||||||||||||||||||
2015 | 2.14 | 0.65 | 2.09 | 0.64 | 2.14 | 0.65 | 2.09 | 0.64 | ||||||||||||||||||||||||
2014 | 26.4 | 1.25 | 26.48 | 1.21 | 26.4 | 1.25 | 26.48 | 1.21 | ||||||||||||||||||||||||
2013 | 70 | 13.8 | 68.2 | 14.6 | 70 | 13.8 | 68.2 | 14.6 | ||||||||||||||||||||||||
2012 | 66.4 | 36 | 64.6 | 34.8 |
The quarterly high and low sale prices for our ordinary shares for the two most recent full financial years and any subsequent period are:
NASDAQ | TASE | |||||||||||||||
Financial Quarter | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||
2017 | ||||||||||||||||
Q1 | 3.63 | 3.23 | 3.60 | 3.21 | ||||||||||||
Q2 | 3.54 | 2.83 | 3.44 | 2.75 | ||||||||||||
Q3 | 3.20 | 2.77 | 3.12 | 2.75 | ||||||||||||
Q4 (through 7, 2017) | 2.80 | 2.45 | 2.747 | 2.373 | ||||||||||||
2016 | ||||||||||||||||
Q1 | 3.00 | 2.00 | 2.76 | 1.88 | ||||||||||||
Q2 | 2.85 | 2.33 | 2.65 | 2.28 | ||||||||||||
Q3 | 4.01 | 2.31 | 4.18 | 2.28 | ||||||||||||
Q4 | 3.96 | 3.39 | 3.83 | 3.37 | ||||||||||||
2015 | ||||||||||||||||
Q1 | 2.14 | 1.29 | 2.09 | 1.30 | ||||||||||||
Q2 | 1.90 | 1.24 | 1.86 | 1.21 | ||||||||||||
Q3 | 1.40 | 1.18 | 1.36 | 1.15 | ||||||||||||
Q4 | 1.36 | 0.65 | 1.31 | 0.64 | ||||||||||||
NASDAQ | TASE | |||||||||||||||
Financial Quarter | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||
2018 | ||||||||||||||||
Q1 | 3.04 | 2.70 | 2.92 | 2.64 | ||||||||||||
Q2 (through April 23, 2018) | 2.75 | 2.69 | 2.66 | 2.65 | ||||||||||||
2017 | ||||||||||||||||
Q1 | 3.63 | 3.23 | 3.60 | 3.27 | ||||||||||||
Q2 | 3.54 | 2.83 | 3.44 | 2.75 | ||||||||||||
Q3 | 3.20 | 2.77 | 3.12 | 2.75 | ||||||||||||
Q4 | 2.90 | 2.22 | 2.93 | 2.16 | ||||||||||||
2016 | ||||||||||||||||
Q1 | 3.00 | 2.00 | 2.76 | 1.88 | ||||||||||||
Q2 | 2.85 | 2.33 | 2.65 | 2.28 | ||||||||||||
Q3 | 4.01 | 2.31 | 4.18 | 2.28 | ||||||||||||
Q4 | 3.96 | 3.39 | 3.83 | 3.37 |
The monthly high and low sale prices for our ordinary shares during the past six months were:
NASDAQ | TASE | |||||||||||||||
Month | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||
November 2017 (through 7) | 2.480 | 2.450 | 2.437 | 2.373 | ||||||||||||
October 2017 | 2.80 | 2.47 | 2.75 | 2.43 | ||||||||||||
September 2017 | 2.94 | 2.78 | 2.84 | 2.75 | ||||||||||||
August 2017 | 2.97 | 2.82 | 2.94 | 2.75 | ||||||||||||
July 2017 | 3.20 | 2.86 | 3.12 | 2.82 | ||||||||||||
June 2017 | 3.42 | 2.83 | 3.18 | 2.75 | ||||||||||||
May 2017 | 3.50 | 3.11 | 3.40 | 3.10 | ||||||||||||
April 2017 | 3.54 | 3.37 | 3.44 | 3.32 |
NASDAQ | TASE | |||||||||||||||
Month | High ($) | Low ($) | High ($) | Low ($) | ||||||||||||
April 2018 (through April 23) | ||||||||||||||||
March 2018 | 2.80 | 2.75 | 2.76 | 2.67 | ||||||||||||
February 2018 | 2.85 | 2.70 | 2.83 | 2.64 | ||||||||||||
January 2018 | 3.04 | 2.78 | 2.92 | 2.72 | ||||||||||||
December 2017 | 2.90 | 2.30 | 2.93 | 2.27 | ||||||||||||
November 2017 | 2.48 | 2.22 | 2.44 | 2.16 | ||||||||||||
October 2017 | 2.80 | 2.47 | 2.75 | 2.43 |
The closing prices of our ordinary shares listed on the TASE for each of the periods referred to in the tables above were originally denominated in NIS and were converted to U.S. dollars using the representative exchange rate between the U.S. dollar and the NIS published by the Bank of Israel for each applicable day in the presented period.
B. | PLAN OF DISTRIBUTION |
Not applicable.
C. | MARKETS |
Since our initial public offering in November 1996, our ordinary shares have been listed on the NASDAQ Global Select Market (then known as the NASDAQ National Market) under the symbol “EMITF” and on the TASE under the symbol “EMIT.”
D. | SELLING SHAREHOLDERS |
Not applicable.
E. | DILUTION |
Not applicable.
F. | EXPENSES OF THE ISSUE |
Not applicable.
ITEM 10. | ADDITIONAL INFORMATION |
A. | SHARE CAPITAL |
Not applicable.
B. | MEMORANDUM AND ARTICLES OF ASSOCIATION |
Purposes and Objects of the Company
We are a public company registered under the Companies Law as Elbit Imaging Ltd., registration number 52-004303-5.
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Pursuant to Section 2 of our Amended and Restated Memorandum of Association, we are authorized to operate in any business or matter for profit purposes as shall be determined or defined by our board of directors from time to time. In addition, our Amended and Restated Articles of Association authorize us to donate reasonable amounts to any cause we deem worthy.
Approval of Certain Transactions
The Companies Law imposes approval requirements for the compensation of office holders. Every Israeli public company is required to adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders. The shareholder approval requires a special majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described in the following paragraph regarding transactions with a controlling shareholder). In general, all office holders’ terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company’s compensation policy. In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder must be approved separately by the compensation committee, the board of directors and the shareholders of the company (part of them, by a special majority noted above). The compensation terms of other officers require the approval of the compensation committee and the board of directors. In addition, under the Companies Law and our Amended and Restated Articles of Association, transactions with our officers or directors or a transaction with another person in which such officer or director has a personal interest must be approved by our audit committee, board of directors or authorized non-interested signatories, and if such transaction is considered an extraordinary transaction (as defined below) or involves the engagement terms of officers, the transaction must be approved by the audit committee and board of directors. Our Compensation Committee and Board adopted a compensation policy, which our shareholders subsequently approved at the annual general meeting of our shareholders held on August 14, 2014, and amended compensation policy at the extraordinary general meeting of our shareholders held on March 31, 2016 and at the annual general meeting of our shareholders held on October 13, 2016.
The compensation policy must serve as the basis for decisions concerning the financial terms of employment or engagement of office holders, including compensation, benefits, exculpation, insurance and indemnification. The compensation policy must take into account certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate incentives. It must also consider, among other things, the company’s risk management, size and the nature of its operations. The compensation policy must include certain principles, such as: a link between variable compensation and long-term performance and measurable criteria; the relationship between variable and fixed compensation; and the minimum holding or vesting period for variable, equity-based compensation. We believe that our Amended Compensation Policy satisfies these requirements.
The Companies Law also requires that any extraordinary transaction with a controlling shareholder or an extraordinary transaction with another person in which a controlling shareholder has a personal interest must be approved by the audit committee, the board of directors and the shareholders of the company, in that order. The shareholder approval must be by a simple majority, provided that (i) such majority vote includes at least a simple majority of the total votes of shareholders having no personal interest in the transaction or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total voting rights in the company. In addition, any such extraordinary transaction whose term is longer than three years requires further shareholder approval every three years, unless (with respect to transactions not involving management fees or employment terms) the audit committee approves that a longer term is reasonable under the circumstances.
The Companies Law prohibits any person who has a personal interest in a matter from participating in the discussion and voting pertaining to such matter in the company’s board of directors or audit committee except for in circumstances where the majority of the board of directors has a personal interest in the matter, in which case such matter must be approved by the company’s shareholders.
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An “extraordinary transaction” is defined in the Companies Law as any of the following: (i) a transaction not in the ordinary course of business; (ii) a transaction that is not on market terms; or (iii) a transaction that is likely to have a material impact on the company’s profitability, assets or liability.
Under the Companies Law, a private placement of securities requires approval by the board of directors and the shareholders of the company if it will cause a person to become a controlling shareholder or if:
● | the securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance; |
● | some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and |
● | the transaction will increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights. |
Fiduciary Duties of Directors and Officers
The Companies Law imposes a duty of care and a duty of loyalty on the directors and officers of a company. The duty of care requires a director or office holder to act with the level of care with which a reasonable director or officer in the same position would have acted under the same circumstances. It includes a duty to use reasonable means to obtain information on the advisability of a given action brought for his approval or performed by him by virtue of his position and all other important information pertaining to these actions.
The duty of loyalty of a director or officer includes a general duty to act in good faith for the benefit of the company, and particularly to:
● | refrain from any conflict of interest between the performance of his duties for the company and the performance of his other duties or his personal affairs |
● | refrain from any activity that is competitive with the company; |
● | refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and |
● | Disclose to the company any information or documents relating to a company’s affairs which the director or officer has received due to his position as such. |
The Companies Law requires that directors, officers or a controlling shareholder of a public company disclose to the company any personal interest that he or she may have, including all related material facts or documents in connection with any existing or proposed transaction by the company. The disclosure must be made without delay and no later than the first board of directors meeting at which the transaction is first discussed.
Duties of a Shareholder
Under the Companies Law, a shareholder, in exercising his rights and fulfilling his obligations to the company and the other shareholders, must act in good faith and in a customary manner and refrain from improperly exploiting his power in the company, including when voting at general meetings of shareholders on: (a) any amendment to the articles of association; (b) an increase of the company’s authorized share capital; (c) a merger; or (d) the approval of related party transactions. In addition, a shareholder must refrain from prejudicing the rights of other shareholders. Furthermore, any controlling shareholder and any shareholder who knows that he possesses power to determine the outcome of the shareholders’ vote at a general meeting, is subject to a duty to act in fairness towards the company. The Companies Law does not detail the substance of this duty.
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Board of Directors
In accordance with our Amended and Restated Articles of Association, the board of directors may, from time to time, in its discretion, cause us to borrow or secure the payment of any sum or sums of money for the purposes of the Company and may cause us to secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it deems fit, and in particular by the issuance of notes, perpetual or redeemable notes, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of our property (both present and future), including its uncalled or called but unpaid share capital for the time being.
Neither our Amended and Restated Memorandum of Association nor our Amended and Restated Articles of Association, nor the laws of the State of Israel require retirement of directors at a certain age or share ownership for director qualification, nor do any of them contain any restriction on the board of directors’ borrowing powers.
Insurance, Indemnification and Exemption
General- our Amended and Restated Articles of Association set forth the following provisions regarding the grant of exemption, insurance and indemnification to any of our directors or officers, all subject to the provisions of the Companies Law. In accordance with such provisions and pursuant to the requisite approvals of our compensation committee, board of directors and shareholders, we have obtained liability insurance covering our directors and officers, have granted indemnification undertakings to our directors and officers and have agreed to exempt our directors and officers (other than our Executive Chairman) from liability for breach of the duty of care. PC, InSightec and Gamida have also granted indemnification undertakings to their respective directors and officers.
Insurance- we may insure the liability of any director or officer to the fullest extent permitted by law. Without derogating from the aforesaid, we may enter into a contract to insure the liability of a director or officer for an obligation imposed on him in consequence of an act done in his capacity as such, in any of the following cases:
(i) | A breach of the duty of carevis-a-vis us orvis-a-vis another person; | |
(ii) | A breach of the duty of loyaltyvis-a-vis us, provided that the director or officer acted in good faith and had reasonable basis to believe that the act would not harm us; | |
(iii) | A monetary obligation imposed on him in favor of another person; |
(iv) | Reasonable litigation expenses, including attorney fees, incurred by the director or officer as a result of an administrative enforcement proceeding instituted against him. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the director or officer in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968, as amended (the |
(v) | Any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of our directors or officers. |
Indemnification
We may indemnify a director or officer to the fullest extent permitted by law, either retroactively or pursuant to an undertaking given in advance. Without derogating from the aforesaid, we may indemnify our directors or officers for liability or expense imposed on him in consequence of an action taken by him in his capacity as such, as follows:
(i) | Any financial liability he incurs or imposed on him in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by a court, provided that any undertaking to indemnify be restricted to events that, in the opinion of the board of directors, are anticipated in light of our actual activity at the time of granting the undertaking to indemnify and be limited to a sum or measurement determined by the board of directors to be reasonable under the circumstances; |
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(ii) | Reasonable litigation expenses, including legal fees, incurred by the director or officer or which he was ordered to pay by a court, within the framework of proceedings filed against him by or on behalf of us, or by a third party, or in a criminal proceeding in which he was acquitted, or in a criminal proceeding in which he was convicted of a felony which does not require a criminal intent; and |
(iii) | Reasonable litigation expenses, including legal fees he incurs due to an investigation or proceeding conducted against him by an authority authorized to conduct such an investigation or proceeding, and which was ended without filing an indictment against him and without being subject to a financial obligation as a substitute for a criminal proceeding, or that was ended without filing an indictment against him, but with the imposition of a financial obligation, as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms in the Companies Law or in connection with an administrative enforcement proceeding or a financial sanction. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the director or officer in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law, and expenses that the director or officer incurred in connection with a proceeding under Chapters H’3, H’4 or I’1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees. |
The aggregate indemnification amount payable by us pursuant to indemnification undertakings may not exceed the lower of (i) 25% of our shareholders’ equity as of the date of actual payment by us of the indemnification amount (as set forth in our most recent consolidated financial statements prior to such payment) and (ii) $40 million, in excess of any amounts paid (if paid) by insurance companies pursuant to insurance policies maintained by us, with respect to matters covered by such indemnification.
Exemption- we may exempt a director or officer in advance or retroactively for all or any of his liability for damage in consequence of a breach of the duty of carevis-a-vis us, to the fullest extent permitted by law.
Prohibition on the grant of exemption, insurance and indemnification - The Companies Law provides that a company may not give insurance, indemnification nor exempt its directors or officers from liability in the following events:
(i) | a breach of the duty of loyalty to the company, unless, with respect to insurance coverage or indemnification, the director or officer acted in good faith and had a reasonable basis to believe that the act would not harm us; |
(ii) | an intentional or reckless breach of the duty of care; |
(iii) | an act done with the intention of unduly deriving a personal profit; or |
(iv) | A fine imposed on the officer or director. |
Rights Attached to Shares
Our registered share capital consists of a single class of 11,666,667 ordinary shares, of no par value, of which 9,190,808 ordinary shares were issued and outstanding as of October 25, 2017.April 27, 2018.
Dividend and Liquidation Rights
Our board of directors may declare a dividend to be paid to the holders of ordinary shares on a pro rata basis. Dividends may only be paid out of our profits and other surplus funds, as defined in the Companies Law, as of our most recent financial statement or as accrued over the past two years, whichever is higher, or, in the absence of such profits or surplus, with court approval. In any event, a dividend is permitted only if there is no reasonable concern that the payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro rata basis. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future, subject to applicable law. For information on our dividend policy, see “Item 8.A."Item 8A – Financial Information – Consolidated Statements and Other Financial Information -– Dividend Distribution Policy.”
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Voting Rights
Holders of ordinary shares have one vote for each ordinary share held by them on all matters submitted to a vote of the shareholders. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least 33.33% of the issued voting share capital. In the event that a quorum is not present within half an hour of the scheduled time, the meeting shall be adjourned to the same day of the following week, at the same time and place, or to such other day, time and place as the board of directors shall determine by notice to the shareholders. If at such adjourned meeting a quorum is not present within half an hour of the scheduled time, the two members present in person or by proxy will constitute a quorum.
Annual and Special Meetings
In accordance with the Companies Law, the board of directors must convene an annual meeting of shareholders at least once every calendar year and no later than within 15 months from the last annual meeting. Notice of at least 14 days prior to the date of the meeting is required, subject to applicable law, which often requires notice of at least 21 or 35 days. An extraordinary meeting may be convened by the board of directors, either at its discretion or upon a demand of (i) any two directors or 25% of the serving directors; or (ii) one shareholder or more holding in the aggregate at least 5% of our issued capital and at least 1% of the voting rights in the Company or one shareholder or more holding at least 5% of the voting rights in the Company.
Limitations on the Rights to own Securities
Our Amended and Restated Memorandum of Association and Amended and Restated Articles of Association do not restrict in any way the ownership of our shares by non-residents of Israel and neither the Amended and Restated Memorandum of Association, the Amended and Restated Articles of Association or Israeli law restricts the voting rights of non-residents of Israel except that under Israeli law any transfer or issue of our shares to a resident of an enemy state of Israel is prohibited and shall have no effect.
Changes to our Capital
Changes to our capital are subject to the approval of our shareholders by a simple majority.
Anti-Takeover Provisions
The Companies Law prohibits the purchase of our shares if the purchaser’s holding following such purchase increases above certain percentages without conducting a tender offer or obtaining shareholder approval. Our Amended and Restated Articles of Association increased the required amount of such tender offer to at least 10% of our outstanding ordinary shares See “Item 3.D."Item 3D – Risk Factors - Risks Relating to Israel - Provisions– "Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.” above.
Amendment of Articles of Association
Any amendment to our articles of association requires the approval of our shareholders by a simple majority.
Transfer Agent
Our transfer agent in the United States is American Stock Transfer and Trust Company whose address is 6201 15th Avenue, Brooklyn, New York 11219.
C. | MATERIAL CONTRACTS |
The following is a list of material contracts entered into by us or any of our subsidiaries during the two years prior to the filing of this annual report.
SaleIssuance of Belgian Hotelsa new series of convertible notes by Elbit Medical
For discussion about the saleissuance of our hotels in Antwerp Belgium –See “Sourcesa new series of Cash from Major Transactions and Eventsconvertible notes by EI – 2015”
Refinance of Radisson Complex
For a discussion of the refinancing agreement of the Radisson complex see “ItemSee "Item 4 -– Information on the Company – History and Development of the Company – Recent Events – Refinance"Issuance of Hotel in Bucharest”a New Series of Notes by Elbit Medical and Payment of Debt from Elbit Medical to the Company".
Sale of Belgian Hotels
For discussion about the sale of our hotels in Antwerp Belgium –See “Item 5 - Sources of Cash from Major Transactions and Events – 2015.”
Sale of the Radisson Complex
For a discussion of the sale of the Radisson Hotel Complex see "Item 4 – Information on the Company – History and Development of the Company – Recent Events – Sale of our holdings in the Radisson complex in Bucharest, Romania"
Sale of plot in Bangalore, India
For a discussion of sale agreement of our plot in Bangalore (including amendment thereto) see “Item"Item 4 - Information on the Company – History and Development of the Company – Recent Events – Agreement to Sell a Plot in Bangalore, India”.
Acquisition of a loan to control the Liberec Plaza
For a discussion regarding our acquisition of Liberec Plaza, see “Item 5."Item 5 – Operating and financial reviewFinancial Review and prospects -Prospects – 2015”.
Debt repayment agreement and Sale of Zgorzelec Plaza commercial Center
For a discussion regarding debt repayment agreement and the sale of Zgorzelec commercial center see “Item"Item 4 - Information on the Company – History and Development of the Company – Recent Events – Debt repayment agreement and Sale of Zgorzelec Plaza Shopping Commercial Center”.
Acquiring bank loan for PC’s plot in Brasov, Romania
For a discussion regarding aquringacquiring bank loan in Brasov, Romania see “Item"Item 4 - Information on the Company – History and Development of the Company – Recent Events – – Acquiring bank loan for PC’s plot in Brasov, Romania”.
The Debt Restructuring
For a discussion of the Debt Restructuring, see above Item 4.A, under"Item 4 – Information on the Company – History and Development of the Company – Recent Events – “Our Debt Restructuring”.
The Refinancing Agreement
For a discussion of the Refinancing Agreement entered with Bank Hapoalim see “Item 5. Operating and Financial Review and Prospects – Overview - 2014”.
The PC Debt Restructuring
For a discussion of the Amended PC Plan, see above Item 4.A, under “PC Debt Restructuring”.
Medical
For information regarding"Item 4 – Information on the investment in InSightec by York Global Finance II S.à r.l., see “Item 5. Operating and Financial Review and Prospects – Overview - 2015)
For information regarding investment in InSightec by some of its existing shareholders, see “Item 4ACompany – History and Development of the Company – Recent Events – PC Debt Restructuring”.
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\
Issuance of Series I Notes
For a discussion of the our Series I Notes, see above "Item 5 – Operating and Financial Review and Prospects – Liquidity and Capital Resources – Liquidity – Other Loans”.
Medical
For information regarding the investment in InSightec Series D Share Purchase Agreement”by Koch Disruptive Technologies, York Global Finance II S.à r.l., an affiliate of York Capital Management which is a related party of the Company certain other investors see Item 4 - Information on the Company – History and Development of the Company – Recent Events –
“InSightec Equity Round”.
D. | EXCHANGE CONTROLS |
In 1998, the government of Israel promulgated a general permit under the Israeli Currency Control Law, 5738 - 1978. Pursuant to such permit, substantially all transactions in foreign currency are permitted.
Our Amended and Restated Memorandum of Association and Articles of Association do not restrict in any way the ownership of our shares by non-residents, and neither our Amended and Restated Memorandum of Association nor Israeli law restricts the voting rights of non-residents.
E. | TAXATION |
The following is a discussion of certain tax laws that may be material to our shareholders, all as in effect as of the date of this report and all of which are subject to changes, possibly on a retroactive basis, to the extent that such laws are still subject to judicial or administrative interpretation in the future. This discussion is not intended, and should not be construed, as legal or professional tax advice and does not cover all possible tax considerations. For further information as to taxes that apply to us and our subsidiaries, see note 22 to our annual consolidated financial statements.
WE ENCOURAGE EACH INVESTOR TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE ISRAELI, U.S. FEDERAL, STATE, AND LOCAL TAXES.
Taxation in Israel
The following is a summary of the material Israeli tax consequences to purchasers of our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities or the courts. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
Capital Gains Tax on Sales of Our Ordinary Shares
Israeli law generally imposes a capital gains tax on the sale of capital assets by residents of Israel, and by non-residents of Israel if those assets either (i) are located in Israel; (ii) are shares or a right to a share in an Israeli resident company; or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a specific exemption is available or unless a double tax convention concluded between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is equal to the increase in the purchase price of the relevant asset attributable solely to the increase in the Israeli CPI, or a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
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As of January 1, 2012, capital gains derived by Israeli individuals from the sale of shares purchased on or after January 1, 2003, will be taxed at the rate of 25%. However, if the individual shareholder is a “Significant Shareholder” (i.e., a person who holds, directly or indirectly, alone or jointly with others, 10% or more of one of the Israeli resident company’s means of control) at the time of sale or at any time during the preceding 12 month period, such gains will be taxed at the rate of 30%. In addition, capital gains derived by an individual claiming a deduction of financing expenses in respect of such gains will be taxed at the rate of 30%. However, different tax rates may apply to dealers in securities and shareholders who acquired their shares prior to an initial public offering. Israeli companies are subject to the corporate tax rate (26.5% for the 2015 tax year, 25% for the 2016 tax year, 24% for the tax year 2017 and 23% for the 2018 tax year and thereafter) on capital gains derived from the sale of shares.
The tax basis of our shares acquired prior to January 1, 2003, will generally be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003. However, a request may be made to the Israeli tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.
Capital gains derived from the sale of our shares by a non-Israeli shareholder may be exempt under the Israeli Income Tax Ordinance from Israeli taxation provided the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of our shares on the stock exchange, (ii) the seller doesn’t have a permanent establishment in Israel to which the derived capital gains are attributed, and (iii) if the seller is a corporation, (a) 25% or less of its means of control or (b) less than 25% of the beneficial rights to the revenues or profits of such corporation, whether directly or indirectly, are held by Israeli resident shareholders. In addition, the sale of our shares by a non-Israeli shareholder may be exempt from Israeli capital gain tax under an applicable tax treaty.
Pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended, or the U.S.- Israel Tax Treaty, the sale, exchange or disposition of ordinary shares by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty generally will not be subject to Israeli capital gains tax unless (i) either such resident holds, directly or indirectly, shares representing 10% or more of the voting power in the company during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions, or (ii) the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment of the shareholder in Israel. If the above conditions are not met, the sale, exchange or disposition of ordinary shares would be subject to such Israeli capital gains tax to the extent applicable; however, under the U.S.-Israel Tax Treaty, such residents should be permitted to claim a credit for such taxes against U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to state or local taxes.
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source.
At the sale of securities traded on a stock exchange a detailed return, including a computation of the tax due, must be filed and an advanced payment must be paid on January 31 and June 30 of every tax year in respect of sales of securities made within the previous six months. However, if all tax due was withheld at source according to applicable provisions of the Ordinance and regulations promulgated thereunder the aforementioned return need not be filed and no advance payment must be paid. Capital gain is also reportable on the annual income tax return.
Taxation of Dividends Distribution
A distribution of dividends to an Israeli resident individual will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Significant Shareholder at the time of distribution or at any time during the preceding 12 month period. If the recipient of the dividend is an Israeli resident company, such dividend will be exempt from income tax provided that the income from which such dividend is distributed was derived or accrued within Israel. As of January 1, 2014, any distribution of dividends from income attributed to a Preferred Enterprise under the Law for the Encouragement of Capital Investments, 1959 (“Investment Law”Law”) is generally subject to a tax at a rate of 20%. However, if such dividends are distributed to an Israeli company, no tax is imposed. As of January 1, 2014, dividends distributed from income attributed to an Approved Enterprise and/or a Benefited Enterprise under the Investment Law, are subject to a tax rate of 20%. Notwithstanding the above, a reduced 15% tax rate will be applicable if the dividend was distributed out of income of: (i) Approved Enterprise activated prior to 2014; or (ii) Benefited Enterprise with a “Year of Election” prior to 2014.
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Under the Israeli Income Tax Ordinance, a non-Israeli resident (either individual or company) is generally subject to Israeli income tax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a Significant Shareholder), unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. Under the U.S.- Israel Tax Treaty, the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the tax year which precedes the date of payment of the dividend and during the whole of its prior tax year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying company, and not more than 25% of the gross income of the Israeli resident paying company for such prior taxable year (if any) consists of certain type of interest or dividends - the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company’s income generated by an “Approved Enterprise”, which was entitled to a reduced tax rate under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 - the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S. - Israel Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.
We are generally obligated to withhold Israeli tax at the source upon the distribution of a dividend, at the aforementioned rates.
A non-resident of Israel who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the shareholder.
Excess Tax
Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 2% for the tax year 2016 and at a rate of 3% for the tax year 2017 and thereafter on annual income exceeding a certain threshold (approximately NIS 811,000 for 2016 and NIS 640,000 for 2017, which amount is linked to the annual change in the Israeli consumer price index), including, but not limited to income derived from, dividends, interest and capital gains.
U.S. Federal Income Tax Considerations
Subject to the limitations described herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinary shares to a U.S. holder. A U.S. holder is a holder of our ordinary shares who is:
● | an individual citizen or resident of the United States for U.S. federal income tax purposes; |
● | a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any political subdivision thereof or the District of Columbia; |
● | an estate, the income of which may be included in the gross income for U.S. federal income tax purposes regardless of its source; or |
● | a trust (i) if, in general, a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
Unless otherwise specifically indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (a “non-U.S. holder”“non-U.S. holder”) and considers only U.S. holders that will own the ordinary shares as capital assets (generally, for investment).
This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”“Code”), current and proposed Treasury Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect and all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s particular circumstances. In particular, this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers; who have elected mark-to-market accounting; who own, directly, indirectly or constructively, 10% or more of our outstanding voting shares;shares (by vote or value); U.S. holders that received ordinary shares as a result of exercising employee stock options or otherwise as compensation; U.S. holders holding our ordinary shares as part of a hedging, straddle or conversion transaction; U.S. holders whose functional currency is not the U.S. dollar; real estate investments trusts, regulated investment companies, insurance companies, tax-exempt organizations, qualified retirement plan or individual retirement account; financial institutions, grantor trusts, S corporations; certain former citizens or long term residents of the United States; and persons subject to the alternative minimum tax, who may be subject to special rules not discussed below. Additionally, the possible application of U.S. federal estate, or gift taxes or any aspect of state, local or non-U.S. tax laws is not discussed.
If an entity treated as a partnership or other pass-through entity for U.S. Federal income tax purposes holds our ordinary shares, the tax treatment of the entity and an equity owner in such entity will generally depend on the status of the equity owner and the activities of the entity. Such an equity owner or entity should consult its tax advisor as to its consequences.
Each holder of our ordinary shares is advised to consult his or her tax advisor with respect to the specific U.S. federal, state, local and foreign tax consequences to him or her of purchasing, holding or disposing of our ordinary shares.
Distributions
Subject to the discussion below under “Tax Consequences if We are a Passive Foreign Investment Company,” a distribution paid by us with respect to our ordinary shares to a U.S. holder will be treated as dividend income to the extent that the distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution with respect to our ordinary shares will equal the amount of cash and the fair market value of any property distributed and will also include the amount of any non-U.S. taxes withheld from such distribution. Dividends that are received by U.S. holders that are individuals, estates or trusts may be taxed at the rate applicable to long-term capital gains (current maximum rate of 20%), provided that such dividends meet the requirements of “qualified dividend income.” For this purpose, qualified dividend income generally includes dividends paid by a non-U.S. corporation if certain holding period and other requirements are met and either (a) the stock of the non-U.S. corporation with respect to which the dividends are paid is “readily tradable” on an established securities market in the U.S. (e.g., the NASDAQ Global Select Market) or (b) the non-U.S. corporation is eligible for benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The United States Internal Revenue Service (“IRS”IRS”) has determined that the U.S.-Israel income tax treaty is satisfactory for this purpose. Dividends that fail to meet such requirements, and dividends received by corporate U.S. holders are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend (1) if the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities); or (2) to the extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were to be a “passive foreign investment company” (as such term is defined in the Code) for any taxable year, dividends paid on our ordinary shares in such year and in the following taxable year would not be qualified dividends. See discussion below regarding our PFIC status at “Tax Consequences If We Are a Passive Foreign Income Company.” In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case, the dividend will be taxed at ordinary income rates.
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The amount of any distribution which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing the U.S. holder’s tax basis in its ordinary shares to the extent thereof, and then as capital gain from the deemed disposition of the ordinary shares. Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares.
Dividends paid by us in NIS will be generally included in the income of U.S. holders at the U.S. dollar amount of the dividend (including any non-U.S. taxes withheld therefrom), based upon the exchange rate in effect on the date of the distribution. U.S. holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that U.S. dollar value. Any subsequent gain or loss in respect of the NIS arising from exchange rate fluctuations will generally be taxable as U.S. source ordinary income or loss.
Subject to certain conditions and limitations set forth in the Code and the Treasury Regulations thereunder, including certain holding period requirements, U.S. holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability the non-U.S. income taxes withheld from dividends received in respect of our ordinary shares. The limitations on claiming a foreign tax credit include, among others, computation rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. In this regard, dividends paid by us generally will be foreign source “passive income” for U.S. foreign tax credit purposes. U.S. holders that do not elect to claim a foreign tax credit may instead claim a deduction for the non-U.S. income taxes withheld if they itemize deductions for U.S. federal income tax purposes. The rules relating to foreign tax credits are complex, and U.S. holders should consult their tax advisors to determine whether and to what extent they would be entitled to this credit.
Disposition of Ordinary Shares
Subject to the discussion below under “Tax Consequences if we are a Passive Foreign Investment Company,” upon the sale, exchange or other disposition of our ordinary shares (other than in certain nonrecognitionnon-recognition transactions), a U.S. holder will generally recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition and the U.S. holder’s tax basis in our ordinary shares. The gain or loss recognized on the disposition of the ordinary shares will be long-term capital gain or loss if the U.S. holder held our ordinary shares for more than one year at the time of the disposition. Under current law, long-term capital gains are subject to a maximum rate of 20%. Capital gain from the sale, exchange or other disposition of our ordinary shares held for one year or less is short-term capital gain and taxed at ordinary income tax rates. Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of our ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. A U.S. holder that receives foreign currency upon the disposition of our ordinary shares and converts the foreign currency into U.S. dollars after the settlement date (in the case of a cash method taxpayer or an accrual method taxpayer that elects to use the settlement date) or trade date (in the case of an accrual method taxpayer) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss.
Net Investment Income
Subject to certain limitations and exceptions, certain non-corporate U.S. holders may be subject to an additional 3.8% surtax on all or a portion of their “net investment income,” which may include dividends on, or capital gains recognized from the disposition of, our ordinary shares. U.S. holders are urged to consult their own tax advisors regarding the implications of the additional net investment income tax on their investment in our ordinary shares.
Tax Consequences if we are a Passive Foreign Investment Company
We will be PFIC if either (1) 75% or more of our gross income in a taxable year is passive income or (2) 50% or more of the value, determined on the basis of a quarterly average, of our assets in a taxable year produce or are held for the production of passive income. If we own (directly or indirectly) at least 25% by value of the stock of another corporation, we will be treated for purposes of the foregoing tests as owning our proportionate share of that other corporation’s assets and as directly earning our proportionate share of that other corporation’s income. If we are a PFIC, a U.S. holder must determine under which of three alternative taxing regimes it wishes to be taxed.
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The “QEF” regime applies if the U.S. holder elects to treat us as a “qualified electing fund” (“QEF”QEF”) for the first taxable year in which the U.S. holder owns our ordinary shares or in which we are a PFIC, whichever is later, and if we comply with certain reporting requirements. If a QEF election is made after the first taxable year in which a U.S. holder holds our ordinary shares and we are a PFIC, then special rules would apply. If the QEF regime applies, then for each taxable year that we are a PFIC, such U.S. holder will include in its gross income a proportionate share of our ordinary earnings (which is taxed as ordinary income) and net capital gain (which is taxed as long-term capital gain), subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. These amounts would be included in income by an electing U.S. holder for its taxable year in which our taxable year ends, whether or not such amounts are actually distributed to the U.S. holder. A U.S. holder’s basis in our ordinary shares for which a QEF election has been made would be increased to reflect the amount of any taxed but undistributed income. Generally, a QEF election allows an electing U.S. holder to treat any gain realized on the disposition of its ordinary shares as capital gain. Once made, the QEF election applies to all subsequent taxable years of the U.S. holder in which it holds our ordinary shares and for which we are a PFIC, and the QEF election can be revoked only with the consent of the IRS.
A second regime, the “mark-to-market” regime, may be elected so long as our ordinary shares are “marketable stock” (e.g., “regularly traded” on the NASDAQ Global Select Market). If the mark-to-market election is made after the first taxable year in which a U.S. holder holds our ordinary shares and we are a PFIC, then special rules would apply. Pursuant to this regime, an electing U.S. holder’s ordinary shares are marked-to-market each taxable year that we are a PFIC, and the U.S. holder recognizes as ordinary income or loss the amount equal to the difference as of the close of the taxable year between the fair market value of our ordinary shares and the U.S. holder’s adjusted tax basis in our ordinary shares. Losses are allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election for prior taxable years. An electing U.S. holder’s adjusted basis in our ordinary shares is increased by income recognized under the mark-to-market election and decreased by the deductions allowed under the election. Under the mark-to-market election, in a taxable year that we are a PFIC, gain on the sale of our ordinary shares is treated as ordinary income, and loss on the sale of our ordinary shares, to the extent the amount of loss does not exceed the net mark-to-market gain previously included, is treated as ordinary loss. Any loss on the sale of our ordinary shares in excess of net mark-to-market gain previously included is generally treated as a capital loss. The mark-to-market election applies to the taxable year for which the election is made and all later taxable years, unless the ordinary shares cease to be marketable stock or the IRS consents to the revocation of the election.
A U.S. holder making neither the QEF election nor the mark-to-market election is subject to the “excess distribution” regime. Under this regime, “excess distributions” are subject to special tax rules. An excess distribution is either (1) a distribution with respect to our ordinary shares that is greater than 125% of the average distributions received by the U.S. holder from us over the shorter of either the preceding three taxable years or such U.S. holder’s holding period for our ordinary shares prior to the distribution year, or (2) gain from the disposition of our ordinary shares (including gain deemed recognized if the ordinary shares are used as security for a loan).
Excess distributions must be allocated ratably to each day that a U.S. holder has held our ordinary shares. A U.S. holder must include amounts allocated to the current taxable year, as well as amounts allocated to taxable years prior to the first taxable year in which we were a PFIC, in its gross income as ordinary income for that year. All amounts allocated to other taxable years would be taxed at the highest tax rate for each such prior taxable year applicable to ordinary income and the U.S. holder also would be liable for interest on the deferred tax liability for each such taxable year calculated as if such liability had been due with respect to each such taxable year. A U.S. holder who inherits shares in a non-U.S. corporation that was a PFIC in the hands of the decedent generally is denied the otherwise available step-up in the tax basis of such shares to fair market value at the date of death. Instead, such U.S. holder would generally have a tax basis equal to the lesser of the decedent’s basis or the fair market value of the ordinary shares on the date of the decedent’s death.
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We believe that we were not a PFIC in 2016.2017. However, since the determination of whether we are a PFIC is based upon such factual matters as our market capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions and methodologies in which we have based our analysis, there can be no assurance that the IRS will agree with our position. In addition, there can be no assurance that we will not become a PFIC for the current taxable year ending December 31, 20172018 or in any future taxable year. We will notify U.S. holders in the event we conclude that we will be treated as a PFIC for any taxable year to enable U.S. holders to consider whether or not to elect to treat us as a QEF for U.S. federal income tax purposes, or to “mark-to-market” the ordinary shares or to become subject to the “excess distribution” regime. If we are a PFIC, U.S. holders will generally be required to file an annual report with the IRS.
U.S. holders are urged to consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner and advisability of making, the QEF election or the mark-to-market election.
Non-U.S. Holders
Subject to the discussion below under “Information Reporting and Backup Withholding,” a non-U.S. holder of our ordinary shares generally will not be subject to U.S. federal income or withholding tax on the receipt of dividends on, and the proceeds from the disposition of, our ordinary shares, unless, in the case of U.S. federal income taxes (i) the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and in the case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or in the case of an individual, the item is attributable to a fixed place of business in the United States, or (ii) the non-U.S. holder is an individual who holds the ordinary shares as a capital asset, is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met.
Information Reporting and Backup Withholding
U.S. holders (other than certain exempt recipients such as corporations) generally are subject to information reporting requirements with respect to dividends paid on our ordinary shares in the United States or by a U.S. payor or U.S. middleman or the gross proceeds from disposing of our ordinary shares. U.S. holders generally are also subject to backup withholding (currently 28%24%) on dividends paid in the United States or by a U.S. payor or U.S. middleman on our ordinary shares and on the gross proceeds from disposing of our ordinary shares, unless the U.S. holder provides an IRS Form W-9 or otherwise establishes that such holder is exempt from backup withholding.
Certain U.S. holders (and to the extent provided in IRS guidance, certain non-U.S. holders) who hold interests in “specified foreign financial assets” (as defined in Section 6038D of the Code) are generally required to file an IRS Form 8938 as part of their U.S. federal income tax returns to report their ownership of such specified foreign financial assets, which may include our ordinary shares, if the total value of those assets exceed certain thresholds. Substantial penalties may apply to any failure to timely file IRS Form 8938. In addition, in the event a holder that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. Holders should consult their own tax advisors regarding their tax reporting obligations.
Non-U.S. holders generally are not subject to information reporting or backup withholding with respect to dividends paid on our ordinary shares in the United States or by a U.S. payor or U.S. middleman or the gross proceeds from the disposition of our ordinary shares, provided that such non-U.S. holder certifies to its foreign status, or is otherwise exempt from backup withholding or information reporting.
The amount of any backup withholding may be allowed as a credit against a holder’s U.S. federal income tax liability and may entitle such holder to a refund provided that certain required information is timely furnished to the IRS.
F. | DIVIDENDS AND PAYING AGENTS |
Not applicable.
G. | STATEMENT BY EXPERTS |
Not applicable.
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H. | DOCUMENTS ON DISPLAY |
We are subject to the informational requirements of the Exchange Act that are applicable to a foreign private issuer. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
However, we file annual reports with, and furnish other information to, the SEC. These materials, including this annual report and the exhibits hereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. Additionally, copies of the materials may be obtained from the SEC’s website at http://www.sec.gov.
I. | SUBSIDIARY INFORMATION |
Not applicable.
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Management of financial risks
Our operations expose us to risks that relate to various financial instruments, such as market risks (including currency risk, cash flow risk with respect to interest rates and other price risk), credit risk and liquidity risk.
Market risk is the risk that the fair value of future cash flow of financial instruments will fluctuate because of changes in market prices.
Credit risk is the risk of financial loss to us if counterparty to a financial instrument fails to meet its contractual obligations.
Liquidity riskis the risk that we will not be able to meet our financial obligations as they become due.
Our comprehensive risk management program focuses on actions to minimize the possible negative effects on our financial performance. In certain cases we use derivatives financial instruments in order to mitigate certain risk exposures.
Our board of directors has overall responsibility for the establishment and oversight of our risk management framework. Our board of directors is managing the risks faced by us, and confirms that all appropriate actions have been or are being taken to address any weaknesses.
As of December 31, 2016,2017, we had exposure to the following risks that are related to financial instruments:
Foreign currency risk
We have international activities in many countries and, therefore, we are exposed to foreign currency risks as a result of fluctuations in the different exchange rates. Foreign currency risks are derived from transactions executed and/or financial assets and liabilities held in a currency which is different than the functional currency of our entity which executed the transaction or holds these financial assets and liabilities. In order to minimize such exposure, our policy is to hold financial assets and liabilities in a currency which is the functional currency of that entity.
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In addition a significant part of our business/investments are denominated in foreign currencies (Euro for the hotel and the commercial center business ,and plots in Eastern Europe, US dollar for the Medical business and INR for the plots in India) while the corporate obligations of us and PC and Elbit Medical (mainly notes) are linked to the Israeli NIS. Our main source to serve these corporate debts will arrive mainly from the sale of these assets/investments. Therefore a devaluation of each of these currencies against the NIS until the date of the execution of the relevant sale transaction may significantly affect us and PC cash flow and our ability to repay our debts in a timely manner. As of the filling of this annual report we do not actively hedge this risk.
The following table details sensitivity analysis to a change of 10% in our main foreign currencies, as of December 31, 2016,2017, against the relevant functional currency and their effect on the statements of income and the shareholder’s equity (before tax and before capitalizing any exchange results to qualified assets):
Functional currency | Linkage currency | Change in the exchange rate (%) | Profit (loss) | |||||||
(In NIS thousands) | ||||||||||
Financial assets | ||||||||||
Cash and deposits | NIS | EURO | +10% | |||||||
Cash and deposits | NIS | USD | +10% | |||||||
Cash and deposits | Euro | PLN | +10% | |||||||
Cash and deposits | Euro | USD | +10% | |||||||
Cash and deposits | Euro | +10% | ||||||||
Total | ||||||||||
Financial Liabilities | ||||||||||
Loans at amortized cost | ||||||||||
Euro | PLN | +10% | ( | ) | ||||||
Notes | ||||||||||
RON | Euro | +10% | ( | ) | ||||||
Total | ( | ) |
Credit risk
We hold cash and cash equivalents, short-term investments and other long-term investments in financial instruments in various reputable banks and financial institutions. These banks and financial institutions are located in different geographical regions, and it is our policy to disperse our investments among different banks and financial institutions. Our maximum credit risk exposure is approximately the financial assets presented in the balance sheet in our annual consolidated financial statements.
Due to the nature of its activity, our Radisson Blu hotels and our commercial centers business do not materially exposed to credit risks stemming from dependence on a given customer. Our company examined on an ongoing basis the credit amounts extended to its customers and, accordingly, records a provision for doubtful debts based on those factors it considers having an effect on specific customers.
Interest rate risk
Fair value risk
A significant portion of our long term loans and notes bearing a fixed interest rate and are therefore exposed to change in their fair value as a result of changes in the market interest rate. The vast majority of these loans and notes are measured at amortized cost and therefore changes in the fair value will not have any effect on the statement of income.
Cash flow risk
Part of our long-term borrowings are bearing variable interest rates. Cash and cash equivalents, short-term deposits and short-term bank credits are mainly deposited in or obtained at variable interest rates. Changes in the market interest rate will affect our finance income and expenses and our cash flow.
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In certain cases we use interest rate swap transaction in order to swap loans with a variable interest rate to fixed interest rate or alternatively entering into loans with a fixed interest rate.
The following table presents the effect of an increase of 1% in the LIBOR rate with respect to financial assets and liabilities as of December 31, 2016,2017, which are exposed to cash flow risk (before tax and before capitalization to qualifying assets):
Profit (loss) | ||||
NIS thousands | ||||
Notes linked to the PLN | ( | |||
) |
* Not include loan in the amount of NIS 370 million that starting from July 2017, will be hedge by fix interest rate.
The following table presents our long-term financial liabilities classified according to their interest rate and their contractual maturity date: (*)
Functional | Linkage | Interest | Average Interest | Repayment Years | Linkage | Interest | Average Interest | Repayment Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Currency | Currency | Rate % | Rate % | 1 | 2 | 3 | 4 | 5 | Total | Currency | Rate % | Rate % | 1 | 2 | 3 | 4 | 5 | Total | ||||||||||||||||||||||||||||||||||||||||||||||
€ | PLN | 6M WIBOR+6 | 7.8 | 14.0 | 29.0 | - | - | - | 43.0 | PLN | 6M WIBOR+6 | 7.8 | 21.2 | - | - | - | - | 21.2 | ||||||||||||||||||||||||||||||||||||||||||||||
€ | € | Euribor + 1.65-5 | 3 | 194.8 | 5.7 | 94.5 | 37.7 | - | 332.7 | NIS (linked to CPI) | 6-6.9 | 6-6.9 | (*)213.1 | 223.2 | 53.9 | - | - | 490.2 | ||||||||||||||||||||||||||||||||||||||||||||||
€ | NIS (linked to CPI) | 6-6.9 | 6-6.9 | 174.0 (1) | 116.3 | 361.1 | 59.7 | - | 711.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
NIS | € | Libor+4.65 | 4.5 | 59.1 | - | - | - | - | 59.1 | NIS (linked to CPI) | 6 | 6 | 296.2 | 275.6 | - | - | - | 571.8 | ||||||||||||||||||||||||||||||||||||||||||||||
530.5 | 498.8 | 53.9 | - | - | 1,083.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NIS | NIS (linked to CPI) | 6 | 6 | - | 296.2 | 260.0 | - | - | 556.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
RON | € | Euribor + 3.75 | 3.83 | 15.7 | 16.7 | 18.1 | 322.5 | - | 373.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
457.6 | 463.9 | 733.7 | 419.9 | - | 2,075.1 |
(*) Regarding PC Notes - the repayment take into account the minimum contractual payments on the PC Notes to achieve the Deferral see note 11 E.
Israeli consumer price index risk
A significant part of our borrowings consists of notes raised by us on the TASE and which are linked to the increase in the Israeli consumer price index above the base index at the date of the Notes issuance. An increase of 2% in the Israeli consumer price index will cause an increase in our finance expenses for the year ended December 31, 20162017 (before tax) in the amount of NIS 2319 million (approximately $6$5 million).
Fair value of financial instruments
Our financial instruments primarily include cash and cash equivalents, short and long-term deposits, marketable securities, trade receivables, short and long-term other receivables, short- term banks credit, other current liabilities and long-term monetary liabilities.
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The fair value of traded financial instruments (such as marketable securities and notes) is generally calculated according to quoted closing prices as of the balance sheet date, multiplied by the issued quantity of the traded financial instrument as of that date. The fair value of financial instruments that are not traded is estimated by means of accepted pricing models, such as present value of future cash flows discounted at a rate that, in our assessment, reflects the level of risk that is incorporated in the financial instrument. We relies, in part, on market interest which is quoted in an active market, as well as on various techniques of approximation. Therefore, for most of the financial instruments, the estimation of fair value presented below is not necessarily an indication of the realization value of the financial instrument as of the balance sheet date. The estimation of fair value is carried out, as mentioned above, according to the discount rates in proximity to the date of the balance sheet date and does not take into account the variability of the interest rates from the date of the computation through the date of issuance of the consolidated financial statements. Under an assumption of other discount rates, different fair value assessments would be received which could be materially different from those estimated by us, mainly with respect to financial instruments at fixed interest rate. Moreover, in determining the assessments of fair value, the commissions that could be payable at the time of repayment of the instrument have not been taken into account and they also do not include any tax effect. The difference between the balances of the financial instruments as of the balance sheet date and their fair value as estimated by us may not necessarily be realizable, in particular in respect of a financial instrument which will be held until redemption date.
Following are the principal methods and assumptions which served to compute the estimated fair value of the financial instruments:
a) | Financial instruments included in current and non-current assets and current liabilities -(cash and cash equivalents, deposits and marketable securities, trade receivables, other current assets and assets related to discontinued operations,loans and deposits which bear variable interest rate, short-term credit, suppliers, other current liabilities and liabilities related to discontinued operations) due to their nature, their fair values approximate to those presented in the balance sheet. |
b) | Financial instruments included in long-term liabilities- the fair value of the traded liabilities (notes) is determined according to closing prices as of the balance sheet date quoted on the Tel- Aviv and Warsaw Stock Exchanges, multiplied by the quantity of the marketable financial instrument issued as of that date. The fair value of non-traded liabilities at fixed interest rate is determined according to the present value of future cash flows, discounted at a rate which reflects, in |
The following table presents the book value and fair value of our financial assets (liabilities), which are presented in our consolidated financial statements at other than their fair value:
As of December 31, 2016 | ||||||||
Book Value | Fair Value | |||||||
Long- term loans at fixed interest rate | (369,923 | ) | (369,923 | ) | ||||
Notes | (1,219,929 | ) | (1,071,436 | ) | ||||
(1,589,852 | ) | (1,441,359 | ) |
As of December 31, 2017 | ||||||||
Book Value | Fair Value | |||||||
Notes | (1,024,168 | ) | (911,051) |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
PART II
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
PC Debt Restructuring
On November 18, 2013, our subsidiary PC announced that it had filed for reorganization proceedings and submitted a restructuring plan to the Dutch Court proposed to its creditors, which was further amended. For more information, see “Item 4A"Item 4 – Information on the Company – History and Development of the Company – Recent Events –PC Debt Restructuring” and "Item 4 – Information on the Company – History and Development of the Company – Recent Events – PC Debt Restructuring”Amendment of the Restructuring Plan of PC".
Our Debt Restructuring
During 2013, our Board resolved to suspend all payments to its unsecured creditorsSee "Item 4 – Information on the Company – History and to negotiate with its unsecured creditorsDevelopment of the Company – Recent Events –PC Debt Restructuring” and "Item 4 – Information on a restructuring plan for the unsecured financial debts. On October 17, 2013 our unsecured financial creditors approved a Plan of Arrangement and on January 1, 2014, the Israeli District Court approved the Arrangement. For more information, see “Item 4ACompany – History and Development of the Company – Recent Events – Our Debt Restructuring”Restructuring".
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures.Procedures
Our management, with the participation of our principal executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2016.2017.
There can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within our company to disclose information otherwise required to be set forth in our reports. Nevertheless, our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives. Based on this evaluation, our principal executive officer and chief financial officer concluded that, as of December 31, 2016,2017, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance to our management and the board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.
Our management evaluated the effectiveness of our internal control over financial reporting established inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(2013). Based on the above, our management has assessed and concluded that, as of December 31, 2016,2017, our internal control over financial reporting is not effective.
As described in note 1E to the 2016 financial statements, the Company has identified an error in the manner of application of the appraisal with respect to the Casa Radio project (“Property”) prepared for the consolidated financial statements of 2015 (“Appraisal”). As of December 31, 2015, the Property was recorded at a value of Euro 108.6 million as a non-current asset in the 2015 consolidated balance sheet. In addition, a provision for the construction costs of the Public Authority Buildings (“PAB”) was recorded in amount of Euro 14.9 million as a non-current liability in the 2015 consolidated balance sheet, resulting in a net amount of Euro 93.7 million. The error is due to a duplication of the provision for the costs of the PAB which was recorded separately as a liability in the consolidated financial statements and was also included as construction costs in the Appraisal (“Error”).
The Company’s management and Board of Directors was of the opinion that any increase in the value of the Property due to the above mentioned Error by Euro 14.9 million would not reflect the appropriate value of the Property as of December 31, 2015, and therefore decided to engage a different valuator in order to examine the underlying assumptions in the Appraisal and hence to obtain a new appraisal of the Property as of December 31, 2015.
The Company requested the valuator, which provided the appraisal of the Property for the 2016 consolidated financial statements, to provide a new appraisal (“New Appraisal”) with respect to the Property retrospectively as of December 31, 2015. According to the New Appraisal, the fair value of the Property as of December 31, 2015 was Euro 92.1 million, which by adding the provision for the cost of the PAB amounting to Euro 12.7 million resulted in a gross value of the asset of Euro 104.8 million. The Company’s Board of Directors and management have reviewed and approved the New Appraisal. The following table presents the two errors (in gross value of the asset and the provision of the PAB), as follows
As previously reported (Millions) EUR | Differences (Millions) EUR | New appraisal (Millions) EUR | ||||||||||
Non -Current assets | ||||||||||||
Casa Radio (Inventory) | 108.6 | (3.8 | ) | 104.8 | ||||||||
Non-current liabilities | - | - | - | |||||||||
Provision for PAB | (14.9 | ) | 2.2 | (12.7 | ) | |||||||
Net impact | 93.7 | (1.6 | ) | 92.1 |
The Company’s Board and management concluded that each of the Euro 3.8 million and Euro 2.2 million errors, as well as the net effect of the errors in the amount of Euro 1.6 million, are immaterial, and therefore such errors have been corrected in the 2016 financial statements.
The Company’s management has identified the following processes in the preparation of the 2015 financial statement that led to the aforementioned errors:
In order to address these weaknesses, the Company intends to work with PC to adopt the following new procedures:
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding effectiveness of our internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report as we are a non-accelerated filer.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 20162017 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting other than the recommendations of the special committees as described below:
Potential violation of the requirements of the FCPA in Casa Radio Project in Romania
In March 2016 PC announced that its board became aware of certain issues with respect to certain agreements that were executed in the past by PC in connection with the Casa Radio Project in Romania that may indicate potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA.
In order to address this matter, PC’s Board appointed the chairman of its Audit Committee to investigate the matters internally. PC’s Board also appointed independent law firms to perform an independent review of the issues raised. PC has approached and is co-operating fully with relevant Romanian authorities regarding the matters that have come to its attention in this respect, and it has submitted its findings to the Romanian authorities.
Following PC’s report to us, our audit committee decided to appoint a special committee to examine the matters raised in PC’s announcement, including any internal control and reporting issues. The special committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board. The main recommendations are as follows:
● | Amending the Company’s internal control policies and procedures to strengthen control over its subsidiaries and develop mechanisms to ensure adequate internal control policies and procedures are followed by subsidiaries. |
● | Appointing Compliance Officer whose responsibilities shall include, among others, development and regular monitoring of the Company’s and its subsidiaries’ internal control policies and procedures, including as they relate to FCPA and other relevant anti-bribery statutes. |
● | Assigning the Company’s officer to be responsible for implementation of internal control policies and procedures and for making sure relevant employees are aware of such policies and procedures. |
The Company’s Board fully adopted the special committee’s recommendations, and is working to implement them.
The Company informed and is fully cooperating with the relevant governmental agencies in this matter.
Potential violation of the requirements of the FCPA in Agency and commissionSEC agreement from 2011
In addition, in April 2017 our Board of Directors and PC’s Board of Directors became aware of certain issues with respect to an agency and commission agreement from 2011 regarding the sale in 2012 of property in the U.S. jointly owned by PC and the Company. The agreement was between the Company, PC and another party, the beneficial owners of which had not been identified.
The characteristics of the contract could raise red flags that this contract may be a potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA. In order to address this matter, our Board has appointed a joint committee with PC to investigate and examine the issues raised, including any internal control and reporting issues.
The joint committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board. The main recommendations are as follows:
● | Enhance the Company’s supervision over its subsidiaries by holding regular meetings among all of the group’s compliance officers and requiring that compliance reports be regularly shared with the Company’s compliance officer. |
● | Verify that the Company’s policies and procedures are fully implemented in all of its subsidiaries. |
● | Amend PC Global Compliance Policy to ensure adequate internal controls. |
● | Improve the Company’s and PC corporate governance and related party transaction procedures and questionnaires to better conform to the requirements of auditing standard IAS 24 Related Party Disclosures issued by the International Accounting Standards Board. |
137 |
● | Require each of the third parties to the Third Parties Agreements to sign that they are in compliance with the anti-bribery provisions of PC’s compliance policy. |
The Company’s Board fully adopted the joint committee’s recommendations, and, among other steps, is working to implement specific changes to its internal control policies and procedures.
The Company informed and is fully cooperating with the relevant governmental agency in this matter.
None of the adjustments are expected to have a materially affect our internal control over financial reporting or financial statements.
For more information see "Item 4 – Information on the Company – History and Development of the Company – Recent Events –Approval of an offer of Settlement with the SEC in the matter of Alleged PC Violations of FCPA”.
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
In accordance with Nasdaq Corporate Governance Rules, our board of directors has determined that both Mr. Zvi TroppAlon Bachar and Ms. Elina Frenkel RonenMr. Nadav Livni are “audit committee financial experts” as defined in the instructions to Item 16A. of Form 20-F and are independent in accordance with the NasdaqNASDAQ listing standards for audit committees applicable to us.
ITEM 16B. | CODE OF ETHICS |
Our principal executive officer, principal financial officer as well as all other directors, officers and employees are bound by a Code of Ethics and Business Conduct. Our Code of Ethics and Business Conduct is posted on and can be accessed via our web-site at www.elbitimaging.com. We will provide any person, without charge, upon request, a copy of our Code of Ethics. Such request should be submitted to our Corporate Secretary at5 Kinneret St., Bnei-Brak 5126237,at Shimshon 3, Petah Tikva, Israel and should include a return mailing address.
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Fees billed by Deloitte and by EY for professional services for each of the last two fiscal years were as follows:
Services Rendered | EY 2016 Fees1 | Deloitte 2016 Fees | Deloitte 2015 Fees | EY 2017 Fees | EY 2016 Fees | Deloitte 2016 Fees | ||||||||||||||||||
Audit (a) | $ | 858,489 | $ | 462,456 | $ | 382,484 | $ | 723,477 | $ | 1,096,498 | $ | 382,484 | ||||||||||||
Audit-related (b) | - | - | $ | 2,574 | $ | 16,007 | - | $ | 2,574 | |||||||||||||||
Tax (c) | $ | 57,354 | $ | 43,332 | $ | 14,804 | $ | 48,023 | $ | 57,354 | $ | 14,804 | ||||||||||||
All other fees (d) | - | $ | 7,946 | - | - | - | - | |||||||||||||||||
Total | $ | 915,843 | $ | 513,734 | $ | 399,862 | $ | 787,506 | $ | 1,153,852 | $ | 399,862 |
(a) Audit Fees
(a) | Audit Fees |
“Audit Fees” are the aggregate fees billed for the audit of our annual consolidated financial statements; audit in accordance with section 404 of the Sarbanes-Oxley Act of 2002, statutory audits and services that are normally provided in connection with statutory and regulatory filings or engagements.
(b) Audit-Related Fees
(b) | Audit-Related Fees |
“Audit-Related Fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under Audit Fees.
In 2015, Audit-Related Fees included mainly work related to conversion of our Registration Statement on Form F-1 to a Registration Statement on Form F-3.
138 |
(c) Tax FeesTABLE OF CONTENTS
(c) | Tax Fees |
“Tax Fees” are the aggregate fees billed for professional services rendered for tax compliance, tax advice on actual or contemplated transactions and tax consultations regarding tax audits, tax opinions and tax pre-rulings.
(d) All Other Fees
(d) | All Other Fees |
“All Other Fees” are the aggregate fees billed for products and services provided by Deloitte other than as described above.
(e) Pre-Approval Policies and Procedures
(e) | Pre-Approval Policies and Procedures |
Our audit committee oversees the appointment, compensation, and oversight of the registered public accounting firm engaged to prepare and issue an audit report on our consolidated financial statements. The audit committee’s specific responsibilities in carrying out its oversight role include the approval of all audit and non-audit services to be provided by our registered public accounting firm and quarterly review of its non-audit services and related fees. These services may include audit services, audit-related services, permitted tax services and other services, as described above. The audit committee approves in advance the particular services or categories of services to be provided to us during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional services may be pre-approved by the audit committee on an individual basis throughout the year.
None of the Audit-Related Fees, Tax Fees or Other Fees paid by us for services provided by Deloitte and/or EY were approved by the audit committee pursuant to thede minimis exception to the pre-approval requirement provided by Section 10A of the Exchange Act.
1For further information see Item 16F
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS |
Purchases of equity securities by the Company
No purchases of any of our equity securities (either pursuant to or not pursuant to any publicly announced plans or programs) were made by or on behalf of us during 2016.
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
On June 28, 2017, following approval by the audit committee and board of directors of Elbit Imaging Ltd. (the “Company”), the Company and Brightman Almagor Zohar & Co., a Member Firm of Deloitte Touche Tohmatsu (the “Former Auditor”), reached an understanding to end the engagement and dismiss the Former Auditor as the independent accountants of the Company effective immediately (the “Understanding”).Not applicable.
This Understanding resulted from the notification by the Company’s Former Auditor that it was unable to provide an unqualified audit opinion regarding the Company’s financial statements for 2016 as a result of matters underlying the disclaimer made by KPMG Hungaria Kft., the former auditor of Plaza Centers N.V. (“Plaza”) (LSE: PLAZ), an indirect subsidiary (45%) of the Company, in its report relating to Plaza’s annual financial statements for 2016, which report expresses no opinion with regard to Plaza’s financial statements.
As a result of the foregoing, the Company was unable to file its Annual Report on Form 20-F for the year 2016 by the required deadline. On May 15, 2017, the Company received a non-compliance notice from NASDAQ requiring the Company to submit a plan to Nasdaq within 60 days, and indicating that if Nasdaq accepts the plan submitted by the Company, it can grant an exception of up to 180 calendar days from the due date of the Form 20-F, or until November 13, 2017, to regain compliance.
The Company concluded that in order to timely file its Form 20-F and comply with NASDAQ requirements, there should be one independent accountant for the Company and its subsidiaries (the “Group”). The Company approached two potential independent accountant firms to serve in such capacity. In addition, both of the independent accountant firms approached stated they would not accept the role of independent accounting firm of Plaza without also acting as the independent accounting firm of the Company due to the difficulty of meeting their own internal auditing requirements while also meeting the auditing requirements of another accounting firm, all within the timetable required to enable the Company to comply with its NASDAQ requirements.
The Group chose KOST FORER GABBAY & KASIERER (A Member of EY Global) (the “New Auditor”) as auditor for the Group after taking into account their experience, ability to enable the Company to file its Form 20-F in a timely manner to meet its NASDAQ requirements, fees and other terms of engagement.
On June 28, 2017, following approval by the audit committee and board of directors of the Company, the Company approved the engagement with the New Auditor as the Company’s new independent Auditor, subject to shareholders’ approval (which was obtained on July 25, 2017). The New Auditor has also been retained by Plaza to serve as the independent accountants of Plaza.
During the two fiscal years ended December 31, 2015 and December 31, 2014, the Former Auditor has not issued any report on the financial statements that contained an adverse opinion or disclaimer of opinion, nor were the reports of the Former Auditor qualified or modified in any manner.
During the two fiscal years ended December 31, 2015 and December 31, 2014 and the subsequent interim period preceding the date of this Report, there was no disagreement with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, or any reportable event as described in Item 16F(a)(1)(iv) of Form 20-F.
During the two fiscal years ended December 31, 2015 and December 31, 2014 and the subsequent interim period preceding the date of this Report, we did not consult with the New Auditor for any matters regarding either:
The Company has provided the Former Auditor with a copy of the disclosures given above and has requested the Former Auditor to furnish the Company with a letter addressed to the Commission stating whether it agrees with the statements made by the Company in response to Item 16F (a), and if not, stating the respects in which it does not agree. A copy of the letter dated November 9, 2017 from the Former Auditor addressed to the Commission, is filed as an exhibit to this Annual Report on Form 20-F.
ITEM 16G. | CORPORATE GOVERNANCE |
We follow the Companies Law, the relevant provisions of which are summarized in this annual report, rather than comply with the NASDAQ requirements relating to: (i) the quorum for adjourned shareholder meetings, as described in “Item 10.B.Item 10B – Memorandum and Articles of Association - Voting– “Voting Rights”; (ii) executive sessions of independent directors, which are not required under the Companies Law; (iii) that director nominees either be selected, or recommended for the board’s selection, either by independent directors constituting a majority of the board’s independent directors or by a nominations committee comprised solely of independent directors, and (iv) shareholder approval with respect to issuance of securities under equity based compensation plans. NASDAQ rules generally require shareholder approval when an equity based compensation plan is established or materially amended, but we follow the Companies Law, which requires approval of the board of directors or a duly authorized committee thereof, unless such arrangements are for the compensation of directors, in which case they also require compensation committee and shareholder approval.
ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
ITEM 17. | FINANCIAL STATEMENTS |
In lieu of responding to this item, we have responded to Item 18 of this annual report.
ITEM 18. | FINANCIAL STATEMENTS |
Our consolidated financial statements for the period ending December 31, 20162017 are found at the end of this Annual Report, beginning on page F-1.
PART III
ITEM 19. | EXHIBITS |
* Confidential treatment granted with respect to certain portions of this Exhibit.
* | Confidential treatment granted with respect to certain portions of this Exhibit. |
** | Filed herewith |
ELBIT IMAGING LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 20162017
F-1 |
ELBIT IMAGING LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 20162017
Page | |
Audited Consolidated Financial Statements: | |
Reports of independent registered public accounting firms | |
Statement of financial position | |
Statements of | |
Statements of | |
Statements of | |
Statements of cash flows | F-14 – F-16 |
Notes to the audited consolidated financial statements |
F-2 |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Elbit Imaging LTD.Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Elbit Imaging Ltd.Ltd and its subsidiaries (the “Company”) and subsidiaries, as of December 31, 2017 and 2016, and the related consolidated statements of income,profit or loss, comprehensive income, changes in shareholders’ equity and cash flows for each of the yeartwo years in the period ended December 31, 2016. These2017 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements arepresent fairly, in all material respects, the responsibilityfinancial position of the Company’s management. Our responsibility isCompany at December 31, 2017 and 2016, and the results of its operations, changes in equity, and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also audited the adjustments described in Note 19 that were applied to adjust the 2015 consolidated financial statements due to discontinued operation. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2015 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on thesethe 2015 consolidated financial statements based on our audits.taken as a whole.
We did not audit the financial statements of a certain companyan associate, in which the Company has an 22.5% interest and are accounted for using the equity method, stated at equity, the investment in which amounted toNIS 0 thousand and NIS 5,300 thousand as of December 31, 2017 and 2016, respectively, and the Company’s share of its losses amounted to NIS 5,300 thousand for the years ended December 31, 2017 and NIS 49,670 thousand for the yearsyear ended December 31, 2016. The financial statements of this companyassociate were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for this companyassociate is based solely on the reports of the other auditors.
Emphasis of matters:
1. | Note 1(C) to the consolidated financial statements, which describes the Company’s financial position and the resources until November 2019 that are expected to serve the repayment of Company’s liabilities. The Company’s management and board of directors are of the opinion, based on its projected cash flows and the assumptions described, that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future. |
2. | Note 7(B)(2) to the consolidated financial statements, which describes conditions that indicate the existence of a material uncertainty that casts significant doubts about the ability of Company’s subsidiary to continue as a going concern. Subsidiary’s management plans with regard to these matters are discussed in Note 7(B)(2). The financial statements do not include any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company’s subsidiary were unable to continue as a going concern. |
3. | Note 4(C)(1)(c) which discloses potential irregularities regarding to Casa Radio project in Romania and their potential implications. |
F-3 |
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
4. | Note 4(c)(1)(b) which discloses the risk that the public authorities my seek to terminate the Public Private Partnership Agreement (“PPP Agreement”) and/or relevant permits and/or could seek to impose delay penalties on the basis of perceived breaches of the subsidiary’s commitments under the PPP Agreement. In the event that the public authorities seek to terminate the PPP Agreement and/or seek to impose penalties, the Company’s subsidiary may incur penalties and/or recover less than the carrying amount of the Casa radio asset recorded in the consolidated financial statements as at year end (NIS 209.7 million). |
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesOur audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reportsKOST FORER GABBAY & KASIERER
A Member of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated statements of financial position of the Company and subsidiaries as of December 31, 2016 and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.Ernst & Young Global
Without qualifying our above opinion, we draw attention toWe have served as the following matters discussed in:Company’s auditor since 2017.
Tel-Aviv, Israel
April 25, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Elbit Imaging Ltd.
We have audited, before the accompanyingeffects of the retrospective adjustments for the discontinued operations discussed in Note 19 to the consolidated balance sheetfinancial statements, the consolidated statements of income, comprehensive income, changes in equity, and cash flows of Elbit Imaging Ltd.LTD and its subsidiaries (the “Company”) as offor the year ended December 31, 2015 and(the 2015 consolidated financial statements before the related consolidated statements of income, comprehensive income, shareholders’ equity (deficiency) and cash flows for eacheffects of the two yearsadjustments discussed in Note 19 to the period ended December 31, 2015.consolidated financial statements are not presented herein). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.audit.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, such 2015 consolidated financial statements, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 19 to the consolidated financial statements, referred to above present fairly, in all material respects, the financial positionperformance and cash flows of Elbit Imaging Ltd.Ltd and its subsidiaries as of December 31, 2015, andfor the consolidated results of their operations, and their cash flows for each of the two years in the periodyear ended December 31, 2015, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We were not engaged to audit, review, or apply any procedures to the retrospective adjustments for the discontinued operations discussed in Note 19 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
Without qualifying our opinion, we draw attention to:
Note 4 (c) (1) (c) and note 13 (c) (12) in the consolidated financial statements which disclose, among other things, potential irregularities concerning the Casaradio Project in Romania and their potential consequences, including Foreign Corrupt Practice Act |
2. | As discussed in Note 13, claims have been filed against Group companies as of December 31, 2015, one of which was certified as a class action. |
Brightman Almagor Zohar & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu
Tel-Aviv, Israel
March 31, 2016
CONSOLIDATED STATEMENT FINANCIAL POSITION
December 31 | December 31 | |||||||||||||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 6 | Convenience translation (note 2d) | |||||||||||||||||||||||||
Convenience | 2017 | 2016 | 2017 | |||||||||||||||||||||||||
Translation | Note | NIS in thousands | USD in thousands | |||||||||||||||||||||||||
(note 2D) | ||||||||||||||||||||||||||||
Note | (in thousand NIS) | USD ’000 | ||||||||||||||||||||||||||
Current Assets | ||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||||||||||||
Cash and cash equivalents | 89,688 | 157,851 | 23,326 | 465,739 | 89,688 | 134,335 | ||||||||||||||||||||||
Short-term deposits and investments | (3A) | 39,527 | 30,075 | 10,280 | (3a) | 10,495 | 39,527 | 3,027 | ||||||||||||||||||||
Trade accounts receivables | (3B) | 34,168 | 13,638 | 8,886 | (3b) | - | 34,168 | - | ||||||||||||||||||||
Other receivables | (3C) | 13,344 | 13,909 | 3,471 | (3c) | 7,222 | 13,344 | 2,083 | ||||||||||||||||||||
Inventories | 1,865 | 2,071 | 485 | - | 1,865 | - | ||||||||||||||||||||||
178,592 | 217,544 | 46,448 | ||||||||||||||||||||||||||
483,456 | 178,592 | 139,445 | ||||||||||||||||||||||||||
Non-Current Assets | ||||||||||||||||||||||||||||
NON-CURRENT ASSETS | ||||||||||||||||||||||||||||
Trading property | (4) | 1,310,549 | 1,467,760 | 340,845 | (4) | 492,619 | 1,310,549 | 142,088 | ||||||||||||||||||||
Deposits, loans and other long-term balances | 23,484 | 21,899 | 6,107 | (3d) | 34,874 | 23,484 | 10,058 | |||||||||||||||||||||
Investments in associates and joint venture | (5,6) | 26,949 | 292,183 | 7,009 | (5,6) | 5,592 | 26,949 | 1,613 | ||||||||||||||||||||
Property, plant and equipment, net | (8) | 721,635 | 704,166 | 187,681 | (8) | 830 | 721,635 | 239 | ||||||||||||||||||||
2,082,617 | 2,486,008 | 541,642 | ||||||||||||||||||||||||||
533,915 | 2,082,617 | 153,998 | ||||||||||||||||||||||||||
2,261,209 | 2,703,552 | 588,090 | ||||||||||||||||||||||||||
1,017,371 | 2,261,209 | 293,443 | ||||||||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||||||||
Short-term credits | (9) | 1,128,768 | 726,763 | 293,568 | ||||||||||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||||||||||||||
Current maturities of long term borrowings and short-term credits | (9) | 780,861 | 1,128,768 | 225,226 | ||||||||||||||||||||||||
Suppliers and service providers | 34,160 | 15,708 | 8,884 | 2,720 | 34,160 | 785 | ||||||||||||||||||||||
Payables and other credit balances | (10) | 46,699 | 63,780 | 12,145 | (10) | 63,293 | 46,699 | 18,255 | ||||||||||||||||||||
1,209,627 | 806,251 | 314,597 | ||||||||||||||||||||||||||
Non-Current Liabilities | ||||||||||||||||||||||||||||
846,874 | 1,209,627 | 244,266 | ||||||||||||||||||||||||||
NON-CURRENT LIABILITIES | ||||||||||||||||||||||||||||
Borrowings | (11) | 852,870 | 1,443,920 | 221,813 | (11) | 243,311 | 852,870 | 70,179 | ||||||||||||||||||||
Other liabilities | (4C1) | 57,155 | 66,530 | 14,865 | (4c1d), (4d2) | 75,970 | 57,155 | 21,913 | ||||||||||||||||||||
Deferred taxes | (12) | 92,942 | 82,787 | 24,172 | (12) | - | 92,942 | - | ||||||||||||||||||||
1,002,967 | 1,593,237 | 260,850 | 319,281 | 1,002,967 | 92,092 | |||||||||||||||||||||||
Commitments, Contingencies, Liens and Collaterals | (13) | (13) | ||||||||||||||||||||||||||
Shareholders’ Equity | (14) | (14) | ||||||||||||||||||||||||||
Share capital and share premium | 1,105,974 | 1,105,974 | 287,640 | 1,105,974 | 1,105,974 | 319,000 | ||||||||||||||||||||||
Reserves | (787,765 | ) | (862,054 | ) | (204,880 | ) | (870,043 | ) | (787,765 | ) | (250,951 | ) | ||||||||||||||||
Retained losses | (406,698 | ) | (224,633 | ) | (105,774 | ) | (430,366 | ) | (406,698 | ) | (124,131 | ) | ||||||||||||||||
Attributable to equity holders of the Company | (88,489 | ) | 19,287 | (23,014 | ) | (194,435 | ) | (88,489 | ) | (56,082 | ) | |||||||||||||||||
Non-controlling interest | 137,103 | 284,777 | 35,657 | 45,651 | 137,103 | 13,167 | ||||||||||||||||||||||
48,614 | 304,064 | 12,643 | ||||||||||||||||||||||||||
(148,784 | ) | 48,614 | (42,915 | ) | ||||||||||||||||||||||||
2,261,209 | 2,703,552 | 588,090 | ||||||||||||||||||||||||||
1,017,371 | 2,261,209 | 293,443 |
April 25, 2018 | ||||||
Date of approval of the financial statements | Yael Naftali
|
| Ron Hadassi
Chief Executive Officer |
ELBIT IMAGING LTD.The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
Year ended December 31 | ||||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | |||||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||||
Note | (in thousand NIS) | USD ’000 | ||||||||||||||||
(Except for per-share data) | ||||||||||||||||||
Revenues and gains | ||||||||||||||||||
Revenues | ||||||||||||||||||
Revenues from sale of commercial centers | (16A) | 126,019 | 200,078 | 201,571 | 32,775 | |||||||||||||
Revenues from Hotels operations and management | (16B) | 135,839 | 147,886 | 197,007 | 35,328 | |||||||||||||
Total revenues | 261,858 | 347,964 | 398,578 | 68,103 | ||||||||||||||
Gains and other | ||||||||||||||||||
Rental income from commercial centers | (16A) | 66,417 | 83,849 | 113,661 | 17,274 | |||||||||||||
Gain from sale of investees | - | 6,712 | 11,301 | - | ||||||||||||||
Total gains | 66,417 | 90,561 | 124,962 | 17,274 | ||||||||||||||
Total revenues and gains | 328,275 | 438,525 | 523,540 | 85,377 | ||||||||||||||
Expenses and losses | ||||||||||||||||||
Commercial centers | (16C) | 159,806 | 290,360 | 291,864 | 41,562 | |||||||||||||
Hotels operations and management | (16D) | 115,367 | 126,849 | 173,918 | 30,004 | |||||||||||||
General and administrative expenses | (16E) | 10,257 | 16,678 | 39,785 | 2,668 | |||||||||||||
Share in losses of associates, net | (6,7) | 54,313 | 42,925 | 17,298 | 14,125 | |||||||||||||
Financial expenses | (16F) | 143,988 | 236,288 | 237,601 | 37,448 | |||||||||||||
Financial income | (16G) | 1,056 | (2,154 | ) | (6,317 | ) | 275 | |||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | (16H) | (2,707 | ) | 5,446 | 71,432 | (704 | ) | |||||||||||
Financial gain from debt restructuring | (16I) | - | - | (1,616,628 | ) | - | ||||||||||||
Write-down, charges and other expenses, net | (16J) | 155,357 | 38,298 | 531,042 | 40,405 | |||||||||||||
637,437 | 754,690 | (260,005 | ) | 165,783 | ||||||||||||||
Profit (loss) before income taxes | (309,162 | ) | (316,165 | ) | 783,545 | (80,406 | ) | |||||||||||
Income taxes expenses (tax benefits) | (12) | 2,906 | 5,631 | (2,287 | ) | 756 | ||||||||||||
Profit (loss) from continuing operations | (312,068 | ) | (321,796 | ) | 785,832 | (81,162 | ) | |||||||||||
Profit (loss) from discontinued operations, net | (19) | - | 6,874 | (1,475 | ) | - | ||||||||||||
Profit (loss) for the year | (312,068 | ) | (314,922 | ) | 784,357 | (81,162 | ) |
F-6 |
ELBIT IMAGING LTD.
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
Year ended December 31 | |||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | ||||||||||||||
Convenience | |||||||||||||||||
translation | |||||||||||||||||
(Note 2D) | |||||||||||||||||
Note | (in thousand NIS) | USD ’000 | |||||||||||||||
(Except for per-share data) | |||||||||||||||||
Attributable to: | |||||||||||||||||
Equity holders of the Company | (194,830 | ) | (186,150 | ) | 1,008,999 | (50,671 | ) | ||||||||||
Non-controlling interest | (117,238 | ) | (128,772 | ) | (224,642 | ) | (30,491 | ) | |||||||||
(312,068 | ) | (314,922 | ) | 784,357 | (81,162 | ) | |||||||||||
Profit (loss) from continuing operations | |||||||||||||||||
Equity holders of the Company | (194,830 | ) | (193,024 | ) | 1,010,619 | (50,671 | ) | ||||||||||
Non-controlling interest | (117,238 | ) | (128,772 | ) | (224,787 | ) | (30,491 | ) | |||||||||
(312,068 | ) | (321,796 | ) | 785,832 | (81,162 | ) | |||||||||||
Profit (loss) from discontinued operation, net | |||||||||||||||||
Equity holders of the Company | - | 6,874 | (1,620 | ) | - | ||||||||||||
Non-controlling interest | - | - | 145 | - | |||||||||||||
- | 6,874 | (1,475 | ) | - | |||||||||||||
Earnings (loss) per share - (in NIS) | (16k) | ||||||||||||||||
Basic earnings (loss) per share: | |||||||||||||||||
From continuing operation | (21.20 | ) | (21.00 | ) | 127.64 | (5.51 | ) | ||||||||||
From discontinued operations | - | 0.75 | (0.19 | ) | - | ||||||||||||
(21.20 | ) | (20.25 | ) | 127.45 | (5.51 | ) | |||||||||||
Diluted earnings (loss) per share: | |||||||||||||||||
From continuing operation | (21.20 | ) | (21.00 | ) | 127.64 | (5.51 | ) | ||||||||||
From discontinued operations | - | 0.75 | (0.19 | ) | - | ||||||||||||
(21.20 | ) | (20.25 | ) | 127.45 | (5.51 | ) |
Year ended December 31 | ||||||||||||||||||
Convenience translation (note 2d) | ||||||||||||||||||
2017 | (*)2016 | (*)2015 | 2017 | |||||||||||||||
note | NIS in thousands | USD in thousands | ||||||||||||||||
REVENUES AND GAINS | ||||||||||||||||||
REVENUES | ||||||||||||||||||
Revenues from sale of commercial centers | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||||
Total revenues | 782,829 | 126,019 | 200,078 | 225,794 | ||||||||||||||
GAINS AND OTHER | ||||||||||||||||||
Rental income from commercial centers | 31,997 | 66,417 | 83,849 | 9,229 | ||||||||||||||
Gain from sale of investees | - | - | 6,712 | - | ||||||||||||||
Total gains | 31,997 | 66,417 | 90,561 | 9,229 | ||||||||||||||
Total revenues and gains | 814,826 | 192,436 | 290,639 | 235,023 | ||||||||||||||
EXPENSES AND LOSSES | ||||||||||||||||||
Cost of commercial centers | 16a | 805,623 | 159,806 | 290,360 | 232,369 | |||||||||||||
General and administrative expenses | 16b | 14,930 | 10,257 | 16,678 | 4,306 | |||||||||||||
Share in losses of associates, net | 6,7 | 20,202 | 54,313 | 42,925 | 5,827 | |||||||||||||
Financial expenses | 16c | 112,296 | 124,354 | 207,721 | 32,390 | |||||||||||||
Financial income | 16d | (1,811 | ) | 1,056 | (2,154 | ) | (522 | ) | ||||||||||
Change in fair value of financial instruments measured at fair value through profit and loss | 16e | - | (2,707 | ) | 2,568 | - | ||||||||||||
Write-down, charges and other expenses, net | 16f | 101,120 | 162,318 | 99,292 | 29,166 | |||||||||||||
1,052,360 | 509,397 | 657,390 | 303,536 | |||||||||||||||
Loss before income taxes | (237,534 | ) | (316,961 | ) | (366,751 | ) | (68,513 | ) | ||||||||||
Income taxes expenses | 12 | 11,244 | 3,020 | 4,402 | 3,243 | |||||||||||||
Loss from continuing operations | (248,778 | ) | (319,981 | ) | (371,153 | ) | (71,756 | ) | ||||||||||
Profit (loss) from discontinued operations, net | 19 | (152,903 | ) | 7,913 | 56,231 | (44,102 | ) | |||||||||||
Loss for the year | (401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) |
(*) Reclassified (discontinued operations). Refer to Note 19.
The accompanying notes are an integral part of the consolidated financial statements.
F-7 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEPROFIT AND LOSS (Cont.)
Year ended December 31 | ||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | USD ’000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
Profit (loss) for the year | (312,068 | ) | (314,922 | ) | 784,357 | (81,162 | ) | |||||||||
Other comprehensive income to be reclassified to profit or loss in subsequent periods: | ||||||||||||||||
Exchange differences arising from translation of foreign operations | (33,933 | ) | (91,319 | ) | 24,262 | (8,825 | ) | |||||||||
Gain from cash flow hedge | 1,670 | 2,081 | 702 | 434 | ||||||||||||
Loss from available for sale investments net of reclassification reserve to profit and lost | - | - | (11,329 | ) | - | |||||||||||
Reclassification adjustments relating to foreign operations disposed of in the year | - | (32,454 | ) | - | - | |||||||||||
(32,263 | ) | (121,692 | ) | 13,635 | (8,391 | ) | ||||||||||
Items not to be reclassified to profit or loss in subsequent periods (*): | ||||||||||||||||
Additions during the year | 90,410 | 83,582 | (79,393 | ) | 23,514 | |||||||||||
90,410 | 83,582 | (79,393 | ) | 23,514 | ||||||||||||
Other comprehensive income (loss) | 58,147 | (38,110 | ) | (65,758 | ) | 15,122 | ||||||||||
Comprehensive income (loss) | (253,921 | ) | (353,032 | ) | 718,599 | (66,039 | ) | |||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | (128,114 | ) | (206,504 | ) | 958,878 | (33,319 | ) | |||||||||
Non-controlling interest | (125,807 | ) | (146,528 | ) | (240,279 | ) | (32,720 | ) | ||||||||
(253,921 | ) | (353,032 | ) | 718,599 | (66,039 | ) |
Year ended December 31 | ||||||||||||||||||
Convenience translation (note 2d) | ||||||||||||||||||
2017 | (*)2016 | (*)2015 | 2017 | |||||||||||||||
note | NIS in thousands | USD in thousands | ||||||||||||||||
(Except share and per share data) | ||||||||||||||||||
Attributable to: | ||||||||||||||||||
Equity holders of the Company | (338,034 | ) | (194,830 | ) | (186,150 | ) | (97,500 | ) | ||||||||||
Non-controlling interest | (63,647 | ) | (117,238 | ) | (128,772 | ) | (18,358 | ) | ||||||||||
(401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) | |||||||||||
Loss from continuing operations | ||||||||||||||||||
Equity holders of the Company | (185,132 | ) | (202,724 | ) | (242,709 | ) | (53,398 | ) | ||||||||||
Non-controlling interest | (63,647 | ) | (117,257 | ) | (128,463 | ) | (18,358 | ) | ||||||||||
(248,779 | ) | (319,981 | ) | (371,172 | ) | (71,756 | ) | |||||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||||
Equity holders of the Company | (152,903 | ) | 7,893 | 56,540 | (44,102 | ) | ||||||||||||
Non-controlling interest | - | 20 | (309 | ) | - | |||||||||||||
(152,903 | ) | 7,913 | 56,231 | (44,102 | ) | |||||||||||||
Loss per share - (in NIS) | (16j) | |||||||||||||||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||||
From continuing operation | (20.14 | ) | (22.05 | ) | (21.73 | ) | (5.8 | ) | ||||||||||
From discontinued operations | (16.64 | ) | 0.85 | 1.48 | (4.8 | ) | ||||||||||||
(36.78 | ) | (21.20 | ) | (20.25 | ) | (10.6 | ) |
(*) Reclassified (discontinued operations). Refer to Note 19.
The accompanying notes are an integral part of the consolidated financial statements.
F-8 |
UNAUDITEDCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYCOMPREHENSIVE INCOME
Share capital | Share premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Gross amount | Treasury stock | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||
(in thousand NIS) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance - January 1, 2014 | 38,069 | 871,288 | (181,862 | ) | 202,283 | 48,812 | (755,886 | ) | (1,086,820 | ) | (864,116 | ) | (168,521 | ) | (1,032,637 | ) | 624,007 | (408,630 | ) | |||||||||||||||||||||||||||||
Profit (loss) for the year | - | - | - | - | - | - | 1,008,999 | 1,008,999 | - | 1,008,999 | (224,642 | ) | 784,357 | |||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | (10,789 | ) | (71,734 | ) | - | 21,710 | 10,692 | (50,121 | ) | - | (50,121 | ) | (15,637 | ) | (65,758 | ) | ||||||||||||||||||||||||||||||
Issuance of shares | - | 314,220 | - | - | - | - | - | 314,220 | - | 314,220 | - | 314,220 | ||||||||||||||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | - | 715 | - | - | 715 | - | 715 | 4,321 | 5,036 | ||||||||||||||||||||||||||||||||||||
Treasury stock and old stock cancellation | (38,069 | ) | (130,452 | ) | - | - | - | - | - | (168,521 | ) | 168,521 | - | - | - | |||||||||||||||||||||||||||||||||
Transaction with non-controlling interest | - | - | (47,431 | ) | - | - | - | - | (47,431 | ) | - | (47,431 | ) | 131,443 | 84,012 | |||||||||||||||||||||||||||||||||
Expiration and exercise of option | - | - | 38,234 | - | - | - | - | 38,234 | - | 38,234 | (38,234 | ) | - | |||||||||||||||||||||||||||||||||||
Balance - December 31, 2014 | - | 1,055,056 | (201,848 | ) | 130,549 | 49,527 | (734,176 | ) | (67,129 | ) | 231,979 | - | 231,979 | 481,258 | 713,237 |
Year ended December 31 | ||||||||||||||||
Convenience translation (note 2d) | ||||||||||||||||
2017 | 2016 | 2015 | 2017 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
(Except share and per share data) | ||||||||||||||||
Loss for the year | (401,681 | ) | (312,068 | ) | (314,922 | ) | (115,858 | ) | ||||||||
Other comprehensive income to be reclassified to profit or loss in subsequent periods: | ||||||||||||||||
Exchange differences arising from translation of foreign operations | (13,597 | ) | (33,933 | ) | (91,319 | ) | (3,926 | ) | ||||||||
Gain from cash flow hedge | - | 1,670 | 2,081 | - | ||||||||||||
Reclassification adjustments relating to foreign operations disposed of in the year | 213,848 | - | (32,454 | ) | 61,681 | |||||||||||
200,251 | (32,263 | ) | (121,692 | ) | 57,755 | |||||||||||
Items not to be reclassified to profit or loss in subsequent periods (*): | ||||||||||||||||
Additions during the year | 9,763 | 90,410 | 83,582 | 2,816 | ||||||||||||
9,763 | 90,410 | 83,582 | 2,816 | |||||||||||||
Other comprehensive income (loss) | 210,014 | 58,147 | (38,110 | ) | 60,571 | |||||||||||
Comprehensive loss | (191,667 | ) | (253,921 | ) | (353,032 | ) | (55,287 | ) | ||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | (127,918 | ) | (128,114 | ) | (206,504 | ) | (36,896 | ) | ||||||||
Non-controlling interest | (63,749 | ) | (125,807 | ) | (146,528 | ) | (18,387 | ) | ||||||||
(191,667 | ) | (253,921 | ) | (353,032 | ) | (55,283 | ) | |||||||||
Loos from continuing operations | ||||||||||||||||
Equity holders of the Company | (198,441 | ) | (211,394 | ) | (206,597 | ) | (57,236 | ) | ||||||||
Non-controlling interest | (63,935 | ) | (127,281 | ) | (143,610 | ) | (18,441 | ) | ||||||||
(262,376 | ) | (227,675 | ) | (350,208 | ) | (75,677 | ) | |||||||||
Profit (loss) from discontinued operation, net | ||||||||||||||||
Equity holders of the Company | 70,895 | 83,279 | (3,226 | ) | 20,449 | |||||||||||
Non-controlling interest | (186 | ) | 1,474 | 402 | (54 | ) | ||||||||||
70,708 | 84,753 | �� | (2,824 | ) | 20,395 |
(*) All amounts are presented net of related tax.
The accompanying notes are an integral part of the consolidated financial statements.
F-9 |
ELBIT IMAGING LTD.
UNAUDITED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT.)
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousand NIS) | NIS in thousands | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - January 1, 2015 | 1,055,056 | (201,848 | ) | 130,549 | 49,527 | (734,176 | ) | (67,129 | ) | 231,979 | 481,258 | 713,237 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance -January 1, 2015 | 1,055,056 | (201,848 | ) | 130,549 | 49,527 | (734,176 | ) | (67,129 | ) | 231,979 | 481,258 | 713,237 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (186,150 | ) | (186,150 | ) | (128,772 | ) | (314,922 | ) | - | - | - | - | - | (186,150 | ) | (186,150 | ) | (128,772 | ) | (314,922 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | 8,007 | 60,783 | - | (109,649 | ) | 20,504 | (20,355 | ) | (17,756 | ) | (38,111 | ) | - | 8,007 | 60,783 | - | (109,649 | ) | 20,504 | (20,355 | ) | (17,756 | ) | (38,111 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 845 | - | - | 845 | (175 | ) | 670 | - | - | - | 845 | - | - | 845 | (175 | ) | 670 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction with non-controlling interest | - | (148,066 | ) | 37,413 | - | 94,933 | 8,142 | (7,578 | ) | (50,565 | ) | (58,143 | ) | - | (148,066 | ) | 37,413 | - | 94,933 | 8,142 | (7,578 | ) | (50,565 | ) | (58,143 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Expiration of options held by minority | - | - | - | 546 | 546 | 787 | 1,333 | - | - | - | 546 | 546 | 787 | 1,333 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cancelation of treasury stock and old stock | 50,918 | - | - | (50,918 | ) | - | - | - | - | - | 50,918 | - | - | (50,918 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2015 | 1,105,974 | (341,907 | ) | 228,745 | - | (748,892 | ) | (224,633 | ) | 19,287 | 284,777 | 304,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance -December 31, 2015 | 1,105,974 | (341,907 | ) | 228,745 | - | (748,892 | ) | (224,633 | ) | 19,287 | 284,777 | 304,064 |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.
F-10 |
ELBIT IMAGING LTD.
UNAUDITED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT.(Cont.)
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousand NIS) | NIS in thousands | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - January 1, 2016 | 1,105,974 | (341,907 | ) | 228,745 | - | (748,892 | ) | (224,633 | ) | 19,287 | 284,777 | 304,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance -January 1, 2016 | 1,105,974 | (341,907 | ) | 228,745 | - | (748,892 | ) | (224,633 | ) | 19,287 | 284,777 | 304,064 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (194,830 | ) | (194,830 | ) | (117,238 | ) | (312,068 | ) | - | - | - | - | - | (194,830 | ) | (194,830 | ) | (117,238 | ) | (312,068 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | 2,015 | 76,025 | - | (24,089 | ) | 12,765 | 66,716 | (8,569 | ) | 58,147 | - | 2,015 | 76,025 | - | (24,089 | ) | 12,765 | 66,716 | (8,569 | ) | 58,147 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 27 | - | - | 27 | 149 | 176 | - | - | - | 27 | - | - | 27 | 149 | 176 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction with non-controlling interest | - | 40,903 | - | - | (27,369 | ) | - | 13,534 | (15,239 | ) | (1,705 | ) | - | 40,903 | - | - | (27,369 | ) | - | 13,534 | (15,239 | ) | (1,705 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Cancelation of stock based compensation | - | 6,777 | - | - | - | - | 6,777 | (6,777 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Forfeiture of stock options granted | - | 6,777 | - | - | - | - | 6,777 | (6,777 | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2016 | 1,105,974 | (292,212 | ) | 304,770 | 27 | (800,350 | ) | (406,698 | ) | (88,489 | ) | 137,103 | 48,614 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance -December 31, 2016 | 1,105,974 | (292,212 | ) | 304,770 | 27 | (800,350 | ) | (406,698 | ) | (88,489 | ) | 137,103 | 48,614 |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.
F-11 |
ELBIT IMAGING LTD.
UNAUDITED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT.(Cont.)
Share Capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained earnings | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | ||||||||||||||||||||||||||||
(in thousand US$) | ||||||||||||||||||||||||||||||||||||
Balance - January 1, 2016 | 287,640 | (88,923 | ) | 59,492 | - | (194,770 | ) | (58,423 | ) | 5,016 | 74,064 | 79,080 | ||||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (50,671 | ) | (50,671 | ) | (30,492 | ) | (81,163 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | - | 524 | 19,772 | - | (6,265 | ) | 3,320 | 17,351 | (2,228 | ) | 15,123 | |||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 7 | - | - | 7 | 39 | 46 | |||||||||||||||||||||||||||
Transaction with non-controlling interest | - | 10,638 | - | - | (7,118 | ) | - | 3,520 | (3,963 | ) | (443 | ) | ||||||||||||||||||||||||
Cancelation of treasury stock and old stock | - | 1,763 | - | - | - | - | 1,763 | (1,763 | ) | - | ||||||||||||||||||||||||||
Balance - December 31, 2016 | 287,640 | (75,998 | ) | 79,264 | 7 | (208,153 | ) | (105,774 | ) | (23,014 | ) | 35,657 | 12,643 |
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | ||||||||||||||||||||||||||||
NIS in thousands | ||||||||||||||||||||||||||||||||||||
Balance -January 1, 2017 | 1,105,974 | (292,212 | ) | 304,770 | 27 | (800,350 | ) | (406,698 | ) | (88,489 | ) | 137,103 | 48,614 | |||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (338,034 | ) | (338,034 | ) | (63,647 | ) | (401,681 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | - | - | (1,960 | ) | - | 200,518 | 11,556 | 210,114 | (100 | ) | 210,014 | |||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 199 | - | - | 199 | 503 | 702 | |||||||||||||||||||||||||||
Disposal as a result of sale of subsidiary (see note 19) | - | - | (302,810 | ) | - | - | 302,810 | - | (6,433 | ) | (6,433 | ) | ||||||||||||||||||||||||
Change in holding rate in subsidiary | - | 1,537 | - | - | - | - | 1,537 | (1,537 | ) | - | ||||||||||||||||||||||||||
Forfeiture of stock options granted | - | 20,238 | - | - | - | - | 20,238 | (20,238 | ) | - | ||||||||||||||||||||||||||
Balance -December 31, 2017 | 1,105,974 | (270,437 | ) | - | 226 | (599,832 | ) | (430,366 | ) | (194,435 | ) | 45,651 | (148,784 | ) |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.
The accompanying notes are an integral part of the consolidated financial statements.
F-12 |
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Cont.)
Year ended December 31 | ||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | USD '000 | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Profit (loss) for the year from continued operations | (312,068 | ) | (321,796 | ) | 785,832 | (81,162 | ) | |||||||||
Adjustments to profit (loss): | ||||||||||||||||
Tax expenses(benefits) recognized in profit and loss | 2,906 | 5,631 | (2,287 | ) | 756 | |||||||||||
Finance expenses recognized in profit and loss, net | 142,336 | 239,598 | 302,716 | 37,018 | ||||||||||||
Financial gain from debt restructuring | - | - | (1,616,628 | ) | - | |||||||||||
Income tax paid in cash | (803 | ) | (509 | ) | (85 | ) | (209 | ) | ||||||||
Depreciation, amortization and other (including impairment) | 196,141 | 123,145 | 582,745 | 51,012 | ||||||||||||
Realization of foreign currency translation reserve in connection with sale operations | - | (56,063 | ) | - | - | |||||||||||
Profit from realization of subsidiary (Appendix A) | - | (4,147 | ) | - | - | |||||||||||
Profit from realization of investments in associates and joint venture | - | (6,713 | ) | (11,301 | ) | - | ||||||||||
Share in losses of associates, net | 54,312 | 42,925 | 17,298 | 14,125 | ||||||||||||
Loss (profit) from realization of assets and liabilities | (7,973 | ) | (4,872 | ) | 1,328 | (2,074 | ) | |||||||||
Stock based compensation expenses | 189 | 1,047 | 5,036 | 49 | ||||||||||||
Other | (412 | ) | (488 | ) | (20,679 | ) | (107 | ) | ||||||||
Change in trade accounts receivables | (22,797 | ) | 3,415 | 5,538 | (5,929 | ) | ||||||||||
Change in receivables and other debit balances | 61 | 10,968 | 22,739 | 16 | ||||||||||||
Change in Inventories | 106 | (118 | ) | 198 | 28 | |||||||||||
Change in trading property and payment on account of trading property | 18,708 | 181,680 | 214,171 | 4,866 | ||||||||||||
Change in suppliers and service providers | 20,929 | (7,095 | ) | (970 | ) | 5,443 | ||||||||||
Change in payables and other credit balances | (14,607 | ) | (13,241 | ) | (6,022 | ) | (3,799 | ) | ||||||||
Net cash provided by (used in) operating activities of continuing operations | 77,030 | 193,367 | 279,629 | 20,033 | ||||||||||||
Net cash provided by (used in) discontinued operating activities | - | (2,014 | ) | 1,506 | - | |||||||||||
Net cash provided by operating activities | 77,030 | 191,353 | 281,135 | 20,033 | ||||||||||||
Share capital and premium | Other reserves (*) | Revaluation of property, plant and equipment | Stock-based compensation reserve | Foreign currency translation reserve | Retained losses | Attributable to shareholders of the company | Non- Controlling interest | Total shareholders’ equity | ||||||||||||||||||||||||||||
USD in thousands | ||||||||||||||||||||||||||||||||||||
Balance -January 1, 2017 | 319,000 | (84,284 | ) | 87,906 | 8 | (230,848 | ) | (117,305 | ) | (25,523 | ) | 39,545 | 14,022 | |||||||||||||||||||||||
Loss for the year | - | - | - | - | - | (97,500 | ) | (97,500 | ) | (18,358 | ) | (115,858 | ) | |||||||||||||||||||||||
Other comprehensive income (loss) | - | - | (565 | ) | - | 57,836 | 3,333 | 60,604 | (29 | ) | 60,575 | |||||||||||||||||||||||||
Stock based compensation expenses | - | - | - | 57 | - | - | 57 | 145 | 202 | |||||||||||||||||||||||||||
Disposal as a result of sale of subsidiary (see note 19) | - | - | (87,341 | ) | - | - | 87,341 | - | (1,856 | ) | (1,856 | ) | ||||||||||||||||||||||||
Change in holding rate in subsidiary | - | 443 | - | - | - | - | 443 | (443 | ) | - | ||||||||||||||||||||||||||
Forfeiture of stock options granted | - | 5,837 | - | - | - | - | 5,837 | (5,837 | ) | - | ||||||||||||||||||||||||||
Balance -December 31, 2017 | 319,000 | (78,004 | ) | - | 65 | (173,012 | ) | (124,131 | ) | (56,082 | ) | 13,167 | (42,915 | ) |
(*) Includes transactions with non-controlling interest reserve and hedging reserve.
The accompanying notes are an integral part of the consolidated financial statements.
F-13 |
ELBIT IMAGING LTD.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
Year ended December 31 | ||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | USD '000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Proceeds from realization of investments in subsidiaries (Appendix A) | - | 192,026 | - | - | ||||||||||||
Proceeds from sale of investment in a joint venture | 83,792 | - | - | 21,792 | ||||||||||||
Purchase of property plant and equipment, and other assets | (2,872 | ) | (23,630 | ) | (4,525 | ) | (747 | ) | ||||||||
Proceeds from realization of property plant and equipment | 22,278 | 12,916 | 7,230 | 5,794 | ||||||||||||
Proceeds from realization of investments in associates and joint venture | - | 76 | - | - | ||||||||||||
Investments in associates and other companies | - | - | (3,193 | ) | - | |||||||||||
Proceed from realization of long-term deposits and long-term loans | 7,128 | 10,197 | - | 1,854 | ||||||||||||
Investment in long-term deposits and long-term loans | (10,851 | ) | - | (3,365 | ) | (2,822 | ) | |||||||||
Interest received in cash | 328 | 1,404 | 3,730 | 85 | ||||||||||||
Change in short-term deposits and marketable securities, net and changes in restricted cash | (9,917 | ) | 5,070 | 47,186 | (2,579 | ) | ||||||||||
Net cash provided by continued investing activities | 89,886 | 198,059 | 47,063 | 23,377 | ||||||||||||
Net cash provided by (used in) discontinued investing activities | - | 37,737 | (7,913 | ) | - | |||||||||||
Net cash provided by investing activities | 89,886 | 235,796 | 39,150 | 23,377 |
Year ended December 31 | ||||||||||||||||
Convenience translation (note 2d) | ||||||||||||||||
2017 | 2016 | 2015 | 2017 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||
Loss for the year | (401,681 | ) | (312,068 | ) | (321,796 | ) | (115,858 | ) | ||||||||
Adjustments to profit (loss): | ||||||||||||||||
Tax expenses recognized in profit and loss | 11,164 | 2,906 | 5,631 | 3,220 | ||||||||||||
Finance expenses recognized in profit and loss, net | 344,434 | 142,336 | 239,598 | 99,346 | ||||||||||||
Income tax paid in cash | (1,856 | ) | (803 | ) | (509 | ) | (535 | ) | ||||||||
Depreciation, amortization and other (including impairment) | 119,694 | 196,141 | 123,145 | 34,524 | ||||||||||||
Realization of foreign currency translation reserve in connection with sale operations | - | - | (56,063 | ) | - | |||||||||||
Profit from realization of subsidiary (Appendix A) | (56,544 | ) | - | (4,147 | ) | (16,309 | ) | |||||||||
Profit from realization of investments in associates and joint venture | - | - | (6,713 | ) | ||||||||||||
Share in losses of associates, net | 20,202 | 54,312 | 42,925 | 5,827 | ||||||||||||
Profit from realization of assets and liabilities | (3,204 | ) | (7,973 | ) | (4,872 | ) | (924 | ) | ||||||||
Stock based compensation expenses | 719 | 189 | 1,047 | 207 | ||||||||||||
Other | (759 | ) | (412 | ) | (488 | ) | (219 | ) | ||||||||
Change in trade accounts receivables | 10,000 | (22,797 | ) | 3,415 | 2,884 | |||||||||||
Change in receivables and other debit balances | (21,657 | ) | 61 | 10,968 | (6,247 | ) | ||||||||||
Change in Inventories | 187 | 106 | (118 | ) | 54 | |||||||||||
Change in trading property | 385,127 | 18,708 | 181,680 | 111,084 | ||||||||||||
Change in suppliers and service providers | (1,301 | ) | 20,929 | (7,095 | ) | (375 | ) | |||||||||
Change in payables and other credit balances | 29,287 | (14,605 | ) | (13,241 | ) | 8,447 | ||||||||||
Net cash provided by operating activities of continuing operations | 433,812 | 77,030 | 193,367 | 125,126 | ||||||||||||
Net cash used in discontinued operating activities | - | - | (2,014 | ) | - | |||||||||||
Net cash provided by operating activities | 433,812 | 77,030 | 191,353 | 125,126 |
F-14 |
ELBIT IMAGING LTD.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.(Cont.)
Year ended December 31 | ||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 6 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | USD '000 | |||||||||||||||
(Except for per-share data) | ||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Interest paid in cash | (107,297 | ) | (129,350 | ) | (153,561 | ) | (27,905 | ) | ||||||||
Purchase of non-controlling interest | (701 | ) | (62,059 | ) | - | (182 | ) | |||||||||
Proceeds from long-term borrowings | 204,615 | - | 42,715 | 53,216 | ||||||||||||
Repayment of long-term borrowings | (332,553 | ) | (377,406 | ) | (247,709 | ) | (86,489 | ) | ||||||||
Proceeds (payments) from hedging activities through sale of options and forwards | 2,677 | (1,610 | ) | - | 696 | |||||||||||
Proceeds from transactions with non-controlling interests, net | - | - | 54,885 | - | ||||||||||||
Proceed from short-term credit | - | - | 7,152 | - | ||||||||||||
Repayment of short-term credit | - | (6,997 | ) | - | - | |||||||||||
Net cash used in continued financing activities | (233,259 | ) | (577,422 | ) | (296,518 | ) | (60,664 | ) | ||||||||
Net cash provided by (used in) discontinued financing activities | - | (2,135 | ) | 2,000 | - | |||||||||||
Net cash used in financing activities | (233,259 | ) | (579,557 | ) | (294,518 | ) | (60,664 | ) | ||||||||
Increase (decrease) in cash and cash equivalents | (66,343 | ) | (152,408 | ) | 25,767 | (17,254 | ) | |||||||||
Cash and cash equivalents at the beginning of the year | 157,851 | 323,182 | 311,181 | 41,054 | ||||||||||||
Cash and cash equivalents related to discontinued operations at the end of the year | - | - | (6,290 | ) | - | |||||||||||
Net effect on cash due to currency exchange rate changes | (1,820 | ) | (12,923 | ) | (7,476 | ) | (474 | ) | ||||||||
Cash and cash equivalents at the end of the year | 89,688 | 157,851 | 323,182 | 23,326 | ||||||||||||
Non Cash activities:
A bank loan in amount of NIS 83.9 million was repaid by net Company’s assets.
Year ended December 31 | ||||||||||||||||
Convenience translation | ||||||||||||||||
2017 | 2016 | 2015 | 2017 | |||||||||||||
NIS in thousands | USD in thousands | |||||||||||||||
(Except share and per share data) | ||||||||||||||||
Cash flows from investing activities | ||||||||||||||||
Proceeds from realization of investments in subsidiaries (a) | 442,708 | - | 192,026 | 127,693 | ||||||||||||
Proceeds from realization of investments in associates and joint venture | 1,983 | 83,792 | 76 | 572 | ||||||||||||
Purchase of property plant and equipment, and other assets | (4,095 | ) | (2,872 | ) | (23,630 | ) | (1,181 | ) | ||||||||
Proceeds from realization of property plant and equipment | 3,635 | 22,278 | 12,916 | 1,048 | ||||||||||||
Proceed from realization of long-term deposits and long-term loans | 1,085 | 7,128 | 10,197 | 313 | ||||||||||||
Investment in long-term deposits and long-term loans | 974 | (10,851 | ) | - | 281 | |||||||||||
Interest received in cash | - | 328 | 1,404 | - | ||||||||||||
Change in short-term deposits and marketable securities, net and changes in restricted cash | 12,916 | (9,917 | ) | 5,070 | 3,725 | |||||||||||
Net cash provided by continued investing activities | 459,206 | 89,886 | 198,059 | 132,451 | ||||||||||||
Net cash provided by discontinued investing activities | - | - | 37,737 | - | ||||||||||||
Net cash provided by investing activities | 459,206 | 89,886 | 235,796 | 132,451 |
F-15 |
ELBIT IMAGING LTD.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.(Cont.)
Year ended December 31 | |||||||||||||||||
2017 | 2016 | 2015 | Convenience translation (note 2d) 2017 | ||||||||||||||
NIS in thousands | USD in thousands | ||||||||||||||||
(Except share and per share data) | |||||||||||||||||
Cash flows from financing activities | |||||||||||||||||
Interest paid in cash | (75,584 | ) | (107,297 | ) | (129,350 | ) | (21,801 | ) | |||||||||
Purchase of non-controlling interest | - | (701 | ) | (62,059 | ) | - | |||||||||||
Proceeds from long-term borrowings | 16,364 | 204,615 | - | 4,720 | |||||||||||||
Repayment of long-term borrowings | (460,523 | ) | (332,553 | ) | (377,406 | ) | (132,830 | ) | |||||||||
Proceeds (payments) from hedging activities through sale of options and forwards | - | 2,677 | (1,610 | ) | - | ||||||||||||
Repayment of short-term credit | - | - | (6,997 | ) | - | ||||||||||||
Net cash used in continued financing activities | (519,743 | ) | (233,259 | ) | (577,422 | ) | (149,911 | ) | |||||||||
Net cash used in discontinued financing activities | - | - | (2,135 | ) | - | ||||||||||||
Net cash used in financing activities | (519,743 | ) | (233,259 | ) | (579,557 | ) | (149,911 | ) | |||||||||
Increase (decrease) in cash and cash equivalents | 373,275 | (66,343 | ) | (152,408 | ) | 107,665 | |||||||||||
Cash and cash equivalents at the beginning of the year | 89,688 | 157,851 | 323,182 | 25,869 | |||||||||||||
Cash and cash equivalents related to discontinued operations at the end of the year | - | - | - | - | |||||||||||||
Net effect on cash due to currency exchange rate changes | 2,776 | (1,820 | ) | (12,923 | ) | 801 | |||||||||||
Cash and cash equivalents at the end of the year | 465,739 | 89,688 | 157,851 | 134,335 | |||||||||||||
(a) | Proceeds from realization of investments in subsidiaries: | ||||||||||||||||
Working capital (excluding cash), net | 1,426 | - | (15,591 | ) | 411 | ||||||||||||
Long term deposits | 9,302 | - | - | 2,683 | |||||||||||||
Property, plant equipment and other assets | 705,809 | - | 203,470 | 203,579 | |||||||||||||
Bank loans | (231,631 | ) | - | - | (66,810 | ) | |||||||||||
Deferred taxes | (92,309 | ) | - | - | (26,625 | ) | |||||||||||
Non- controlling interests | (6,433 | ) | - | - | (1,855 | ) | |||||||||||
Profit from realization of subsidiaries | 56,544 | - | 4,147 | 16,309 | |||||||||||||
442,708 | - | 192,026 | 127,692 |
The accompanying notes are an integral part of the consolidated financial statements.
F-16 |
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | GENERAL |
Elbit Imaging Ltd. (“the Company”) was incorporated in |
The Group engages, directly and through its investee companies, in Israel and abroad, mainly in the following areas: |
● |
Medical industries and devices - |
● | Plots in India - plots designated for sale which were initially designated to residential projects. |
Plots in Eastern Europe initially designated for development of commercial centers- includes plots in Eastern Europe (and in Greece) held by our subsidiary Plaza Centers N.V. (“PC”) whose business strategy is to no longer develop commercial centers but to dispose of its real estate assets at optimal market conditions. |
● | With regards to the sale of Radisson hotel Complex in Bucharest Romania on December 18, 2017, see note 19. Accordingly, this operation is presented in these financial statements as discontinued operation. |
c. | Financial position as of December 31, |
As of the financial statements’ approval date, the Company’s standalone financial position includes liabilities to bank Hapoalim and towards Series H and Series I notes in the aggregate principal amount of approximately NIS 641271 million. An amount of approximately NIS 52 million (principal plus future accrued interest) is due to bank Hapoalim on November 30, 2017 and an amount of approximately NIS 31250 million (principal plus future accrued interest) is due to Series H notes until May 30, 2018. It should be noted that based on discussions with Bank Hapoalim representatives, management’s assumptions is that, as needed, Bank Hapoalim is willing to postpone the repayment date until the closing of Radisson hotel sale (see below). The remaining amount of approximately NIS 318250 million (principal plus future accrued interest) will become due until November 2019. In addition, until May 2018November 2019 the Company has certain operational expenses and other current liabilities for its ongoing operations in the amount of approximately NIS 1328 million.
The Company has prepared a projected cash flow that outlines the relevant resources until May 2018November 2019 that are expected to serve the repayments to bank HapoalimSeries H and Series HI notes which includes the following resources : (i) cash and cash equivalents (on a standalone basis) of approximately NIS 25113 million; (ii) net cash expected to be generated from the withdrawal of the net operational profits and the sale of the Company’s holdings in Radisson hotel in Bucharest of approximately NIS 289 million (See note 21 M); (iii) proceeds from advance payments on account of the sale of ourthe Company’s plot in Bangalore (India) in the amount of approximately NIS 2151 million based on terms ofthe current valuation which is lower than the sale purchase agreement signed on March 2018 as mentioned in July 2017( see note 21 H)4 d.;(iv) (iii) proceeds from partial sale of our sharesthe Company’s plot in Elbit MedicalChennai in the amount of approximately NIS 50-60 million.
In Addition,28 million based on the Company has additional resources, of approximately NIS 398 million which include, inter alia: (i) the remaining holdingscurrent valuation of the Companyplot (iv) proceeds from sale of the Company’s shares in Elbit Medical including shares and shareholder loan of the Company to Elbit Medical in the amount on NIS 149 million which is due on January 1, 2019;(ii) additional proceeds from the sale of our plot in Bangalore (India); and (iii) excepted proceed from our plot in Chennai (India).
F-17 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | GENERAL (Cont.) |
These resources are designated to serve the repayment to Series I notes in the amount of NIS 318 million which is due in November 30 2019.
c. | Financial position as of December 31, 2017 (Cont.): |
The Company’s management and board of directors are of the opinion, based on the projected cash flow and the assumptions described, that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future.
In light of the foregoing, the Company’s management and board of directors are of the opinion that no significant doubts exist as to the Company’s ability to act as going concern.
Financial position as of December 31, 2015: |
Within the Company’s consolidated financial statements as of December 31, 2015 which was published on March 30, 2016, the Company has included, inter alia, note with respect to its financial position which stated that the Company had prepared a projected cash flow until June 2018, which included the anticipated sources that to the Company’s estimation, were expected to serve the repayment of its financial liabilities. As of December 31, 2015 the Company’s Board of directors was of the opinion, based on the projected cash flow, that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future.
In light of the foregoing, the Company’s board of directors was of the opinion that, the Company is a going concern and hence, the consolidated financial statements of the Company as of December 31, 2015 were prepared based on going concern assumption.
It should be noted that as of the signing date of the Company’s financial statements for December 31, 2016 the Company has prepared projected cash flow up the end of 2018 which was approved by the Company’s Board of directors and is included in C above.
PC has identified an error in the manner of application of the appraisal with respect to the Casa Radio project (“Property”) prepared for the consolidated financial statements of 2015 (“Appraisal”). As of December 31, 2015, the Property was recorded at a value of Euro 108.6 million (NIS 461.2 million) as a non-current asset in the 2015 consolidated balance sheet. In addition, a provision for the construction costs of the Public Authority Buildings (“PAB”) was recorded in amount of Euro 14.9 million (NIS 66 million) as a non-current liability in the 2015 consolidated balance sheet, resulting in a net value of Euro 93.7 million (NIS 395.2 million). PC has identified an error in the manner of application of the appraisal due to a duplication of the provision for the costs of the PAB which was recorded separately as a liability in the consolidated financial statements and was also included as construction costs in the Appraisal (“Error”).
PC and the Company’s management and Board of Directors was of the opinion that the resulting increase in the value of the Property due to the above mentioned Error by Euro 14.9 million (NIS 66 million) would not reflect the appropriate value of the Property as of December 31, 2015 and therefore decided to engage a different valuator in order to examine the overall underlying assumptions in the Appraisal and hence to obtain a new appraisal of the Property as of December 31, 2015.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PC requested the valuator, which provided the appraisal of the Property for the 2016 consolidated financial statements, to provide a new appraisal (“New Appraisal”) with respect to the Property retrospectively as of December 31, 2015. According to the New Appraisal, the fair value of the Property as of December 31, 2015, was EUR 92.1 million (NIS 391.1 million), which by adding the provision for the cost of the PAB amounting to EUR 12.7 million (NIS 53.9 million), resulted in a gross value of the asset was EUR 104.8 million (NIS 445 million),. PC and the Company’s Board of Directors and management have reviewed and approved the New Appraisal.
The following table presents the two errors in gross value of the asset and the provision of the PAB, as follows:
As previously reported (Millions) EUR | Differences (Millions) EUR | New appraisal (Millions) EUR | |||||||||||
Non-Current assets | |||||||||||||
Casa Radio (Inventory) | 108.6 | (3.8 | ) | 104.8 | |||||||||
Non-current liabilities | |||||||||||||
Provision for PAB | (14.9 | ) | 2.2 | (12.7 | ) | ||||||||
Net impact | 93.7 | (1.6 | ) | 92.1 |
PC and the Company’s Board and management concluded that each of the errors of EUR 3.8 million (NIS 16.1 million) and EUR 2.2 million (NIS 9.3 million), error as well as the net effect of the errors in the amount of EUR 1.6 million (NIS 6.8 million), are immaterial and therefore such errors have been corrected in the 2016 financial statements.
The following disclosure replaces the disclosure provided in the 2015 financial statements and is based on the new Appraisal of the Casa Radio property as follows:
Sensitivity analysis (TNIS) (revised).
Increase in exit yields (base points) | Delay in construction commencement day (months) | |||||||||||||||||||||||||||||||||||||||
0 | +15bps | +25bps | +40bps | +50bps | 0 | +6 | +12 | +18 | +24 | |||||||||||||||||||||||||||||||
Casa Radio | 391,149 | (*) | 364,817 | 347,405 | 321,923 | 305,359 | 391,149 | (*) | 381,381 | 371,188 | 361,420 | 351,652 |
Construction costs for all phases | Rental income for all the phases | |||||||||||||||||||||||||||||||||||||||
-10% | -5% | 0 | +5% | +10% | -10% | -5% | 0 | +5% | +10% | |||||||||||||||||||||||||||||||
Casa Radio | 512,613, | 452,306 | 391,149 | (*) | 330,841 | 270,534 | 231,462 | 311,730 | 391,149 | (*) | 471,417 | 551,685 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Comparison analysis
The Below table is a Comparison table between the New Appraisal and the previous Appraisal:
|
| |||||
The Company | - | Elbit Imaging | |
Group | - | The Company and its Investees | |
Investees | - | Subsidiaries, joint ventures and associates | |
PC | - | Plaza Centers N.V. Group, a subsidiary of the Company, | |
Elbit Medical | - | Elbit Medical Technologies Ltd., a public Israeli company traded on the Tel Aviv Stock Exchange. As for December 31, | |
Related parties | - | As defined in International Accounting Standard (“IAS”) no. 24 see note 17. |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES |
Statement of compliance: |
The audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”).
Basis for preparation: |
The audited consolidated financial statements have been prepared on the historical cost basis except for (i) financial instruments measured at fair value; (ii) certain trading property measured at net realizable value (see note 2W.2w.(1)a.); and (iii) certain property, plant and equipment (hotels) were presented until their disposal at the revaluation model (based on fair value) (see note 2W.(1) e). The principal accounting policies are set out below.
Presentation of the income statements: |
The Group operations are characterized by diverse activities. Accordingly, management believes that its income statements should be presented in the “Single - step form”. According to this form, all costs and expenses (including general and administrative and financial expenses) should be considered as continuously contributing to the generation of the overall revenues and gains. Management also believes that its operating expenses should be classified by function to: (i) those directly related to each revenue (including general and administrative expenses and selling and marketing expenses relating directly to each operation); and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.
Convenience translation: |
The balance sheet as of December 31, 2016,2017, and statement of income, statement of other comprehensive income, statement of changes in shareholders’ equity and statement of cash flows for the year then ended have been translated into USD using the representative exchange rate as of that date (USD 1= NIS 3.845)3.467). Such translation was made solely for the convenience of the U.S. readers. The USD amounts so presented in these financial statements should not be construed as representing amounts receivable or payable in USD or convertible into dollars but only a convenience translation of reported NIS amounts into USD, unless otherwise indicated. The convenience translation supplementary financial data is audited and is not presented in accordance with IFRSs.
Operating cycle: |
Due to the lingering real estate and financing crisis in CEE in previous years, in which the Group’s majority of commercial centers are located, the Group is lacking sufficient historical experience of exact time line in realizing its commercial centers into cash or cash equivalents. Accordingly, theThe Group is unable to clearly identify its actual operating cycle with respect to trading property. As such, the Group’s operating cycle relating to trading property and corresponding borrowings is 12 months. As a result, tradingTrading property and borrowings associated therewith are presented as non-current assets and non-current liabilities, respectively.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Basis for consolidation: |
Assessment of |
The audited consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (“Subsidiaries”). Control is achieved where the Company:
● | Has the power over the investee; | |
● | Is exposed, or has rights, to variable returns from its involvement with the investee; | |
● | Has the ability to use its power to affect its returns. |
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
As for de facto control of the Company in PC see Ww (2) below.
Changes in the Group’s ownership interests in existing |
Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Investments in associates and joint ventures: |
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of associates or joint ventures are incorporated in these audited consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or a joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.
An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the carrying amount of the investment.
In circumstances where the Group’s interest in an investee company is in the form of mixed securities (such as ordinary shares, preferred shares or other senior securities, or loans), the Group records equity losses in excess of the Group’s investment in the ordinary shares of the investee based on the priority liquidation mechanism, that is, allocating the loss to the other components in reverse order to their seniority in liquidation.
Where necessary, adjustments are made to the financial statements of associates to adjust their accounting policies with those of the Company.
The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Foreign currency: |
Foreign currency transactions: |
The financial statements of each individual entity of the Group are presented based on its functional currency. Transactions in currencies other than each individual entity’s functional currency (foreign currency) are translated into that entity’s functional currency based on the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the foreign exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the historical exchange rate prevailing at the date of the transaction. Non-monetary assets and liabilities carried at fair value that are denominated at foreign currency are translated at the exchange rates prevailing at the date when the fair value was determined.
Exchange rate differences as a result of the above are recognized in statement of income, except for: (i) exchange rate differences charged to foreign currency translation reserve (see (ii)(2) below); and (ii) exchange rate differences charge to revaluation of property plant and equipment carried at fair value (see Ll below)
Financial statements of foreign operations: |
For the purpose of the audited consolidated financial statements, the assets and liabilities of foreign operations (the functional currency of each foreign operation is the currency of the primary economic environment in which it operates) are translated to New Israeli Shekels (“NIS”) which is the functional currency and the presentation currency of the Company, based on the foreign exchange rates prevailing at the balance sheet date. The revenues and expenses of foreign operations are translated to the functional currency of the Company based on exchange rates as at the date of each transaction or for sake of practicality using average exchange rates for the period.
Foreign exchange rate differences arising from translation of foreign operations are recognized directly to foreign currency translation reserve within other comprehensive income.
Exchange rate differences attributable to monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation are also included in the foreign currency translation reserve.
On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in the equity reserve in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Foreign |
Financial statements of foreign |
In the case of a partial disposal that does not result in loss of control by the Group over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to or from non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. reductions in the Group’s ownership interest in associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.
Rates of exchange of NIS, in effect, in relation to foreign currency (in NIS) are as follows: |
1 October | December 31 | ||||||||||||
2017 | 2 0 1 6 | 2 0 1 5 | |||||||||||
USD ($) | 3.521 | 3.845 | 3.902 | ||||||||||
EURO(EUR) | 4.096 | 4.044 | 4.247 | ||||||||||
Romanian New Lei (RON) | 0.8891 | 0.8905 | 0.938 | ||||||||||
Indian Rupee (INR) | 0.0543 | 0.0565 | 0.058 |
December 31 | |||||||||
2017 | 2016 | ||||||||
USD ($) | 3.467 | 3.845 | |||||||
EURO(EUR) | 4.153 | 4.044 | |||||||
Romanian New Lei (RON) | 0.8912 | 0.8905 | |||||||
Indian Rupee (INR) | 0.0544 | 0.0565 |
Scope of change in the exchange rate, in effect, of the NIS in relation to the foreign currencies (%):
December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
USD ($) | (1 | ) | - | 12 | |||||||||
EURO(EUR) | (5 | ) | (10 | ) | (1 | ) | |||||||
Romanian New Lei (RON) | (5 | ) | (11 | ) | (1 | ) | |||||||
Indian Rupee (INR) | (4 | ) | (5 | ) | 10 |
December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
USD ($) | (10 | ) | (1 | ) | - | ||||||||
EURO(EUR) | 3 | (5 | ) | (10 | ) | ||||||||
Romanian New Lei (RON) | (3 | ) | (5 | ) | (11 | ) | |||||||
Indian Rupee (INR) | (4 | ) | (4 | ) | (5 | ) |
Cash and cash equivalents: |
Cash equivalents include unrestricted readily convertible to a known amount of cash, maturity period of which, as at the date of investments therein, does not exceed three months.
Financial assets: |
Financial assets of the Group are classified mainly as loans and receivables. Financial assets are initially measured at fair value
Loans and receivable consist of trade receivables, deposits in banks, and financial institutions, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables where the recognition of interest is considered immaterial.
ELBIT IMAGING LTD.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Trading property |
Real estate properties for future sale (inventory) are classified as trading properties and are stated at the lower of cost and net realizable value. The Group’s trading properties are divided to two different classes (under development and other). The following present the different methods to determine the net realizable value:
Net realizable was determined based on the residual method using the estimated selling price less cost for completion and executing the sale discounted in the applicable discount rate without taking into account the developer’s profit and assuming that marketing period is restricted to a period which is lower than the normal oneor the comparable method taking into account the specific restrictions that the Group has on the property. See also 2 w (1)a below and note 4 c (1) and note 4 d.
Costs of trading propertiescommercial centers include costs directly associated with their purchase (including payments for the acquisitions of leasehold rights and borrowing cost wages and stock-based compensation expenses) and all subsequent direct expenditures for the development and construction of such properties. Cost of trading property is determined mainly on the basis of specific identification of their individual costs (other than non-specific borrowing costs capitalized to the cost of trading property).costs.
As for borrowing costs capitalized to trading property - see Ss below.
As for write down of trading property - see W(1) aw1a) below.
As for the operating cycle of trading property - see Ee above.
Property plant and equipment: |
1. | The Group’s hotel |
Revaluations are carried out on a regular basis (generally each half year). A change in the value of the hotel resulting from revaluation or from exchange rate differences is attributable to other comprehensive income (any revaluation reserve is net of applicable deferred taxes).
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The reserve derived from the revaluation of the hotel is transferred to retained earnings over the period for which the hotel is used by the Group. The transferred amounts equal the difference between the depreciation charge based on the revalued carrying amounts of the hotel and the depreciation charge based on the hotels’ original cost. When a revaluated hotel is sold, the remaining amount in the revaluation reserve with respect to the same hotel (including any tax expenses) is directly transferred to retained earnings.
Other property plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Improvements and renovations are charged to cost of assets. Maintenance and repair costs are charged to the statement of income as incurred.
2. | Depreciation is calculated by the straight-line method over the assets estimated useful lives. Leasehold improvements are amortized over the estimated useful period of use not exceeding the lease period (including the period of renewal options that the Group intends to exercise). |
F-24 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
l. | Property plant and equipment (Cont.): |
Annual depreciation rates are as follows:
% | |||
Hotel | 5 | ||
Other buildings | 2.0 - 2.5 | ||
Building operating systems | 7.0 (average) | ||
Others (*) | 6.0 - 33.0 |
(*) | Consists mainly: office furniture, machinery and equipment, electronic equipment, computers and peripheral equipment. |
Income taxes: |
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current taxes:
Tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are non-taxable or deductible for tax purposes. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted as of the balance sheet date.
Deferred taxes:
Deferred taxes are calculated in respect of all temporary differences, including (i) differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit; and (ii) tax losses and deductions that may be carried forward for future years or carried backwards for previous years.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Deferred taxes are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The calculation of deferred tax liabilities does not include taxes that would have arisen in the event of a realization of investments in certain investee companies or upon receiving their retained earnings as dividends, since it is management’s policy not to realize these investees nor to declare dividend out of their retained earnings, or other form of profit distributions, in the foreseeable future, in a manner which entails additional substantial tax burden on the Group. For certain other Group’s investee companies, which management’s intention is to realize or to distribute their retained earnings as taxable dividend, tax liabilities (current and deferred) are recorded.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is to be settled or the asset is to be realized, based on tax rates and laws that have been enacted or substantively enacted as of the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
F-25 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
m. | Income taxes (Cont.): |
Deferred taxes (Cont.):
Deferred tax asset is recorded to the extent that it is probable that it would be realized against future taxable profits. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered in the future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred taxes are recognized as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity or in other comprehensive income, in which case the tax effect is also recognized directly in equity or in other comprehensive income;
Financial liabilities and equity instruments issued by the Group: |
Equity instruments:
An equity instrument is any contract that represents a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issuance costs.
Financial liabilities:
Financial liabilities at amortized cost of the Group consist of short-term credits, current maturities of long-term borrowing suppliers and service providers, borrowings and other payables, which are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, unless recognition of interest is immaterial.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, when appropriate, a shorter period to the net carrying amount of the financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial liability (for example, prepayment, call and similar options). The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.
When the Group revises its estimates of payments, it adjusts the carrying amount of the financial liability to reflect actual and revised estimated cash flows. The Group recalculates the carrying amount by computing the present value of estimated future cash flows at the financial liability’s original effective interest rate. The adjustment is recognised in profit or loss as a financial expense.
The Company has Consumer Price Index (“CPI”)-linked financial liabilities that are not measured at fair value through profit or loss. For these liabilities, the Company determines the effective interest rate as a real rate plus linkage differences according to the actual changes in the CPI through each balance sheet date. Rate of decrease in the Israeli CPI in 2016 was 0.3% (2015- decrease of 0.9%; 2014 - increase of 0.1%).
F-26 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
n. | Financial liabilities and equity instruments issued by the Group (Cont.): |
Buyback of notes and loans:
The Group derecognizes a financial liability from its statement of financial position when repurchasing its notes or its loans. The difference between the carrying amount of the notes or the loans repurchased at the repurchase date and the consideration paid is recognized in profit or loss.
Derivative financial instruments and hedge accounting: |
The Group enters into a variety of derivative financial instruments, some of which are intended to mitigate its exposure to interest rate and foreign exchange rate risks, including interest rate swaps and cross currency swaps. Further details of derivative financial instruments are disclosed in note 20.
Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently re-measured at their fair value each balance sheet date. The resulting gain or loss from a derivative is immediately recognized in profit and loss. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the derivative is more than 12 months and as a current asset or a current liability if the remaining maturity of the derivative is less than 12 months.
Provisions- Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is more likely than not (probable) that the Group will be required to settle the obligation, and a reliable estimate can be measured with respect to the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation as of the balance sheet date, taking into account the risks and uncertainties associated with the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the result of the discounted expected cash flows, as long as the effect of discounting is material.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Share-based payments: |
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. The Fair value is measured using the Black and Scholes (“B&S”) model except for capped-Stock Appreciation Rights (“SAR”) for which the Group is using the binomial model. The expected life used in the B&S model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis for each award over the vesting period, based on the Group’s estimate of shares that will eventually vest.
Revenue recognition: |
General - The Group recognizes revenue and gains when the amount of revenue, or gain, can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and specifics of each arrangement.
F-27 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Rental income from commercial centers - Revenues from leasing of property and management fees, as well as rental income relating to the operations of commercial centers are measured at the fair value of the consideration received or receivable. The lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease. |
The leases generally provide for rent escalations throughout the lease term. For these leases, the rental income is recognized on a straight line basis so as to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental income recognized on a straight line basis, represents unbilled rent receivables that the Group will receive only if the tenant makes all rent payments required through the expiration of the initial term of the lease. The leases may also provide for contingent rent based on a percentage of the lessee’s gross sales or contingent rent indexed to further increases in the Consumer Price Index (CPI). For contingent rentals that are based on a percentage of the lessee’s gross sales, the Group recognizes contingent rental income when the change in the factor on which the contingent lease payment is based, actually occurs. Rental income for lease escalations that are indexed to future increases in the CPI, are recognized once the changes in the index have occurred.
Revenues from hotel operations are recognized upon performance of service. |
Revenues and Gains from sales of real estate assets (including hotels), property, plant and equipment and trading properties are recognized when all the following conditions are satisfied: |
the Group has transferred to the buyer the significant risks and rewards of ownership of the asset sold; |
the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the asset sold; |
the amount of income can be measured reliably; |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
it is probable that the economic benefits associated with the transaction will flow to the Group (including the fact that the buyer’s initial and continuing investment is adequate to demonstrate commitment to pay); |
the costs incurred or to be incurred in respect of the transaction can be measured reliably; and |
there are no significant acts that the Group is obliged to complete according to the sale agreement. |
For the Group, these conditions are usually fulfilled upon the closing of a binding sale contract.
Capitalization of borrowing costs: |
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized to the cost of those assets. A qualifying asset is an asset that necessarily takes a substantial period of time to get it ready for its intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
F-28 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
s. | Capitalization of borrowing costs (Cont.): |
Borrowing costs qualified for capitalization include mainly: Interest expenses and amortization of cost of raising debt.
Capitalization of borrowing costs to qualifying assets commences when the Group starts the activities for the preparation of the asset for its intended use or sale and continues, generally, until the completion of substantially all the activities necessary to prepare the asset for its designated use or sale (i.e. when the commercial center is ready for lease).
In certain cases, the Group ceases to capitalize borrowing cost if management decides that the asset can no longer be defined as a “qualifying asset”. In other circumstances, capitalization is suspended for certain time periods, generally where the efforts to develop a project are significantly diminished due to inter-alia lack of external finance, or ongoing difficulties in obtaining permits. The conclusions whether an asset is qualified for capitalization or not, or whether capitalization is to be suspended, are also dependent on management plans with regard to the specific asset, such as the ability to raise bank loans, find anchors and local market conditions that support or postpone the construction of the project.
Earning (loss) per share: |
The Company presents basic and diluted earnings (loss) per share with respect to continued and discontinued operation. Basic earnings per share is computed by dividing income (loss) attributable to holders of ordinary shares of the Company, by the weighted average number of the outstanding ordinary shares during the period. In the computation of diluted earnings per share, the Company adjusts its income (loss) attributable to its ordinary shareholders for its share in income (loss) of investees by multiplying their diluted earnings per share by the Company’s interest in the investees including its holding in dilutive potential ordinary shares of the investees. In addition, the Company adjusts the weighted average outstanding ordinary shares for the effects of all the dilutive potential ordinary shares of the Company. On June 27, 2016, the companyCompany executed reverse share split of its ordinary shares, therefore the earnings (loss) per share for previous periods was retrospectively adjusted. See also note 14.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Statement of cash flows: |
Investments in, and payments on account of, trading property are included as cash flow from operating activities. Interest and dividend received from deposits and investments are included as cash flow from investing activities. Interest paid on the Group’s borrowings (including interest capitalized to qualifying assets) and cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control are included as cash flow from financing activities.
Discontinued |
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
(1) | Represents a separate major line of business or geographical area of operations; |
(2) | Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or |
(3) | Is a subsidiary acquired exclusively with a view to re-sale. |
F-29 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
v. | Discontinued operation (Cont.): |
Classification as a discontinued operation occurs on disposal or when the operation meets the criteria to be classified as held-for-sale, if earlier.
When an operation is classified as a discontinued operation, the comparative statement of comprehensive income and cash flow is re-presented as if the operation had been discontinued from the start of the comparative year.
Critical judgment in applying accounting policies and use of estimates: |
In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In addition, in the process of applying the Group’s accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized in the financial statements.
The followings are the critical judgments and key sources of estimation that management has made while applying the Group’s accounting policies and that have the most significant effect on the amounts recognized in these financial statements.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Write down of trading properties |
The recognition of a write down to the Group’s trading properties is subject to a considerable degree of judgment and estimates, the results of which, when applied under different principles, conditions and assumptions, are likely to result in materially different results and could have a material adverse effect on the Group’s audited consolidated financial statements.
This valuation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of development in addition to the lack of transactions in the real estate market in the CEE and India for same or similar properties.
Management is responsible for determining the net realizable value of the Group’s trading properties. In determining net realizable value of the vast majority of trading properties, management utilizes the services of an independent third party recognized as a specialist in valuation of properties.
For special assumption see note 4 C (1)(e), 4 D, 4 F,4 G4b, 4c1e and note 6 A4d.
F-30 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
w. | Critical judgment in applying accounting policies and use of estimates (Cont.): |
1. | Use of estimates (Cont.): |
b) | Litigation and other contingent liabilities: |
The Group is involved in litigation, tax assessments and other contingent liabilities in substantial amounts including class actions, FCPA and potential legal acts (see also note 4(C)(1), 13B4c1, 13b and note 13C)13c). The Group recognizes a provision for such litigation when it is probable that the Group will be required to settle the obligation, and the amount of the obligation can be reliably estimated. The Group evaluates the probability and outcome of these litigations based on, among other factors, legal opinion and consultation and past experience. The outcome of such contingent liabilities may differ materially from management’s estimation. The Group periodically evaluates these estimations and makes appropriate adjustments to the provisions recorded in the audited consolidated financial statements. In addition, as facts concerning contingencies become known, the Group reassesses its position and makes appropriate adjustments to the audited consolidated financial statements. In rare circumstances, when the case is unique, complicated and involves prolong and uncommon proceedings, the Group cannot reliably estimate the outcome of said case
Accounting for income taxes: |
The calculation of the Group’s tax liabilities involves uncertainties in the application and/or interpretation of complex tax laws, tax regulations and tax treaties, in respect of various jurisdictions in which the Group operates and which vary from time to time. In addition, tax authorities may interpret certain tax issues in a manner other than that which the Group has adopted. Should such contrary interpretive principles be adopted upon adjudication of such cases, the tax burden of the Group may be significantly increased. In calculating its deferred taxes, the Group is required to evaluate (i) the probability of the realization of its deferred income tax assets against future taxable income and (ii) the anticipated tax rates in which its deferred taxes would be utilized.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Potential penalties, guarantees issued and expired building permits: |
Penalties and guaranties are part of the on-going construction activities of the Group, and result from obligations the Group has towards third parties, such as banks and municipalities. The Group’s management is required to provide estimations regarding risks evolving from penalties that the Group may have to settle. In addition, the Group’s operations in the construction area are subject to valid authorizations and building permits from local authorities. Under certain circumstances the Group is required to determine whether the building permits it obtained have not yet expired. It may occur that building permits have expired which might impose on the Group additional costs and expenses, or delays and even abandon project under construction see also note 4(C) (1).4c1.
F-31 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Critical judgment in applying accounting policies and use of estimates (Cont.): |
1. | Use of estimates (Cont.): |
e) | Fair value of hotel: |
The fair value of the Radisson Complex is determined based upon the discounted cash flows (“DCF”) approach, the assumptions underlying the model, as well as the ability to support them by means of objective and reasonable market benchmarks, so they can be viewed as assumptions that market participants may have used, are significant in determining the fair value of the hotels. The predominant assumptions that may cause substantial changes in the fair value are: the capitalization rate, exit yield rate, the expected net operating income of the hotel (which is mainly affected by the expected average room rate and the occupancy rate as well as the level of operational expenses of the hotels) the level of refurbishments reserve and the capital expenditures that need to be invested in the hotel. The fair value of the Radisson Complex is performed by and independent appraisals with a local knowledgeable in the hotels business.
Critical judgment in applying accounting |
De facto Control:
As for December 31, 20162017 and 2015,2016, the Company holds approximately 44.9% of PC share capital; DK holds approx. 26.3% of PC share capital and the rest is widely spread by the public. The Company’s management is of the opinion that based on the absolute size of its holdings, the relative size of the other shareholdings and due to the fact that PC’s directors are appointed by normal majority of PC’s General Meeting, it has a sufficiently dominant voting interest to meet the power criterion, therefore the Company has de facto control over PC.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
New accounting standards and interpretation issued, that are not yet effective: |
The following are new accounting standards, amendments to standards and clarifications which are applicable or expected to be applicable, to the Group, and which have not yet become effective:
The Amendments require an entity to provide disclosure‘In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that enable usersreplaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flowsinstruments project: classification and non-cash changes. The amendments do not prescribe a specific format to disclose financing activities; however, an entity may fulfil the disclosure objective by providing a reconciliation between the openingmeasurement, impairment and closing balances in the statement of financial position for liabilities arising from financing activities.
The amendments apply prospectivelyhedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2017 with earlier2018. Except for hedge accounting, retrospective application permitted. Entities are notis required to presentbut providing comparative information for earlier periodsis not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.
In July 2014, the IASB issued the final and complete version of IFRS 9, “Financial Instruments” (“IFRS 9”), which replaces IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies to all assets in the scope of IAS 39.
According to IFRS 9, all financial assets are measured at fair value upon initial recognition. In subsequent periods, debt instruments are measured at amortized cost only if both of the following conditions are met:
IFRS 9 also includes a new model for measurement of impairment of financial assets.
Subsequent measurement of all other debt instruments and financial assets should be at fair value. IFRS 9 establishes a distinction between debt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value through other comprehensive income.
Financial assets that are equity instruments should be measured in subsequent periods at fair value.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
New accounting standards and interpretation issued, that are not yet effective |
- | IFRS 9 Financial Instruments (Cont.) |
AccordingThe Group plans to adopt the new standard on the required effective date and will not restate comparative information. During 2017, the Group has performed a detailed impact assessment of all three aspects of IFRS 9,9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9. Overall, the Group expects no significant impact on its statement of financial position and equity except for the effect of applying the impairment requirements of IFRS 9. The Group expects an increase in the loss allowance resulting in a negative impact on equity as discussed below. In addition, the Group will implement changes in the fair valueclassification of certain financial liabilities which are attributable to the change in credit risk should be presented in other comprehensive income. All other changes in fair value should be presented in profit or loss.instruments.
Loans are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analyzed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortized cost measurement under IFRS 9 also prescribes new hedge accounting requirements.
IFRS 9 is to be applied for annual periods beginning on January 1, 2018.
The Company is evaluating the possible impact of the9. Therefore, adoption of IFRS 9 but is presently unable to assess itswill not have a material effect if any, on the classification and measurement of financial statements.assets.
In January 2016,addition, on adoption of IFRS 9, effective interest rate calculated on Company’s bonds at amortized costs, will be adjusted as necessary in order to reflect the IASB issued IFRS 16, “Leases” (“the new Standard”). Accordingchange in accounting policy related to the new Standard, a lease is a contract, or partmodification of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.trust deeds terms.
AccordingThe initial application of IFRS 9 will impact the Group’s accounting treatment for the modification of financial liabilities without this resulting in derecognition.
Under IAS 39, no gain or loss was recognized at the date of modification of the loans’ terms, instead the difference between the original and modified cash flows was amortized over the remaining term of the modified liability by re-calculating the effective interest rate.
Under IFRS 9, a gain or losses should be recognised in profit or loss. These gains or losses, under IFRS 9, will be calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate.
In summary, the impact of IFRS 9 adoption is expected to the new Standard:be, as follows:
Impact on equity (increase/(decrease)) as of 31 December 2017:
Adjustments | NIS000 | ||||||||
Liabilities and | |||||||||
Bonds at amortized cost | (5,751 | ) | |||||||
Total liabilities | (5,751 | ) | |||||||
Net impact on equity | (5,751 | ) | |||||||
Retained earnings | (5,751 | ) |
- |
IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
New accounting standards and interpretation issued, that are not yet effective |
- | IFRS 15 Revenue from Contracts with Customers (Cont.) |
The new Standardrevenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. The Group plans to adopt the new standard on the required effective date using a modified retrospective method. During 2016, the Group performed a preliminary assessment of IFRS 15, which was continued with a more detailed analysis completed in 2017.
1. | Sale of goods |
For contracts with customers in which the sale of trading property is generally expected to be the only performance obligation, adoption of IFRS 15 is not expected to have any impact on the Group’s revenue and profit or loss. The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the trading property. In preparing to adopt IFRS 15, the Group is considering the following:
a) | Variable consideration |
One contract with a buyer provide a final agreed value depends on sustainable NOI following 12 months of operation of the mall, followed by re-examined NOI again after 24 and 36 months of operation which may lead to an upward price adjustment. Currently, the Group recognizes revenue from the sale of trading property measured at the fair value of the consideration received or receivable. If revenue cannot be reliably measured, the Group defers revenue recognition until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15 and will be required to be estimated at contract inception and updated thereafter.
IFRS 15 requires the estimated variable consideration to be constrained to prevent over-recognition of revenue. The Group does not expect that application of the constraint will result in more revenue being deferred than undercurrent IFRS.
b) | Warranty obligations |
The Group generally provides for warranties for general repairs and does not provide extended warranties in its contracts with buyers. As such, most existing warranties will be assurance-type warranties under IFRS 15, which will continue to be accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, consistent with its current practice.
F-34 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
x. | New accounting standards and interpretation issued, that are not yet effective (Cont.): |
- | IFRS 15 Revenue from Contracts with Customers (Cont.) |
1. | Sale of goods (Cont.) |
c) | Presentation and disclosure requirements |
The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in the Group’s financial statements. Many of the disclosure requirements in IFRS 15 are new and the Group has assessed that the impact of some of these disclosures requirements will not be significant. In particular, the Group expects that the notes to the financial statements will be expanded because of the disclosure of significant judgements made: when determining the transaction price of those contracts that include variable consideration, how the transaction price has been allocated to the performance obligations, and the assumptions made to estimate the stand-alone selling prices of each performance obligation.
In addition, as required by IFRS 15, the Group will disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. In 2017 the Group continued testing of appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.
- | IFRS 16, “Leases”: |
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 1, 2019.
F-35 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
x. | New accounting standards and interpretation issued, that are not yet effective (Cont.): |
- | IFRS 16, “Leases” (Cont.): |
Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The Company is evaluatingstandard’s transition provisions permit certain reliefs.
In 2018, the possible effectsGroup will continue to assess the potential effect of the new Standard.IFRS 16 on its consolidated financial statements. Since the Company’s lease contracts are not significant, the Company estimates that the adoption of the new Standard will not have a material impact on the Company’s assets and liabilities. However, at this stage, the Company is unable to quantify the impact on the financial statements.
- | IFRIC Interpretation 23 Uncertainty over Income Tax Treatment |
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
● |
● | The assumptions an entity makes about the examination of tax treatments by taxation authorities; |
● | How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; |
● | How an entity considers changes in facts and circumstances. |
In May 2014, IFRS 15 was issued which establishesAn entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date. Since the Group operates in a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersedecomplex multinational tax environment, applying the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction ContractsInterpretation may affect its consolidated financial statements and the related Interpretations when it becomes effective.
The core principle of IFRS 15required disclosures. In addition, the Group may need to establish processes and procedures to obtain information that is that an entity should recognize revenuenecessary to depictapply the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introducesInterpretation on a 5-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.
The directors of the Company anticipate that the application of IFRS 15 in the future will not raise material impact on the amounts reported and disclosures made in the Group’s audited consolidated financial statements.timely basis.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | DEPOSITS, RECEIVABLES AND OTHER INVESTMENTS |
Short-term deposits and investments |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Deposits at banks: | |||||||||
EURO (i) | 26,795 | 21,115 | |||||||
NIS (ii) | 6,426 | - | |||||||
Other restricted deposits (iii) | 2,216 | 4,664 | |||||||
35,437 | 25,779 | ||||||||
Available for sale financial assets | 4,091 | 4,296 | |||||||
39,527 | 30,075 |
December 31 | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Deposits at banks: | |||||||||
EURO (1) | - | 26,795 | |||||||
NIS (2) | 6,463 | 6,426 | |||||||
Other restricted deposits (3) | - | 2,215 | |||||||
6,463 | 35,436 | ||||||||
Available for sale financial assets | 4,032 | 4,091 | |||||||
10,495 | 39,527 |
As of December 31, 2016, EUR 4 million (NIS 16 million) and EUR 2.5 million (NIS 10 million) is restricted mainly in respect of bank facilities agreements signed to finance Projects in Poland and Serbia, respectively. |
As of December 31, 2017 and December 31, 2016 NIS 4.6 million and NIS 4 million respectively is restricted due to the Company’s settlement agreement as described |
Trade account receivable |
December 31, | |||||||||
2016 | 2015 | ||||||||
Trade receivables (1) | 30,042 | 20,450 | |||||||
Less - Allowance for doubtful debts | (4,042 | ) | (6,812 | ) | |||||
26,000 | 13,638 |
December 31, | |||||||||
2017 | 2016 | ||||||||
Trade receivables (1) | - | 38,210 | |||||||
Less - Allowance for doubtful debts | - | (4,042 | ) | ||||||
- | 34,168 |
(1) | In December 31, 2016 Includes EUR 5.6 million (NIS 23 million) from sale of plots |
Other Receivables |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Income taxes | 1,298 | 853 | |||||||
Governmental institutions | 6,362 | 4,261 | |||||||
Loans to partner in project | - | 1,111 | |||||||
Advance to suppliers | 525 | 633 | |||||||
Receivable due to sale of investment | - | 3,280 | |||||||
Prepaid expenses | 3,510 | 1,310 | |||||||
Interest to receive | 514 | 68 | |||||||
Other | 1,135 | 2,393 | |||||||
13,344 | 13,909 |
December 31 | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Income taxes | 1,258 | 1,298 | |||||||
Governmental institutions | 936 | 6,362 | |||||||
Advance to suppliers | - | 525 | |||||||
Prepaid expenses | 1,818 | 3,510 | |||||||
Interest to receive | 46 | 514 | |||||||
Other | 3,164 | 1,135 | |||||||
7,222 | 13,344 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | DEPOSITS, RECEIVABLES AND OTHER INVESTMENTS (Cont.) |
Deposits and other long-term balances |
December 31, | |||||||||
2016 | 2015 | ||||||||
Deposits at banks | 11,453 | 17,944 | |||||||
Available for sale financial assets | 1,596 | 1,596 | |||||||
other | 3,371 | 2,359 | |||||||
16,417 | 21,899 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Deposits at banks (1) | - | 11,453 | |||||||
Available for sale financial assets | 1,596 | 1,596 | |||||||
Vendor loan (see note 19) | 33,221 | - | |||||||
Prepaid expenses | - | 7,064 | |||||||
Other | 57 | 3,371 | |||||||
34,874 | 23,484 |
(1) | Was deducted in 2017 due to the sale of the Company’s subsidiary that holds the Radisson Complex (see note 19). |
NOTE | TRADING PROPERTY |
Composition: |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Balance as of January, 1 | 1,467,760 | 1,875,937 | |||||||
Construction costs (1) | 108,511 | 28,562 | |||||||
Disposal during the year (2) | (158,786 | ) | (200,078 | ) | |||||
Write-down to net realizable value (see B below ) | (196,333 | ) | (86,988 | ) | |||||
Firstly consolidated entity (see note 6 A) | 154,598 | - | |||||||
Foreign currency translation adjustments | (65,201 | ) | (149,673 | ) | |||||
Balance as of December, 31 | 1,310,549 | 1,467,760 | |||||||
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Balance as of January, 1 | 1,310,549 | 1,467,760 | |||||||
Construction costs (1) | 7,895 | 108,511 | |||||||
Disposal during the year (2) | (736,484 | ) | (158,786 | ) | |||||
Write-down to net realizable value (see b below ) | (92,398 | ) | (196,333 | ) | |||||
Firstly consolidated entity (see note 4d2 ) | - | 154,598 | |||||||
Foreign currency translation adjustments | 3,057 | (65,201 | ) | ||||||
Balance as of December, 31 | 492,619 | 1,310,549 |
(1) |
(2) | As for disposition of trading properties in |
Composition of trading property per stages of development:
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Projects designated for development | 226,449 | 125,888 | |||||||
Other trading properties | 1,084,100 | 1,341,872 | |||||||
Total | 1,310,549 | 1,467,760 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Projects designated for development | - | 226,449 | |||||||
Other trading properties | 492,619 | 1,084,100 | |||||||
Total | 492,619 | 1,310,549 |
F-38 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
b. | Additional information: |
Composition of trading property distinguished between freehold and leasehold rights:
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Freehold | 212,075 | 973,217 | |||||||
Leasehold | 280,544 | 337,332 | |||||||
492,619 | 1,310,549 |
Write down trading properties per project:
Year ended December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Project name (City, Country) | |||||||||
Chennai (Kadavantara, India) (see d1 below) | 7,879 | 24,564 | |||||||
Bangalore (Aayas, India) (see d2 below) | 35,178 | - | |||||||
Helios Plaza (Athens, Greece) | - | 2,992 | |||||||
Lodz Plaza (Lodz, Poland) | 4,983 | 1,618 | |||||||
Krusevac (Krusevac, Serbia) | 1,661 | 809 | |||||||
Casa radio (Bucharest, Romania) (See c1 below) | 41,946 | 137,117 | |||||||
Constanta (Constanta, Romania) | - | 3,445 | |||||||
Ciuc (Ciuc, Romania) | - | 3,842 | |||||||
Timisoara (Timisoara, Romania) | - | 10,514 | |||||||
Lodz residential (Lodz, Poland) | 415 | - | |||||||
Kielce (Kielce, Poland) | - | 4,448 | |||||||
BAS (Romania) | - | 3,235 | |||||||
Arena Plaza extention (Budapest, Hungary) | 336 | 3,749 | |||||||
92,398 | 196,333 | ||||||||
Change in provision in respect to PAB | (1,641 | ) | (6,741 | ) | |||||
90,757 | 189,592 |
The 2017 write-downs were caused mainly due to the following factors:
- | EUR 1.2 million (NIS 5 million) of write-down in Lodz Plaza project, Poland, which reflects a discount rate of 30% on the market value under special assumption that the marketing period is limited to 12-15 months. |
EUR 9.7 million (NIS 40 million) of write-down (net of change in provision in respect to PAB) in Casa Radio project, Romania due to the following: a slight increase in construction cost, a slight decrease in financing interest rate, prolongation of lead-in period in half a year and an increase in the discount factor for restricted marketing period from 25% to 35%. As compared to 2016, deals take longer to exchange as the level of due diligence and scrutiny is heightened domestically and internationally. As a consequence a restricted marketing period would have a marked impact on the realizable value as a greater discount would be sought by a purchaser.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | TRADING PROPERTY (Cont.) |
Composition of trading property distinguished between freehold and leasehold rights:
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Freehold | 973,217 | 946,228 | |||||||
Leasehold | 337,332 | 521,532 | |||||||
1,310,549 | 1,467,760 |
Write down trading properties per project:
For the year ended December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Project name (City, Country) | |||||||||
Operational: | |||||||||
Koregaon Park (Pune, India) | - | 6,547 | |||||||
Zgorzelec (Zgorzelec, Poland) | - | 6,233 | |||||||
Liberec (Liberec, Czech Republic) | - | 26,466 | |||||||
- | 39,246 | ||||||||
Non-Operational: | |||||||||
Chennai (Kadavantara, India) (see D below) | 24,564 | - | |||||||
Helios Plaza (Athens, Greece) | 2,992 | 1,913 | |||||||
Sportstar Plaza Visnjicka (Belgrade, Serbia) | - | (23,814 | ) | ||||||
Lodz Plaza (Lodz, Poland) | 1,618 | 9,460 | |||||||
Krusevac (Krusevac, Serbia) | 809 | 3,401 | |||||||
Casa radio (Bucharest, Romania) (See C (1) below) | 137,117 | 36,139 | |||||||
Constanta (Constanta, Romania) (*) | 3,445 | 1,701 | |||||||
Ciuc (Ciuc, Romania) | 3,842 | - | |||||||
Timisoara (Timisoara, Romania) (*) | 10,514 | 1,110 | |||||||
Lodz residential (Lodz, Poland) | - | 9,070 | |||||||
Kielce (Kielce, Poland) | 4,448 | 723 | |||||||
BAS (Romania) | 3,235 | - | |||||||
Arena Plaza extention (Budapest, Hungary) | 3,749 | 5,323 | |||||||
Others | - | 2,716 | |||||||
196,333 | 47,742 | ||||||||
Change in provision in respect to PAB | (6,741 | ) | - | ||||||
189,592 | 86,988 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Additional information in respect of PC’s trading property: |
Casa radio: |
One of PC’s most significant projects under development is the Casa radio project in Bucharest, Romania. The Casa radio Project cost in the Group’s financial statements as of December 31, 2016,2017, amount to NIS 296263 million (2015(2016 - NIS 460296 million).
In 2006 PC entered into an agreement according to which it acquired 75% interest in a company (“Project SPV”) which is under a PPP agreement with the Government of Romania to develop the Casa radio site in the center of Bucharest (“Project”). After signing the PPP agreement, PC holds indirectly 75% of the shares in the Project SPV, the remaining 25% are held by the Romanian authorities (15%) and a third party private investor (10%).
As part of the PPP, the Project SPV was granted with development and exploitation rights in relation to the site for a period of 49 years, starting December 2006 (38(37 years remaining at the end of the reporting period). As part of its obligations under the PPP, the Project SPV has committed to construct a Public Authority Building (“PAB”) measuring approximately 11.000 square meters for the Romanian Government at its own cost.
Large scale demolition, design and foundation works, financed by loans given to the Project SPV by PC were performed on the construction site until 2010, when current construction and development was put on hold due to lack of progress in the renegotiation of the PPP agreement with the Authorities, as discussed in subsection (c) below, and the global financial crisis. These circumstances (and mainly the bureaucratic deadlock with the Romanian Authorities to deal with the issues specified below caused the Project SPV not to meet the development timeline of the Project, as specified in the PPP. However, PC management believes that it had legitimate reasons for the delays in this timeline, as discussed in subsection (c) below.
a) | Obtaining of the Detailed Urban Plan (“PUD”) permit |
The Project SPV obtained the PUD related to this project in September 2012. Furthermore, on December 13, 2012, the Court took note of the waiver of the claim submitted by certain plaintiffs and rejected the litigation aiming to cancel the approval of the Zonal Urban Plan (“PUZ”) related to the Project. The court decision is irrevocable.
As the PUD is based on the PUZ, the risk that the PUD would be cancelled as a result of the cancellation of the PUZ was removed following the date when the PUZ was cleared in court on December 13, 2012.
b) | Discussions with |
Following the Court decision with respect to the PUZ, the Project SPV was required to submit a request for building permits within 60 days from the approval date of the PUZ/PUD and commence development of its project within 60 days after obtaining the building permit. The building permits have not been obtained.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | TRADING |
Additional information in respect of PC’s trading property (Cont.): |
Casa radio (Cont.): |
b) | Discussions with |
However, due to substantial differences between the approved PUD and stipulations in the PPP agreement as well as changes in the EU directives concerning environmental considerations in buildings used by public authorities the Project SPV attempted to renegotiate the future development of the Project with the Romanian Authorities on items such as time table, structure and milestones as well as adaptation of the PAB development to the current EU requirements. Despite severalmany notifications sent to the Romanian Authorities expressing a wish to renegotiate the existing PPP agreement no major breakthrough could be achieved. PC could be subject to significant delay penalties under the terms of the PPP agreement if it is determined that PC was at fault in causing the delays.
Because of the failure of the public authorities to cooperate, negotiate and adjust the PPP agreement, the Project SPV was not able to meet its obligations under the PPP. This resulted in a situation where the Project SPV could not “de facto” continue the execution of the Project and created a risk that the public authorities could attempt to terminate the PPP agreement. In the event that the public authorities seek to terminate the PPP Agreement and/or seek to impose penalties, PC may incur penalties and/or recover less than the carrying amount of the Casa radio asset recorded in the consolidated financial statements as at year end (NIS 209.7 million). As of the date of approval of PC’s consolidated financial statements the Project SPV did not receive any termination notification by the public authorities.
PC believes that although there is no formal obligation for the Romanian Authorities to renegotiate the PPP agreement, such obligation is implicitly provided for the situation when significant unexpected circumstances arise and that the unresponsiveness of the authorities is a violation of the general undertaking to support the Project SPV in the execution of the Project as agreed in the PPP agreement.
PC believes that the risk that the public authorities may seek to terminate the PPP and/or relevant permits on the basis of the perceived breach of the PC’s commitments and/or may seek to impose delay penalties on the basis of the PPP contract is unlikely given the public authorities have not sought to do such since the perceived breach in 2012 and given PC believes that it has basis for counter claims against the relevant public authorities.
In the case of termination for breach under the PPP agreement the relationship and compensation between the parties is to be decided by a competent court of arbitrations. PC’s management believe that, in the case of termination, PC has a strong case to claim compensation for damages.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
c. | Additional information in respect of PC’s trading property (Cont.): |
1. | Casa radio (Cont.): |
b) | Discussions with authorities on construction time table deferral (Cont.) |
Since 2016 PC’s management has taken a number of steps in order to unblock the development of the project and mitigate the risk of termination of the PPP agreement, including commencing a process to identify third party investors willing and capable to join PC for the development of the project.project and/or potential buyers for the Project. PC’s management believes that partnering with reputable investors with considerable financial strength can enhance PC’s negotiation position vis-à-vis the public authorities and assist in advancing an amicable agreement with the relevant authorities with respect to the development of the project.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PC’s management considers the risk of termination of the PPP agreement and/or the imposition of penalties by the authorities to be unlikely and the consolidated financial statements do not include any provision in respect to any potential future penalties in respect to the breach of the PPP agreement. The increased risk arising from the above matters has been reflected in the valuation of the Project.
c) | Co-operation with the Romanian Authorities regarding potential |
In 2015, PC’s board and management became aware of certain issues with respect to certain agreements that were executed in the past in connection with the Project. In order to address this matter, PC’s board appointed the chairman of it’s Audit Committee to investigate the matters and independent law firms to analyze the available alternatives in this respect. The chairman of the Audit Committee did not conclude the investigation as the person with key information was not available to answer questions. PC’s Board, among other steps, is working to implementimplemented a specific policy in order to prevent the reoccurrence of similar issues and appointed the chairman of the audit committee to monitor the policy’s implementation by PC’s management. In addition, it was decided that in the future certain agreements will be brought to PC’s board’s approval prior to signing.
PC has approached and is co-operating fully with the relevant Romanian Authorities regarding the matters that have come to its attention and it has submitted its initial findings in March 2016 to the Romanian Authorities. PC, during this process has been verbally informed by the Romania Authorities that it has received immunity from certain potential criminal charges and received further verbal assurance that the mentioned investigation should have no effect on the PC’s existing legal rights to the Project and the PPP Agreement. As the investigation by the Romanian Authorities is still on-going, PC in unable to comment further on any details related to this matter. PC’s management is currently unable to estimate any monetary sanctions in respect to the potential irregularities, consequently no provision has been recorded in connection with these matters.
For more information see note 13 C(12).b12.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
c. | Additional information in respect of PC’s trading property (Cont.): |
1. | Casa radio (Cont.): |
d) | Provision in respect of |
As mentioned in point a above, when PC entered into an agreement to acquire 75% interest in the Project SPV it assumed a commitment to construct the PAB at its own costs for the benefit of the Romanian Government. Consequently, the statement of financial position includes a provision in the amount of EUR 13.212.8 million (NIS 53 million) in respect of the construction of the PAB (December 31, 2015:2016: EUR 14.913.2 million). which is presented as part of other non-current liabilities. During 2016,2017, the Company recorded income in total amount of EUR 1,667 thousand0.4 million from change in PAB provision as part of write down of trading properties (in 20152016 - EUR 6861.7 thousand).
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PC’s management believes that the current level of provision is an appropriate estimation in the current circumstances. Upon reaching concrete agreements with Authorities, PC will be able to further update the provision.
e) | Casa radio valuation was prepared based on the assumption that the net realizable value (“NRV”) refers to the net amount that the Group expects to realize from the sale of its trading property in the ordinary course of business. |
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A write-down was performed due to a significant change in the estimated date of construction commencement of the project and construction commencement is now scheduled to 2019, triggered mainly by permitting issues as described above. In addition, the cap rate includes 1.5% cover for several risks related to the complexity and large scale of the project. Such risks include extended timing in developing, large delays in obtaining the necessary permits or issues with regard to the permits, possible legal and/ or bureaucratic issues due to the PPP agreement, remained concession term and others.TABLE OF CONTENTS
ELBIT IMAGING LTD.
In addition, Casa radio NRV reflects, inter alia, a discount to the value calculated above reflecting a situation under which a sale of the project will be executed in a short marketing period taking into account the financial conditions and liquidity needs of PC (as detailed in Note 7 B (2) in order to meet PC’s future repayment schedule as well as the existence of material uncertainty which may cast significant doubt about PC’s ability to continue as a going concern. See also F and G below.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
c. | Additional information in respect of PC’s trading property (Cont.): |
1. | Casa radio (Cont.): |
Significant estimates:
The following table shows the valuation techniques used in measuring the net realizable value of the Casa radio project:
Significant unobservable inputs | Inter-relationship between key unobservable inputs and fair value measurement | |||
Residual method: The valuation model considers the net present value (based on an NPV factor) based on the estimated value of the project upon completion less the estimated development cost including a provision for the profit for the potential development; Restricted marketing period | · Estimated weighted average monthly rental prices per sqm is EUR 26 for the mall, EUR 16 for offices and 14.2 for Hotel/Conference Center (2016: EUR 26.3 for the mall, EUR 15.8 for offices, EUR 14.2 for Hotel/Conference Center); · The Estimated Exit Yield is 8.75% for the mall, 9.25 % for the office component and 10.25% for Hotel/Conference center including additional 1.5% yield to cover for several risks related to the complexity and large scale of the project (2016 - the same) · The construction hard costs of the project are 760 EUR/sqm for the mall; 1,098 EUR/sqm for Hotel; 751 EUR/sqm for the offices; 370 EUR/sqm for parking (2016: 780 EUR/sqm for the mall; 740 EUR/sqm for the offices; 1,010 EUR/sqm for Hotel, 370 EUR/sqm for parking); · The development finance rate is 5.25% (2016:5.5%); · The scheme would compose the following components: (i) retail; (ii) offices; (iii) hotel & conference center; · Developers profit -15% (2016: 15%); · Discount to Market Value - 35% (2016: 25%); · Start of construction in 3.5 years (2016: 3 years). | The estimated fair value would increase (decrease) if: · The estimated rental prices per sqm were higher (lower); · The estimated yield rates were lower (higher); · The construction cost of the project were lower (higher); · The developer’s profit provision for the project were lower (higher); · The development finance provision for the project were lower (higher); · The estimated completion of the project were shorter (longer); · The occupancy of the mall were higher (lower); · The characteristics of the project would be changed; · The discount to market value would decrease (increase) |
The following tables provide a sensitivity analysis on the value of PC’s certain trading properties (in millions of NIS) assuming the following changes in key inputs used in the valuations:
Plots | Exit Yield | Rental income for all phases | Construction Cost | Delay in construction commencement date (months) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | +15bps | +25bps | +40bps | +50bps | -10% | -5% | 0 | +5% | +10% | -10% | -5% | 0 | +5% | +10% | 0 | 6 | 12 | 18 | 24 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Casa Radio | 209.7 | 193.2 | 182.7 | 167.3 | 157.6 | 111.3 | 160.5 | 209.7 | 258.6 | 307.6 | 285.6 | 248.1 | 209.7 | 171 | 132.4 | 209.7 | 204.3 | 198.9 | 194 | 189 |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
c. | Additional information in respect of PC’s trading property (Cont.): |
2. | Sale of |
On March 31, 2016,February 1, 2017 PC has completed the sale of its subsidiarySPV holding LiberecSuwalki Plaza a commercial center in the Czech Republic, forPoland to an investment fund. On completion PC has received approximately EUR 9.516.7 million (NIS 4069 million). Following net asset value adjustments related to the subsidiary’s balance sheet, PC received net EUR 9.37 million (NIS 40 million)cash and recorded a lossgain of EUR 355 thousand0.8 million (NIS 1.53.3 million) and revenue of EUR 43.1 million (NIS 174.7 million) from the disposal.
3. | Sale of plot in Shumen: |
On February 23, 2017 PC concluded the sale of a 26,057 sqm plot of land in Shumen, Bulgaria for approximately EUR 1 million (NIS 4 million). PC recorded a gain of Euro 0.2 million (NIS 0.8 million) and revenue of EUR 1 million (NIS 3.9 million) from the disposal.
4. | Sale of SPV holding Belgrade Plaza commercial center: |
On March 2, 2017, an indirect subsidiary of the PC, has completed the sale of SPV holding Belgrade Plaza commercial center (the “SPV”), to a subsidiary of BIG Shopping Centers Ltd. (the “Purchaser”).
The shopping center, which was over 97% pre-let, opened on 20th of April 2017 and PC had remained responsible for the development and leasing of the asset until the opening.
Upon completion of the transaction, PC has received an initial payment of EUR 31.7 million (NIS 125 million) from the purchaser, further EUR 2 million (NIS 8 million) has been received following the opening, further payment of EUR 13.35 million (NIS 53 million) has been received during September 2017 and additional payments are contingent upon certain operational targets and milestones being met. The Purchaser has provided a guarantee to secure these future payments. The received consideration is after the deduction of the bank loan (circa EUR 15.4 million) (NIS 60 million).
The final agreed value of Belgrade Plaza, which will comprise circa 32,300 sqm of GLA, will be calculated based on a general cap rate of 8.25% as well as the sustainable NOI after 12 months of operation, which PC estimates will be approximately EUR 6.2-6.5 million per annum.
Further instalments will be due to PC during the first year of operation based on this 12-month figure. The NOI will be re-examined again after 24 months and 36 months of operation, which may lead to an upward adjustment of the final purchase price.
PC recorded revenue of EUR 62.5 million (NIS 246 million) from the disposal and a gain of EUR 3.2 million (NIS 13 million). Expected future purchase price adjustment are not included.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
c. | Additional information in respect of PC’s trading property (Cont.): |
5. | Final agreement for sale of Kielce Plaza, Poland: |
On June 19, 2017, PC has signed the final sale agreement for the disposal of its 2.47-hectare plot in the center of Kielce, Poland, for EUR 2.28 million (NIS 9 million).
PC received a down payment of EUR 0.465 million (NIS 1.8 million) when the preliminary sale agreement was signed at 2016 and the remaining EUR 1.815 million (NIS 7.2 million) has been paid to PC during June 2017.
PC recorded revenue of EUR 2.2 million (NIS 9 million) from the disposal no gain was recorded.
6. | Completed sale of Plot in Leszno, Poland: |
In July 2017, PC has signed the final sale agreement for the disposal of a 1.8-hectare plot in the city of Leszno for EUR 0.81 million (NIS 3 million). PC recorded revenue of EUR 0.81 million (NIS 3 million) from the disposal.
7. | Sale of plots in Timisoara and Constanta, Romania: |
On August 7, 2017 PC has completed the sale of a plot totaling approximately 32,000 sqm in Timisoara, Romania, for Euro 7.25 million (NIS 30.9 million) and a plot totaling approximately 30,000 sqm in Constanta, Romania, for Euro 1.3 million. (NIS 5.5 million).
On June 29, 2016,October 2, 2017 PC’s subsidiary has concluded the transaction with an international investor, NEPI Rockcastle (the “Buyer”), on the termination of land use right and preliminary easement agreement which created certain easement rights over the Arena Plaza plot registered in favor of PC subsidiary In consideration for termination of the land use right and the preliminary easement agreement, PC’s subsidiary received the net sum of EUR 2.5 million (NIS 10.4 million) and recorded revenue in the amount of EUR 2.5 million (NIS 10.4 million).
9. | Sale of SPV holding of the Torun Plaza shopping and entertainment center in Poland: |
On November 21, 2017 PC has completed the sale of its wholly owned subsidiary, which holdsshares with an investment fund (the “Purchaser”) regarding the sale of SPV holding of the Torun Plaza shopping and entertainment center in Poland. PC has received a net cash of approximately Euro 28.3 million,(NIS 117.1 million). This net cash is after the deduction of the bank loan (circa EUR 43.3 million) (NIS 179.3). The above-mentioned sums do not include the earn out payments in an amount of EUR 0.35 million (NIS 1.4 million), reduced by NAV adjustment of EUR 0.2 million (NIS 0.8 million). PC recorded revenue of EUR 71.6 million (NIS 296.4 million) from the disposal and recorded a loss from the sale in amount of EUR 1.5 million (NIS 6.4 million) (not including the earn-out payment mentioned).
10. | Disposal of plot in Belgrade, Serbia: |
Following the sale of “MUP” plot in Belgrade, Serbia, for EUR 15.75 million (NIS 64 million) and recorded a gain of EUR 2.15 million (NIS 9 million). The purchaser has paid the initial amount of EUR 11.3 million (NIS 46 million), EUR 4.05 million (NIS 16 million) were paid in January 2017 and the remaining EUR 0.4 million (NIS 2 million) has been received in September 2017.
Furthermore, PC was entitled to an additional contingent consideration of EUR 0.6 million (NIS 2.5 million) once the purchaser successfully develops at least 69,000 sqm above ground. The consideration has beenwas received in September 2017.2017 and is recorded as revenue from disposal of trading properties.
On June 30, 2016, PC has signed a Debt Repayment Agreement (“DRA”) with the financing bank (the “Bank”) of Zgorzelec Plaza Shopping Center in Poland whereby PC paid EUR 1.1 million to the financing bank.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE |
The DRA stated that PC is obliged to make its best effort and cooperate with the Bank in trying to sell Zgorzelec Plaza Shopping Center. Simultaneous with this, the financing bank will seek a third party to be an appointed shareholder to purchase the shares of Zgorzelec Plaza Shopping Center for EUR 1.
On September 14, 2016, A Share Purchase Agreement has been signed with an Appointed Shareholder nominated by the Bank, after which the remainder of the DRA process was completed including removing a mortgage over a plot the PC owns in Leszno, Poland.
PC recognized a profit of NIS 39 million, stemming from de-recognition of EUR 23 million (NIS 93 million), of the outstanding loan (including accrued interest), against the shopping center’s carrying amount of EUR 12.7 million (NIS 51 million).
During 2016 PC has executed transactions for the sale of plots to third parties in Poland and Romania for the total amount of approximately EUR 4 million (NIS 16 million).
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
TRADING PROPERTY (Cont.) |
Additional information in respect of PC’s trading property (Cont.): |
Additional information in respect of trading property:
The following table summarizes general information regarding the Group’s significant trading property projects.
As of December 31, 2016 | As of December 31, | |||||||||||||||||
Purchase | Rate of ownership | 2 0 1 6 | 2 0 1 5 | |||||||||||||||
Project | Location | /transaction date | by the group (%) | Nature of rights | Carrying Amount (MNIS) | |||||||||||||
Operational | ||||||||||||||||||
Suwalki Plaza (see 21 A) | Poland | Jun-06 | 100 | Ownership | 163.5 | 170.6 | ||||||||||||
Zgorzelec Plaza | Poland | Dec-06 | 100 | Ownership | Sold | 51.4 | ||||||||||||
Torun Plaza (see 21 I) | Poland | Feb-07 | 100 | Ownership | 281.8 | 292.2 | ||||||||||||
Liberec Plaza | Czech Republic | Jun-06 | 100 | Ownership | sold | 40.8 | ||||||||||||
Undeveloped lands designated for development | ||||||||||||||||||
Belgrade Plaza | Serbia | Aug-07 | 100 | Ownership | sold | 57.3 | ||||||||||||
Sport-Star Plaza (see 21 D) | Serbia | Dec-07 | 100 | Ownership | 226.2 | 125.7 | ||||||||||||
Undeveloped lands not designated for development | ||||||||||||||||||
Casa Radio (see C(1) above) | Romania | Feb-07 | 75 | Leasing for 38 years | 296.4 | (*) | 461.2 | |||||||||||
Lodz residential | Poland | Sep-01 | 100 | Ownership/ Perpetual usufruct | 2.0 | 8.9 | ||||||||||||
Timisoara Plaza (see 21 L) | Romania | Mar-07 | 100 | Ownership | 28.3 | 40.0 | ||||||||||||
Lodz - plaza | Poland | Sep-09 | 100 | Perpetual usufruct | 20.6 | 23.3 | ||||||||||||
Kielce Plaza | Poland | Jan-08 | 100 | Perpetual usufruct | 8.9 | 14.0 | ||||||||||||
Lesnzo Plaza | Poland | Jun-08 | 100 | Perpetual usufruct | 3.2 | 3.4 | ||||||||||||
Miercurea Csiki Plaza | Romania | Jul-07 | 100 | Ownership | 4.0 | 8.5 | ||||||||||||
Slatina Plaza | Romania | Aug-07 | 100 | Ownership | sold | 2.5 | ||||||||||||
Constanta Plaza (see 21 L) | Romania | July-09 | 100 | Ownership | 5.3 | 9.3 | ||||||||||||
Shumen Plaza (see 21 C)) | Bulgaria | Nov-07 | 100 | Ownership | 3.2 | 3.4 | ||||||||||||
Arena Plaza Extension | Hungary | Nov-05 | 100 | Land use rights | 6.1 | 10.6 | ||||||||||||
Helios Plaza | Greece | May-02 | 100 | Ownership | 13.3 | 17.0 | ||||||||||||
Bangalore (see note 6 A) | India | Mar-08 | 100 | Ownership | 154.6 | - | ||||||||||||
Chennai (see D below) | India | Dec-07 | 100 | Ownership | 84.5 | 113.1 | ||||||||||||
Other small plots, grouped | 8.6 | 14.6 | ||||||||||||||||
1,310.5 | 1,467.8 |
Purchase/ | Rate of ownership | As of December 31, | As of December 31, | |||||||||||||||
transaction | by the | 2017 | 2017 | 2016 | ||||||||||||||
Project | Location | date | group (%) | Nature of rights | Carrying Amount (MNIS) | |||||||||||||
Operational | ||||||||||||||||||
Suwalki Plaza | Poland | Jun-06 | 100 | Ownership | Sold | 163.5 | ||||||||||||
Torun Plaza | Poland | Feb-07 | 100 | Ownership | Sold | 281.8 | ||||||||||||
Undeveloped lands designated for development | ||||||||||||||||||
Sport-Star Plaza | Serbia | Dec-07 | 100 | Ownership | Sold | 226.2 | ||||||||||||
Undeveloped lands not designated for development | ||||||||||||||||||
Casa Radio (see c1 above) | Romania | Feb-07 | 75 | Leasing for 37 years | (*)262.5 | (*)296.4 | ||||||||||||
Lodz residential | Poland | Sep-01 | 100 | Ownership/ Perpetual usufruct | 1.7 | 2.0 | ||||||||||||
Timisoara Plaza | Romania | Mar-07 | 100 | Ownership | Sold | 28.3 | ||||||||||||
Lodz - plaza | Poland | Sep-09 | 100 | Perpetual usufruct | 16.2 | 20.6 | ||||||||||||
Kielce Plaza | Poland | Jan-08 | 100 | Perpetual usufruct | Sold | 8.9 | ||||||||||||
Lesnzo Plaza | Poland | Jun-08 | 100 | Perpetual usufruct | Sold | 3.2 | ||||||||||||
Miercurea Csiki Plaza | Romania | Jul-07 | 100 | Ownership | 4.2 | 4.0 | ||||||||||||
Constanta Plaza | Romania | July-09 | 100 | Ownership | Sold | 5.3 | ||||||||||||
Shumen Plaza | Bulgaria | Nov-07 | 100 | Ownership | Sold | 3.2 | ||||||||||||
Arena Plaza Extension | Hungary | Nov-05 | 100 | Land use rights | Sold | 6.1 | ||||||||||||
Helios Plaza | Greece | May-02 | 100 | Ownership | 13.7 | 13.3 | ||||||||||||
Bangalore (see d below ) | India | Mar-08 | 100 | Ownership | 113.7 | 154.6 | ||||||||||||
Chennai (see d below) | India | Dec-07 | 100 | Ownership | 73.4 | 84.5 | ||||||||||||
Other small plots, grouped | 7.2 | 8.6 | ||||||||||||||||
492.6 | 1,310.5 |
(*) | Represents gross value including commitment for PAB construction, which is presented as non-current provision in amount of NIS |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
Additional information in respect of trading property in India: |
The following information relates to trading property held by Elbit-Plaza India Real Estate Holding Limited (“EPI”), the total amount of which as of December 31, 2016,2017, amounts to NIS 84.5187.1 million. EPI is jointly controlled by the Company and PC (see note 7D)7c). As for additional information in respect of the Bangalore Project- see note 6A.
Chennai, India:
1. | Chennai, India: |
In December 2007, EPI executed agreements for the establishment of a special purpose vehicle (“Chennai Project SPV”) together with a local developer in Chennai (“Local Partner”). The Chennai Project SPV acquired 74.73 acres of land situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai (“Property”).
On September 16, 2015, EPI has obtained a backstop commitment from the Local Partner for the purchase of its 80% shareholding in the Chennai SPV by January 15, 2016, for a net consideration of approximately INR 161.7 Crores (NIS 91(NIS 87 million). Since the Local Partner had breached its commitment, EPI exercised its rights and forfeited the Local Partner’s 20% holdings in the Chennai Project SPV. Accordingly, as of the balance sheet date EPI has 100% of the equity and voting rights in the Chennai Project SPV.
On August 2,During 2016, Chennai Project SPV has signed a Joint Development Agreement with a local developer (“Developer” and “JDA”, respectively) with respect to the Property.
Under the terms of the JDA, the Chennai Project SPV granted the property development rights to the Developer” who shall bear full responsibility for all of the project costs and liabilities, as well as for the marketing of the scheme. The JDA also stipulates specific project milestones, timelines and minimum sale prices.
Development will commence subject to the obtainment of the required governmental/ municipal approvals and permits, and it is intended that 67% of the Property will be allocated for the sale of plotted developments (whereby a plot is sold with the infrastructure in place for the development of a residential unit by the end purchaser), while the remainder will comprise residential units fully constructed for sale.
The Chennai Project SPV will receive 73% of the total revenues from the plotted development and 40% of the total revenues from the sale of the fully constructed residential units.
In order to secure its obligation, the Developer will paypaid a total refundable deposit of INR 35.5 Crores (NIS 20 million), with INR 10 Crores (NIS 5.5 million) were paid asfollowing the signing and registration of the balance sheet date, INR 17 Crores (NIS 9.5 million) payable when planning permission for the first phase of the development project is obtained (the “Project Commencement Date”), and the remaining INR 8.5 Crores (NIS 5 million) payable six months after the Project Commencement Date (“Refundable Deposit”).JDA.
The JDA may be terminated in the event that the required governmental approvals for establishment of access road to the Property has not been achieved within 12 (twelve) months period from the execution date of the JDA. The required approvals have not yet been obtained at the target date, but none of the parties has canceled the agreement at this juncture. Upon such termination, the Developer shall be entitled to the refund of the relevant amounts paid as Refundable Deposit and any other cost related to such access road or the title over the Property. The JDA may also be terminated by the Chennai Project SPV, inter alia, if the Developer has not obtained certain development milestone and/or breached the terms of the JDA.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | TRADING PROPERTY (Cont.) |
Additional information in respect of trading property in India (Cont.): |
On December 31, 2016, the net realizable value was prepared according to the discounted cash flows attributable to the Chennai Project SPV taking into account the terms of the signed JDA. The main assumptions included in this valuation are the amounts and timing of the revenues stream from the sale of Plots and Villas and the applicable interest rate for discounting the projected cash flow.
The significant assumptions used in measuring the net realizable values of trading properties (on the basis of weighted averages) as of December 31, 2016, are presented below:
Estimated rental prices per sqm per month (in EURO) | 2016 | 2015 | |||
Casa Radio Romania | 14.2-26.3 | 14.2-26.3 | |||
Torun | 8-41 | 6.5-47 | |||
Average risk adjusted yield used (in percentage) | |||||
Casa Radio Romania | 8.75-10.25 | 8.75-10 | |||
Torun | 8.5 | 7.15 | |||
Chennai | 25 | comparable |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Operating Property | Exit Yield | |||||||||||||||||||
-50bps | -25bps | 0 | +25bps | +50bps | ||||||||||||||||
Torun shopping centers (*) | 317.0 | 313.0 | 308.6 | 304.9 | 301.3 |
Due to this fact, the financial statements of the SPV include a provision in an amount of INR 30 Crores (NIS 16 million) for cost reimbursement, including INR 10 Crores (NIS 5.5 million) advanced payment received.
Net realizable value measurement of Chennai project
The valuation of the property is based on the comparable method.
The following parameters have been considered to arrive at the land value of the subject property:
Parameter | Premium (Discount) | ||||
Accessibility | -12.5 | % | |||
Discount for shape and contiguity | -20 | % | |||
Location and Neighborhood profile | -5 | % | |||
Size | -10 | % | |||
Negotiation | -5 | % | |||
Conversion | 5 | % | |||
Topography | -5 | % | |||
Additional cost to be incurred at the site due to illegal excavation | -5 | % | |||
Total | -58 | % |
Plots | Exit Yield | Rent | Construction Cost | Delay in construction commencement date (months) |
Sale Price | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | +15bps | +25bps | +40bps | +50bps | -10% | -5% | 0 | +5% | +10% | -10% | -5% | 0 | +5% | +10% | 0 | 6 | 12 | 18 | 24 | -10% | -5% | 0 | +5% | +10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chennai | 84.5 | 84.1 | 83.8 | 83.3 | 83.1 | - | - | - | - | - | 93.5 | 82.9 | 84.5 | 84.5 | 55.7 | 76.9 | 80.7 | 84.5 | 88.3 | 92.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Casa Radio | 242.9 | 224.7 | 212.6 | 195.3 | 184.0 | 140.1 | 195.6 | 242.9 | 306.9 | 362.7 | 330.2 | 286.6 | 242.9 | 199.6 | 155.9 | 242.9 | 236.5 | 230.5 | 224.1 | 218.3 |
In March, 2008 EPI entered into a share subscription and framework agreement (the “Agreement”), with a third party local developer (the “Partner”), and a wholly owned Indian subsidiary of EPI which was designated for this purpose (“SPV”), to acquire together with the Partner, through the SPV, up to 440 acres of land in Bangalore, India (the “Project”) in certain phases as set forth in the Agreement. As of December 31, 2017, the Partner has surrendered sale deeds to the SPV for approximately 54 acres (the “Plot”). In addition, under the Agreement the Partner has also been granted with 10% undivided interest in the Plot and have also signed a Joint Development Agreement with the SPV in respect of the Plot.
Plots | Size of plot | Minority Shares in the land | Contiguous Land Parcel | Negotiation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
-5% | -10% | -15% | -20% | -25% | -10% | -15% | -20% | -25% | -30% | -5% | -10% | -15% | -20% | -25% | -5% | -10% | -15% | -20% | -25% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bangalore | 187.0 | 170.9 | 154.6 | 138.6 | 122.3 | 174.1 | 164.3 | 154.6 | 145.0 | 135.4 | 187.0 | 170.9 | 154.6 | 138.6 | 122.3 | 180.4 | 167.5 | 154.6 | 141.8 | 128.9 |
F-49 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
d. | Additional information in respect of trading property in India (Cont.): |
2. | Bangalore (Cont.): |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS2015 agreement
On December 2, 2015 EPI has signed an agreement to sell 100% of its interest in the SPV to the Partner (the “Sale Agreement”). The total consideration upon completion of the transaction was INR 3,210 million (approximately EUR 42 million) which should have been paid no later than September 30, 2016 (“Long Stop Date”). On November 15, 2016, the Partner informed EPI that it will not be able to execute the advance payments.
As a result of the foregoing, the Company has received from the escrow agent the sale deeds in respect of additional 8.3 acres (the “Additional Property”) which has been mortgaged by the Partner in favour of the SPV in order to secure the completion of the transaction on the Long Stop Date. The Additional Property has not yet been registered in favour of the SPV. In addition, as per the Sale Agreement, the Company took actions in order to get full separation from the Partner with respect to the Plot and specifically the execution of the sale deed with respect of the 10% undivided interest, all as agreed in the Sale Agreement.
As a result of the failure of the Partner to complete the transaction under the Sale Agreement and in accordance with the provisions thereto, EPI has 100% control over the SPV and the partner is no longer entitled to receive the 50% shareholding.
2017 agreement
In June 2017, EPI signed a revised sale agreement with the former partner (the “Purchaser”).
The Purchaser and EPI have agreed that the purchase price will be amended to INR 338 Crores (approximately Euro 44.2 million) instead of the INR 321 Crores (approximately Euro 42 million) agreed in the previous agreement. As part of the agreement, INR 110 Crores (approximately Euro 14.4 million) will be paid by the Purchaser in instalments until the Final Closing. The Final Closing will take place on September 1, 2018, when the final instalment of INR 228 Crores (approximately Euro 29.8 million) will be paid to EPI.
If the Purchaser defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement will remain in place until the Final Closing.
2018 agreement
In January 2018, the Purchaser has notified EPI that due to a proposed zoning change (initiated by the Indian authorities) which could potentially impact the development of the land, all remaining payments under the Agreement will be stopped until a mutually acceptable solution is reached on this matter. EPI has rejected the Purchaser’s claims, having no relevance to the existing Agreement, and started to evaluate its legal options.
Since the signing of the revised agreement, the Purchaser has paid non-refundable advance payments totaling INR 55 Crores (circa NIS 30 million).
F-50 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
d. | Additional information in respect of trading property in India (Cont.): |
2. | Bangalore (Cont.): |
In March 2018, the Company signed an amended revised agreement as follows: The Purchaser and EPI have agreed that the total purchase price shall be increased to INR 350 Crores (approximately NIS 190 million). Following the signing of the revised agreement the Purchaser paid EPI additional INR 10 Crores (approximately NIS 5 million) further to the INR 45 Crores (approximately NIS 25 million) that were already paid during the recent year. Additional INR 83 Crores (approximately NIS 45 million) will be paid by the Purchaser in unequal monthly installments until the Final Closing. The Final Closing will take place on 31 August 2019 when the final installment of INR 212 Crores (approximately NIS 115 million) will be paid to EPI against the transfer of the outstanding share capital of the SPV.
If the Purchaser defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreements will remain in place until the Final Closing.
As of 31 December 2017 advances received from the Purchaser in the amount of NIS 21.8 million are included in the financial statements as part of other non-current liabilities.
Environmental update on Bangalore project - India:
On May 4, 2016, the National Green Tribunal (“NGT”), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as “no construction zones” due to its proximity to water reservoirs and water drains (“Order”). The restrictions in respect of the “no construction zone” are applicable to all construction projects.
The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company’s project which is adjacent to the Varthur Lake and have several storm-water crossing it.
An appeal was filed before the Supreme Court of India against the Order. The Supreme Court has stayed the operation of certain portions of the Order. At this stage, it is difficult to predict the amount of time that the Supreme Court of India will take to decide on the matter.
Net realizable value measurement of Bangalore project
As for December 31, 2017 and 2016 the Group measured the net realizable value of the project.
F-51 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4:- | TRADING PROPERTY (Cont.) |
d. | Additional information in respect of trading property in India (Cont.): |
2. | Bangalore (Cont.): |
The plot in Bangalore is still in land stage and therefore the value of the plot has been derived using land comparable method. The valuation of the property reflects the risk related to NGT order described above, the interest that the partner still holds in the plot (10% as described above), the size of the plot and the non-contiguous land parcel. The decrease in the value during 2017 is attributable mainly to the proposed change in zoning regulations. The local authorities have proposed a revised master plan for Bangalore under which it is proposed to change certain regulations pertaining to zoning of the plot which if given effect might adversely affect the development prospects on the plot. The Company being aggrieved by the proposed change was entitled to and has filed the necessary objections with the concerned authorities and believes that the current zoning regulations will be maintained. Management believes that the current discount rate used towards this end is an appropriate estimation in the current circumstances.
The following parameters have been considered to arrive at the land value of the subject property:
Parameter | Premium (Discount) | ||||
Accessibility | 10 | % | |||
FSI permissible | 10 | % | |||
Location and Neighborhood profile | 5 | % | |||
Contiguous Land Parcel | -15 | % | |||
Size | -10 | % | |||
Negotiation (Trans/Quote) | -15 | % | |||
Total Premium/Discount | -15 | % | |||
Discount on account of NGT order and presence of Drain | -20 | % | |||
Presence of minority shareholder | -20 | % | |||
Discount on account of possible change in zoning (open space/parks) | -25 | % |
F-52 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE | INVESTMENTS IN ASSOCIATES |
InSightec Ltd. (“InSightec”): |
Insightec Ltd. (the “Company”) was incorporated in the State of Israel in March 1999 and commenced operations in the development, production and marketing of magnetic resonance imaging guided focused ultrasound treatment equipment shortly thereafter. The Company operates in one operating segment. |
As for December 31, 2016,2017, the GroupCompany holds (directly and indirectly, through Elbit Medical, 31.3%Medical), 22.5% of InSightec’s voting and equity rights (25.5%(18.6% on a fully diluted basis). Yet, due to the fact that the Group invested in preferred shares and regular shares which are subordinated to the share granted in the last rounds of investment, the Group share in InSightec loss is 41.5%.
Substantially all of InSightec’s current sales are derived from a few applications of InSightec’s products. Other applications of InSightec’s technology are in the early stages and there can be no assurance that these applications will be successful. InSightec is continuing research and development for additional applications for such products.
Financing round in Insightec: |
On December 14, 2017 InSightec Ltd. (“Insightec”), has signed a Share Purchase Agreement with Koch Disruptive Technologies, pursuant to which Koch Disruptive Technologies together with other investors will invest in Insightec a total amount of between US$75 million and US$150 million, in consideration for the issuance of a new series of preferred stock of Insightec (Preferred E share). The main terms of the Transaction are as follows:
1) | The Transaction reflects a pre money valuation for Insightec of approximately USD 460 million (on a fully-diluted basis). |
2) | Holders of Preferred E share shall have preferred rights in the event of a dividend distribution and certain material events as set forth in the transaction documents. |
3) | The transaction documents also set forth the rights of Koch Disruptive Technologies and other major shareholders of Insightec (in an amended Securityholders Agreement and amended Articles of Association), including, that following the consummation of the Transaction, Insightec’s board of directors shall consist of a maximum of nine (9) board members. Each of the four major shareholders in Insightec (including Elbit Medical) will be entitled to appoint one director for as long as each of them holds at least 5% of the outstanding share capital of Insightec. The directors appointed by three of the major shareholders (including the one appointed by Elbit Medical) may together appoint up to four (4) additional directors. The CEO of Insightec will also serve as director. |
On December 28, 2017 Insightec completed the initial closing of the transaction in which it raised approximately US$90 million (out of which US$75 million was invested by Koch Disruptive Technologies).
On January Insightec has completed the second (and final) closing of its Series E investment round in a total amount of $60 million.
F-53 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5:- | INVESTMENTS IN ASSOCIATES (Cont.) |
a. | InSightec Ltd. (“InSightec”) (Cont.): |
2. | Financing round in Insightec (Cont.): |
The lead investor in the round was Koch Disruptive Technologies (a subsidiary of Koch Industries, Inc.) who invested in total $100 million in Insightec. York participated in this round as well in the total investment of 6 million $.
The Series E Preferred Shares of Insightec issued in the first and second closings represent, immediately following their issuance, approximately 29.1% of the outstanding share capital (24.7% on a fully-diluted basis) of INSIGHTEC’s share capital.The Company did not participate in the investment rounds.
Following the completion of the second closing, the Company holds (directly and indirectly through its subsidiary - Elbit Medical Technologies Ltd.) approximately 19.8% (16.7% on a fully-diluted basis) and York holds 22.6% of InSightec issued and outstanding share capital (19.1% on a fully diluted basis).
3. | Significant events in Insigctec during 2016-2017: |
● | On November 14, 2017 the Taiwanese Food and Drug Administration (TFDA) has approved its Exablate Neuro system for the treatment of essential tremor in patients who do not respond to medication. |
● | On December 14, 2017 The Centers for Medicare and Medicaid Services (the “CMS”) updated the reimbursement code for Exablate Neuro treatment for essential tremor, as follows: |
1. | On November 2016 the CMS has decided to associate Insightec’s Exablate Neuro system (for essential tremor treatment), a reimbursement code with a payment level of USD 9,751. | |
2. | Beginning January 1, 2018, the primary procedure code for Movement Disorders (essential tremor) is assigned to new technology level and will be paid at USD 17,500.50 for medicare beneficiaries (if deemed medically appropriate). | |
3. | The CMS decision is only one of the necessary conditions necessary to receive an insurance compensation for the treatment. Pursuant to the CMS approval, the approval of each of the regional CMS representatives in the USA is required in order to receive insurance compensation for patients for the treatment. As of the date, an approval from a CMS representative in one area only (National Government Services Medicare, local Medicare contractor (MAC) for jurisdictions 6 & K1 (has been received and Insightec is acting to receive the rest of the CMS representatives’ approvals, but cannot estimate when whether these approvals will be received. |
● | On May 24, 2016, InSightec Health Canada has approved InSightec’s Exablate Neuro system for the treatment of essential tremor. |
● | On July 2016, the FDA has approved InSightec’s Exablate Neuro system for a non-invasive treatment of essential tremor (ET) in patients who have not responded to medication. |
Exablate Neuro uses focused ultrasound waves to precisely target and ablate tissueissue deep within the brain with no incisions or implants. The treatment is done under Magnetic Resonance Imaging (MRI) guidance for real time treatment monitoring.
1This region refers to the following states: Illinois, Minnesota, Maine, Massachusetts, New Hampshire, Connecticut, New York, Rhode Island Vermont and Wisconsin.
F-54 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5:- | INVESTMENTS IN ASSOCIATES (Cont.) |
a. | InSightec Ltd. (“InSightec”) (Cont.): |
3. | Significant events in Insigctec during 2016-2017 (Cont.): |
● | Insightec has signed a cooperation agreement with Siemens |
On August 15, 2016, INSIGHTEC has signed a non-exclusive cooperation agreement with Siemens Healthcare GmbH (“Siemens”), a leading manufacturer and developer of diagnostic imaging equipment in general and Magnetic Resonance scanners specifically, to develop compatibility between INSIGHTEC’s MRI guided Focused Ultrasound Systems (MRgFUS) and Siemens MRI scanners (the “Systems”) with the intention to expand the MRgFUS market globally (the “Agreement”). According to the Agreement, the Parties will cooperate regarding the performance of R&D, integration, testing and approving the compatibility of the Parties’ Systems. Each Party shall be solely responsible, at its own cost, to obtain the regulatory approval for its systems, and InSightec shall be solely responsible, at its sole cost, to obtain the regulatory approval for the combined system. Each Party shall bear all of its internal and external costs relating to its performance under the Agreement, except that InSightec shall reimburse Siemens an amount agreed upon in the Agreement, for its R&D costs. The Agreement also determines that each Party shall act independently in the marketing and sales of its component portion of the Combined System, and determines the amount InSightec shall pay Siemens for sales of the Combined Systems.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The term of the Agreement is five (5) years from the first commercial sale of the combined system and shall automatically renew for additional 1-year periods, unless either Party has provided a notice for its non-renewal or of its termination, it in accordance with the terms of the Agreement. Each Party shall have a limited liability towards the other Party for direct damages only. In addition, each Party is required to maintain a minimal insurance coverage for the purpose of the Agreement during the term of the Agreement and for a few years thereafter.
On November 16, 2016, Insightec informed the Company, that the Centers for Medicare and Medicaid Services (the “CMS”) assigned a status to the Exablate Neuro treatment for Essential Tremor, moving it from a non-payable status indicator to one that allows reimbursement. The CMS decision is one of several steps toward gaining appropriate reimbursement for MRgFUS for essential tremor. This needs to be followed by CMS regional offices approval to the reimbursement for the Exablate Neuro treatment, for their patients. According to the CMS’s recommendation, the Exablate Neuro was assigned a reimbursement code with a payment level of USD 9,751. The CMS is part of the U.S. Department of Health and Human Services, and it oversees, among its other functions, Medicare (the federal health insurance program for the elderly, [which are the main group of potential patients for the Exablate Neuro treatment]), and Medicare reimbursement rates for healthcare providers that use federally certified health IT systems. At this stage, Insightec is unable to estimate the implications of the CMS’s recommendation on Insightec
As for December 31, 2016, Elbit Medical holds approximately 31.3% of InSightec’s issued and outstanding share capital (25.5% on a fully diluted basis) and York holds 29.5% of InSightec issued and outstanding share capital (24% on a fully diluted basis).
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Gamida is engaged in developing cellular and immune therapies for the treatment of cancer and orphan genetic diseases. As of December 31, |
Gamida is devoting substantially all of its efforts toward research and development activities. In the course of such activities, Gamida has sustained operating losses and expects such losses to continue in the foreseeable future. Gamida’s accumulated deficit as of December 31, 2016,2017, is USD 97,462 thousand.116,282 thousand and negative cash flows from operating activities for years ended December 31, 2017 are $17,760. Gamida requires additional financing in order to continue to fund its current operations and pay existing and future liabilities
Gamida’s auditor’ report with respect to Gamida’s 20162017 financial statements includes emphasize of matter with respect to going concern uncertainty. Gamida is addressing its liquidity issues by implementing initiatives to allow the coverage of budget deficit. Such initiatives include equity financing and costs reduction. Gamida’s financial statements do not include any adjustments that may be required should the Company will not be able to continue as a going concern. See also 21 J.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | INVESTMENTS IN ASSOCIATES (Cont.) |
Gamida Cell Ltd. (“Gamida”) (Cont.): |
2. | Financing round in Gamida: |
On September 1, 2014July 9, 2017, the Company was informed by Gamida that an approximately $40 million private financing investment has been completed (“the Investment”). The Investment was led by Shavit Capital Fund joined by the pharmaceutical company Novartis invested USD 35 Mand additional investors, including VMS Investment Group, Israel Biotech Fund, IHCV and Clal Biotechnology Industries (the “Investors”). Following the Investment, a preferred shares were allotted to the Investors, based on $120 million pre-money valuation to Gamida (the “Allotted Shares”). In addition, the investors received options to preferred shares in Gamida Cell in exchange for approximately 15% of Gamida Cell’s share capital (fully diluted). On November 5, 2015 Elbit Medical informed that Novartis invested in Gamida Cell an immediatethe amount of USD60% of the Allotted Shares. The exercise price of the options is 120% of the shares price which have been paid on the Investment closing date. The options will expire 5 M (NIS 19.5 million) in exchange for approximately 2.5% of Gamida Cell’s share capital (fully diluted) and now Novartis holds approximately 18% of Gamida Cell’s share capital fully diluted).
In addition,years after the Investment closing date. The Company did not participate in the event that by the end of 2017 Gamida shall raise the minimum remaining funding required to cover the Phase III study of NiCord, by way of an equity investment Novartis will invest in Gamida, subject to certain conditions set in the Agreement, an additional amount of up to USD 10 million (NIS 39 million) (the “Future Investment”).rounds.
On October 10, 2016, Gamida informed the Company that U.S. Food and Drug Administration (“FDA”) has granted Breakthrough Therapy Designation status to Gamida’s NiCord® (“Nicord”), due to improvement in absorption of neutrophils blood cells in bone marrow transplant for patients with high risk hematological malignancies (blood cancers).
Breakthrough therapy designation is granted to a drug that is intended to treat serious or life-threatening diseases, and that preliminary clinical evidence indicates that the drug may demonstrate substantial improvement on a clinically significant endpoint(s) over available therapies.
A breakthrough therapy designation entitles the company to various benefits, such as: intensive FDA guidance, involvement of senior FDA managers in the process, option for a FDA rolling review of Nicord marketing approval application in the U.S (i.e. the FDA may agree to review parts of the application file which are submitted in phases, with no obligation of filling the whole file prior to the review commencement).
Year ended December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
The Group’s share of loss from continuing operations | (57,630 | ) | (55,980 | ) | |||||
The Group’s share of total comprehensive income | (57,630 | ) | (55,980 | ) | |||||
Aggregate carrying amount of the Group’s interests in these associates | 21,215 | 80,059 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2008 Agreement:
InOn March 2008 a wholly owned subsidiary of EPI (“SPV”), entered into a share subscription and framework agreement (the “Agreement”), with a third party local developer (the “Partner”), to acquire together with23, 2017, the Partner, throughCompany was informed by Gamida, that the SPV, up to 440 acres of land in Bangalore, India (the “Project”) in certain phases as set forth in the Agreement. As of December 31, 2016, the Partnerorphan drug designation which has surrendered sale deeds to the SPV for approximately 54 acres (the “Plot”). In addition, under the Agreement the Partner has also been granted with 10% undivided interest inby the PlotEuropean Medicines Agency’s (EMA) Committee for Orphan Medicinal Products (COMP) regarding NiCord® has been broadened and have also signed a Joint Development Agreement with the SPV in respect of the Plot.
2015 Agreement:now includes any treatment which based on blood system stem cells (haematopoietic stem cells) transplant.
On December 2, 2015 EPI has signed an agreement to sell 100%12, 2017 Gamida presented final results from the phase I/II trial evaluating NiCord® (the “Trial”) at the annual meeting of its interest in the SPV to the Partner (the “Sale Agreement”)American Society for Hematology (ASH). The total consideration upon completion of the transaction was INR 3,210 million (approximately NIS 181 million) which should have been paid no later than September 30, 2016 (“Long Stop Date”). On September 30, 2016, the Company announcedTrial that the transaction has not been completedincluded 36 patients with hematologic malignancies, met its primary endpoint as well as safety and the parties have reached to preliminary understanding with the partner that the Long Stop Date will be extended subject to payments of advances by the Partner. Accordingly, on the same day the Partner has advanced an amount of INR 5 Crores (approximately NIS 2.8 million) to the SPV. On November 15, 2016, the Partner informed EPI that it will not be able to execute the next advance payments due, in the fourth quarter of 2016.efficiency targets
As a result of the foregoing, the Company has received from the escrow agent the sale deeds in respect of additional 8.3 acres (the “Additional |Property) which has been mortgaged by the Partner in favour of the SPV in order to secure the completion of the transaction on the Long Stop Date. The Additional Property has not yet been registered in favour of the SPV. In addition, as per the Sale Agreement, the Company is acting in order to get full separation from the Partner with respect to the Plot and specifically the execution of the sale deed with respect of the 10% undivided interest, all as agreed in the Sale Agreement.
Through the end of the third quarter of 2016 the Company has included the investment in the SPV as investment in joint venture (50%) under the equity method since under the Agreement the partner was entitled to receive 50% shareholding in the SPV in case he will comply with all of his obligations under the Agreement and specially with respect to the purchase of all the acres included in the Agreement. As a result of the failure of the Partner to complete the transaction under the Sale Agreement and in accordance with the provisions thereto, EPI has 100% control over the SPV and the partner is no longer entitled to receive the 50% shareholding. Accordingly the Company has consolidated the financial statements of the SPV with the Company financial statement in this annual report.
In connection with the revised Sale Agreement signed after this Balance sheet date, please see Note 21 H.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NGT order affecting the Plot:
On May 4, 2016, the National Green Tribunal (“NGT”), an Indian governmental tribunal established for dealing with cases relating to the environment, passed general directions with respect to areas that should be treated as “no construction zones” due to its proximity to water reservoirs and water drains (“Order”). The restrictions in respect of the “no construction zone” are applicable to all construction projects.
The government of Karnataka had been directed to incorporate the above conditions in respect of all construction projects in the city of Bangalore including the Company’s project which is adjacent to the Varthur Lake and have several storm-water crossing it.
An appeal was filed before the Supreme Court of India against the Order. The Supreme Court has stayed the operation of certain portions of the Order. At this stage, it is difficult to predict the amount of time that the Supreme Court of India will take to decide on the matter.
As for December 31, 2016, 2015 and 2014 the Group measured the net realizable value of the project.
The Group financial statements for the year ended December 31, 2016, include increase in the Company’s shareholding in the SPV (as described above) and a decrease in the net realizable value of the Plot. The decrease in the value of the Plot in 2016 was made according to the comparable method and attributable mainly to the new NGT order described above, the interest that the partner still hold in the Plot (10%-as described above), the size of the plot and the non-contiguous land parcel.
As a result, the Group recorded a gain in the total amount of NIS 31.5 million in the Group financial statements for the year ended December 31, 2016 which was recorded as other income
Name of joint venture | Principal activity | Place of incorporation and principal place of activity | Proportion of ownership interest and voting rights held in 2015 | ||||||||||
Aayas Trade Services Private Limited | Purchase and Development of Residential property | India | 50 | % | 50 | % |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information
Summarized financial information in respect of the Group’s material joint venture is set out below. The summarized financial information below represents amounts shown in the joint venture’s financial statements prepared in accordance with IFRSs.
Aayas Trade Services Private Limited summarized financial information:
Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture recognized in the audited consolidated financial statements:
F-56 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | INVESTMENTS IN |
Aggregate information of associates: |
Year ended December 31 | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
The Group’s share of loss from continuing operations | (20,202 | ) | (57,630 | ) | |||||
The Group’s share of total comprehensive income | (20,202 | ) | (57,630 | ) | |||||
Aggregate carrying amount of the Group’s interests in these associates | - | 21,215 |
NOTE 6:- | INVESTMENTS IN JOINT VENTURES |
a. | Investment in joint venture held in Kochi, India: |
The Company has rights under certain share subsection agreement to hold 50% shareholding in Indian SPV (“Project SPV”). The Project SPV has entered into an agreement for the purchase of a land located in Kochi, India according to which it has acquired 13 acres (“Property A”) for a total consideration of INR 1,495 million (NIS 84 million) payable subject to fulfilment of certain obligations and conditions by the seller. Up to the balance sheet date the Project SPV has paid INR 720 million (NIS 40 million) to the seller in consideration for the transfer of title in Property A to the Project SPV. The Company’s share in such acquisition amount to approximately NIS 20 million.
On January 14, 2016, the Company has signed an agreement to waive any of its rights and interest in the Project SPV. The total consideration for the Company is INR 10 Crores (approximately NIS 65 million), which will be paid to the Company upon the closing of the transaction. As a result the SPV recorded NIS 6 million impairment expenses. Such impairment was included in the Company’s profit and loss for 2015, as share in losses of associates.
The transaction is subject to certain conditions precedent, and closing will take place (as extended) once these conditions are met and no later than December 31, 2017.June 30, 2018. The local Investor has provided certain security in order to guarantee the aforementioned deadline.
On September 15, 2016, PC’s jointly controlled subsidiary, in which PC has a 50% stake, has completed the sale of Riga Plaza commercial centre in Riga, Latvia, to a global investment fund. Following a price adjustment mechanism and costs incurred in respect of the completion of the sale, PC received EUR 17.8 million (NIS 72 million) in cash after repayment of banks loan (representing Plaza’s share of the sale of the business), with an additional EUR 0.7 million (NIS 3 million) expected to be received within the next 24 months after balance sheet date.
Aggregate information of joint ventures that are not individually material: |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
The Group’s share of profit from continuing operations | 3,317 | 13,200 | |||||||
The Group’s share of total comprehensive income | 3,317 | 13,200 | |||||||
Aggregate carrying amount of the Group’s interests in these joint ventures | 5,750 | 86,404 |
December 31 | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
The Group’s share of profit (loss) from continuing operations | - | 3,317 | |||||||
The Group’s share of total comprehensive income (loss) | - | 3,317 | |||||||
Aggregate carrying amount of the Group’s interests in these joint ventures | 5,592 | 5,750 |
F-57 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | ADDITIONAL INFORMATION AS TO INVESTMENTS IN MATERIAL SUBSIDIARIES AND CHANGES THEREOF |
Elbit Medical Technologies: |
Elbit Medical Technologies Ltd., is an Israeli company traded on the TASE (“Elbit Medical”) which holds the medical business of the Group through the holdings of two portfolio companies: InSightec (25.5%(approximately 19% holding on a fully diluted basis) and Gamida (22.5%(approximately 13% holding on a fully diluted basis). For additional information in respect of InSightec and Gamida -see note 5A5a and B.5b.
As for December 31, 2016,2017, the Company holds 89.9% (85.6%89% (88.7% on a fully diluted basis) of the issued and outstanding share capital of Elbit Medical.
For the issuance of convertibles notes by Elbit Medical after the balance sheet datesee note 13c11.
Plaza Center N.V. (“PC”): |
PC conducts its activities in the field of establishing, selling and operating (until their sale) Commercial centers, as well as other mixed use projects (retail, office, residential) in Central and Eastern Europe. As of December 31, |
Pc’s financial statement as for December 31, 2016 and for the year then ended was reissuance and replace those financial statements which were approved on May 15, 2017 which contained a report in which PC’s former independent auditor, KPMG Hungaria Kft. (“KPMG”), rendered their opinion with disclaimer with regard to PC’s consolidated financial statements.
Going concern and liquidity position of PC: |
PC’sPC consolidated financial statements have been prepared on a going concern basis, which assumes that PC will be able to meet the mandatory repayment obligations of its banking facilities and debentures,bonds and other working capital requirements.
PC’sPC primary need for liquidity is to repay its debt, fund working capital requirements of the operating shopping centers, develop new shopping centersdebts and fund general corporate purposes. PC has incurred losses and experienced negative operating cash flows for the past several years, and accordingly, it has taken a number of actions to continue to support its operations and meet its obligations.
As at December 31, 2016 PC2017 PC’s outstanding obligations to bondholders and banks are EUR 186.4123.2 million (NIS 754512 million) and EUR 82.3 million (NIS 333 million), respectively..
In November 2016, PC agreed with its bondholders to amend the terms of the early repayment requirement under the original debt restructuring plan (the “Restructuring Plan”). On March 15, 2017, PC repaid the required minimum early repayment to its bondholders and thus obtained a deferral of one year for the remainingremaining contractual obligations of the debentures.bonds. In January 2018, a settlement agreement was signed by and among PC and the two Israeli Series of Bonds including a new repayment schedule (See Note 11e3).
Information concerning the PC’s obligations and commitments to make future payments under contracts such as debt agreements in the next 1815 months starting JulyApril 1, 20172018 is aggregated in the following tables.
F-58 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | ADDITIONAL INFORMATION AS TO INVESTMENTS IN MATERIAL SUBSIDIARIES AND CHANGES THEREOF |
Plaza Center N.V. (“PC”) (Cont.): |
Going concern and liquidity position of PC (Cont.): |
Contractual Obligations | Total Payment Due by period (in TEUR) | Total Payment Due by period (in TNIS) | |||||||||||||||
Within 1 year | Within 1-1.5 years | Within 1 year | Within 1-1.5 years | ||||||||||||||
Debentures including current portion and interest | 56,800 | (*) | 26,300 | 229,687 | (*) | 106,351 | |||||||||||
Secured bank loan (Torun) | 43,596 | - | 176,293 | - | |||||||||||||
Total contractual obligations (excluding working capital) | 100,396 | 26,300 | 405,980 | 106,351 | |||||||||||||
General & administrative | 3,800 | 1,100 |
Total Payment Due by period (in TEUR) | Total Payment Due by period (in TNIS) | ||||||||||||||||
Liquidity Requirements | Within 1 year | Within 1-1.25 years | Within 1 year | Within 1-1.25 years | |||||||||||||
Debentures including current portion and interest | (*) 23,700 | 36,700 | (*) 98,426 | 152,415 | |||||||||||||
General & administrative | 3,100 | 600 | 12,874 | 2,492 | |||||||||||||
Total liquidity requirements | 26,800 | 37,300 | 111,300 | 154,907 | |||||||||||||
Total Sources (**) | 16,300 | 4,400 | 67,694 | 18,273 | |||||||||||||
Total deficit | (10,500 | ) | (32,900 | ) | (43,606 | ) | (136,634 | ) |
(*) | An amount of circa EUR |
(**) | The Company expects to increase the amount of its liquid balances during the 15 months starting April 1, 2018, by sale of plots of lands (including India) and others. |
PC expectsPC’s board and management estimate that there are significant doubts regarding the PC’s ability to increaseserve its entire debt according to the amount of its liquid balances duringcurrent repayment schedule. Moreover, following the next 18 months starting July 1, 2017, by meansnew payment structure for the sale of the following actions:
Sale of shopping centersproject in amount of EUR 44.3 million (NIS 179 million)
Sale of plots of lands in amount of EUR 43.8 million (NIS 177 million)
NOI and other income EUR 3.3 million (NIS 13 million)
PC’s management expectsBangalore, India, it is expected that PC will not be able to meet the remainingits entire contractual obligations duringin the 18 months period starting July 1, 2017 by a combination of its assets disposal program and cash generated from operating shopping centers.following 12 months.
PC’s managementPC’S Management acknowledges that the above expected cash flows are based on forward-looking plans and estimations which rely on the information known to PC’sPC management at the time of the approval of PC’sthese financial statements. The materialization of the above forecast is not certain and areis subject to factors beyond PC’s control. Therefore, delays in the realization of the PC’s assets and investments or realization at lower price than expected by PC’s management could have an adverse effect on the PC’s liquidity position and its ability to meet its contractual obligations on a timely manner.
PC’sPC’S management further acknowledges that the PC is exposed to foreign currency risk derived from borrowings denominated in currency other than the functional currency of the PC, more specifically a further devaluation of the EUR against the NIS can significantly increase the remaining contractual obligation to bondholders.
As described in Note 13 E (3) a, at the end of the reporting periodDecember 31, 2017 PC is not in compliance with financial covenants required under the Restructuring Plan, except as described below However, as of the date of the approval of PC consolidated financial statements, PC is near the minimum ratio required in respect to the Coverage Ratio Covenant.Covenant (“CRC”) as defined in the restructuring plan. This may entitle the bondholders to declare that all or a part of their respective (remaining) claims become immediately due and payable.
F-59 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | ADDITIONAL INFORMATION AS TO INVESTMENTS IN MATERIAL SUBSIDIARIES AND CHANGES THEREOF |
Plaza Center N.V. (“PC”) (Cont.): |
Going concern and liquidity position of PC (Cont.): |
However,PC’s financial statements as of December 31, 2016 include an auditor’s opinion with emphasis of matter to going concern uncertainty as well as auditor’s review report on interim financial statements as of June 30, 2017 include the same. As a result, there is a risk that the bondholders could argue that there exists a substantial suspicion with respect to the PC’s ability to repay its obligations that entitles them to immediate repayment.
In addition, based on trust deeds in case of material deterioration in the PC’s business and substantial suspicion exists that the PC will not be able to repay the bonds on time, the bondholders may declare immediate repayment of bonds. In addition, should the bondholders exercise their right to declare immediate repayment, there is a cross default trigger in PC’s bank loan agreements that would allow the banks to demand repayment of the loans made.
Since PC did not publish its financial statements within the deadline set out in the bond trust deeds and has not remedied the situation within the allowed time. This entitles the Bondholders to declare that all or a part of their respective (remaining) claims become immediately due and payable.
Since the trading of the PC’s ordinary shares, Series A Notes and Series B Notes have been suspended from trading on the relevant exchanges. This may entitle the Bondholders to declare that all or a part of their respective (remaining) claims become immediately due and payable.
In the case that the Bondholdersbondholders would declare their remaining claims to become immediately due and payable, PC would not be in a position to settle those claims and would need to enter to an additional debt restructuring or might cease to be a going concern. As at the date of approval of PC’Sthese financial statements the Bondholdersbondholders have not taken steps to assert their rights.
As of December 31, 2016, there are significant risks and uncertainties pertaining to the achievement of PC’s cash flow forecasts, which include the occurrence of events, which are beyond PC’s sole control. PC’s financial statements as of September 30, 2016 includes an auditor’s opinion with emphasis of matter to going concern uncertainty. As a result, there is a risk that the bonds holders could argue there exists a substantial suspicion with respect to PC’s ability to repay its obligations that entitles them to immediate repayment. Should this occur there is a risk that the banks with whom PC has loans in place will also demand immediate repayment of the loans made to PC. PC would be unable to meet the demands of its bondholders and its banks. Accordingly, as of December 31, 2016 PC has classified the entire debentures outstanding amounting to EUR 178,370 thousand and interest-bearing loans in amount of EUR 82,275 thousand as current liabilities.
A combination of the abovementioned conditions indicates the existence of a material uncertainty that casts significant doubt about the PC’s ability to continue as a going concern.
3. | PC’s non-controlling interest details: |
There are no additional implications for the Group other than mention above.
Place of incorporation | Proportion of ownership interests and voting rights held by non-controlling interests | Loss allocated to non-controlling interests | Accumulated non-controlling interests | ||||||||||||||||||||||
December 31 | |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
NIS’000 | NIS’000 | NIS’000 | NIS’000 | ||||||||||||||||||||||
Netherland | 55 | % | 55 | % | (51,986 | ) | (109,934 | ) | 60,617 | 121,615 |
Place of incorporation | Proportion of ownership interests and voting rights held by non-controlling interests | Loss allocated to non-controlling interests | Accumulated non-controlling interests | ||||||||||||||||||||||
December 31 | December 31 | December 31 | |||||||||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 6 | 2 0 1 5 | 2 0 1 6 | 2 0 1 5 | ||||||||||||||||||||
NIS’000 | NIS’000 | NIS’000 | NIS’000 | ||||||||||||||||||||||
Netherland | 55 | % | 55 | % | (109,934 | ) | (112,524 | ) | 121,615 | 248,831 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PC’s summarized financial information (The summarized financial information below represents amounts before intragroup eliminations): |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Current assets | 94,721 | 113,297 | |||||||
Non-current assets | 1,207,882 | 1,561,644 | |||||||
Current liabilities | (1,098,525 | ) | (515,176 | ) | |||||
Non-current liabilities | (55,990 | ) | (796,277 | ) | |||||
Equity attributable to owners of the Company | (26,473 | ) | (114,657 | ) | |||||
Non-controlling interests | (121,615 | ) | (248,831 | ) |
December 31 | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Current assets | 189,546 | 94,721 | |||||||
Non-current assets | 394,622 | 1,207,882 | |||||||
Current liabilities | (496,081 | ) | (1,098,525 | ) | |||||
Non-current liabilities | (53,353 | ) | (55,990 | ) | |||||
Equity attributable to owners of the Company | 25,884 | (26,473 | ) | ||||||
Non-controlling interests | (60,617 | ) | (121,615 | ) |
For the year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 4 1 0 2 | |||||||||||
(In thousand NIS) | |||||||||||||
Revenue | 192,435 | 283,926 | 315,232 | ||||||||||
Expenses | (394,085 | ) | (500,262 | ) | (880,722 | ) | |||||||
Loss for the year from continuing operations | (201,650 | ) | (216,336 | ) | (565,490 | ) | |||||||
Loss for the year | (201,650 | ( | (216,336 | ) | (565,490 | ) | |||||||
Loss attributable to owners of the Company | (91,080 | ) | (97,122 | ) | (349,572 | ) | |||||||
Loss attributable to the non-controlling interests | (110,570 | ) | (119,214 | ) | (215,918 | ) | |||||||
Loss for the year | (201,650 | ) | (216,336 | ) | (565,490 | ) | |||||||
Other comprehensive income attributable to owners of the Company | 519 | 5,452 | 4,733 | ||||||||||
Other comprehensive income attributable to the non-controlling interests | 636 | 6,690 | 2,123 | ||||||||||
Other comprehensive income for the year | 1,155 | 12,142 | 6,856 | ||||||||||
Total comprehensive (loss) attributable to owners of the Company | (90,561 | ) | (91,670 | ) | (344,839 | ) | |||||||
Total comprehensive (loss) attributable to the non-controlling interests | (109,934 | ) | (112,524 | ) | (213,795 | ) | |||||||
Total comprehensive (loss) for the year | (200,495 | ) | (204,194 | ) | (558,634 | ) | |||||||
Net cash inflow (outflow) from operating activities | (260,148 | ) | (10,481 | ) | 162,587 | ||||||||
Net cash inflow (outflow) from investing activities | 165,014 | 92,273 | 7,702 | ||||||||||
Net cash (outflow) from financing activities | (144,980 | ) | (159,363 | ) | (134,868 | ) | |||||||
Net cash inflow (outflow) | (240,114 | ) | (77,571 | ) | 30,856 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | ADDITIONAL INFORMATION AS TO INVESTMENTS IN MATERIAL SUBSIDIARIES AND CHANGES THEREOF (Cont.) |
Plaza Center N.V. (“PC”) (Cont.): |
PC’s summarized financial information (The summarized financial information below represents amounts before intragroup eliminations) (Cont.): |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
Revenue | 814,826 | 192,435 | 283,926 | ||||||||||
Expenses | (923,646 | ) | (394,085 | ) | (500,262 | ) | |||||||
Loss for the year from continuing operations | (108,820 | ) | (201,650 | ) | (216,336 | ) | |||||||
Loss for the year | (108,820 | ) | (201,650 | ) | (216,336 | ) | |||||||
Loss attributable to owners of the Company | (48,833 | ) | (91,080 | ) | (97,122 | ) | |||||||
Loss attributable to the non-controlling interests | (59,987 | ) | (110,570 | ) | (119,214 | ) | |||||||
Loss for the year | (108,820 | ) | (201,650 | ) | (216,336 | ) | |||||||
Other comprehensive income attributable to owners of the Company | (3,095 | ) | 519 | 5,452 | |||||||||
Other comprehensive income attributable to the non-controlling interests | (3,798 | ) | 636 | 6,690 | |||||||||
Other comprehensive income for the year | (6,893 | ) | 1,155 | 12,142 | |||||||||
Total comprehensive (loss) attributable to owners of the Company | (51,928 | ) | (90,561 | ) | (91,670 | ) | |||||||
Total comprehensive (loss) attributable to the non-controlling interests | (63,785 | ) | (109,934 | ) | (112,524 | ) | |||||||
Total comprehensive (loss) for the year | (115,771 | ) | (200,495 | ) | (204,194 | ) | |||||||
Net cash inflow (outflow) from operating activities | (1,637 | ) | (260,148 | ) | (10,481 | ) | |||||||
Net cash inflow (outflow) from investing activities | 400,812 | 165,014 | 92,273 | ||||||||||
Net cash (outflow) from financing activities | (239,979 | ) | (144,980 | ) | (159,363 | ) | |||||||
Net cash inflow (outflow) | 159,196 | (240,114 | ) | (77,571 | ) |
5. | Pursuant to PC’s restructuring PC shall not make any dividend distributions, unless (i) at least 75% of the Unpaid Principal Balance of the Notes has been repaid and the Coverage Ratio on the last Examination Date prior to such Distribution is not less than 150% following such distribution, or (ii) a Majority of the Plan Creditors consents to the proposed distribution. |
Notwithstanding the aforesaid, in the event an additional capital injection of at least NIS 85 million occurs, then after one year following the date of the additional capital injection million, no restrictions other than those under the applicable law shall apply to dividend distributions in an aggregate amount of up to 50% of such additional capital injection.
Pursuant to PC’s restructuring plan, PC will assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of the Unsecured Debt. |
As for the amendment to an early prepayment term under the restructuring plansee note 11 E11e
Bea Hotels N.V (“BH”) is indirect wholly owned subsidiary of the Company. BH, holds the rights in of approximately 98% of SC Bucuresti Turism S.A. (“BUTU”) which owns the Radisson hotel complex which include the Raddison Blu hotel and the Park Inn hotel in Bucharest, Romania.
On June 9, 2015 BUTU delisted its share from the RASDAQ as consequence shareholders holding 21.48% of BUTU, exercised their right to withdraw from BUTU. The total amount paid by BUTU for such withdrawal requests was approximately EUR 13.9 million (NIS 61 million). An amount of EUR 2 million (NIS 8 million) was financed by BUTU from its own resources and the remainder in the amount of approximately EUR 11.9 million (NIS 52 million) was financed by the Company through shareholder loan granted to BUTU.
As a result all the shares acquired by BUTU during the delisting process were cancelled and the share capital of BUTU has decreased accordingly. Following the share capital decrease, the Company holds (indirectly) approximately 98% of BUTU’s share capital.
As consequences of this transaction in 2015 the Company shareholder’s Equity was decreased in the amount of NIS 61 million out of which 55 million were attributable to the non-controlling interest and NIS 6 million were attributable to the shareholder of the Company.
Elbit- Plaza India Real Estate Holding Ltd. (“EPI”): |
The Company and PC each holds 47.5% of the shares of of Elbit Plaza India Real Estate Holdings Limited (“EPI”) which holds plots in Bangalore and Chennai, India (see note 4D and 6A)4d). The remaining 5% equity rights are held by the Company’s former Executive Vice Chairman (VC) of the Board.TheBoard. The VC Shares shall not be entitled to receive any distributions or payment from the EPI until the Group’s investments (principal and interest calculated in accordance with a mechanism provided for in the agreement) in EPI have been fully repaid. The Company and PC each have the right to appoint 50% of the board members of EPI.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8:- | PROPERTY, PLANT AND EQUIPMENT |
a. | Composition: |
December 31, 2017 | |||||||||||||||||
Real estate | |||||||||||||||||
Hotels at revaluation model | At cost model | ||||||||||||||||
Operating | Land and buildings | Other fixed assets | Total | ||||||||||||||
NIS in thousands | |||||||||||||||||
Cost: | |||||||||||||||||
Balance as of January, 1 | 711,906 | 15,236 | 31,516 | 758,658 | |||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2017 | (28,880 | ) | - | - | (28,880 | ) | |||||||||||
Additions during the year | 3,156 | - | - | 3,156 | |||||||||||||
Revaluation of hotels during the year | 11,637 | - | - | 11,637 | |||||||||||||
Disposals during the year (*) | (696,072 | ) | (15,288 | ) | (3,685 | ) | (715,045 | ) | |||||||||
Foreign currency translation adjustments | (1,748 | ) | 72 | 463 | (1,213 | ) | |||||||||||
Balance as of December, 31 | - | 20 | 28,294 | 28,314 | |||||||||||||
Accumulated depreciation: | |||||||||||||||||
Balance as of January 1, | - | 7,482 | 25,051 | 32,533 | |||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2017 | (28,880 | ) | - | - | (28,880 | ) | |||||||||||
Additions during the year | 28,880 | 52 | 71 | 29,003 | |||||||||||||
Disposals during the year | - | (7,514 | ) | (2,528 | ) | (10,042 | ) | ||||||||||
Foreign currency translation adjustments | - | - | 380 | 380 | |||||||||||||
Balance as of December, 31 | - | 20 | 22,974 | 22,994 | |||||||||||||
Provision for impairment: | |||||||||||||||||
Balance as of January, 1 | - | - | 4,490 | 4,490 | |||||||||||||
Balance as of December, 31 | - | - | 4,490 | 4,490 | |||||||||||||
Net book value | - | - | 830 | 830 |
(*) | See also Note 19. |
F-62 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 | |||||||||||||||||||||
Real estate | |||||||||||||||||||||
Hotels at revaluation model (*) | At cost model | ||||||||||||||||||||
Operating (**) | plot designated for hotel (see E below) | Land and buildings | Other fixed assets | Total | |||||||||||||||||
(in thousand NIS) | |||||||||||||||||||||
Cost: | |||||||||||||||||||||
Balance as of January, 1 | 678,516 | 18,700 | 16,049 | 38,078 | 751,343 | ||||||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2016 | (37,017 | ) | - | - | - | (37,017 | ) | ||||||||||||||
Additions during the year | 2,473 | - | 68 | 2,541 | |||||||||||||||||
Revaluation of hotels during the year | 106,842 | - | - | - | 106,842 | ||||||||||||||||
Disposals during the year | - | (18,700 | ) | - | (5,712 | ) | (24,412 | ) | |||||||||||||
Foreign currency translation adjustments | (38,908 | ) | - | (813 | ) | (918 | ) | (40,639 | ) | ||||||||||||
Balance as of December, 31 | 711,906 | - | 15,236 | 31,516 | 758,658 | ||||||||||||||||
Accumulated depreciation: | |||||||||||||||||||||
Balance as of January 1, | - | - | 7,858 | 31,129 | 38,987 | ||||||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2016 | (37,032 | ) | - | - | - | (37,032 | ) | ||||||||||||||
Additions during the year | 37,032 | - | 307 | 37,339 | |||||||||||||||||
Disposals during the year | - | - | (5,513 | ) | (5,513 | ) | |||||||||||||||
Foreign currency translation adjustments | - | - | (376 | ) | (872 | ) | (1,247 | ) | |||||||||||||
Balance as of December, 31 | - | - | 7,482 | 25,051 | 32,533 | ||||||||||||||||
Provision for impairment: | |||||||||||||||||||||
Balance as of January, 1 | - | 3,700 | - | 4,490 | 8,190 | ||||||||||||||||
Balance as of December, 31 | - | - | - | 4,490 | 4,490 | ||||||||||||||||
Net book value | 711,906 | - | 7,754 | 1,975 | 721,635 |
a. | Composition (Cont.): |
December 31, 2016 | |||||||||||||||||||||
Real estate | |||||||||||||||||||||
Hotels at revaluation model (*) | At cost model | ||||||||||||||||||||
Operating | plot designated for hotel | Land and buildings | Other fixed assets | Total | |||||||||||||||||
NIS in thousands | |||||||||||||||||||||
Cost: | |||||||||||||||||||||
Balance as of January, 1 | 678,516 | 18,700 | 16,049 | 38,078 | 751,343 | ||||||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2016 | (37,017 | ) | - | - | - | (37,017 | ) | ||||||||||||||
Additions during the year | 2,473 | - | 68 | 2,541 | |||||||||||||||||
Revaluation of hotels during the year | 106,842 | - | - | - | 106,842 | ||||||||||||||||
Disposals during the year | - | (18,700 | ) | - | (5,712 | ) | (24,412 | ) | |||||||||||||
Foreign currency translation adjustments | (38,908 | ) | - | (813 | ) | (918 | ) | (40,639 | ) | ||||||||||||
Balance as of December, 31 | 711,906 | - | 15,236 | 31,516 | 758,658 | ||||||||||||||||
Accumulated depreciation: | |||||||||||||||||||||
Balance as of January 1, | - | - | 7,858 | 31,129 | 38,987 | ||||||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2016 | (37,032 | ) | - | - | - | (37,032 | ) | ||||||||||||||
Additions during the year | 37,032 | - | 307 | 37,339 | |||||||||||||||||
Disposals during the year | - | - | (5,513 | ) | (5,513 | ) | |||||||||||||||
Foreign currency translation adjustments | - | - | (376 | ) | (872 | ) | (1,247 | ) | |||||||||||||
Balance as of December, 31 | - | - | 7,482 | 25,051 | 32,533 | ||||||||||||||||
Provision for impairment: | |||||||||||||||||||||
Balance as of January, 1 | - | 3,700 | - | 4,490 | 8,190 | ||||||||||||||||
Balance as of December, 31 | - | - | - | 4,490 | 4,490 | ||||||||||||||||
Net book value | 711,906 | - | 7,754 | 1,975 | 721,635 |
(*) | Had the Group continued to present the hotel based on the cost model, their net book value as of December 31, 2016, would have been NIS 284 million. |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 | |||||||||||||||||||||
Real estate | |||||||||||||||||||||
Hotels at revaluation model (*) | At cost model | ||||||||||||||||||||
Operating | plot designated for hotel (see E below) | Land and buildings | Other fixed assets | Total | |||||||||||||||||
(in thousand NIS) | |||||||||||||||||||||
Cost: | |||||||||||||||||||||
Balance as of January, 1 | 880,198 | 18,700 | 29,125 | 41,061 | 969,084 | ||||||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2015 | (32,135 | ) | - | - | - | (32,135 | ) | ||||||||||||||
Additions during the year | 23,182 | - | 241 | 23,423 | |||||||||||||||||
Revaluation of hotels during the year | 102,271 | - | - | - | 102,271 | ||||||||||||||||
Disposals during the year | (199,716 | ) | - | (13,076 | ) | (3,225 | ) | (216,017 | ) | ||||||||||||
Foreign currency translation adjustments | (95,283 | ) | - | - | - | (95,283 | ) | ||||||||||||||
Balance as of December, 31 | 678,517 | 18,700 | 16,049 | 38,077 | 751,343 | ||||||||||||||||
Accumulated depreciation: | |||||||||||||||||||||
Balance as of January 1, | - | - | 15,124 | 31,490 | 46,614 | ||||||||||||||||
Adjustment of Depreciation and amortization balance as of December 31, 2015 | (32,135 | ) | (49 | ) | - | (32,184 | ) | ||||||||||||||
Additions during the year | 32,135 | 49 | 722 | 166 | 33,072 | ||||||||||||||||
Disposals during the year | - | - | (7,988 | ) | (527 | ) | (8,515 | ) | |||||||||||||
Balance as of December, 31 | - | - | 7,858 | 31,129 | 38,987 | ||||||||||||||||
Provision for impairment: | |||||||||||||||||||||
Balance as of January, 1 | - | - | - | 4,490 | 4,490 | ||||||||||||||||
Impairment loss recognized | - | 3,700 | - | - | 3,700 | ||||||||||||||||
Balance as of December, 31 | - | 3,700 | - | 4,490 | 8,190 | ||||||||||||||||
Net book value | 678,517 | 15,000 | 8,191 | 2,458 | 704,166 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Composition of real estate assets included in property plant and equipment distinguished between freehold and leasehold rights: |
Year ended December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Freehold rights | - | 711,906 | |||||||
Leasehold rights | - | - | |||||||
Net book value | - | 711,906 |
F-63 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8:- | PROPERTY, PLANT AND EQUIPMENT (Cont.) |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Freehold rights | 711,906 | 678,531 | |||||||
Leasehold rights | - | 15,000 | |||||||
Net book value | 711,906 | 693,531 |
Annual depreciation rates - see note |
On June 23, 2016, the Company announced a termination of the lease agreement with the Israel Land Administration (“ILA”) in respect of plot located in, Tiberias Israel. |
Following the termination of the Agreement, ILA released two bank guarantees in the aggregated amount of approximately NIS 13 million, which have been provided to ILA in order to secure the Company’s undertakings under the lease agreement and an additional amount of approximately NIS 2427 million. The company recorded in the year ended December 31 2017 and 2016 a gain in the amount of NIS 3 million and NIS 8 million.million respectively.
Operating Hotels | 2016 | 2015 | |||||
Valuation technique | Significant unobservable Inputs | Range (weighted average) | Range (weighted average) | ||||
DCF method | Average daily rate | EUR 72 -EUR 123 | €75 - €104 | ||||
Capitalization rate and exit yield | 7.75%-8% | 8% | |||||
Discount rate | 9.5% | 10% |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE | CURRENT MATURITIES OF LONG TERM BORROWING AND SHORT-TERM CREDITS |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Current maturities (*) (**) | 1,128,768 | 726,763 | |||||||
1,128,768 | 726,763 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Current maturities and short term credits (*) (**) | 780,861 | 1,128,768 |
(*) | The Balance as of December 31, |
PC’s notes in the total amount of NIS |
The Company notes in the amount of NIS |
(**) |
Following the sale of PC subsidiaries, all PC bank loan were derecognized in amount of approximately NIS 333 million. |
b. | For liens - |
F-64 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10:- | PAYABLES AND OTHER CREDIT BALANCES |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Income taxes | 437 | 3,070 | |||||||
Other governmental institutions | 14 | 1,235 | |||||||
Wages and fringe benefits | 6,488 | 2,235 | |||||||
Derivative (i) | - | 1,831 | |||||||
Provision for real estate tax (see also note 13.b13) | 4,213 | - | |||||||
Income in advance | 136 | 6,429 | |||||||
Provision in respect of plots in India (see also note 4.d.) | 16,308 | 5,646 | |||||||
Provision (see also note 13) | 29,167 | 15,354 | |||||||
Accrued expenses, and others | 6,530 | 10,899 | |||||||
63,293 | 46,699 |
NOTE 11:- | BORROWINGS |
Composition: |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Income taxes | 3,070 | 2,516 | |||||||
Other governmental institutions | 1,235 | 1,574 | |||||||
Wages and fringe benefits | 2,235 | 4,019 | |||||||
Accrued interest payable | - | 12,071 | |||||||
Derivative (i) | 1,831 | 1,851 | |||||||
Derivative that are designated and effective as hedging | - | 1,977 | |||||||
Obligation in respect of plot purchase | 5,861 | ||||||||
Income in advance | 6,429 | 8,547 | |||||||
Provision (see also note 13) | 15,354 | 13,974 | |||||||
Accrued expenses, and others | 16,545 | 11,390 | |||||||
46,699 | 63,780 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
At amortized cost: | |||||||||
Loans from banks and financial institutions (see c below) | - | 761,710 | |||||||
Notes issued by the Company (see d below) | 538,668 | 498,637 | |||||||
Notes issued by PC (see e below) | 485,504 | 721,292 | |||||||
1,024,172 | 1,981,639 | ||||||||
Less - current maturities (see note 9) | (780,861 | ) | (1,128,769 | ) | |||||
243,311 | 852,870 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
At amortized cost: | |||||||||
Loans from banks and financial institutions (see C below) | 761,710 | 846,246 | |||||||
Notes issued by the Company (see D below) | 498,637 | 553,265 | |||||||
Notes issued by PC (see E below) | 721,292 | 771,172 | |||||||
1,981,639 | 2,170,683 | ||||||||
Less - current maturities(see note 9) | (1,128,769 | ) | (726,763 | ) | |||||
852,870 | 1,443,920 |
Linkage basis and interest rates: |
December 31, | |||||||
Interest rates | |||||||
% | |||||||
NIS | Israeli CPI + 6 - 6.9 | ||||||
PLN | 6m Wibor + 6 |
F-65 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11:- | BORROWINGS (Cont.) |
The following table provides breakdown of the Group’s loans from banks and financial institutions: |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Loans provided to the Company See (1) | 59,082 | 157,459 | |||||||
Loans provided to PC (mainly with respect to trading property) (3) | 332,705 | 435,351 | |||||||
Loans provided to SPV holding the Radisson Complex (2) | 369,923 | 253,436 | |||||||
761,710 | 846,246 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Loans provided to the Company (*) | - | 59,082 | |||||||
Loans provided to PC (mainly with respect to trading property) (**) | - | 332,705 | |||||||
Loans provided to SPV holding the Radisson Complex (see note 19) | - | 369,923 | |||||||
- | 761,710 |
(*) | During December 2017, the Company repaid the entire loan to Bank Hapoalim in amount of approximately NIS 59 million. | |
(**) | Following the sale of PC subsidiaries, all PC bank loan were derecognized in amount of approximately NIS 333 million. |
For collaterals and financial covenants see also note 13D and E.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS13d.
1. |
The total amount outstanding under the Bank Hapoalim loan is EUR 14.6 (NIS 59 million). The loan principal will be repaid in a single instalment at November 30, 2017. The loan bears interest of LIBOR + 3.45% (to be paid on a quarterly basis) per annum plus an additional annum 1.2% which shall accrue and be paid in a single instalment on the maturity date of the loan principal. The Company shall be entitled to prepay the loan without prepayment fines or fees provided that such prepayment will be made on the interest payment date only. If and in the event that the Company shall prepay its debt to the Noteholders, in whole or any part thereof, from the Company’s internal sources (i.e., other than from a raising of capital and/or alternative debt), then the Company shall prepay the Bank an amount equal to the amount paid to the Noteholders on such date multiplied by the ratio between the Company’s debt to the Bank and the Company’s total debt to the Bank and to the Noteholders as of such date. As for collaterals and covenants see note 13D(1) and E(2).
On March 10, 2016 “BUTU” as borrower, Raiffeisen Bank International A.G and Raiffeisen Bank S.A., leading international European banks, as lenders (the “Lenders”) and the Company as guarantor have amended and restated the existing facility agreement signed on 16 September 2011 (the “Existing Facility Agreement”), through an amended and restated facility agreement (the “Amended and Restated Facility Agreement”).
According to the Amended and Restated Facility Agreement, the Lenders shall increase the loan to BUTU outstanding under the Existing Facility Agreement up to EUR 97 million (NIS 392 million) (the “New Facility Amount”). The New Facility Amount shall be drawn down in two tranches, with tranche A in the amount of up to EUR 85 million (NIS 344 million), which BUTU shall be able to utilize until March 31, 2016, and tranche B in the amount of up to EUR 12 million (NIS 48 million), which BUTU shall be able to utilize starting with September 30, 2016. The proceeds of the New Facility Amount shall be used, inter alia, to refinance certain outstanding loans under the Existing Facility Agreement. The surplus of the New Facility Amount will be used for the repayment of all existing shareholder loans granted to BUTU by Elbit Group.
The principal of the New Facility Amount will be repayable in quarterly instalments and a balloon repayment at 31 December 2020. The New Facility Amount will bear an annual interest of Euribor plus margin of 3.75%, which will be hedged by BUTU in accordance with the provision of the Amended and Restated Facility Agreement (the interest after the hedge will be 3.83%).
The New Facility Amount is secured by first rank real estate mortgage on the hotel complex owned by BUTU, security interest over the shares of BUTU and certain other securities stipulated in the Amended and Restated Facility Agreement. In addition, the Company has provided a corporate guarantee to secure the New Facility Amount, whereby the Company guarantees all of BUTU’s payment obligations under the Finance Documents (except for the balloon repayment at 31 December 2020).
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On March 23, 2016, BUTU has drawn down the first of the two tranches of the loan in the amount of EUR 85 million (NIS 344 million) (“Tranche A”). The amount received by the Company, after the refinance of certain outstanding loans under the original facility agreement, is approximately EUR 24.4 million (NIS 100 million) out of which an amount of EUR 15 million (NIS 60 million) was used for the prepayment of the loan to Bank Hapoalim B.M, as per the amendment to the loan agreement with Bank Hapoalim (see C below).
On November 21, 2016, BUTU has drawn down the second tranches of the loan in the amount of EUR 12 million (NIS 49 million) under the Amended and Restated Facility Agreement. Following the drawdown, the total outstanding amount of the loan is approximately EUR 91.5 million (net of Cost of raising loans) (NIS 370 million).
EUR 7 million (NIS 29 million) was used by the Company for a principal payment to Bank Hapoalim.
On June 21, 2016 PC has signed a EUR 42.5 million (NIS 172 million) loan agreement to support the development of Belgrade Plaza (Visnjicka) in the Serbian capital, Belgrade, from a consortium of banks led by the Hungarian bank OTP Bank Plc. AS of the balance sheet date, the outstanding amount of the loan is EUR 11.5 million (NIS 46 million).
For the sale of the project see note 21 D
Issuance of notes by the Company: |
On February 20, 2 0 1 42014 two series of notes were issued by the Company:
The first series of notes (“Series H”) was in the aggregate principal amount of NIS 448 million, repayable in a single payment at May 31, 2018. The second series of notes (“Series I”) was in the aggregate principal amount of NIS 218 million, repayable in a single payment at December 1, 2019. Both series of the notes are bearing interest at the rate of 6% per annum and are linked to the Israeli consumer price index. Interest on the series H notes will be payable in cash on a semi-annual basis, while interest on series I notes will be accrued to the principal and will be payable on the final maturity date.
In addition, the notes include mandatory prepayment provisions in the event the Company pays a cash dividend or makes any other distribution, such that the Company is obligated to prepay an amount equal to the amount distributed by the Company, in the following order: (i) first, towards all unpaid amounts under the Series H, and (ii) secondly, towards all unpaid amounts under Series I.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11:- | BORROWINGS (Cont.) |
The following table present the terms of the Company’s Notes as for 31.12.2016:December 31, 2017:
Effective interest rate | interest rate | Principal final maturity | Adjusted par value | Carrying amounts as at December 31 2016 | |||||||||||||||
% | % | (in thousand NIS) | |||||||||||||||||
Series H notes | 9.47 | CPI+6 | 2018 | 296,160 | 282,935 | ||||||||||||||
Series I notes | 12.8 | CPI+6 | 2019 | 217,279 | 172,954 | ||||||||||||||
Accumulated interest on Series I notes | 42,748 | 42,748 | |||||||||||||||||
556,187 | 498,637 |
Effective interest rate | interest rate | Principal final maturity | Adjusted par value | Carrying amounts as at December 31, 2017 | |||||||||||||||
% | % | NIS in thousands | |||||||||||||||||
Series H notes | 9.47 | CPI+6 | 2018 | 296,160 | 295,363 | ||||||||||||||
Series I notes | 12.8 | CPI+6 | 2019 | 217,279 | 184,955 | ||||||||||||||
Accumulated interest on Series I notes | 58,350 | 58,350 | |||||||||||||||||
571,789 | 538,668 |
The CompanyCompany’s notes as for 31.12.2015:December 31, 2016:
Effective interest rate | interest rate | Principal final maturity | Adjusted par value | Carrying amounts as at December 31 2015 | |||||||||||||||
% | % | (in thousand NIS) | |||||||||||||||||
Series H notes | 9.47 | CPI+6 | 2018 | 390,528 | 362,053 | ||||||||||||||
Series I notes | 12.8 | CPI+6 | 2019 | 217,279 | 163,221 | ||||||||||||||
Accumulated interest on Series I notes | 27,991 | 27,991 | |||||||||||||||||
635,798 | 553,265 |
Effective interest rate | interest rate | Principal final maturity | Adjusted par value | Carrying amounts as at December 31, 2016 | |||||||||||||||
% | % | NIS in thousands | |||||||||||||||||
Series H notes | 9.47 | CPI+6 | 2018 | 296,160 | 282,935 | ||||||||||||||
Series I notes | 12.8 | CPI+6 | 2019 | 217,279 | 172,954 | ||||||||||||||
Accumulated interest on Series I notes | 42,748 | 42,748 | |||||||||||||||||
556,187 | 498,637 |
For collaterals see note 13D(2).13d2.
Buyback and early repayment plan of Company’s debentures: |
Series H
As for December 31, 2016,2017, the Company purchased NIS 150 million par value from series H, for a total consideration of NIS 138 million, resulting in a gain of NIS 2.3 million in 2016 and NIS 3.4 million 2015 which was recorded in the statement of income. All the notes repurchased have been fully redeemed. See also note 16F.16c.
As for December 31, 2016,On January 5, 2018, the Company has open programrepaid an early repayment of NIS 240 million par value of Series H.
During March 2018 the Company repurchase NIS 7.1 million par value of series H for a total consideration of NIS 7.2 million. As a result, no material income/expenses is expected to repurchase up to additional NIS 42 millionbe recorded in the statement of profit and loss.
The remaining amount of Series H note effective until August 18, 2017.as for the date of approving the financial statement is NIS 50 million and are due on May 2018.
Series I
During March 2018, the Company purchased NIS 42.2 million par value from series I, for a total consideration of NIS 49.2 million. As a result, the Company is expected to be recorded NIS 2 million expenses in the statement of profit and loss.
The remaining amount of Series I as for the date of approving the financial statement is NIS 226 million and are due on November 2019.
�� |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - | BORROWINGS (Cont.) |
PC’s notes: |
The following table present PC’s notes as of December 31, 2016:2017:
Effective interest rate | Contractual interest rate | Principal final maturity (*) (**) (***) | Adjusted par value | Carrying amounts as at December 31 2016 | |||||||||||||
% | % | (in thousand NIS) | |||||||||||||||
Series A Notes | 9.47 | % | CPI+6 | 2020 | 257,772 | 248,716 | |||||||||||
Series B Notes | 13.48 | % | CPI+6.9 | 2019 | 453,264 | 429,871 | |||||||||||
Polish Notes | 10.46 | % | 6%+ 6M WIBOR | 2018 | 42,988 | 42,705 | |||||||||||
754,024 | 721,292 | (*) |
Effective interest rate | Contractual interest rate | Principal final maturity(*) | Adjusted par value | Carrying amounts as at December 31 2017 | |||||||||||||
% | % | NIS in thousands | |||||||||||||||
Series A Notes | 9.47 | % | CPI+6 | 2020 | 198,974 | 190,865 | |||||||||||
Series B Notes | 13.48 | % | CPI+6.9 | 2019 | 291,333 | 273,380 | |||||||||||
Polish Notes | 10.46 | % | 6%+ 6M WIBOR | 2018 | 21,176 | 21,259 | |||||||||||
511,483 | 485,504 |
The following table present PC’s notes as of December 31, 2015:2016:
Effective interest rate | Contractual interest rate | Principal final maturity | Adjusted par value | Carrying amounts as at December 31 2015 | |||||||||||||
% | % | (in thousand NIS) | |||||||||||||||
Series A Notes | 11.6 | % | CPI+6 | 2020 | 280,715 | 250,867 | |||||||||||
Series B Notes | 13.8 | % | CPI+6.9 | 2019 | 525,864 | 465,280 | |||||||||||
Polish Notes | 10.8 | % | 6%+ 6M WIBOR | 2018 | 55,731 | 55,025 |
Effective interest rate | Contractual interest rate | Principal final maturity (*) | Adjusted par value | Carrying amounts as at December 31 2016 | |||||||||||||||
% | % | NIS in thousands | |||||||||||||||||
Series A Notes | 9.47 | % | CPI+6 | 2020 | 257,772 | 248,716 | |||||||||||||
Series B Notes | 13.48 | % | CPI+6.9 | 2019 | 453,264 | 429,871 | |||||||||||||
Polish Notes | 10.46 | % | 6%+ 6M WIBOR | 2018 | 42,988 | 42,705 | |||||||||||||
754,024 | 721,292 | (*) |
(*) | The Debentures are classified as current liabilities (see note 7 |
Pursuant to PC’s Restructuring Plan, PC will assign 75% of the net proceeds received from the sale or refinancing of any of its assets as early repayment. |
Approved amendment to an early prepayment term under the Restructuring |
PC has implemented the restructuring plan that was approved by the Dutch court on July 9, 2014 (the “Restructuring Plan”).
Under the Restructuring Plan, principal payments under the notes that originally due in the years 2013 to 2015 were deferred for a period of four and a half years, and principal payments originally due in 2016 and 2017 were deferred for a period of one year (the “Extended Repayment Schedule”).
The Restructuring Plan further provides that, if PC does not prepay an aggregate amount of at least NIS 434 million on the principal of the notes on or before December 1, 2016 (the “Early Prepayment”), the principal payments due under the Extended Repayment Schedule will be advanced by one year (the “Accelerated Repayment Schedule”).
F-68 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - | BORROWINGS (Cont.) |
e. | PC’s notes (Cont.): |
On November 29, 2016, PC’s note holders approved to a postponement of the Early Prepayment date by up to four months and the reduction of the total amount of the required Early Prepayments to at least NIS 382 million (a reduction of 12% on the original amount).
In addition, PC agreed to pay to its Noteholders, on March 31, 2018, a one-time consent fee in the amount of approximately EUR 488 thousand (NIS 2 million) (which is equal to 0.25% from the Company’s outstanding debt under the Notes at that time) (the “Consent Fee”). The consent Fee shall behas been paid to PC’s Noteholders on a pro rata basis.
During first three months 2017, PC paid to its bondholders a total amount of NIS 191.7 million as an early redemption. Upon such payments, the PC complied with the Early Prepayment Term (early redemption at the total sum of at least NIS 382,000,000) and thus obtained a deferral of one year for the remaining contractual obligations of the bonds.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In addition to the above, the following terms were approved by the Note holders:
a. | Casaradio proceeds - If PC shall sell the Casaradio project located in Romania (hereinafter: the “Project”) to a third party, including by way of selling its holdings in any of the entities through which the Company holds the Project (and said sale shall be carried out before the full repayment of the debentures and until no later than December 31, 2019 |
b. | Registering of Polish bonds for trade - PC has committed to undertake best efforts to admit the Polish bonds for trading on the Warsaw Stock Exchanges and proceeding in this respect are ongoing. |
As for
(3) | Settlement agreement with Bondholders of Israeli Series of Bonds |
In January 2018, a settlement agreement was signed by and among the datePC and the two Israeli Series of Bonds (“Settlement Agreement”). In the approval of the financial statement PC repaid the bondholder the entire NIS 382 million and thus obtained a deferral of one year for the remaining contractual obligations of the debentures.Settlement Agreement it was agreed, inter alia, to approve:
New repayment ratios between the two Israeli Series of Bonds (new ratio: Bond A- 39% Bond B- 61%); |
● | An increase in the level of the mandatory early repayments from 75% to 78% of the relevant net income; |
● | New repayment schedule; |
● | An increase in the compensation to be paid to the Bondholders in the event of successful disposal of Casa Radio Project; |
● | A waiver of claims to the PC and its directors and officers; and |
● | To waive the request for publication of quarterly financial reports by the Company. |
F-69 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - | BORROWINGS (Cont.) |
e. | PC’s notes (Cont.): |
As a result of settlement agreement signing, Series A Bondholders withdraw their request for immediate repayment.
It is clarified that the Settlement Agreement is a separate agreement among the parties thereto with respect to the PC’s restructuring plan, and as such has no effect on the Polish Bondholders.
On January 31, 2018 the PC paid the bondholders a total amount of principal and interest of EUR 38,487 thousands.
(4) | The net cash flow received by the PC following an exit or raising new |
Revised effective interest rate:Mandatory repayment of subsequent to the reporting date (without early repayments):
As a result of the non-substantial modifications of terms regarding the approved amendment described above, PC calculated a new effective interest rate as follows:
Effective interest rate | |||||||||
Before the amendment | after the amendment | ||||||||
Series A Debentures | 11.58 | % | 9.47 | % | |||||
Series B Debentures | 13.83 | % | 13.48 | % | |||||
Polish Debentures | 10.83 | % | 10.46 | % |
EUR | NIS | ||||||||
2018 | 24,175 | 100,398 | |||||||
2019 | 84,568 | 351,210 | |||||||
2020 | 14,417 | 59,874 | |||||||
123,160 | 511,482 |
For PC’s notes collaterals and covenants - see note 13D(3) and 13E(3).13d2 13c2. For liens - see note 13d13c.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - | INCOME TAXES |
Composition: |
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
Current | 3,292 | 2,166 | 205 | ||||||||||
Deferred | (386 | ) | 3,465 | (2,492 | ) | ||||||||
2,906 | 5,631 | (2,287 | ) |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
Current | - | 804 | 2,166 | ||||||||||
For previous year | 11,404 | - | - | ||||||||||
Deferred | (160 | ) | 2,216 | 2,236 | |||||||||
11,244 | 3,020 | 4,402 |
Principle tax laws applicable the major Group companies in their country of residence: |
Israel: |
Corporate tax rate applicable to companies in Israel in |
As from January 1, 2003, certain statutory provisions came into force and effect, concerning, among other things, the tax reform in Israel in respect of the following: |
Taxation of profits of foreign companies considered as Controlled Foreign Companies (“CFC”), if all the following conditions are met: (i) its shares or its rights on it are not listed in a stock exchange, however if they are partly listed, then less than 30% of the shares or of the rights of the company were offered to the public (ii) majority of revenues thereof are passive, as same is defined by law, or majority of profits thereof derive from passive revenues; (iii) the tax rate applying to the passive profits thereof in their country of residence does not exceed 20%; and (iv) more than 50% of the means of control therein are held, directly or indirectly, by Israeli residents. In accordance with the statutory provisions, a controlling shareholder in those companies having unpaid profits, as defined by law, is deemed to have been distributed as a dividend representing its respective share in such profits (“Deemed Dividend”). |
Taxation of a dividend received in Israel, out of profits generated or accrued abroad, as well as a dividend originating abroad. |
A Deemed Dividend and/or the distribution of dividends, as stated, will be subject to a tax rate of 25%, less withholding taxes which would have been paid abroad in respect of such dividend, had it in fact been distributed. Each Israeli resident company has the right to elect, at its sole discretion, to be assessed according to the Israeli corporate tax rate less taxes payable abroad in respect of these profits (including under certain circumstances taxes payable by a company held by the distributing company), as the case may be.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - | INCOME TAXES (Cont.) |
Principle tax laws applicable the major Group companies in their country of residence (Cont.): |
1. | Israel (Cont.): |
2) | Capital gain from the realization of assets which were acquired subsequent to January 1, 2003 will be taxed at a rate of 25%. Capital gain for assets which were acquired before January 1, 2003, will be taxed at a rate of 25% for the portion of the gain relating to the period subsequent to this date up to the realization date and corporate tax rate for the portion of the gain relating to the period from the acquisition date up to January 1, 2003. |
Method of loss offsetting - regarding business losses, capital losses, passive losses, marketable securities losses and CFC losses. |
Companies resident in the Netherlands are subject to corporate income tax at the general rate of 25%. The first EUR 200,000 of profits is taxed at a rate of 20%. Tax losses may be carried backwards for one year and carried forward for nine years. |
1. | The parent Company has an interest of |
2. | At least one of the following |
The parent Company’s objective with respect to its participation is to obtain a return that is higher than a return that may be expected from normal active asset management (“Motive |
Dividend distributions from a Netherlands company to qualifying Israeli corporate shareholders holding at least 25% of the shares of such Netherlands company is subject to withholding tax at a rate of 5% provided certain compliance related formalities have been satisfied. |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - | INCOME TAXES (Cont.) |
Effective tax rate: |
The following is reconciliation between the income tax expenses computed on the pretax income at the ordinary tax rates applicable for the Company (“the theoretical tax”) and the tax amount included in the consolidated statement of operations:
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
Profit (loss) before income taxes | (309,162 | ) | (316,165 | ) | 783,545 | ||||||||
Israeli company’s statutory tax rate (%) | 25 | 26.5 | 26.5 | ||||||||||
The theoretical tax | (77,291 | ) | (83,784 | ) | 207,639 | ||||||||
Differences in tax burden in respect of: | |||||||||||||
Exempt income, net of unrecognized expenses | 953 | 10,286 | 79,018 | ||||||||||
Prior-year losses for which deferred taxes had not previously been recorded, including utilization | (2,814 | ) | (17,805 | ) | (468,683 | ) | |||||||
Losses and other timing differences for which deferred taxes had not been recorded | 58,328 | 130,822 | 94,931 | ||||||||||
The effect of different measurement principles applied for the financial statements and those applied for income tax purposes (including exchange differences) | (3,309 | ) | (33,655 | ) | 32,447 | ||||||||
Differences in tax rates on income of foreign subsidiaries | 11,757 | (13,146 | ) | 43,663 | |||||||||
The Group’s share in results of associated companies | 13,574 | 11,620 | 5,272 | ||||||||||
Other differences, net | 1,762 | 1,293 | 3,426 | ||||||||||
2,906 | 5,631 | (2,287 | ) |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
Profit (loss) before income taxes | (237,534 | ) | (316,961 | ) | (366,751 | ) | |||||||
Israeli company’s statutory tax rate (%) | 24 | 25 | 26.5 | ||||||||||
The theoretical tax | (57,008 | ) | (79,241 | ) | (97,189 | ) | |||||||
Differences in tax burden in respect of: | |||||||||||||
Exempt income, net of unrecognized expenses | 11,139 | 673 | 9,991 | ||||||||||
Prior-year losses for which deferred taxes had not previously been recorded, including utilization | (940 | ) | (2,873 | ) | (17,805 | ) | |||||||
Losses and other timing differences for which deferred taxes had not been recorded | 39,272 | 60,545 | 104,115 | ||||||||||
The effect of different measurement principles applied for the financial statements and those applied for income tax purposes (including exchange differences) | 5,330 | (1,493 | ) | 7,457 | |||||||||
Differences in tax rates on income of foreign subsidiaries | (2,034 | ) | 11,830 | (13,916 | ) | ||||||||
The Group’s share in results of associated companies | 4,849 | 13,579 | 11,620 | ||||||||||
Taxes for prior years | 11,404 | - | - | ||||||||||
Other differences, net | (768 | ) | - | 129 | |||||||||
11,244 | 3,020 | 4,402 |
Carry forward losses and deductions: |
As of December 31, 2016, the Group companies had accumulated tax losses and deductions amounting to NIS 1,207 million, which may be utilized in the coming years against taxable income at rates ranging from 12.5% to 35% depending on the country of residence. The realization of the carry-forward losses is subject to taxable income available in those periods when these losses are deductible.
Tax laws in respect of certain Group subsidiaries operating outside of Israel have set a time limitation on the utilization of losses. Accordingly, the right to utilize carry-forward losses in the amount of NIS 1,207 million, against taxable income, will gradually expire over the following years:
December 31 | |||||
2016 | |||||
(in thousand NIS) | |||||
2017 | 2,624 | ||||
2018 | 94,431 | ||||
2019 | 120,682 | ||||
2020 and thereafter | 977,155 | ||||
1,194,892 |
December 31 | |||||
2017 | |||||
(in thousand NIS) | |||||
2018 | 3,339 | ||||
2019 | 26,157 | ||||
2020 | 47,601 | ||||
2021 and thereafter | 805,601 | ||||
882,698 |
F-73 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - | INCOME TAXES (Cont.) |
e. | Deferred income taxes: |
1. | Composition: |
Year ended December 31, 2017 | |||||||||||||||||||||
Balance as of January 1, 2017 | Charge to profit and loss account | Deconsolidation (*) | Foreign currency translation adjustments | Balance December 31, 2017 | |||||||||||||||||
NIS in thousands | |||||||||||||||||||||
Differences between book value of property, plant and equipment and value for income tax purposes | (92,472 | ) | - | 92,472 | - | - | |||||||||||||||
Temporary difference associated with investment in subsidiaries | (7,216 | ) | 7,216 | - | - | - | |||||||||||||||
Timing differences - income and expenses | (8,654 | ) | 1,880 | - | 291 | (6,483 | ) | ||||||||||||||
Carry forward tax losses and deductions | 15,400 | (8,936 | ) | - | 19 | 6,483 | |||||||||||||||
Net deferred taxes | (92,942 | ) | 160 | 92,472 | 310 | - |
(*) See Note 19.
Year ended December 31, 2016 | |||||||||||||||||||||
Balance as of January 1, 2016 | Charge to profit and loss account | Charged to revaluation reserve | Foreign currency translation adjustments | Balance | |||||||||||||||||
NIS in thousands | |||||||||||||||||||||
Differences between book value of property, plant and equipment and value for income tax purposes | (82,990 | ) | 1,319 | (17,046 | ) | 6,245 | (92,472 | ) | |||||||||||||
Temporary difference associated with investment in subsidiaries | - | (7,216 | ) | - | - | (7,216 | ) | ||||||||||||||
Timing differences - income and expenses | (15,969 | ) | 6,721 | (319 | ) | 913 | (8,654 | ) | |||||||||||||
Carry forward tax losses and deductions | 17,900 | (425 | ) | - | (2,075 | ) | 15,400 | ||||||||||||||
Net deferred taxes | (81,059 | ) | 399 | (17,365 | ) | 5,083 | (92,942 | ) |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - | INCOME TAXES (Cont.) |
Deferred income |
Year ended December 31, 2016 | |||||||||||||||||||||
Balance as of January 1, 2016 | Charge to profit and loss account | Charged to | Foreign currency translation adjustments | Balance as of December 31, 2016 | |||||||||||||||||
(In thousand NIS) | |||||||||||||||||||||
Differences between book value of property, plant and equipment and value for income tax purposes | (82,990 | ) | 1,319 | (17,046 | ) | 6,245 | (2,472 | ) | |||||||||||||
Temporary difference associated with investment in subsidiaries | - | (7,216 | ) | - | - | (7,216 | ) | ||||||||||||||
Timing differences - income and expenses | (15,969 | ) | 6,721 | (319 | ) | 913 | (8,654 | ) | |||||||||||||
Carry forward tax losses and deductions | 17,900 | (425 | ) | - | (2,075 | ) | 15,400 | ||||||||||||||
Net deferred taxes | (81,059 | ) | 399 | (17,365 | ) | 5,083 | (92,942 | ) |
Year ended December 31, 2015 | |||||||||||||||||||||
Balance as of January 1, 2015 | Charge to profit and loss account | Charged to revaluation reserve | Foreign currency translation adjustments | Balance as of December 31, 2015 | |||||||||||||||||
(In thousand NIS) | |||||||||||||||||||||
Differences between book value of property, plant and equipment and value for income tax purposes | (72,290 | ) | (729 | ) | (18,333 | ) | 8,452 | (82,990 | ) | ||||||||||||
Timing differences - income and expenses | (34,228 | ) | 15,517 | (530 | ) | 3,272 | (15,969 | ) | |||||||||||||
Carry forward tax losses and deductions | 39,656 | (18,252 | ) | - | (3,594 | ) | 17,900 | ||||||||||||||
Net deferred taxes | (66,862 | ) | (3,464 | ) | (18,863 | ) | 8,130 | (81,059 | ) |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Long-term liabilities | (92,942 | ) | (82,787 | ) | |||||
Long-term receivables | - | 1,728 | |||||||
(92,942 | ) | (81,059 | ) |
The Group did not record deferred tax assets in respect of the following items: |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Timing differences - income and expenses | 1,602 | 1,651 | |||||||
Carry forward tax losses and deductions | 270,882 | 310,717 | |||||||
272,484 | 312,368 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Timing differences - income and expenses | 1,429 | 1,602 | |||||||
Carry forward tax losses and deductions | 271,542 | 270,882 | |||||||
272,971 | 272,484 |
Final tax assessments: |
The Company and certain Israeli subsidiaries have received final tax assessments, through 2010. Currently the Company is discussing the tax assessments for the years 2011-2014. Certain foreign group companies have received final tax assessments while others have not been assessed since incorporation.
On July 11, 2013, the Company received a tax ruling from the Israeli Tax Authority (“ITA”) as to the tax, if any, that would be applicable to the Company and the unsecured financial creditors as a result of the Arrangement. The ruling generally provides that, upon the closing of the Arrangement, the Company’s unsecured financial creditors will be deemed to have sold their debt (first accrued interest and then outstanding principal) in consideration for the new notes and Shares issued in the Arrangement, which shall be valued at the respective closing prices thereof on the TASE on the first trading day following the closing. The Arrangement will be treated as a tax event for the Company, as well, namely, as financial income or forgiveness of debt in the amount of the difference between the amount of the Unsecured Financial Debt and the value of the new notes and Shares as aforesaid. The resulting gain may be offset against net operating losses, capital losses and impaired investments in subsidiaries. As a result of the closing of the Arrangement the Company recorded a gain for tax purposes in its financial statements as of December 31, 2014. The Company does not expect any material tax liability as a result of such profit.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS |
a |
Hotels’ management fees:
BUTU entered into management agreements with Rezidor for the managements of the Group’s hotel the Radisson Blu hotel complex in Romania which include the Raddison Blu hotel and the Park Inn hotel.
Under the management agreements BUTU undertook to pay Rezidor certain agreed upon fees which are calculated as a percentage from the respective hotel’s revenue as well as a certain agreed upon percentage from the gross operating profit. In addition, BUTU also undertook to participate in certain portions of the expenses incurred by Rezidor in the course of performance of their obligations (mainly marketing and advertising expenses), up to a certain percentage of the room revenues.
A termination of the Radisson Blu Bucharest Hotel management agreement can be done only in limited circumstances as set forth in the agreement.
Claims: |
Certain legal claims have been filed against the Group’s companies, including a claim that has been applied to certify as class actions suits.
In the opinion of the managements of the Group, which is based, inter alia, on legal opinions as to the probability of the claims, including the applications for their approval as class action, appropriate provisions have been included in the financial statements, with respect to the exposure involved in such claims.
In the opinion of the managements of the Group’s companies, the amount of the additional exposure as of December 31, 2016,2017, in respect of claims with chances to be realized which are not remote, amounts to approximately NIS 117 million, excluding the class action and VAT assessments. Said amount does not include interest. In respect to motions to certify a claim as class actions, for which the Group has additional exposure in excess of the aforesaid (due to the fact that the exact amount of the claim was not stated in the claim), see items (1) below. In respect of VAT assessments see (3) below.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Following are the Group’s material claims as of December 31, 2016:2017:
The Company - application for 1999 class action: |
In November 1999, a number of institutional and other investors (the “Plaintiffs”), holding shares in Elscint Ltd.(a subsidiary of the Company which was merged into the Company (“Elscint”) instituted a claim against the Company, Elscint, the Company’s former controlling shareholders, past officers in the said companies and others. Together with the claim a motion was filed to certify the claim as a class action on behalf of everyone who was a shareholder in Elscint on September 6, 1999 and until the submission of the claim, excluding the Company and certain other shareholders.
The plaintiffs argued that a continued and systematic oppression of the minority shareholders of Elscint took place, causing the minority monetary damage. According to the plaintiffs, said oppression started with the oppressive agreements made by Elscint for the realization of its main assets, continued with the sale of the control in the Company by Elron Ltd (and therefore indirectly also in Elscint) to companies held by former controlling shareholders(“shareholders (“Harmful Sale”),continued further with the breach of a tender offer made by Company to purchase the minority shares in Elscint(“Elscint (“Breach of Tender Offer”) and ended with an agreement between Elscint and companies held by the former controlling shareholder for the acquisition by Elscint of the hotels portfolio and the Arena commercial center in Israel in exchange to excessive payment from Elscint. (“Hotels and Marina Transactions”). It should be mentioned that the Harmful Sale allegation is directed first and foremost against Elron which was the controlling shareholder of the Company at that time.
Due to these acts the Plaintiffs allege that the value of Elscint’s shares dropped during the period between February 24, 1999 and the date at which the claim was instituted from USD 13.25 per share to USD 7.25. The main relief sought in the original claim was an order for the Company to consummate the purchase offer for USD 14 per share, and alternatively, to purchase Elscint’s shares held by the Plaintiffs at a price to be set by the court. Further alternatively, the plaintiffs asked the court to grant injunction prohibiting the execution of Hotels and Marina Transactions and for the restitution of all money paid in connection with the above-mentioned transactions.
F-76 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
a. | Claims (Cont.): |
1. | The Company - application for 1999 class action (Cont.): |
In January 2009, the district court dismissed the Plaintiffs’ motion to certify the claim as a class action, which was appealed by them to the Israeli Supreme Court in March 2009. In May 2012, the Israeli Supreme Court upheld the plaintiff’s motion to certify the claim as a class action with regard to the Hotels and Marina Transactions. In addition, the Supreme Court has upheld the Harmful Sale allegation that related to Elron and rejected certain other claims that were included in the original proceedings.
The Supreme Court noted that even though the claim was based on ‘countless’ allegations and on ‘dozens’ of legal grounds, the claim was certified as a class action based on only two causes of action: oppression of minority on the one hand and breach of fiduciary duties and recklessness on the other hand. The Supreme Court remanded the case to the District Court with instructions.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On April 6, 2016,January 8, 2018, the Company and some other defendants (i.e: The Company’s and Elscint’s former directors and officers) have entered into aDistrict Court approved settlement agreement withaccording to which the Plaintiffs (the “Settlement”). The Settlement generally provides thatplaintiffs, their attorneys and the class members will receive NIS 50 million as a final compensation in consideration of a total payment of NIS 46 million (a)final court ruling. On March 15, 2018, the Hotels & Marina Transactions cause of action (as well as any other cause of action that is - or may be - directed againstDistrict Court have also ruled to approve the Company and its former directors and officers and to Elscint and its former directors and officers) shall be exhausted with respect to all of the defendants; and (b) all other causes of action shall be exhausted with respect to the Company and its former directors and officers as well as with respect to Elscint and its former directors and officers.Additional Agreement.
The Company’s share in the aforementioned compensation is NIS 44.6 million and the rest will be financed by the Company’s D&O Insurance.
On 30 April, 2017, after a court hearing,A motion for leave to appeal the District Court’s ruling of 27 September, 2017 was filed by Be’eri to the Supreme Court, constituting of claims that are similar in nature to the claims that Be’eri had previously raised in his objection to the Settlement Agreement (that the settlement agreement is a result of a conspiracy, and so forth).
Initially, the court’s secretary refused to receive Be’eri’s motion and initiate an appeal procedure. Be’eri objected the secretary’s decision, and on December 26, 2017 a Supreme Court Registrar decided to annul the secretary’s decision and allow Be’eri to initiate a motion for leave to appeal.
However, Be’eri did not initiate such an appeal procedure, and on February 13, 2018 the court was asked by some of the defendants to declare that Be’eri is barred from appealing the District Court’s decision due to his inactivity.
On March 12, 2018 Be’eri declared he does not have the means to pay the fees and deposits needed in order to initiate the motion for leave to appeal, and informed the Supreme Court that he intended to ask the court to exempt him from making such payments. No such motion for exemption was filed so far, and therefore the Supreme Court has not yet decided on the issue. Subsequently, no motion for leave to appeal was opened. On April 20, 2018 The Supreme Court decided that Be’eri is exempted from paying court fees but obligated to pay a 5,000 NIS deposit until May 6, 2018. Failing to pay the deposit could lead to striking out the appeal.
According to The District Court’s decision of April 20, 2018, the compensation offeredwill be held by the Plaintiff’s counsel in escrow and will not be distributed until it is clear that (a) Be’eri did not initiate an appellate procedure; or (b) an appellate procedure, if filed, would end without significantly changing the Settlement agreement was insufficient from the perspective of the class members, and that therefore the hearing of the trial should be continued.settlement agreement.
The Company (and other defendants)based on its legal advisor cannot estimate the chances of an appellate procedure that was not filed ayet, but considering the nature of Be’eri’s claims the Company asses that his motion for leave to appeal, should it be filed, is more likely to the Supreme Court on the District Court’s decision to dismiss the settlement agreement, alongside a motion to suspend any pending procedure in the District Court until the motion to appeal is resolved (“the Suspense Motion”).
The Suspense Motion wasbe denied and therefore the defendants filed most of their evidence in chief on July 17, 2017.
On July 4, 2017 The Supreme Court partially accepted the motion to appeal, ordering the District Court to reconsider the matter of approving or dismissing the settlement agreement in a more reasoned manner, including full reasoning in relation to certain aspects that were absent from the District Court’s previous decision on the matter.
The District Court allowed the parties to file additional written arguments regarding the approval or dismissal of the Settlement, until August 2, 2017. A pre-trial dedicated to that matter was held on August 9, 2017. In this pre-trial, the settling parties have offered that an additional sum of NIS 4 Million will be paid to the class members (without adding to the plaintiffs or class attorneys’ fees).
On September 27, 2017 the court approved in principle a revised settlement with the Plaintiffs according to which the Plaintiffs will receive compensation in the total amount of NIS 50 million (the ” Revised Settlement”). The Company is expected to pay NIS 5 million of the said amount. The main changes from the original Settlement relate to the amount of the Settlement and the manner in which the Settlement funds will be allocated.
The court instructed the parties to provide a final settlement agreement according to the changes approved in its decision, and further decided that it will provide final approval of the Revised Settlement upon submission to such a final settlement agreement.than successful.
As for a dispute with an insurer which insured this law suit, see C 7c7 below.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
a | Claims (Cont.): |
VAT and Customs assessments: |
The Company received from the respective VAT and Customs authorities assessments for the years 2006-2012 in the total amount of approximately NIS 25 million (excluding interest linkage and penalties). The Company filed appeals on the assessments it received. Discussions were held and summaries were submitted by both sides to the court.
As of signing the financial statements, the Company is awaiting for the court ruling. Management, based on its tax advisor advice,opinion, recorded an appropriate provision in the financial statement for this exposure.
Other legal proceedings in the ordinary course of business: |
As of December 31, 2016,2017, the Company and its subsidiaries are involved in various legal proceeding relating to their ordinary course of business. Although the final outcome of these claims cannot be estimated at this time, the managements of these companies believe based on legal advice, that the claims, individually and in the aggregate, are not expected to materially impact the Company’s financial statements.
b | Other contingent liabilities: |
Indemnification to directors and officers of the Company: |
The General Meeting of the Company’s shareholders has approved the grant of prospective indemnification undertaking to the Company’s directors (including the controlling shareholder) and officers (including for their service as officers at the Company’s subsidiaries, where applicable). The total aggregate indemnification shall not exceed the lower of 25% of the shareholders’ equity as recorded in the Company’s most recent financial statements prior to such payment, or USD 40 million, and all in excess of an amount paid (if paid) by insurance companies under applicable insurance policy/ies. The Company’s Board of directors and Audit committee has also approved an exemption of officers from liability for any damage caused by breach of a duty of care towards the Company.
Indemnification to directors and officers of Elscint: |
Elscint’s shareholders have approved, at their General Meeting (on October 2000), the grant of prospective indemnification undertaking to directors and officers of Elscint (including for their service as officers of Elscint’s subsidiaries where applicable). The total indemnification shall not exceed the lower of 25% of the shareholders’ equity as set forth in Elscint’s most recent audited consolidated financial statements prior to such payment or USD 50 million, in excess of any amounts paid (if paid) by insurance companies pursuant to the insurance policy maintained by the Company from time to time.
Elscint’s shareholders have also approved an exemption of directors and officers from liability in respect of any damage caused to Elscint by breach of duty of care. On March 7, 2011 Elscint was merged into Elbit and ceased to exist. Upon and as a result from the merger, all Elscint’s undertakings and liabilities were transferred to and assumed by Elbit.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
b | Other contingent liabilities (Cont.): |
Indemnification to directors and officers of Plaza Centers: |
On November 28, 2014 PC has entered into an indemnity agreement with all of PC’s newly appointed directors (including the Company’s chairman of the board and other director of the Company at their role as directors of PC) and on June 20, 2011 with part of PC’s senior management themanagement. The maximum indemnification amount to be granted by PC to its directors shall not exceed 25% of the shareholders’ equity of PC based on PC’s shareholders’ equity set forth in PC last audited consolidated financial statements prior to such payment.
Indemnification to directors and officers of InSightec: |
InSightec (an associated company) is obliged to indemnify and to hold harmless its directors and officers (including one of the Company’s directors who serves as a director in InSightec), to the fullest extent permitted by the laws of any relevant jurisdiction, against any liability. The total indemnification for all InSightec’s directors and officers, in accordance with the letter of indemnification (in addition to the amounts received from the insurers), shall not exceed the higher of USD 10 million or USD 2 million per office holder with the addition of the reimbursement of legal expenses totalling USD 1 million.
Furthermore, InSightec has granted its officers and directors an exemption from all responsibility and any damage that will be caused to InSightec by them, in case of breaching their duty of care towards InSightec, other than with respect to a breach of duty of care in connection with a Distribution, as defined in the Israeli Companies Law subject to the Israeli Companies Law.
Indemnification to directors and officers of Gamida: |
Gamida has granted its directors, an indemnification undertaking letter for any monetary obligation with respect to a claim, including a compromise agreement or arbitration award, carried out in respect to actions taken by the director during the time of his/her service as Gamida’s or Gamida’s Subsidiary or Affiliate’s (as such terms defined therein) Director and in such capacity, as well as with respect to reasonable legal expenses including payments of legal fees paid by the Directors as a result of an investigation or proceeding initiated against the Director. The indemnification is limited to USD 6 million.
Indemnification to directors and officers of Elbit Medical Technologies: |
In November 2010, the shareholders’ of Elbit Medical Technologies have approved the grant of an exemption and indemnification to directors and officers of Elbit Medical Technologies (including such that serve also as officers of the Company). In the framework of the exemption and indemnification undertaking letter (as amended pursuant to the approval Elbit Medical Technologies shareholders on July 2012), Elbit Medical Technologies exempted the recipients of the indemnification undertaking letters also from liability for actions performed while serving as officers of Elbit Medical Technologies or its subsidiaries or a company in which Elbit Medical Technologies is an interested party.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The total indemnification that Elbit Medical Technologies shall pay to each of the indemnified parties (in addition to amount received from the insurance companies according to the insurance policy) shall not exceed USD 40 million. The maximum indemnification amount shall not be affected by payment according to any insurance policy or its existence unless the indemnification amount claimed was already covered by the insurance companies or by any third party.
F-79 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
b | Other contingent liabilities (Cont.): |
7. | The Company received, in 2003, a letter from a certain insurer (“the Insurer”) of EIL, Elscint and the Company (the “Insured Companies”), which insured against, inter alia, the lawsuit as described in item |
Indemnifications relating to sale of real estate assets: |
In the framework of the transactions for the sale of the Group’s real estate as well other transactions, the Group has undertaken to indemnify the respective purchasers for any losses and costs incurred in connection with the sale transactions. The indemnifications usually include: (i) Indemnifications in respect of integrity of title on the assets and/or the shares sold (i.e: that the assets and/or the shares sold are owned by the Group and are free from any encumbrances and/or mortgage and the like). Such indemnifications generally survived indefinitely and are capped to the purchase price in each respective transaction and (ii) Indemnifications in respect of other representation and warranties included in the sales agreements (such as: development of the project, responsibility to defects in the development project, tax matter, environmental matters, employees and others). Such indemnifications are limited in time and are generally caped to certain percentages of the purchase price.
To the Company’s management best knowledge as of the approval date of these financial statements, other than the described below no claim of any kind was received at the Group with respect to these indemnifications in July 2016, following an extensive and lengthy legal procedure relating to a transaction agreement undertaken between PC, and Klepierre in 2004, the International Court of Arbitration has ruled that PC is liable for an indemnification claim totalling approximately EUR 2 million (NIS 9 million), including costs arising from the legal process. Since Klepierre is deemed a creditor under PC’s ongoing Restructuring Plan, payment of the principal amount due by PC under the indemnification claim was deferred to July 2018. Due to the guarantee executed in 2004 of the Company to the original transaction and according to the Dutch law, the Company was obliged to pay the amount determined by the International Court of Arbitration.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On December 6, 2016, the Company and Klepierre reached a settlement in which, inter alia, the Company payed EUR 1.2 million (NIS 5 million) to Klepierre and Klepierre released all of its claims against the Company, it’s fully owned subsidiary, Elbit Ultrasound (Luxembourg) B.V./S.À.R.L. (who was also a guarantor to Plaza) and PC. In addition, PC paid to Klepierre the costs arising from the legal process in the amount of EUR 0.6 million (NIS 2.5 million)
Pending lease payments to a purchaser of a commercial center: |
A former subsidiary of PC incorporated in Prague, Czech Rep. (“Bestes”), which was sold in June 2006 is a party to an agreement with a third party (“Lessee”), for the lease of commercial areas in a center constructed on property owned thereby, for a period of 30 years, with an option to extend the lease period by additional 30 years, in consideration for EUR 6.9 million (NIS 28 million), which as of the balance sheet date has been fully paid. According to the lease agreement, the Lessee has the right to terminate the lease subject to fulfilment of certain conditions as stipulated in the agreement.
In case the Lessee leaves the mall before expiration of lease period PC will be liable to repay the remaining consideration in amount of EUR 2.21.9 Million (NIS 98 million) as of balance sheet date, unless the buyer finds other tenant that will pay higher annual lease payment than the Lessee. PC’s management does not expect to bear a material loss.
F-80 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
b. | Other contingent liabilities (Cont.): |
Waiver and reimbursement to Gamida and/or its officers: |
inIn November 2010, Elbit Medical Technologies irrevocably undertook towards Gamida and/or its officers, that they shall not be under liability, of any kind, directly or indirectly, towards it, its interested parties, its officers and towards any other person and/or third party, regarding the prospectus published by Elbit Medical Technologies with respect to the transaction according to which the Company acquired control over Elbit Medical Technologies (hereinafter, respectively the “Prospectus” and the “Transaction”) provided that Gamida’s will provide the information in good faith and that such information must be at all times complete and accurate.
11. | During February 2018, Elbit Medical completed the issuing of convertible Notes (Series C), which are convertible to regular shares of Elbit Medical and are secured by a lien on part of Elbit Medical’s shares in Gamida Cell Ltd. (“Gamida”) and Insightec Ltd. (“Insightec”). The lien on Gamida and Insightec’s shares was made possible following an amendment to both of their Articles of association (‘Articles’) to reflect that the lien on Gamida and Insightec’s shares does not constitute a Right of First Refusal that Gamida Cell and Insightec’s shareholders have arising out of the Articles, and that solely realization of these shares will activate the aforementioned Right of First Refusal (the “Amendment”). |
As a precondition for the Amendment, Elbit Medical undertook to indemnify Insightec and each of its officers, directors, mangers, members, partners, employees and agents, shareholders and any other persons controlling Insightec or any of its affiliates (collectively: “Indemnified Persons”) to the fullest extent lawful, from and against any liabilities, losses, damage or expenses (including payment to advisors) incurred that arises out of or in connection with the Amendment, whether or not resulting from an Indemnified Person’s negligence (“Losses”), provided, however, that Elbit Medical shall not be responsible for any Losses that arise out of or are based on any action of or failure to act by Insightec to the extent such Losses are determined, by a final, non-appealable judgment by a court, to have resulted solely from Insightec’s gross negligence or willful misconduct.
Likewise Elbit Medical Technologies has irrevocably undertaken, towards Gamida, its officers, Gamida’s jointly controlled subsidiary and Teva Pharmaceutical Industries Ltd that, subject to the conditions specified in the undertaking document, it shall indemnify them, for any liability and/or damage and/or expense and/or loss that is caused to any of the aforementioned with respect to the Transaction and the Prospectus, as well as any reports or other action of the Company with respect to the aforementioned information and/or to Gamida, its activities, its business etc.
F-81 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
b |
Foreign Corrupt Practices Act (FCPA) |
As disclosed in Note 4 C (1) Casa radio, PC’sOn March 12, 2018, the Securities and Exchange Commission (“SEC”) approved an offer of settlement that was submitted to it by the Company regarding concerns of a violations of the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”), as follows: 1. In March 2016 Plaza Centers N.V. (a subsidiary of the Company) (“PC”) announced that its board has becomeof directors became aware of certain issues with respect to certain agreements that were executed in the past by PC in connection with the Casa Radio Project in Bucharest, Romania (see also note 4c1) that may indicate potential violation of the requirements of the U.S. Foreign Corrupt Practices Act (FCPA),FCPA, including the books and records provisions of the FCPA. 2. In addition, in April 2017 the Company’s board of directors and PC’s board of directors became aware of certain issues with respect to an agency and commission agreement from 2011 regarding the sale in 2012 of property in the U.S. jointly owned by PC and the Company. The characteristics of the said agreements could raise red flags that this agreements may be a potential violation of the requirements of the FCPA, including the books and records provisions of the FCPA. 3. Upon the discovery of each of the cases described above, the Company appointed an internal committees to examine these events and at the same time updated the SEC. 4.
The internal committees has concluded their examination of these matters and submitted their recommendations to the Company’s board of directors. The Company’s board of directors fully adopted the committee’s recommendations, and is working to implement them. 5. Following discussions with the SEC regarding the potential violation of the requirements of the FCPA, the Company submitted an Offer of Settlement (“Offer”). 6. Solely for the purpose of the proceedings brought by or on behalf of the SEC and without admitting or denying the findings in the Offer (except as to the SEC’s jurisdiction over it and the subject matter of these proceedings, which are admitted) the Company consented to the entry of an order containing the SEC’s findings. -2- 15527/1403/7157186v1 7. The SEC has determined to accept the Offer and ordered that: 7.1. Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), the Company cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 7.2. The Company paid a civil money penalty in the amount of $500,000 to the SEC for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). 8. In determining to accept the Offer, the SEC considered remedial acts that the Company promptly undertook, its self-reporting, and its cooperation afforded to the SEC staff, including having conducted a thorough internal investigation, voluntarily providing detailed reports to the staff, fully responding to the staff’s requests for additional information in a timely manner, and providing translations of certain documents.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
b | Other contingent liabilities (Cont.): |
In order to address this matter, PC’s Board appointed the chairman of its Audit Committee to investigate the matters internally. PC’s Board also appointed independent law firms to perform an independent review of the issues raised. PC has approached and is co-operating fully with relevant Romanian authorities regarding the matters that have come to its attention in this respect, and it has submitted its findings to the Romanian authorities. Following PC’s report to us, our audit committee decided to appoint a special committee to examine the matters raised in PC’s announcement, including any internal control and reporting issues. The special committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board of Directors. The Company’s Board fully adopted the special committee’s recommendations, and, among other steps, is working to implement a specific policy with respect to FCPA risks and other internal control issues and appointed a compliance officer to monitor the policy’s implementation by the Company’s management. The Company informed and is fully cooperating with the relevant governmental agencies in this matter.
If violations of the FCPA or other laws of the U.S. or of other jurisdiction laws occurred, the Company, as well as its directors, officers and other related parties, may be subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. In addition, the public announcement of the subject matter of the investigation could adversely affect the Company’s business and financial position. Furthermore, dispositions for these types of matters may result infurther modifications to the Company’s business practices and compliance programs.
Management, based on legal advice received, recorded an appropriate provision in the financial statement for exposure to potential FCPA violations. However, since the aforementioned matter may involve other jurisdictions, the Company cannot estimate, at this stage, the ultimate exposure in connection with this matter.
The Company’s Board of Directors has become aware of certain issues with respect to an agreement from 2011, between the Company, PC and another party, the beneficial owners of which have not been identified. The characteristics of the contract could raise red flags that this contract may be a potential violation of laws and regulations.
In order to address this matter, the Company’s Board has appointed a joint committee’s together with PC’s chairman of the audit committee, the Company special committee and with the external legal advisors to investigate and examine the issues raised.
The Special Committee has concluded its examination of these matters and submitted its recommendations to the Company’s Board of Directors. The Company’s Board fully adopted the Special Committee’s recommendation, and, among other steps, is working to implement a specific policy with respect to FCPA risks and appointed a compliance officer to monitor the policy’s implementation by the Company’s management. The Company informed and fully cooperate with the relevant governmental agencies in this matter.
Management, based on legal advice received, recorded an appropriate provision in the financial statement for exposure to potential FCPA violations. However, since the aforementioned matter may involve other jurisdictions, the Company cannot estimate, at this stage, the ultimate exposure in connection with this matter.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As security for a loanIn respect of PC subsidiary which holds a plot in the Europe region, certain tax aspects have been raised in respect to the past. PC management decided, following a thorough analysis and based on it tax advisor’s estimations, to record a provision in amount of EUR 1 million (NIS 4.2 million) for potential losses which are recorded in other losses in the profit or loss financial statements. In respect of a potential real estate tax claim, PC has been advised by its external advisors that notwithstanding the overall ambiguities of the applicable framework and its implementation that could result to a possible tax dispute there are good chances of success in case of litigation since the balance of which as of December 31, 2016, amounted to NIS 59 million granted to the Company by the Bank the Company has pledged:
Exceptions to the collaterals:
So long as the Company and its subsidiaries meet all of their debts and liabilities vis-à-vis the Bank the proceeds specified below that shall be received from the pledged assets shall be used by the Company for its on-going operations, at its discretion, and shall not be used to prepay the debt contemplated in the loan to the Bank:
The Company notes: |
Series H notes are secured by a first ranking floating charge on all the Company’s property and assets and first ranking charges over the Company’s existing and future interest and rights in and to the Company’s wholly owned subsidiaries and Elbit Ultrasound (Luxembourg) B.V./Sa.r.l (“EUL LUX”) and Elscint Holdings and Investments N.V. (“Elscint Holdings”), including rights to any amount owed to the Company by each of EUL LUX and Elscint Holdings.LUX. Series I notes has similar second ranking charges. In addition the Company has granted to both series H and series I notes) a corporate guarantee by each of EUL LUX and Elscint Holdings and a negative pledge over the respective assets of EUL LUX and Elscint Holdings.LUX. The collaterals securing the notes are subject to exceptions as set forth in the Arrangement. The Company holds through EUL LUX its shareholdings in PC and through Elscint Holdings its shareholdings in the Radisson Blu hotel in Romania.PC.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company and its wholly owned subsidiaries, EUL LUX and Elscint Holdings, have not created, nor undertook to create any pledges contrary to their obligations under the notes.
In 2018, the Company mortgaged the repayments of the Vender loan (as mention in note 19), with a first-ranking lien, in favor of the trustee of holders of Series H.
And in a second lien in favor of the trustee of the holders of Series I.
F-83 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
PC notes: |
The following provisions will apply to PC’s notes:
Restrictions on issuance of additional notes - PC undertake not to issue any additional notes other than as expressly provided for in the Restructuring Plan. |
b) | Restrictions on amendments to the terms of the bonds- PC shall not be entitled to amend the terms of the bonds, with the exception of purely technical changes, unless such amendment is approved under the terms of the relevant series and the applicable law and PC also obtains the approval of the holders of all other series of bonds issued by PC by ordinary majority. |
c | Negative Pledge on Real Estate Asset (“REA”) of PC - PC undertakes that until the notes has been repaid in full, it shall not create any encumbrance on any of the REA, held, directly or indirectly, by PC except in the event that the encumbrance is created over PC’s interests in a subsidiary as additional security for financial indebtedness (“FI”) incurred by such subsidiary which is secured by encumbrances on assets owned by that subsidiary. |
d | Negative Pledge on the REA of Subsidiaries - PC’s subsidiaries shall undertake that until the notes have been repaid in full, none of them will create any encumbrance on any of REA except in circumstances permitted under the provision of the notes. |
e | Limitations on incurring new FI by PC and the subsidiaries - PC undertakes not to incur any new FI (including by way of refinancing an existing FI with new FI) until the outstanding notes debt (as of November 30, 2014,) have been repaid in full, except in circumstances permitted under the provision of the notes. |
f | Limitation on distribution dividend - see note |
g | 75% mandatory early repayment - see note |
Certain Project Companies which engaged in the purchase, construction or operation of hotels and/or trading property (“Project Companies”) have secured their respective credit facilities, in a total amount of NIS 703 million, by providing the first ranking (fixed or floating) charges on property owned thereby, including, mainly: rights in the real estate property as well as the financed projects revenues and profits derived from the projects; goodwill and other intangible assets; rights pertaining to certain contracts (including lease, operation and management agreements); and rights arising from insurance policies. Shares of Project Companies were also pledged in favour of the financing banks. Shareholders loans as well as any other rights and/or interests of shareholders in the Project Companies are subordinated to the respective credit facilities, and repayment of such shareholders loans is subject to fulfilling certain preconditions and/or the financing bank prior consent.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - | COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (Cont.) |
The Project Companies undertook not to make any disposition in and to the secured assets, not to sell, transfer or lease any substantial part of their assets without the prior consent of the financing bank. In certain events the Project Companies undertook not to allow, without the prior consent of the financing bank, mainly: (i) any changes in and to the holding structure of the Project Companies nor to allow for any change in their incorporation documents; (ii) execution of any significant activities, including issuance of shares, related party transactions and significant transactions not in the ordinary course of business; (iii) certain changes to the scope of the project; (iv) the assumption of certain liabilities by the Project Company in favor of third parties; (v) receipt of loans by the Project Company and/or the provision thereby of a guarantee to third parties.
The Company is a guarantor to certain Project Companies’ obligations under loan agreements up to an aggregate amount of NIS 122 million.
The bank loans provided to the Company and its subsidiaries (excluding PC’s Group) contain a cross default provisions by which if the Company’s note holders will declare an event of default under the notes and will ask for immediate repayments of all or part of the Company’s Notes it will constitute an event of default under these bank loans. PC Groups’ bank loans contain similar cross default provisions with respect to PC’s notes.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Upon an event of default (whether due to cross-default or otherwise), the relevant lenders would have the right, subject to the terms of the relevant facility arrangements to, amongst other things, declare the borrower’s outstanding debts under the relevant facilities to be due and payable and/or cancel their respective commitments under the facilities, enforce their security, take control of certain assets or make a demand on any guarantees given in respect of the relevant facility See also note 7 B (2).
As for December 31, 2016, the loans financial covenants that may materially impact the Company’s operations and financial position are presented in the table below:
Segment | Financial covenants | Actual ratio | Comments | Balance as of December 31, 2016 (NIS in million) | |||||||
The Company | LTV (loan to value) < 0.85 | 0.17 | value of the collaterals (Plaza Centers’ shares that are pledged to the Bank and the net value of the Company’s residual rights in the hotel in Romania) | 59 | |||||||
Hotel | LTV (loan to value) < 0.65 | 0.52 | 369,923 | ||||||||
EBITDA to Debt ratio >10% | 14.37 | ||||||||||
DSCR (Debt Service Coverage Ratio) > 1.2 | 1.85 | ||||||||||
Torun project | LTV (loan to value) < 0.7 | 0.50 | 179,116 | ||||||||
DSCR (Debt Service Coverage Ratio) > 1.25 | 1.94 |
PC’s notes financial covenants: |
Coverage Ratio Covenant (“CRC”): |
The CRC is a fraction calculated based on known Group valuations reports and consolidated financial information available at each reporting period. The CRC to be complied with by the Group is 118% (“Minimum CRC”) in each reporting period. asAs of December 31, 20162017 calculated CRC is 126.5%.In103%. In the event that the CRC is lower than the Minimum CRC, then as from the first cut -off date on which a breach of the CRC has been established and for as long as the breach is continuing, PC shall not perform any of the following: (a) a sale, directly or indirectly, of a Real Estate Asset (“REA”) owned by PC or its subsidiaries, with the exception that it shall be permitted to sell the REA if it has an obligation to do so which was entered into prior to the said cut-off date, (b) investments in new REA’s; or (c) an investments that regards an existing project of the Company or of a subsidiary, unless it does not exceed a level of 20% of the construction cost of such project (as approved by the lending bank of these projects) and the certain loan to cost ratio of the projects are met.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
If a breach of the Minimum CRC has occurred and continued throughout a period comprising two consecutive quarterly reports following the first quarterly/year-end report on which such breach has been established, then such breach shall constitute an event of default under the trust deeds and Polish notes terms the bond holder shell be entitled to declare by written notice to PC that all or a part of their respective (remaining) claims become immediately due and payable.
As a result of covenants breach, PC classified its bonds in the total amount of EUR 116,914 thousands (NIS 485,498 thousands) as current liabilities in the financial statements as of 31 December 2017.
Minimum Cash Reserve Covenant (MCRC): |
cash reserve of PC has to be greater than the amount estimated by PC’s management required to pay all administrative and general expenses and interest payments to the Note holders falling due in the following six months, minus sums of proceeds from transactions that have already been signed (by PC or a subsidiary) and closed and to the expectation of the PC’s management have a high probability of being received during the following six months. As for December 31, 2016,2017, the MCRC is maintained.
PC is allowed to execute actual investments only if its cash reserves contain an amount equal to general and administrative expenses and interest payments for the Unsecured Debt for a six-month period (for this purpose also receivables with a high probability of being collected in the subsequent six-month period will be taken into account for the required minimal cash reserve). |
NOTE 14 - | SHARE CAPITAL |
Composition:
Ordinary shares of | |||||||||||||
NIS no par value each | |||||||||||||
December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
No nominal par value | NIS 1.00 par value | NIS 1.00 par value | |||||||||||
Authorized share capital | 11,666,667 | 35,000,000 | 35,000,000 | ||||||||||
Issued and outstanding | 9,190,808 | (*) | 27,572,426 | 27,572,426 |
Ordinary shares | |||||||||||||
of NIS no par value each | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
No nominal par value | NIS 1.00 par value | NIS 1.00 par value | |||||||||||
Authorized share capital | 11,666,667 | 11,666,667 | 35,000,000 | ||||||||||
Issued and outstanding | 9,190,808 | 9,190,808 | 27,572,426 |
The Ordinary Shares confer upon the holders thereof all rights accruing to a shareholder of the Company, inter alia, the right to receive notices of, and to attend meetings of shareholders; for each share held, the right to one vote at all meetings of shareholders; and to share equally, on a per share basis, in such dividend and other distributions to shareholders of the Company as may be declared by the Board of Directors in accordance with the Company’s Articles and the Israeli Companies Law, and upon liquidation or dissolution of the Company, in the distribution of assets of the Company legally available for distribution to shareholders in accordance with the terms of applicable law and the Company’s Articles. All Ordinary Shares rank pari passu in all respects with each other.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - | OPTIONS PLANS |
Options plan adopted by the |
Over the years, the Company adopted few option plans. The below summarized the significant terms of the Company’s outstanding option plans as of December 31, 2016:
Number of options exercisable | Max exercisable number of shares | average exercise price | Vested as of December 31, 2016 | average contractual life | Option granted to key personnel | ||||||||||||||||||||
2016 option plan over the Company’s shares (1) | 38,445 | 38,445 | 13.426 NIS | None | 4.78 | 38,445 | |||||||||||||||||||
2011 plan adopted by the Company over Elbit medical shares (2) | 158,592,747 | 79,296,374 | 0.13 NIS | 136,293,835 | 1.59 | 32,149,912 | |||||||||||||||||||
2010 plan adopted by the Company over InSightec shares | 430,000 | 430,000 | USD 2 | 430,000 | 0.23 years | 17,500 |
On October 13, 2016, the Company’s general meeting adopted option plan to the Company’s executive Chairmen of the board (“The Chairman”). According to the plan, the Chairman was granted options exercisable into 38,445 ordinary shares, no par value, of the Company, constituting approximately 0.4% of the Company’s issued and outstanding share capital on a fully diluted basis. The exercise price of the options is equal to NIS 13.426 per share. The option term is for 5 years and it will be vested equally over a period of 3 |
The estimated fair value of the options granted to the Chairman was calculated based on the Binomial model based on a valuation of a third party expert, using the following assumptions:
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31 | |||||||||||||||||
2017 | 2016 | ||||||||||||||||
Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | ||||||||||||||
(NIS) | (NIS) | ||||||||||||||||
Balance at the beginning of the year | 158,592,747 | 0.14 | 140,035,935 | 0.14 | |||||||||||||
Granted (1) | 500,000 | 0.13 | 22,298,912 | 0.10 | |||||||||||||
Forfeited | (104,685,257 | ) | 0.13 | (3,742,100 | ) | 0.40 | |||||||||||
Exercised | (36,670,449 | ) | 0.13 | - | - | ||||||||||||
Balance at the end of the year | 17,737,041 | 0.11 | 158,592,747 | 0.11 | |||||||||||||
Options exercisable at the year end | 2,371,100 | 0.13 | 136,293,835 | 0.13 |
Year ended December 31 | |||||||||||||||||
2 0 1 6 | 2 0 1 5 | ||||||||||||||||
Number of options (*) | Weighted average exercise price | Number of options | Weighted average exercise price | ||||||||||||||
(NIS) | (NIS) | ||||||||||||||||
Balance at the beginning of the year | 140,035,935 | 0.14 | 140,035,935 | 0.14 | |||||||||||||
Granted (1) | 22,298,912 | 0.10 | - | - | |||||||||||||
Forfeited | (3,742,100 | ) | 0.40 | - | - | ||||||||||||
Exercised | - | - | - | - | |||||||||||||
Balance at the end of the year | 158,592,747 | 0.11 | 140,035,935 | 0.14 | |||||||||||||
Options exercisable at the year end | 136,293,835 | 0.13 | 138,702,602 | 0.14 |
Includes |
Options plan adopted by PC: |
Over the years, the PC has adopted few option plans over its shares. The below table summarized the significant terms in respect of PC’s option plans as for December 31, 20162017
Number of options | Max exercisable number of shares | average exercise price | Vested as of December 31, 2016 | average contractual life | Option granted to key personnel | ||||||||||||||||
PC’s plan | 235,520 | 356,781 | GBP 43 | 235,520 | 5.06 years | 30,000 |
Number of options | Max exercisable number of shares | average exercise price | Vested as of December 31, 2017 | average contractual life | Option granted to key personnel | ||||||||
PC’s plan | 235,520 | 356,781 | GBP 43 | 253,520 | 5.06 years | 30,000 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - | ADDITIONAL DETAILS CONCERNING INCOME STATEMENT |
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
A. Income from commercial centers | |||||||||||||
Sale of trading property | 126,019 | 200,078 | 201,571 | ||||||||||
Rental income and management fees | 66,417 | 80,692 | 105,490 | ||||||||||
Other | - | 3,157 | 8,171 | ||||||||||
192,436 | 283,927 | 315,232 | |||||||||||
B. Revenues from hotel operations and management | |||||||||||||
Rooms | 85,742 | 91,058 | 122,360 | ||||||||||
Food, beverage and other services | 40,006 | 45,419 | 60,435 | ||||||||||
Rental of commercial space | 10,091 | 11,409 | 14,212 | ||||||||||
135,839 | 147,886 | 197,007 | |||||||||||
C. Cost of commercial centers | |||||||||||||
Direct expenses: | |||||||||||||
Cost of trading property sold | 112,346 | 227,910 | 205,925 | ||||||||||
Wages and fringe benefits | 1,503 | 3,341 | 6,041 | ||||||||||
Energy costs | 3,868 | 6,073 | 9,524 | ||||||||||
Taxes and insurance | 4,764 | 6,999 | 7,728 | ||||||||||
Maintenance of property and other expenses | 5,351 | 8,286 | 12,426 | ||||||||||
127,832 | 252,609 | 241,644 | |||||||||||
Other operating expenses: | |||||||||||||
Wages and fringe benefits | 13,497 | 16,716 | 17,137 | ||||||||||
Professional services | 8,458 | 7,638 | 10,453 | ||||||||||
Advertising | 6,685 | 7,247 | 9,571 | ||||||||||
Other | 2,932 | 5,363 | 11,614 | ||||||||||
31,572 | 36,964 | 48,775 | |||||||||||
Depreciation and amortization | 402 | 787 | 1,445 | ||||||||||
159,806 | 290,360 | 291,864 | |||||||||||
D. Cost of hotel operations and management | |||||||||||||
Direct expenses: | |||||||||||||
Wages and fringe benefits | 22,887 | 30,269 | 47,668 | ||||||||||
Food and beverages | 10,737 | 11,600 | 15,112 | ||||||||||
Other | 33,859 | 37,693 | 52,264 | ||||||||||
67,483 | 79,562 | 115,044 | |||||||||||
Other operating expenses: | |||||||||||||
Management fees and reimbursement expenses | 5,950 | 8,453 | 10,104 | ||||||||||
Business taxes, insurance and lease payments | 4,578 | 5,352 | 7,681 | ||||||||||
Other | 324 | 775 | 1,243 | ||||||||||
10,852 | 14,580 | 19,028 | |||||||||||
Depreciation and amortization | 37,032 | 32,707 | 39,846 | ||||||||||
115,367 | 126,849 | 173,918 |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
a. Cost of commercial centers | |||||||||||||
Direct expenses: | |||||||||||||
Cost of trading property sold | 771,765 | 112,346 | 227,910 | ||||||||||
Wages and fringe benefits | 396 | 1,503 | 3,341 | ||||||||||
Energy costs | 1,900 | 3,868 | 6,073 | ||||||||||
Taxes and insurance | 2,405 | 4,764 | 6,999 | ||||||||||
Maintenance of property and other expenses | 2,442 | 5,351 | 8,286 | ||||||||||
778,908 | 127,832 | 252,609 | |||||||||||
Other operating expenses: | |||||||||||||
Wages and fringe benefits | 11,726 | 13,497 | 16,716 | ||||||||||
Professional services | 9,224 | 8,458 | 7,638 | ||||||||||
Advertising | 2,884 | 6,685 | 7,247 | ||||||||||
Other | 2,759 | 2,932 | 5,363 | ||||||||||
26,593 | 31,572 | 36,964 | |||||||||||
Depreciation and amortization | 122 | 402 | 787 | ||||||||||
805,623 | 159,806 | 290,360 | |||||||||||
b. General and administrative expenses | |||||||||||||
Wages and fringe benefits | 4,372 | 3,744 | 6,687 | ||||||||||
Stock-based compensation expenses | 325 | 27 | 1,086 | ||||||||||
Depreciation and amortization | 12 | 19 | 29 | ||||||||||
Expenses relating to the Company’s plan of arrangement | 122 | 221 | 412 | ||||||||||
Professional expenses | 5,728 | 2,326 | 2,867 | ||||||||||
Other | 4,371 | 3,920 | 5,597 | ||||||||||
14,930 | 10,257 | 16,678 | |||||||||||
c. Financial expense | |||||||||||||
Interest and CPI linkage on borrowings | 103,360 | 193,116 | 200,169 | ||||||||||
Gain from buy back of notes and bank loan (see note 11d2) | - | (78,193 | ) | (55,475 | ) | ||||||||
Loss from foreign currency translation differences | 7,273 | 30,018 | 69,003 | ||||||||||
Other financial expenses (income) | 1,651 | 1,405 | (5,976 | ) | |||||||||
Total financial expenses | 112,284 | 146,346 | 207,721 | ||||||||||
Financial expenses capitalized to qualified assets | 12 | (21,992 | ) | - | |||||||||
112,296 | 124,354 | 207,721 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - | ADDITIONAL DETAILS CONCERNING INCOME STATEMENT (Cont.) |
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
E. General and administrative expenses | |||||||||||||
Wages and fringe benefits | 3,744 | 6,687 | 15,765 | ||||||||||
Stock-based compensation expenses | 27 | 1,086 | 2,909 | ||||||||||
Depreciation and amortization | 19 | 29 | 3,339 | ||||||||||
Expenses relating to the Company’s plan of arrangement | 221 | 412 | 1,691 | ||||||||||
Professional expenses | 2,326 | 2,867 | 4,633 | ||||||||||
Other | 3,921 | 5,598 | 11,449 | ||||||||||
10,257 | 16,678 | 39,785 | |||||||||||
F. Financial expense | |||||||||||||
Interest and CPI linkage on borrowings | 211,290 | 221,729 | 197,725 | ||||||||||
Gain from buy back of notes and bank loan (see note 4 C (4), 9 (**) and 11 D (2)) | (78,193 | ) | (55,475 | ) | - | ||||||||
Loss from foreign currency translation differences | 31,662 | 76,084 | 35,990 | ||||||||||
Other financial expenses (income) | 1,221 | (6,050 | ) | 3,906 | |||||||||
Total financial expenses | 165,980 | 236,288 | 237,601 | ||||||||||
Financial expenses capitalized to qualified assets | (21,992 | ) | - | - | |||||||||
143,988 | 236,288 | 237,601 | |||||||||||
G. Financial income | |||||||||||||
Interest on deposits and receivables | 203 | 649 | 2,316 | ||||||||||
Gain (loss) from foreign currency translation differences | (1,259 | ) | 1,505 | 4,001 | |||||||||
(1,056 | ) | 2,154 | 6,317 | ||||||||||
H. Change in fair value of financial instruments at FVTPL | |||||||||||||
Change in fair value of financial instruments measured at FVTPL (mainly notes) | - | - | 60,593 | ||||||||||
Loss (gain) from change in fair value of derivatives (mainly swap and forward transactions) | (2,707 | ) | 2,878 | 12,271 | |||||||||
Gain (loss) on marketable securities | - | 2,568 | (1,432 | ) | |||||||||
(2,707 | ) | 5,446 | 71,432 | ||||||||||
I. Financial gain from debt restructuring | |||||||||||||
The Company financial gain from restructuring | - | - | 1,611,648 | ||||||||||
PC financial gain from restructuring | - | 4,980 | |||||||||||
- | - | 1,616,628 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
d. Financial income | |||||||||||||
Interest on deposits and receivables | 168 | 203 | 649 | ||||||||||
Gain (loss) from foreign currency translation differences | 91 | (1,259 | ) | 1,505 | |||||||||
Other financial income | 1,552 | - | - | ||||||||||
1,811 | (1,056 | ) | 2,154 | ||||||||||
e. Change in fair value of financial instruments measured at fair value through profit and loss | |||||||||||||
Loss from change in fair value of derivatives (mainly swap and forward transactions) | - | (2,707 | ) | - | |||||||||
Gain on marketable securities | - | - | 2,568 | ||||||||||
- | (2,707 | ) | 2,568 | ||||||||||
f. Write down, charges and other expenses, net | |||||||||||||
Write down of trading property (i) | 89,345 | 189,592 | 86,717 | ||||||||||
Realization of foreign currency translation reserve to the profit and loss | - | - | 3,534 | ||||||||||
Initiation expenses (ii) | 12,461 | 1,796 | 6,239 | ||||||||||
Other, net (iii) | (686 | ) | (29,070 | ) | 2,802 | ||||||||
101,120 | 162,318 | 99,292 |
(ii) | Includes mainly cost and expenses in respect of the Group’s operations in India. |
(iii) | In 2016 -Including gain from increase in holdings in Indian subsidiaries. Refer also to note 4d. |
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
J. Write down, charges and other expenses, net | |||||||||||||
Write down of trading property (i) | 189,592 | 86,717 | 530,647 | ||||||||||
realization of foreign currency translation reserve to the profit and loss (iii) | - | (56,063 | ) | - | |||||||||
Initiation expenses (ii) | 1,796 | 6,239 | 12,637 | ||||||||||
Other, net (iv) | (36,031 | ) | 1,405 | (12,242 | ) | ||||||||
155,357 | 38,298 | 531,042 | |||||||||||
(i) See note 4B regarding trading property write downs | |||||||||||||
(ii) Includes mainly cost and expenses in respect of the Group’s operations in India. | |||||||||||||
(iii) 2015: mainly Due to the realization of the Euro activity in the Hotel segment | |||||||||||||
(iv) Including gain from increase in holdings in Indian subsidiaries. Refer also to Note 6A. | |||||||||||||
K. Earnings per share (*)(**) | |||||||||||||
Basic and diluted earnings per share: | |||||||||||||
The earnings and weighted average number of ordinary shares used in the calculation of the basic earning per share are as follows: | |||||||||||||
Profit (Loss) from continuing operations | (194,830 | ) | (193,024 | ) | 1,010,619 | ||||||||
Profit (Loss) from discontinued operation | - | 6,874 | (1,620 | ) | |||||||||
Weighted average number of shares used in computing basic earnings per share (thousands) | 9,191 | 9,191 | 7,916 |
j. Earnings per share (*) | |||||||||||||
Basic and diluted earnings per share: | |||||||||||||
The earnings and weighted average number of ordinary shares used in the calculation of the basic earning per share are as follows: | |||||||||||||
Profit (Loss) from continuing operations | (185,132 | ) | (202,630 | ) | (242,709 | ) | |||||||
Profit (Loss) from discontinued operation | (152,903 | ) | 7,913 | 56,231 | |||||||||
Weighted average number of shares used in computing basic earnings per share (thousands) | 9,191 | 9,191 | 9,191 |
(*) | The earnings used in the calculation of all diluted earnings per share are same as those for the equivalent basic earnings per share measures. |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - | RELATED PARTIES |
Transactions with related parties: |
Transactions between the Company and its subsidiaries which are related parties of the Company, have been eliminated on consolidation and therefore are not disclosed in this note.
As of December 31, 2016,2017, the Company does not have ultimate controlling party. The Company identifies the following entities, inter alia, as the Company’s related parties: York Capital Management Global Advisors, LLC (“York”) which holds approximate 19.6% of Company’s share capital and Davidson Kempner Capital Management LLC (“DK”) which holds approximate 14.3% of Company’s share capital.
As for the investment agreement in InSightec by York and other investors see note 5 A.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS5a.
a) | Insurance policy for the Company’s directors and officers: |
The directors and officers of the Company and its subsidiaries (excluding PC and its subsidiaries which are covered under a separate policy - see b below), are covered by directors’ and officers’ liability insurance policy of up to USD 40 million per occurrence and in the aggregate during the duration of the policy. In addition, the directors and officers of the Company (excluding any subsidiary) are covered by additional directors’ and officers’ liability insurance policy of up to USD 20 million per occurrence and in the aggregate during the duration of the policy. The shareholders of the Company have approved the renewal of such policy and the purchase of another directors and officers’ liability insurance policy and the purchase of any other similar policy upon the expiration of such policies, provided that the coverage will not exceed certain premium and that the premium for the renewed policy(ies) will not exceed an amount representing an increase of 20% as compared to the previous year. The insurance policy of the Company will expire on March 1, 2019. In addition to the ongoing police, on the closing of the Company’s plan of Arrangement on February 20,2014 the Company’s then exiting on-going policy has been converted into a Run Off policy which will expired following the elapse of seven years thereafter (i.e., February 20, 2021).
Insurance policy for PC’s directors and officers: |
PC maintains Directors’ and Officers’ liability insurance policy, presently at the maximum amount of USD 60 million which will expire on November 1 2017. The new policy does not exclude past public offering and covers the risk that may be incurred by the Directors through public offerings of equity up to USD 50 million.
F-89 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - | RELATED PARTIES (Cont.) |
Benefits to key management personnel (Cont.): |
c) | Insurance policy for InSightec’s directors and officers: |
InSightec’s directors and officers are covered by two insurance policies; (i) Run Off policy, which is valid for a period of 7 years commencing December 2012, covering damages that has occurred until December 2012 uo to USD 20 million, and (ii) a second policy covering damages that had occurred or might occur from December 2012 and on. Each policy ison up to USD 3060 million, and it precedes and does not have the right to participate in the policies of directors and officers held by any of the shareholders of InSightec, including a component of special coverage for risk management (up to an amount of USD 100 thousands) with worldwide coverage. InSightec’s directors and officers insurance includes a retroactive cover and contains a 7 year extended reporting period provision.
Insurance policy for the Gamida’s directors and officers: |
Gamida’s directors and officers are covered by D&O liability Insurance Policy. The policy covers claim first made against the insured during the policy period and notified to the insurer during the policy period for any wrongful act in the insured’s capacity as a director or officer of the company - all in accordance with the policy terms and conditions. The policy limit of liability is USD 6 million. Total aggregate for all loss, arising out of all claims made against all insured is under all insurance covers combined.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As for directors’ indemnification - see note |
Options issued to related parties - see note 15. |
The following table presents the components of the Group related party transactions and benefit (including bonus) granted to the Group’s key management personnel: |
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
Benefits to key management personnel | |||||||||||||
Salaries, directors’ fees and bonuses | 3,373 | 4,798 | 4,777 | ||||||||||
Termination benefits of former key personnel | - | - | 1,644 | ||||||||||
Post-employment benefits | 239 | 257 | 164 | ||||||||||
Amortization of stock based compensation expenses | 53 | 866 | 817 | ||||||||||
3,665 | 5,921 | 7,402 | |||||||||||
Number of recipients (excluding directors) | 2 | 2 | 3 |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
Benefits to key management personnel | |||||||||||||
Salaries, directors’ fees and bonuses | 4,655 | 3,373 | 4,798 | ||||||||||
Termination benefits of former key personnel | 200 | - | - | ||||||||||
Post-employment benefits | - | 239 | 257 | ||||||||||
Amortization of stock based compensation expenses | 399 | 53 | 866 | ||||||||||
5,254 | 3,665 | 5,921 | |||||||||||
Number of recipients (excluding directors) | 7 | 7 | 7 |
Balances with related parties: |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Liabilities: | |||||||||
The Company’s and PC’s traded notes | 211,790 | 340,645 | |||||||
Benefits payable to key management personnel | 2,114 | 2,145 | |||||||
213,904 | 342,790 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Liabilities: | |||||||||
The Company’s and PC’s traded notes | 116,130 | 211,790 | |||||||
Benefits payable to key management personnel | 3,499 | 2,114 | |||||||
119,629 | 213,904 |
F-90 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - | SEGMENTS REPORTING |
General: |
The Group’s Chief Operating Decision-Maker (“CODM”) reviews the Group’s internal reporting to assess the performance and to allocate resources. The CODM assesses the performance of the Group’s segments based on Net Operating Income. Such Net Operating Income is excluding general and administrative expenses attributable to the Company’s headquarter, financing income (expenses) and income taxes. In addition, the CODM is assessing separately the specific financial expenses of each segment based on the borrowings which are specifically attributable to the segment. All other financing expenses (income) (i.e.: financing expenses in respect of non-specific borrowing, interest income on investments and deposits and changes in fair value of financial instruments) were considered as unallocated financing expenses (income).
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Majority of equity method investments areInvestments in INSIGHTEC is reviewed by the CODM in the same manner as subsidiary companies, i.e. each investment’s income, expenses are reviewed on a separate basis. The amounts included are not adjusted to reflect the Group’s share and accordingly reviewed in its entirety (100%). Accordingly, the amounts within each segment include these components of equity method investments, and are reconciled to the consolidated statements as adjustments.
The amounts considered for review purposes of these investments are as follows:
For purpose of these financial statements the following business segments were identified:
● |
● |
Plots in India -plots designated for sale, initially designated to residential projects. |
● | Plots in Eastern Europe-initially designated for development of commercial centers - includes plots in Eastern Europe (and in Greece) held by our subsidiary Plaza Centers N.V. (“PC”) whose business strategy is to no longer develop commercial centers but to dispose of its real estate assets at optimal market conditions. |
The Group’s reportable segments for each of the years ended December 31 2017, 2016 and 2015 and 2014 are: Commercial Centers, Hotel, Medical Industries and devices, and Plots in India.India and Commercial Centers, All other operations identified by the CODM are included as “other activities”. The assets of a reportable segment include mainly property plant and equipment (with respect to the Hotel)plots in India and trading property attributable to the Commercial Centers and the plots in India.Centers. Unallocated assets include mainly cash and cash equivalent as well as short and long term deposits and investments.
The liabilities of the reportable segments include mainly specific borrowings provided directly to the Project Companies (mainly companies which are engaged in the operation, construction and initiations of commercial centers and hotel)centers) and which are usually secured by a mortgage on the property owned by these Project Companies. Other borrowings which were raised by the Group with no identification to certain operations (mainly notes issued by the Company and PC) were considered as unallocated liabilities.
The accounting policies of all reportable segments are the same as those of the Group, as described in note 2.
In January 2015, the Company realized the fashion apparel segment. Therefore, this segment is no longer considered as a reportable segment, and accordingly was excluded from segmental disclosure for the year ended December 31, 2014 (see note 19).
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - | SEGMENTS REPORTING (Cont.) |
Data regarding business segments: |
Year ended December 31, 20162017
Commercial Centers (i) | Hotel | Medical industries and devices | Plots in India | Other activities and allocations | Equity method adjustments | Total | ||||||||||||||||||||||
(in thousand NIS) | ||||||||||||||||||||||||||||
Revenues | 210,014 | 135,839 | 96,333 | - | - | (113,911 | ) | 328,275 | ||||||||||||||||||||
Segment profit (loss) | (135,061 | ) | 27,433 | (119,689 | ) | 9,354 | - | 116,361 | (101,602 | ) | ||||||||||||||||||
Financial income (expenses) | 60,454 | (19,634 | ) | - | - | - | 40,820 | |||||||||||||||||||||
Share in losses of associates, net | - | - | (7,960 | ) | - | - | (46,352 | ) | (54,312 | ) | ||||||||||||||||||
Adjustments: Unallocated general and administrative expenses | (10,257 | ) | ||||||||||||||||||||||||||
Unallocated other expenses | (655 | ) | ||||||||||||||||||||||||||
Unallocated financial expenses | (184,807 | ) | ||||||||||||||||||||||||||
Financial income | (1,056 | ) | ||||||||||||||||||||||||||
Change in fair value of financial instruments measured at FVTPL | 2,707 | |||||||||||||||||||||||||||
Loss before income taxes | (309,162 | ) | ||||||||||||||||||||||||||
Income taxes | (2,906 | ) | ||||||||||||||||||||||||||
Profit from continuing operations | (312,068 | ) | ||||||||||||||||||||||||||
Profit from discontinued operation | - | |||||||||||||||||||||||||||
Loss for the year | (312,068 | ) | ||||||||||||||||||||||||||
Additions to segment assets | 94,406 | 2,473 | - | 154,598 | - | - | 251,477 | |||||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||||||
Total additions | 251,477 | |||||||||||||||||||||||||||
Depreciation and amortization of segment assets | 306 | 37,109 | - | - | - | - | 37,415 | |||||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||||||
Total Depreciation and amortization | 37,415 | |||||||||||||||||||||||||||
Impairment of segment assets | 165,028 | 24,564 | 189,592 | |||||||||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||||||
Total Impairment | 189,592 | |||||||||||||||||||||||||||
Assets and Liabilities December 31, 2016: | ||||||||||||||||||||||||||||
Segment assets | 1,126,871 | 732,629 | - | 245,092 | 6,453 | (5,702 | ) | 2,105,343 | ||||||||||||||||||||
Equity basis investments | 15,916 | 11,033 | 26,949 | |||||||||||||||||||||||||
Unallocated | 128,917 | |||||||||||||||||||||||||||
Total Assets related to continued operation | 2,261,209 | |||||||||||||||||||||||||||
Assets related to discontinued operation | - | |||||||||||||||||||||||||||
Total Assets | 2,261,209 | |||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Segment liabilities | 428,386 | 381,623 | - | 3,319 | - | (43 | ) | 813,285 | ||||||||||||||||||||
Unallocated liabilities | 1,399,310 | |||||||||||||||||||||||||||
Total Liabilities related to continued operation | 2,212,595 | |||||||||||||||||||||||||||
Liabilities related to discontinued operation | - | |||||||||||||||||||||||||||
Total Liabilities | 2,212,595 |
|
Commercial centers | Medical industries and devices | Plots in India | Other activities and allocations | Equity method adjustments | Total | |||||||||||||||||||
Revenues | 814,826 | 117,488 | - | - | (117,488 | ) | 814,826 | |||||||||||||||||
Segment profit (loss) | (36,929 | ) | (135,445 | ) | (55,422 | ) | - | 135,445 | 92,450 | |||||||||||||||
Financial income (expenses) | (5,281 | ) | - | - | - | - | (5,281 | ) | ||||||||||||||||
Share in losses of associates, net | - | (15,156 | ) | - | - | (5,047 | ) | (20,202 | ) | |||||||||||||||
Adjustments: Unallocated general and administrative expenses | (14,930 | ) | ||||||||||||||||||||||
Unallocated other expenses | 532 | |||||||||||||||||||||||
Unallocated financial expenses | (107,015 | ) | ||||||||||||||||||||||
Financial income | 1,811 | |||||||||||||||||||||||
Loss before income taxes | (237,534 | ) | ||||||||||||||||||||||
Additions to segment assets | 7,895 | - | - | - | - | 7,895 | ||||||||||||||||||
Unallocated | 3,156 | |||||||||||||||||||||||
Total additions | 11,051 | |||||||||||||||||||||||
Depreciation and amortization of segment assets | 52 | - | - | - | - | 52 | ||||||||||||||||||
Unallocated | 28,951 | |||||||||||||||||||||||
Total Depreciation and amortization | 29,003 | |||||||||||||||||||||||
Impairment of segment assets | 47,700 | - | 43,057 | - | - | 90,757 | ||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||
Total Impairment | 90,757 | |||||||||||||||||||||||
Assets and Liabilities December 31, 2017: | ||||||||||||||||||||||||
Segment assets | 305,503 | - | 187,509 | 5,845 | - | 498,856 | ||||||||||||||||||
Equity basis investments | - | - | - | - | 5,437 | 5,437 | ||||||||||||||||||
Unallocated | 513,078 | |||||||||||||||||||||||
Total Assets | 1,017,371 | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Segment liabilities | 54,792 | - | 38,477 | - | - | 93,269 | ||||||||||||||||||
Unallocated liabilities | 1,072,887 | |||||||||||||||||||||||
Total Liabilities | 1,166,156 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - | SEGMENTS REPORTING (Cont.) |
Data regarding business |
Year ended December 31, 20152016
Commercial Centers (i) | Hotel | Medical industries and devices | Plots in India | Other activities and allocations | Equity method adjustments | Total | ||||||||||||||||||||||
(in thousand NIS) | ||||||||||||||||||||||||||||
Revenues | 309,302 | 147,886 | 69,432 | - | - | (88,095 | ) | 438,525 | ||||||||||||||||||||
Segment profit (loss) | (74,170 | ) | 21,037 | (95,805 | ) | (12,325 | ) | - | 92,656 | (68,607 | ) | |||||||||||||||||
Financial income (expenses) | 29,605 | (31,829 | ) | 1,353 | - | -- | - | (871 | ) | |||||||||||||||||||
Share in losses of associates, net | - | - | (13,465 | ) | - | - | (29,460 | ) | (42,925 | ) | ||||||||||||||||||
Adjustments: Unallocated general and administrative expenses | (16,678 | ) | ||||||||||||||||||||||||||
Unallocated other expenses | 51,625 | |||||||||||||||||||||||||||
Unallocated financial expenses | (238,295 | ) | ||||||||||||||||||||||||||
Financial income | 2,154 | |||||||||||||||||||||||||||
Change in fair value of financial instruments measured at FVTPL | (2,568 | ) | ||||||||||||||||||||||||||
Loss before income taxes | (316,165 | ) | ||||||||||||||||||||||||||
Income taxes | (5,631 | ) | ||||||||||||||||||||||||||
Profit from continuing operations | (321,796 | ) | ||||||||||||||||||||||||||
Profit from discontinued operation | 6,874 | |||||||||||||||||||||||||||
Loss for the year | (314,922 | ) | ||||||||||||||||||||||||||
Additions to segment assets | 28,562 | 23,183 | - | - | 133 | - | 51,878 | |||||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||||||
Total additions | 51,878 | |||||||||||||||||||||||||||
Depreciation and amortization of segment assets | 863 | 32,184 | - | - | 38 | - | 33,085 | |||||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||||||
Total Depreciation and amortization | 33,085 | |||||||||||||||||||||||||||
Impairment of segment assets | 85,918 | - | - | - | - | - | 85,918 | |||||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||||||
Total Impairment | 85,918 | |||||||||||||||||||||||||||
Assets and Liabilities December 31, 2015: | ||||||||||||||||||||||||||||
Segment assets | 1,579,921 | 716,280 | 262,183 | 247,383 | 7,081 | (599,531 | ) | 2,213,318 | ||||||||||||||||||||
Equity basis investments | - | - | 24,233 | - | - | 267,950 | 292,183 | |||||||||||||||||||||
Unallocated | 198,051 | |||||||||||||||||||||||||||
Total Assets related to continued operation | 2,703,552 | |||||||||||||||||||||||||||
Assets related to discontinued operation | - | |||||||||||||||||||||||||||
Total Assets | 2,703,552 | |||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Segment liabilities | 658,994 | 268,627 | 92,644 | 2,624 | - | (217,930 | ) | 804,959 | ||||||||||||||||||||
Unallocated liabilities | 1,594,529 | |||||||||||||||||||||||||||
Total Liabilities related to continued operation | 2,399,488 | |||||||||||||||||||||||||||
Liabilities related to discontinued operation | - | |||||||||||||||||||||||||||
Total Liabilities | 2,399,488 |
|
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, 2014
Commercial Centers (i) (ii) | Hotels | Medical industries and devices | Residential | Other activities and allocations | Equity method adjustments | Total | Commercial centers (i) | Medical industries and devices | Plots in India | Other activities and allocations | Equity method adjustments | Total | ||||||||||||||||||||||||||||||||||||||||
(in thousand NIS) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | 341,937 | 197,007 | 92,026 | - | - | (107,430 | ) | 523,540 | 210,014 | 96,333 | - | - | (113,911 | ) | 192,436 | |||||||||||||||||||||||||||||||||||||
Segment profit (loss) | (403,570 | ) | 36,418 | (90,395 | ) | (51,926 | ) | (32,056 | ) | 68,245 | (473,284 | ) | (135,061 | ) | (119,689 | ) | 9,354 | - | 116,361 | (129,035 | ) | |||||||||||||||||||||||||||||||
Financial expenses | (42,857 | ) | (29,871 | ) | 1,788 | - | 677 | - | (70,263 | ) | ||||||||||||||||||||||||||||||||||||||||||
Financial income (expenses) | 60,454 | - | - | - | 60,454 | |||||||||||||||||||||||||||||||||||||||||||||||
Share in losses of associates, net | - | - | (6,317 | ) | - | - | (10,981 | ) | (17,298 | ) | - | (7,960 | ) | - | - | (46,353 | ) | (54,313 | ) | |||||||||||||||||||||||||||||||||
Adjustments: Unallocated general and administrative expenses | (39,785 | ) | (10,257 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Unallocated other expenses | (652 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Unallocated financial expenses | (167,338 | ) | (184,809 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Financial income | 6,317 | (1,056 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Financial gain from debt restructuring | 1,616,628 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Change in fair value of financial instruments measured at FVTPL | (71,432 | ) | 2,707 | |||||||||||||||||||||||||||||||||||||||||||||||||
Profit before income taxes | 783,545 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | 2,287 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Profit from continuing operations | 785,832 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Profit from discontinued operation | (1,475 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the year | 784,357 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Loss before income taxes | (316,961 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Additions to segment assets | 11,906 | 3,290 | - | - | 36 | - | 15,232 | 94,406 | - | 154,598 | - | - | 249,004 | |||||||||||||||||||||||||||||||||||||||
Unallocated | - | 2,473 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total additions | 15,232 | 251,477 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization of segment assets | 1,338 | 40,051 | - | - | 3,252 | - | 44,641 | 306 | - | - | - | - | 306 | |||||||||||||||||||||||||||||||||||||||
Unallocated | - | 37,109 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Depreciation and amortization | 44,641 | 37,415 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment of segment assets | 469,047 | 3,095 | - | 58,506 | - | - | 530,648 | 165,028 | 24,564 | 189,592 | ||||||||||||||||||||||||||||||||||||||||||
Unallocated | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Impairment | 530,648 | 189,592 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities December 31, 2014: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities December 31, 2016: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment assets | 2,051,214 | 940,732 | 425,010 | 279,973 | 17,278 | (796,730 | ) | 2,917,477 | 1,126,871 | - | 245,092 | 6,453 | (5,702 | ) | 1,372,714 | |||||||||||||||||||||||||||||||||||||
Equity basis investments | - | - | 30,837 | - | - | 318,700 | 349,537 | 15,916 | 11,033 | 26,949 | ||||||||||||||||||||||||||||||||||||||||||
Unallocated | 330,833 | 861,546 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets related to continued operation | 3,597,847 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Assets related to discontinued operation | 63,466 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | 3,661,313 | 2,261,209 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment liabilities | 952,355 | 423,031 | 113,057 | 53,019 | 527 | (253,752 | ) | 1,288,237 | 428,386 | - | 3,319 | - | (43 | ) | 431,662 | |||||||||||||||||||||||||||||||||||||
Unallocated liabilities | 1,629,497 | 1,780,933 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total Liabilities related to continued operation | 2,917,734 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities related to discontinued operation | 30,342 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total Liabilities | 2,948,076 | 2,212,595 |
(i) | Includes mainly revenues from commercial centers under operation until their sale and consideration from sales of |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - | SEGMENTS REPORTING (Cont.) |
b | Data regarding |
Year ended December 31, 2015
Commercial centers (i) | Medical industries and devices | Plots in India | Other activities and allocations | Equity method adjustments | Total | |||||||||||||||||||
NIS in thousands | ||||||||||||||||||||||||
Revenues | 309,302 | 69,432 | - | - | (88,095 | ) | 290,639 | |||||||||||||||||
Segment profit (loss) | (74,170 | ) | (95,805 | ) | (12,325 | ) | - | 92,656 | (89,644 | ) | ||||||||||||||
Financial income (expenses) | 29,605 | 1,353 | - | - | - | (30,958 | ) | |||||||||||||||||
Share in losses of associates, net | - | (13,465 | ) | - | - | (29,460 | ) | (42,925 | ) | |||||||||||||||
Adjustments: | ||||||||||||||||||||||||
Unallocated general and administrative expenses | (16,678 | ) | ||||||||||||||||||||||
Unallocated other expenses | (9,369 | ) | ||||||||||||||||||||||
Unallocated financial expenses | (176,763 | ) | ||||||||||||||||||||||
Financial income | 2,154 | |||||||||||||||||||||||
Change in fair value of financial instruments measured at FVTPL | (2,568 | ) | ||||||||||||||||||||||
Loss before income taxes | (366,751 | ) | ||||||||||||||||||||||
Additions to segment assets | 28,562 | - | - | 133 | - | 28,695 | ||||||||||||||||||
Unallocated | 23,183 | |||||||||||||||||||||||
Total additions | 51,878 | |||||||||||||||||||||||
Depreciation and amortization of segment assets | 863 | - | - | 38 | - | 896 | ||||||||||||||||||
Unallocated | 32,184 | |||||||||||||||||||||||
Total Depreciation and amortization | 33,085 | |||||||||||||||||||||||
Impairment of segment assets | 85,918 | - | - | - | - | 85,918 | ||||||||||||||||||
Unallocated | - | |||||||||||||||||||||||
Total Impairment | 85,918 | |||||||||||||||||||||||
Assets and Liabilities December 31, 2015: | ||||||||||||||||||||||||
Segment assets | 1,579,921 | 262,183 | 247,383 | 7,081 | (599,531 | ) | 1,497,038 | |||||||||||||||||
Equity basis investments | - | 24,233 | - | - | 267,950 | 292,183 | ||||||||||||||||||
Unallocated | 914,331 | |||||||||||||||||||||||
Total Assets | 2,703,552 | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Segment liabilities | 658,994 | 92,644 | 2,624 | - | (217,930 | ) | 536,332 | |||||||||||||||||
Unallocated liabilities | 1,863,156 | |||||||||||||||||||||||
Total Liabilities | 2,399,488 |
(i) | Includes mainly revenues from commercial centers under operation until their sale and consideration from sales of commercial centers. |
F-94 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - | SEGMENTS REPORTING (Cont.) |
Data regarding geographical areas: |
1. | Revenues by geographical areas: |
Revenues information above is based, mainly, on the locations of the assets.
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
East and central Europe(i) | 328,275 | 253,774 | 435,355 | ||||||||||
West Europe (mainly in Belgium) | - | 27,743 | 72,537 | ||||||||||
India | - | 150,296 | 4,348 | ||||||||||
Other | - | 6,712 | 11,301 | ||||||||||
328,275 | 438,525 | 523,540 |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
East and central Europe(i) | 814,826 | 192,436 | 133,631 | ||||||||||
India | - | - | 150,296 | ||||||||||
Other | - | - | 6,712 | ||||||||||
814,826 | 192,436 | 290,639 |
(I) | The following table provides an additional information in respect of the revenues in east and central Europe per countries: |
Year ended December 31 | |||||||||||||
2 01 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
Poland | 76,724 | 71,219 | 75,917 | ||||||||||
Czech Republic | 43,519 | 9,240 | 10,434 | ||||||||||
Romania | 138,737 | 165,360 | 146,838 | ||||||||||
Serbia | 68,165 | 3,832 | 197,270 | ||||||||||
Other | 1,130 | 4,123 | 4,896 | ||||||||||
328,275 | 253,774 | 435,355 |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
Poland | 514,291 | 76,724 | 71,219 | ||||||||||
Czech Republic | - | 43,519 | 9,240 | ||||||||||
Romania | 36,538 | 2,898 | 45,217 | ||||||||||
Serbia | 246,534 | 68,165 | 3,832 | ||||||||||
Other | 17,463 | 1,130 | 4,123 | ||||||||||
814,826 | 192,436 | 133,631 |
The Group’s non-current assets provided in the following table include also trading property and payment on account of trading property.
Segment assets | |||||||||
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
East and central Europe | 1,806,273 | 2,126,079 | |||||||
Israel | 24,189 | 114,810 | |||||||
India | 245,091 | 245,119 | |||||||
2,075,553 | 2,486,008 |
The Group’s discontinued operations include mainly the fashion apparel (franchisee of MANGO in Israel). Prior period’s results and cash flows from these operations were presented in these financial statements as discontinued operations.
Segment assets | |||||||||
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
East and central Europe | 300,165 | 1,084,749 | |||||||
Israel | 1,599 | 24,189 | |||||||
India | 193,450 | 245,091 | |||||||
495,214 | 1,354,029 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - | DISCONTINUED OPERATIONS |
Sale of the “Radisson complex”
On November 29, 2017, the Company has announced, that its wholly owned indirect subsidiary (the “Vendor”) has signed a definitive sale and purchase agreement (the “Agreement”) for the sale of its entire shareholding (comprising approx. 98.2% of the outstanding share capital) in the company (the “SPV”) which owns the Radisson Hotel Complex in Bucharest, Romania, based on a property value of €169.2 million (the “Transaction”). The Agreement has been signed with an acquisition vehicle jointly owned by two international investment funds (the “Purchaser”).
The net proceeds that was derived from the Transaction (after offsetting the SPV’s senior bank loan, working capital and other adjustments, as well as transaction expenses) was approximately €81 million. Part of the net proceeds equal to €8 million was used to finance a vendor loan which has been granted for a period of 3 years, bearing interest at the rate of 5% per annum (the “Vendor Loan”).
The Vendor Loan acts as collateral for customary post-closing liabilities of the SPV, whereby the Purchaser may offset adjudicated losses which may be incurred by it as a result of a breach of warranties or in respect of certain indemnities given by the Vendor in terms of the Agreement. Additionally, the Company has granted a letter of guarantee in favor of the Purchaser pursuant to which it has undertaken to fulfill the Vendor’s undertakings and obligations under the Agreement (if and to the extent that the Vendor fails to do so).
On December 18, 2017 the Company has completed the transaction. Part of the Net Proceeds were applied in order to repay the Company outstanding loan to Bank Hapoalim Ltd. in the amount of approximately Euro 11.6 million and NIS 240 million were applied to an early repayment of interest and principal to the Company (series H) noteholders
Following the Closing and consummation of the transaction, the Company has ceased to operate the “Radisson Complex” hotel activity, and accordingly the said activity was classified as discontinued operation including comparative information.
Sale of Elbit Fashion
On January 5, 2015 Elbit Fashion has completed the sale of the operation and business of “Mango” retail stores in Israel from Elbit Fashion to Fox- Wiesel Ltd (the “Closing”) for consideration of approximately NIS 37.7 million. Following the Closing and consummation of the transaction, Elbit Fashion has ceased to operate the “Mango” retail stores activity, and accordingly the said activity was classified as discontinued operation.
F-96 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - | DISCONTINUED OPERATIONS(Cont.) |
Results of discontinued operations:
Year ended | |||||||||
2 0 1 5 | 2 0 1 4 | ||||||||
(In thousand NIS) | |||||||||
(Except for per-share data) | |||||||||
Revenues and gains | 1,857 | 164,957 | |||||||
Expenses and losses | |||||||||
Cost of fashion merchandise | 4,123 | 162,589 | |||||||
Financial expenses | - | 1,347 | |||||||
other expenses (income), net | (9,140 | ) | 1,496 | ||||||
(5,017 | ) | 165,432 | |||||||
Profit (loss) from discontinued operations before income taxes | 6,874 | (475 | ) | ||||||
Income tax (income) expenses | - | 1,000 | |||||||
Profit (loss) from discontinued operations | 6,874 | (1,475 | ) | ||||||
Basic earnings per share | 0.25 | (0.06 | ) | ||||||
Diluted earnings per share | 0.25 | (0.06 | ) |
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands (except for per-share data) | |||||||||||||
Revenues from hotel operations and management | 130,142 | 135,839 | 147,886 | ||||||||||
Revenues from fashion merchandise | - | - | 1,857 | ||||||||||
130,142 | 135,839 | 149,743 | |||||||||||
Expenses and losses | |||||||||||||
Cost of fashion merchandise | - | - | 4,123 | ||||||||||
Cost of hotel operations and management | 105,678 | 115,367 | 126,849 | ||||||||||
Financial expenses | 20,103 | 19,634 | 31,444 | ||||||||||
Other income, net | (669 | ) | (6,961 | ) | (70,133 | ) | |||||||
(125,112 | ) | (128,040 | ) | (92,283 | ) | ||||||||
Profit (loss) from discontinued operations before income taxes | (5,030 | ) | 7,799 | 57,460 | |||||||||
Income tax (income) expenses | 80 | (114 | ) | 1,229 | |||||||||
Profit (loss) from discontinued operations | (5,110 | ) | 7,913 | 56,231 | |||||||||
Gain from sale of hotels | (55,835 | ) | - | - | |||||||||
Release of capital funds as a result of the sale of hotels | 213,848 | - | - | ||||||||||
Total Profit from discontinued operations | 152,903 | 7,913 | 56,231 | ||||||||||
Basic and diluted earnings per share | (16.64 | ) | 0.85 | 6.11 |
F-97 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - | DISCONTINUED OPERATIONS(Cont.) |
Reclassification of comparative information:
As previously reported | Amendment | As presented in these financial statements | ||||||||||
NIS in thousands | ||||||||||||
Revenues | ||||||||||||
Revenues from sale of commercial centers | 200,078 | - | 200,078 | |||||||||
Revenues from Hotels operations and management | 147,886 | (147,886 | ) | - | ||||||||
�� | ||||||||||||
Total revenues | 347,964 | (147,886 | ) | 200,078 | ||||||||
Gains and other | ||||||||||||
Rental income from commercial centers | 83,849 | - | 83,849 | |||||||||
Gain from sale of investees | 6,712 | - | 6,712 | |||||||||
Total gains | 90,561 | - | 90,561 | |||||||||
Total revenues and gains | 438,525 | 290,639 | ||||||||||
Expenses and losses | ||||||||||||
Cost of commercial centers | 290,360 | - | 290,360 | |||||||||
Hotels operations and management | 126,849 | (126,849 | ) | - | ||||||||
General and administrative expenses | 16,678 | - | 16,678 | |||||||||
Share in losses of associates, net | 42,925 | - | 42,925 | |||||||||
Financial expenses | 236,288 | (28,567 | ) | 207,721 | ||||||||
Financial income | (2,154 | ) | - | (2,154 | ) | |||||||
Change in fair value of financial instruments measured at fair value through profit and loss | 5,446 | (2,878 | ) | 2,568 | ||||||||
Write-down, charges and other expenses, net | 38,298 | 60,994 | 99,292 | |||||||||
754,690 | (97,300 | ) | 657,390 | |||||||||
Loss before income taxes | (316,165 | ) | (50,586 | ) | (366,751 | ) | ||||||
Income taxes expenses (tax benefits) | 5,631 | (1,229 | ) | 4,402 | ||||||||
Loss from continuing operations | (321,796 | ) | (49,357 | ) | (371,153 | ) | ||||||
Profit from discontinued operations, net | 6,874 | 49,357 | 56,231 | |||||||||
Loss for the year | (314,922 | ) | - | (314,922 | ) | |||||||
Attributable to: | ||||||||||||
Equity holders of the Company | (186,150 | ) | - | (186,150 | ) | |||||||
Non-controlling interest | (128,772 | ) | - | (128,772 | ) | |||||||
(314,922 | ) | - | (314,922 | ) | ||||||||
Loss from continuing operations | ||||||||||||
Equity holders of the Company | (193,024 | ) | (49,685 | ) | (242,709 | ) | ||||||
Non-controlling interest | (128,772 | ) | 309 | (128,463 | ) | |||||||
(321,796 | ) | (49,376 | ) | (371,172 | ) | |||||||
Profit from discontinued operation, net | ||||||||||||
Equity holders of the Company | 6,874 | 49,666 | 56,540 | |||||||||
Non-controlling interest | - | (309 | ) | (309 | ) | |||||||
6,874 | 49,357 | 56,231 |
F-98 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - | DISCONTINUED OPERATIONS (Cont.) |
Statement of Cash flows
The statement of cash flows includes the following amounts relating to discontinued operations, the majority of which as of December 2015, are attributable to the discontinued fashion apparel and hotels operations:
Year ended | |||||||||
2 0 1 5 | 2 0 1 4 | ||||||||
(In thousand NIS) | |||||||||
(Except for per-share data) | |||||||||
Operating activities | (2,014 | ) | 1,506 | ||||||
Other investment activities | 37,737 | (7,913 | ) | ||||||
Other financing activities | (2,135 | ) | 2,000 | ||||||
Net cash provided by (used in) discontinued operations | 33,588 | (4,407 | ) |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
Operating activities | 49,142 | 26,443 | (5,921 | ) | |||||||||
Other investment activities | 297,875 | 14,082 | 216,957 | ||||||||||
Other financing activities | (157,948 | ) | 118,556 | (189,203 | ) | ||||||||
Net cash provided by (used in) discontinued operations | 189,069 | 159,081 | (21,833 | ) |
NOTE 20 - | FINANCIAL INSTRUMENTS |
Principal accounting policies: |
The principal accounting policies adopted by the Group in respect of financial instruments and equity components including recognition criteria, measurement and charges to the statement of income and other comprehensive income are included in note 2.
Balances of financial instruments by categories: |
Composition: |
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Financial assets | |||||||||
Cash and cash equivalents | 89,688 | 157,851 | |||||||
Loans and receivables | 88,199 | 69,673 | |||||||
Available for sale financial instruments | 4,091 | 4,296 | |||||||
181,978 | 231,820 | ||||||||
Financial Liabilities | |||||||||
Derivative financial liabilities at fair value through profit and loss | 1,832 | 3,374 | |||||||
Derivative financial liabilities at fair value as hedging | - | 1,977 | |||||||
Financial liabilities at amortized cost | 2,051,905 | 2,204,785 | |||||||
2,053,737 | 2,210,136 |
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Financial assets | |||||||||
Cash and cash equivalents | 465,740 | 89,688 | |||||||
Loans and receivables | 44,545 | 88,199 | |||||||
Available for sale financial instruments | 4,032 | 4,091 | |||||||
514,317 | 181,978 | ||||||||
Financial Liabilities | |||||||||
Derivative financial liabilities at fair value through profit and loss | - | 1,832 | |||||||
Financial liabilities at amortized cost | 1,088,479 | 2,051,905 | |||||||
1,088,479 | 2,053,737 |
Additional information: |
As for financing income and expenses resulting from the aforementioned financial instruments - see note 16H.16e.
F-99 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - |
c. | Management of financial risks: |
The operations of the Group expose it to risks that relate to various financial instruments, such as: market risks (including currency risk, cash flow risk with respect to interest rates and other price risk), credit risk and liquidity risk.
Market risk - is the risk that the fair value or future cash flow of financial instruments will fluctuate because of changes in market prices
Credit risk - is the risk of financial loss to the Group if counterparty to a financial instrument fails to meet its contractual obligations.
Liquidity risk - is the risk that the Group will not be able to meet its financial obligations as they fall due.
The comprehensive risk management program of the Group focuses on actions to minimize the possible negative effects on the financial performance of the Group. In certain cases, the Group uses derivatives financial instruments in order to mitigate certain risk exposures.
The Company’s board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The board is managing the risks faced by the Group, and confirms that any appropriate actions have been or are being taken to address any weaknesses.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Group has exposure to the following risks which are related to financial instruments:
Foreign currency risk: |
The Group has international activities in many countries and therefore it is exposed to foreign currency risks as a result of fluctuations in the different exchange rates.
Foreign currency risks are derived from transactions executed and/or financial assets and liabilities held in currency which is different than the functional currency of the Group’s entity which executed the transaction or hold these financial assets and liabilities. In order to minimize such exposure the Group policy is to hold financial assets and liabilities in a currency which is the functional currency or the Group’s entity. The Company’s functional currency is the NIS and its investees use different functional currencies (mainly the EURO, Indian Rupee and the RON).
F-100 |
Foreign Currency Mitigate using selling optionsTABLE OF CONTENTS
During 2015 and 2014, PC wrote call and put options in order to mitigate its foreign currency risk (EURO-NIS) inherent in its long term notes issued in NIS with an expiration date of October 2015, and March 2015. The options activity generated a net cash gain (loss) of NIS (1.5) million and NIS 1 million respectively.ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - | FINANCIAL INSTRUMENTS (Cont.) |
c. | Management of financial risks (Cont.): |
1. | Foreign currency risk (Cont.): |
The following tables present sensitivity analysis to a change of 10% in the Group’s main foreign currencies against their relevant functional currency and their effect on the statements of income and the shareholders’ equity (before tax and before capitalizing any exchange results to qualified assets):
As of December 31, 2016:2017:
Functional currency | Linkage currency | Change in the exchange rate (%) | Profit (loss) | ||||||||||
In thousand NIS | |||||||||||||
Assets | |||||||||||||
Cash and deposits | NIS | EURO | +10% | 368 | |||||||||
Cash and deposits | NIS | USD | +10% | 131 | |||||||||
Cash and deposits | EURO | PLN | +10% | 174 | |||||||||
Cash and deposits | EURO | USD | +10% | 243 | |||||||||
Cash and deposits | EURO | NIS | +10% | 13,305 | |||||||||
14,221 | |||||||||||||
Financial liabilities | |||||||||||||
Loans at amortized cost | EURO | PLN | +10% | (2,125 | ) | ||||||||
Notes at amortized cost | EURO | NIS | +10% | (46,425 | ) | ||||||||
(48,550 | ) |
As of December 31, 2016:
Functional currency | Linkage currency | Change in the exchange rate (%) | Profit (loss) | ||||||||||
In thousand NIS | |||||||||||||
Assets | |||||||||||||
Cash and deposits | NIS | EURO | +10% | 501 | |||||||||
Cash and deposits | NIS | USD | +10% | 181 | |||||||||
Cash and deposits | EURO | PLN | +10% | 947 | |||||||||
Cash and deposits | EURO | USD | +10% | 135 | |||||||||
Cash and deposits | EURO | USD | +10% | 260 | |||||||||
2,024 | |||||||||||||
Financial liabilities | |||||||||||||
Loans at amortized cost | NIS | EURO | +10% | (5,908 | ) | ||||||||
Loans at amortized cost | EURO | PLN | +10% | (4,271 | ) | ||||||||
Notes at amortized cost | EURO | NIS | +10% | (67,859 | ) | ||||||||
Loans at amortized cost | RON | EURO | +10% | (36,992 | ) | ||||||||
(115,030 | ) |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - | FINANCIAL INSTRUMENTS (Cont.) |
Management of financial |
Foreign currency |
As of December 31, 2015:
Functional currency | Linkage currency | Change in the exchange rate (%) | Profit (loss) | ||||||||||
In thousand NIS | |||||||||||||
Assets | |||||||||||||
Cash and deposits | NIS | EURO | +10% | 1,637 | |||||||||
Cash and deposits | EURO | NIS | +10% | 857 | |||||||||
Cash and deposits | EURO | PLN | +10% | 883 | |||||||||
Cash and deposits | EURO | RON | +10% | 1,163 | |||||||||
Cash and deposits | EURO | USD | +10% | 1,005 | |||||||||
5,545 | |||||||||||||
Financial liabilities | |||||||||||||
Loans at amortized cost | NIS | EURO | +10% | (15,746 | ) | ||||||||
Loans at amortized cost | EURO | PLN | +10% | (5,503 | ) | ||||||||
Notes at amortized cost | EURO | NIS | +10% | (71,615 | ) | ||||||||
Loans at amortized cost | RON | EURO | +10% | (25,344 | ) | ||||||||
As of December 31, 2014:
| |||||||||||
( | |||||||||||
) |
Credit risk: |
The Group holds cash and cash equivalents, short term investments and other long- term investments in financial instruments in various reputable banks and financial institutions. These banks and financial institutions are located in different geographical regions, and it is the Group’s policy to disperse its investments among different banks and financial institutions. The maximum credit risk exposure of the Group is approximate to the financial assets presented in the balance sheet.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Due to the nature of it activity, the company, which operate at the hotel,commercial centers, are not materially exposed to credit risks stemming from dependence on a given customer. The company examine on an ongoing basis the credit amounts extended to their customers and, accordingly, record a provision for doubtful debts based on those factors they consider having an effect on specific customers.
Interest rate risk: |
Fair value risk:
A significant portion of the Group’s long term loans and notes bearing a fixed interest rate and are therefore exposed to change in their fair value as a result of changes in the market interest rate. The vast majority of these loans and notes are measured at amortized cost and therefore changes in the fair value will not have any effect on the statement of income.
For further information see note 11.
F-102 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - | FINANCIAL INSTRUMENTS (Cont.) |
c. | Management of financial risks (Cont.): |
3. | Interest rate risk (Cont.): |
Cash flow risk
Part of the Group’s long term borrowings are bearing variable interest rate (see note 11). Cash and cash equivalent, short term deposits and short term bank credits are mainly deposited in or obtained at variable interest rate. Change in the market interest rate will affect the Group’s finance income and expenses and its cash flow. In certain cases the Group uses interest rate swap transaction in order to swap loans with a variable interest rate to fixed interest rate or alternatively entered into loans with a fixed interest rate (see note 10 and 11 C (2)).
The following table presents the effect of an increase of 1% in the Libor rate (1% - 2015, 2% - 2014) with respect to financial assets and liabilities which are exposed to cash flow risk (before tax and before capitalization to qualifying assets):
Profit (loss) | |||||||||||||
Year ended December 31 | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
(in thousand NIS) | |||||||||||||
Deposits linked to the EURO | - | - | 359 | ||||||||||
Loans, notes and convertible notes linked to the USD | - | - | (3,666 | ) | |||||||||
Loans linked to the EURO (*) | (3,918 | ) | (5,928 | ) | (13,584 | ) | |||||||
Notes linked to the PLN | (427 | ) | (550 | ) | (1,250 | ) | |||||||
Loans linked to the INR | - | - | (2,085 | ) | |||||||||
(4,345 | ) | (6,478 | ) | (20,226 | ) |
Profit (loss) | |||||||||||||
Year ended December 31, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
NIS in thousands | |||||||||||||
Loans linked to the EURO (*) | - | (3,918 | ) | (5,928 | ) | ||||||||
Notes linked to the PLN | (213 | ) | (427 | ) | (550 | ) | |||||||
(213 | ) | (4,345 | ) | (6,478 | ) |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Liquidity risk: |
The Group’s capital resources include the following: (a) proceeds from sales of trading property and real estate assets subject to market condition (b) lines of credit obtained from banks, and others; (c) proceeded from sales of shares in the Group held companies in the medical field (d) available cash and cash equivalents. Such resources are used for the following activities:
Interest and principal payments on the Group notes and loans; |
Payment of general and administrative expenses; |
As for the Company’s financial positon and PC’s going concern - see note 1 C1c and 7 B (2)b2 respectively.
F-103 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - | FINANCIAL INSTRUMENTS (Cont.) |
c. | Management of financial risks (Cont.): |
4. | Liquidity risk (Cont.): |
The following tables present the cash flow of financial liabilities and assets (principal and interest) in accordance with the contractual repayment dates:
As of December 31, 2017:
1st year (i) | 2nd year | 3rd year | 4th year | 5th year and thereafter | Total | |||||||||||||||||||
NIS in thousands | ||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||
Borrowing with fixed interest rate | ||||||||||||||||||||||||
PC’s notes linked to the Israeli CPI (1) | 238,898 | 236,812 | 55,566 | - | - | 531,276 | ||||||||||||||||||
Notes linked to the Israeli CPI | 303,564 | 310,222 | - | - | - | 613,786 | ||||||||||||||||||
542,462 | 547,034 | 55,566 | - | - | 1,145,062 | |||||||||||||||||||
Borrowing with variable interest rate | ||||||||||||||||||||||||
Notes linked to the PLN | 21,949 | - | - | - | - | 21,949 | ||||||||||||||||||
Suppliers, payable and other credit balances | 47,999 | - | - | - | - | 47,999 | ||||||||||||||||||
Total financial liabilities | 612,410 | 547,034 | 55,566 | - | - | 1,215,010 | ||||||||||||||||||
Financial assets | ||||||||||||||||||||||||
Cash and cash equivalent | 465,740 | - | - | - | - | 465,740 | ||||||||||||||||||
Short term deposits | 10,496 | - | - | - | - | 10,496 | ||||||||||||||||||
Trade receivables and other receivables | 3,210 | - | - | - | - | 3,210 | ||||||||||||||||||
Long term deposits, loans and investments | - | - | 33,221 | - | 1,653 | 34,874 | ||||||||||||||||||
Total financial assets | 479,446 | - | 33,221 | - | 1,653 | 514,320 |
F-104 |
ELBIT IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - | FINANCIAL INSTRUMENTS (Cont.) |
c. | Management of financial risks (Cont.): |
4. | Liquidity risk (Cont.): |
As of December 31, 2016:
1st year (i) | 2nd year | 3rd year | 4th year | 5th year and thereafter | Total | ||||||||||||||||||||
(in thousand NIS) | |||||||||||||||||||||||||
Financial liabilities | |||||||||||||||||||||||||
Borrowing with fixed interest rate | |||||||||||||||||||||||||
Loans linked to EURO | 29,376 | 29,719 | 30,495 | 334,890 | - | 424,480 | |||||||||||||||||||
PC’s notes linked to the Israeli CPI (i) | 211,934 | 152,116 | 387,256 | 61,481 | - | 812,787 | |||||||||||||||||||
Notes linked to the Israeli CPI | 17,770 | 303,564 | 310,486 | - | - | 631,820 | |||||||||||||||||||
259,080 | 485,399 | 728,237 | 396,371 | - | 1,869,087 | ||||||||||||||||||||
Borrowing with variable interest rate | |||||||||||||||||||||||||
Loans linked to the EURO | 261,453 | 9,923 | 10,588 | 89,784 | 53,240 | 424,988 | |||||||||||||||||||
Notes linked to the PLN | 16,542 | 30,393 | - | - | - | 46,934 | |||||||||||||||||||
277,995 | 40,316 | 10,588 | 89,784 | 53,240 | 471,922 | ||||||||||||||||||||
Suppliers, payable and other credit balances | 53,532 | - | - | 1,972 | 55,504 | ||||||||||||||||||||
Total financial liabilities | 590,607 | 525,715 | 738,825 | 488,127 | 53,240 | 2,396,513 | |||||||||||||||||||
Financial assets | |||||||||||||||||||||||||
Cash and cash equivalent | 89,688 | - | - | - | - | 89,688 | |||||||||||||||||||
Short term deposits | 39,527 | - | - | - | - | 39,527 | |||||||||||||||||||
Trade receivables and other receivables | 54,577 | - | - | - | - | 54,577 | |||||||||||||||||||
Long term deposits, loans and investments | - | 2,827 | - | 13,593 | - | 16,420 | |||||||||||||||||||
Total financial assets | 183,792 | 2,827 | - | 13,593 | - | 200,212 |
1st year (i) | 2nd year | 3rd year | 4th year | 5th year and thereafter | Total | |||||||||||||||||||
NIS in thousands | ||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||
Borrowing with fixed interest rate | ||||||||||||||||||||||||
Loans linked to EURO | 29,376 | 29,719 | 30,495 | 334,890 | - | 424,480 | ||||||||||||||||||
PC’s notes linked to the Israeli CPI (1) | 211,934 | 152,116 | 387,256 | 61,481 | - | 812,787 | ||||||||||||||||||
Notes linked to the Israeli CPI | 17,770 | 303,564 | 310,486 | - | - | 631,820 | ||||||||||||||||||
259,080 | 485,399 | 728,237 | 396,371 | - | 1,869,087 | |||||||||||||||||||
Borrowing with variable interest rate | ||||||||||||||||||||||||
Loans linked to the EURO | 261,453 | 9,923 | 10,588 | 89,784 | 53,240 | 424,988 | ||||||||||||||||||
Notes linked to the PLN | 16,542 | 30,393 | - | - | - | 46,935 | ||||||||||||||||||
277,995 | 40,316 | 10,588 | 89,784 | 53,240 | 471,923 | |||||||||||||||||||
Suppliers, payable and other credit balances | 53,532 | - | - | 1,972 | - | 55,504 | ||||||||||||||||||
Total financial liabilities | 590,607 | 525,715 | 738,825 | 488,127 | 53,240 | 2,396,514 | ||||||||||||||||||
Financial assets | ||||||||||||||||||||||||
Cash and cash equivalent | 89,688 | - | - | - | - | 89,688 | ||||||||||||||||||
Short term deposits | 39,527 | - | - | - | - | 39,527 | ||||||||||||||||||
Trade receivables and other receivables | 54,577 | - | - | - | - | 54,577 | ||||||||||||||||||
Long term deposits, loans and investments | - | 2,827 | - | 13,593 | - | 16,420 | ||||||||||||||||||
Total financial assets | 183,792 | 2,827 | - | 13,593 | - | 200,212 |
This note assumes the minimum contractual payments on the debentures to achieve the Deferral see note 11 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - | FINANCIAL INSTRUMENTS (Cont.) |
Management of financial |
As of December 31, 2015:
1st year (i) | 2nd year | 3rd year | 4th year | 5th year and thereafter | Total | ||||||||||||||||||||
(in thousand NIS) | |||||||||||||||||||||||||
Financial liabilities | |||||||||||||||||||||||||
Borrowing with fixed interest rate | |||||||||||||||||||||||||
Loans linked to EURO | 261,039 | - | - | - | - | 261,039 | |||||||||||||||||||
PC’s notes linked to the Israeli CPI (i) | 356,514 | 78,070 | 260,741 | 204,306 | 44,209 | 943,840 | |||||||||||||||||||
Notes linked to the Israeli CPI | 23,432 | 23,432 | 400,291 | 310,701 | - | 757,855 | |||||||||||||||||||
640,985 | $ | 101,502 | 661,032 | 515,007 | 44,209 | 1,962,735 | |||||||||||||||||||
Borrowing with variable interest rate | |||||||||||||||||||||||||
Loans linked to the EURO | 156,941 | 372,946 | 102,446 | - | - | 632,333 | |||||||||||||||||||
Notes linked to the PLN | 33,453 | 2,366 | 28,318 | - | - | 64,136 | |||||||||||||||||||
190,394 | 375,312 | 130,763 | - | - | 696,469 | ||||||||||||||||||||
Suppliers, payable and other credit balances | 57,291 | - | 1,523 | - | - | 58,814 | |||||||||||||||||||
Total financial liabilities | 888,670 | 476,814 | 793,318 | 515,007 | 44,209 | 2,718,018 | |||||||||||||||||||
Financial assets | |||||||||||||||||||||||||
Cash and cash equivalent | 157,851 | - | - | - | - | 157,851 | |||||||||||||||||||
Short term deposits | 30,075 | - | - | - | - | 30,075 | |||||||||||||||||||
Trade receivables and other receivables | 25,447 | - | - | - | - | 25,447 | |||||||||||||||||||
Long term deposits, loans and investments | - | 17,517 | 2,785 | 1,596 | - | 21,898 | |||||||||||||||||||
Total financial assets | 213,373 | 17,517 | 2,785 | 1,596 | - | 235,271 |
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consumer Price Index (“CPI”) |
A significant part of the Group borrowings consists of notes raised by the Company and PC in the Tel Aviv Stock Exchange which are linked to the increase in the Israeli CPI above the base index at the date of the notes issuance. An increase of 2% in the Israeli CPI in 2016 (2% - 2016, 3% - 2014) will cause an increase in the Group finance expenses for the years ended December 31, 2017, 2016 2015 and 20142015 (before tax) in the amount of NIS 2320 million, NIS 2523 million and NIS 45.925 million, respectively.
Collaterals: |
The following table presents the book value of financial assets which are used as collaterals for the Group’s liabilities:
December 31 | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
(In thousand NIS) | |||||||||
Long term borrowings | 38,117 | 19,112 | |||||||
Guarantees provided by the Group | 2,363 | 15,943 | |||||||
40,480 | 35,055 |
The financial instruments of the Group include primarily, cash and cash equivalents, short and long-term deposits, marketable securities, trade receivables, short and long-term other receivables, short-term banks credit, other current liabilities and long- term monetary liabilities.
December 31, | |||||||||
2017 | 2016 | ||||||||
NIS in thousands | |||||||||
Long term borrowings | - | 38,117 | |||||||
Guarantees provided by the Group | 1,813 | 2,363 | |||||||
1,813 | 40,480 |
The fair value of traded financial instruments (such as marketable securities and notes) is generally calculated according to quoted closing prices as of the balance sheet date, multiplied by the issued quantity of the traded financial instrument as of that date. The fair value of financial instruments that are not traded is estimated by means of accepted pricing models, such as present value of future cash flows discounted at a rate that, in the Group’s assessment, reflects the level of risk that is incorporated in the financial instrument. The Group relies, in part, on market interest which is quoted in an active market, as well as on various techniques of approximation. Therefore, for most of the financial instruments, the estimation of fair value presented below is not necessarily an indication of the realization value of the financial instrument as of the balance sheet date. The estimation of fair value is carried out, as mentioned above, according to the discount rates in proximity to the date of the balance sheet date and does not take into account the variability of the interest rates from the date of the computation through the date of issuance of the financial statements.
Under an assumption of other discount rates, different fair value assessments would be received which could be materially different from those estimated by the Group, mainly with respect to financial instruments at fixed interest rate.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Moreover, in determining the assessments of fair value, the commissions that could be payable at the time of repayment of the instrument have not been taken into account and they also do not include any tax effect. The difference between the balances of the financial instruments as of the balance sheet date and their fair value as estimated by the Group may not necessarily be realizable, in particular in respect of a financial instrument which will be held until redemption date.
Fair value levels: |
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
● | Level 1: fair value measurements derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; |
● | Level 2: fair value measurements derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
● | Level 3: fair value measurements derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
ELBIT IMAGING LTD.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - | FINANCIAL INSTRUMENTS (Cont.) |
Fair value of financial |
The following table presents the book value and fair value of the Group’s financial assets (liabilities), which are presented in the financial statements at other than their fair value:
December 31 | |||||||||||||||||||||
2 0 1 6 | 2 0 1 5 | ||||||||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | ||||||||||||||||||
Level | (In thousands NIS) | ||||||||||||||||||||
Long- term loans at fixed interest rate | Level 3 | (369,923 | ) | (369,923 | ) | (254,010 | ) | (254,010 | ) | ||||||||||||
Notes | Level 1 | (1,219,929 | ) | (1,071,436 | ) | (1,324,437 | ) | (1,120,926 | ) | ||||||||||||
(1,589,852 | ) | (1,441,359 | ) | (1,578,447 | ) | (1,374,936 | ) |
December 31 | |||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | ||||||||||||||||||
Level | NIS in thousands | ||||||||||||||||||||
Long- term loans at fixed interest rate | Level 3 | - | - | (369,923 | ) | (369,923 | ) | ||||||||||||||
Notes | Level 1 | (1,024,168 | ) | (911,051 | ) | (1,219,929 | ) | (1,071,436 | ) | ||||||||||||
(1,024,168 | ) | (911,051 | ) | (1,589,852 | ) | (1,441,359 | ) |
NOTE 21 - | SUBSEQUENT EVENTS |
a. | On February 19, 2018 Elbit Medical has completed a public offering of notes convertible into ordinary shares of Elbit Medical and secured by a pledge on a portion of Elbit Medical’s holdings in INSIGHTEC Ltd. and Gamida Cell Ltd. (the “Notes”). The main terms of the Notes are: (1) Total amount raised: NIS 180 million. (2) Maturity Date: March 1, 2022. (3) Interest: Annual interest of 5% in the first two years and 10% in the remaining period, payable twice a year - in March and September. (4) Conversion: Each NIS1.47 par value in Notes into convertible into one Elbit Medical ordinary share. (5) Certain Covenantsas loan to value: certain limitations including on the ability of Elbit Medical to distribute dividends or raise additional debt. (6) Collateral: The Notes are secured by a pledge on a portion of Elbit Medical’s holdings in INSIGHTEC Ltd. and Gamida Cell Ltd in a “value to loan” ratio of 200%. (7) Use of Proceeds: (a) payment of all expenses in connection with the issuance of the Notes (approximately NIS6 (approx. US$ 1.7 million)); (b) NIS18 million (approx. US$ 5 million) were deposited with the trustee for interest payments due on the Notes for the first two years; (c) NIS4 million (approx. US$ 1 million) for ongoing operational expenses; and (d) the remaining proceeds was used to repay Elbit Medical’s intercompany debt to the Company (approximately NIS 154 million (approx. US$ 43 million)). In April, 2018 the balance of Elbit Medical’s debt to the Company, in the total amount of approximately NIS2 million (approximately USD 580 thousand) was converted to approximately NIS2 million par value Notes. |
b. | Motion to reveal and review internal documents: |
In March 2018, a Shareholder of the Company has filed a motion with the Financial Department of the District Court in Tel-Aviv to reveal and review internal documents of the Company and of PC., with respect to the events surrounding that certain agreements that were signed in connection with the Casa Radio Project in Romania and the sale of the US portfolio. Such events were previously announced by the Company and are detailed in notes 4.c.1.c and 13.b.12. The Company is currently examining the motion with its legal advisors and intend to respond in due course.
- - - - -- - - - - - - - - - - - - - - - -
F-107 |
SCHEDULE X – CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ELBIT IMAGING LTD.
CONDENSED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
Contents
Page | |
Report of independent registered public accounting firm | F-109 |
Balance sheets | F-111 - F-112 |
Statements of income | F-113 |
Statements of cash flows | F-114 - F-115 |
Notes to the condensed financial statements | F-116 - F-121 |
F-108
Kost Forer Gabbay & Kasierer 144 Menachem Begin Road, Building A, Tel-Aviv 6492102, Israel | Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com |
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
ELBIT IMAGING LTD.
We have audited the consolidated financial statements of Elbit Imaging Ltd. and subsidiaries (the "Company") as of December 31, 2017 and December 31, 2016 and for each of the two years in the period ended December 31, 2017, and have issued our report thereon dated April 25, 2018. Our audit also included the condensed financial statement as of December 31, 2017 and December 31, 2016 and for each of the two years in the period ended December 31, 2017, included under schedule of the Company ("the financial statement schedule"). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule present fairly, in all material respects, the information set forth therein when considered in conjunction with the consolidated financial statements.
We also audited the adjustments described in Note 5 that were applied to adjust the 2015 financial statements due to discontinued operation. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2015 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2015 financial statements taken as a whole.
Emphasis of matters:
1. | Note 1(C) to the consolidated financial statements, which describes the Company's financial position and the resources until November 2019 that are expected to serve the repayment of Company's liabilities. The Company's management and board of directors are of the opinion, based on its projected cash flows and the assumptions described, that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future. |
2. | Note 7(B)(2) to the consolidated financial statements, which describes conditions that indicate the existence of a material uncertainty that casts significant doubts about the ability of Company's subsidiary to continue as a going concern. Subsidiary's management plans with regard to these matters are discussed in Note 7(B)(2). The financial statements do not include any adjustments to the carrying amounts and classifications of assets and liabilities that would result if the Company's subsidiary were unable to continue as a going concern. |
3. | Note 4(C)(1)(c) which discloses potential irregularities regarding to Casa Radio project in Romania and their potential implications. |
4. | Note 4(c)(1)(b) which discloses the risk that the public authorities may seek to terminate the Public Private Partnership Agreement (“PPP Agreement”) and/or relevant permits and/or could seek to impose delay penalties on the basis of perceived breaches of the subsidiary’s commitments under the PPP Agreement. In the event that the public authorities seek to terminate the PPP Agreement and/or seek to impose penalties, the Company's subsidiary may incur penalties and/or recover less than the carrying amount of the Casa radio asset recorded in the consolidated financial statements as at year end (NIS 209.7 million). |
Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
April 25, 2018 | A Member of Ernst & Young Global |
F-109
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Elbit Imaging Ltd.
We have audited, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 19 to the consolidated financial statements, the consolidated statements of income, comprehensive income, changes in equity, and cash flows of Elbit Imaging Ltd. and subsidiaries (the "Company") for the year ended December 31, 2015, and have issued our report thereon dated March 31, 2016. Our audit also included the condensed financial information schedule, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 5 to the condensed financial information schedule, for the year ended December 31, 2015 (the 2015 condensed financial information schedule before the effects of the adjustments discussed in Note 5 to the condensed financial information schedule are not presented herein). This condensed financial information schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, such condensed financial information schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We were not engaged to audit, review, or apply any procedures to the retrospective adjustments for the discontinued operations discussed in Note 5 to the condensed financial information schedule and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
Without qualifying our opinion, we draw attention to:
1. | Note 4 (c) (1) (c) and note 13 (c) (12) in the consolidated financial statements which disclose, among other things, potential irregularities concerning the Casaradio Project in Romania and their potential consequences, including Foreign Corrupt Practice Act implications as of December 31, 2015. |
2. | As discussed in Note 13, claims have been filed against group companies as of December 31, 2015, one of which was certified as a class action. |
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, Israel
March 31, 2016
F-110
CONDENSED BALANCE SHEETS
December 31 | ||||||||||||||
2 0 1 7 | 2 0 16 | 2 0 1 7 | ||||||||||||
Convenience translation (note 2D) | ||||||||||||||
Note | (in thousand NIS) | U.S.$'000 | ||||||||||||
Current Assets | ||||||||||||||
Cash and cash equivalents | 265,877 | 43,771 | 76,688 | |||||||||||
Short-term deposits and investments | 6,464 | 6,426 | 1,864 | |||||||||||
Other receivables | 2,281 | 1,778 | 658 | |||||||||||
274,622 | 51,975 | 79,210 | ||||||||||||
Non-Current Assets | ||||||||||||||
Deposits, loans and other long-term balances | 34,856 | 1,596 | 10,054 | |||||||||||
Loans and investments in subsidiaries, associates and joint venture | 3 | 71,672 | 455,129 | 20,673 | ||||||||||
Property, plant and equipment | 87 | 33 | 25 | |||||||||||
106,615 | 456,758 | 30,752 | ||||||||||||
381,237 | 508,733 | 109,962 |
F-111
ELBIT IMAGING LTD.
CONDENSED BALANCE SHEETS
December 31 | ||||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 7 | ||||||||||||
Convenience translation (note 2D) | ||||||||||||||
Note | (in thousand NIS) | U.S.$'000 | ||||||||||||
Current Liabilities | ||||||||||||||
Current maturities of long term borrowings and short-term credits | 295,363 | 59,082 | 85,193 | |||||||||||
Payables and other credit balances | 36,082 | 17,787 | 10,407 | |||||||||||
331,445 | 76,869 | 95,600 | ||||||||||||
Non-Current Liabilities | ||||||||||||||
Borrowings | 243,306 | 498,637 | 70,178 | |||||||||||
Other liabilities | 921 | 21,716 | 266 | |||||||||||
244,227 | 520,353 | 70,444 | ||||||||||||
Shareholders' Equity | ||||||||||||||
Share capital and share premium | 1,105,974 | 1,105,974 | 319,000 | |||||||||||
Reserves | (870,043 | ) | (787,765 | ) | (250,950 | ) | ||||||||
Retained losses | (430,366 | ) | (406,698 | ) | (124,132 | ) | ||||||||
(194,435 | ) | (88,489 | ) | (56,082 | ) | |||||||||
381,237 | 508,733 | 109,962 |
The accompanying notes are an integral part of the financial statements.
Ron Hadassi Chief Executive Officer | Yael Naftali Chief Financial Officer |
Approved by the Board of Directors on: April 25, 2018
F-112
CONDENSED STATEMENTS OF INCOME
Year ended December 31 | ||||||||||||||||||
2 0 1 7 | (*)2 0 1 6 | (*)2 0 1 5 | 2 0 17 | |||||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||||
Note | (in thousand NIS) | U.S.$'000 | ||||||||||||||||
Revenues from providing management services | 796 | 1,035 | 1,472 | 230 | ||||||||||||||
General and administrative expenses | (13,081 | ) | (8,745 | ) | (11,868 | ) | (3,773 | ) | ||||||||||
Financial expenses, net | (21,858 | ) | (38,332 | ) | (58,605 | ) | (6,305 | ) | ||||||||||
Other income (expense), net | 712 | (485 | ) | (116,658 | ) | 205 | ||||||||||||
Loss before income taxes | (33,431 | ) | (46,527 | ) | (185,659 | ) | (9,643 | ) | ||||||||||
Income tax expenses | (7,000 | ) | - | - | (2,019 | ) | ||||||||||||
(40,431 | ) | (46,527 | ) | (185,659 | ) | (11,662 | ) | |||||||||||
Company's share in results of investee companies | (144,700 | ) | (156,196 | ) | (57,031 | ) | (41,736 | ) | ||||||||||
Lloss from continuing operations | (185,131 | ) | (202,723 | ) | (242,690 | ) | (53,398 | ) | ||||||||||
Profit (loss) from discontinued operations, net | (152,903 | ) | 7,893 | 56,540 | (44,102 | ) | ||||||||||||
Loss for the year | (338,034 | ) | (194,830 | ) | (186,150 | ) | (97,500 | ) |
The accompanying notes are an integral part of the financial statements.
(*) | Reclassified (discontinued operations); refer to Note 5. |
F-113
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31 | ||||||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | 2017 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$'000 | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Loss for the year from continued operations | (338,034 | ) | (194,830 | ) | (192,780 | ) | (97,500 | ) | ||||||||
Finance expenses recognized in profit and loss | 227,149 | 32,717 | 67,888 | 65,518 | ||||||||||||
Depreciation and amortization | 12 | 80 | 640 | 3 | ||||||||||||
Share in losses of associates, net | 91,513 | 155,846 | 40,755 | 26,395 | ||||||||||||
Stock based compensation expenses | 336 | 27 | 845 | 97 | ||||||||||||
Other | (759 | ) | (55 | ) | (488 | ) | (219 | ) | ||||||||
Receivables and other debit balances | (33,724 | ) | 3,516 | 3,101 | (9,727 | ) | ||||||||||
Payables and other credit balances | 18,127 | (3,877 | ) | (6,180 | ) | 5,228 | ||||||||||
Net cash used in operating activities of continuing operations | (35,380 | ) | (6,576 | ) | (86,219 | ) | (10,205 | ) | ||||||||
Net cash used in discontinued operating activities | - | - | (2,700 | ) | - | |||||||||||
Net cash used in operating activities | (35,380 | ) | (6,576 | ) | (86,219 | ) | (10,205 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Purchase of property plant and equipment, investment property and other assets | - | - | (103 | ) | - | |||||||||||
Proceeds from realization of investments in subsidiaries and associates | - | - | 1,925 | - | ||||||||||||
Investments and loans to subsidiaries and associates | 204,084 | 172,027 | 180,406 | 58,865 | ||||||||||||
Proceed from dividend | 131,645 | - | - | 37,971 | ||||||||||||
Proceed from realization of (investment in) long-term deposits and long-term loans | - | 15,785 | (1,184 | ) | - | |||||||||||
Short-term deposits and marketable securities, net | (40 | ) | (3,009 | ) | (481 | ) | (12 | ) | ||||||||
Net cash provided by investing activities | 335,689 | 184,803 | 180,563 | 96,824 |
F-114
ELBIT IMAGING LTD.
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31 | ||||||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | 2 0 17 | |||||||||||||
Convenience translation (Note 2D) | ||||||||||||||||
(in thousand NIS) | U.S.$'000 | |||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Interest paid in cash | (19,603 | ) | (23,717 | ) | (37,902 | ) | (5,654 | ) | ||||||||
Interest received in cash | - | - | 32 | - | ||||||||||||
Repayment of long-term borrowings | (58,600 | ) | (182,025 | ) | (75,577 | ) | (16,902 | ) | ||||||||
Net cash used in financing activities | (78,203 | ) | (205,742 | ) | (113,447 | ) | (22,556 | ) | ||||||||
Increase (decrease) in cash and cash equivalents | 222,106 | (27,515 | ) | (21,803 | ) | 64,063 | ||||||||||
Cash and cash equivalents at the beginning of the year | 43,771 | 71,286 | 95,086 | 12,625 | ||||||||||||
Net effect on cash due to currency exchange rate changes | - | - | (1,996 | ) | - | |||||||||||
Cash and cash equivalents at the end of the year | 265,877 | 43,771 | 71,287 | 76,688 |
The accompanying notes are an integral part of the financial statements.
F-115
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
A. | Elbit Imaging Ltd. ("the Company") was incorporated in Israel. The Company's shares are registered for trade on the Tel Aviv Stock Exchange and in the United States of America on the NASDAQ Global Select Market. Following debt restructuring plan approved in 2014 the Group main focus is to reduce corporate debt by early repayments following sale of assets and to continue with efficiency measures and cost reduction where possible |
B. | The Group engages, directly and through its investee companies, in Israel and abroad, mainly in the following areas: |
· | Medical industries and devices - through the Company indirect holdings in two companies which operates in the field of life science: (i) INSIGHTEC which operates in the field of development, production, and marketing of treatment-oriented medical systems, based on a unique technological platform combining the use of focused ultrasound and magnetic resonance imaging for the purpose of performing noninvasive treatments in human beings; and (ii) Gamida which operates in the field of research, development and manufacture of products designated for certain cancer diseases. |
· |
· | With regards to the sale of |
C. | Financial position: |
With respect to the Company's financial position, including the consummation of the Plan of Arrangement, see note 1c and 1d of the annual consolidated financial statements.
D. | Definitions: |
The Company | - | Elbit Imaging Ltd. | |
Group | - | The Company and its Investees | |
Investees | - | Subsidiaries, joint ventures and associates | |
PC | - | Plaza Centers N.V. Group, a subsidiary of the | |
Elbit Medical | - | Elbit Medical Technologies Ltd., a public Israeli company traded on the Tel Aviv Stock Exchange. As for | |
Related parties | - | As defined in International Accounting Standard ("IAS") No. 24. For details see note 17 of the annual consolidated financial statements. |
F-116
ELBIT IMAGING LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. | Statement of compliance: |
The condensed financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board ("IASB"). |
The shopping center, which is currently over 97% pre-let, opened on 20th of April 2017 and PC had remained responsible for the development and leasing of the asset until the opening.
Upon completion of the transaction, PC has received an initial payment of EUR 31.2 million from the purchaser, EUR 2 million received following the opening and further payments contingent upon certain operational targets and milestones being met. The Purchaser has provided a guarantee to secure these future payments.
The final agreed value of Belgrade Plaza, which will comprise circa 32,300 sqm of GLA, will be calculated based on a general cap rate of 8.25% as well as the sustainable NOI after 12 months of operation, which PC estimates will be approximately EUR 7.2-7.5 million per annum. Further instalments will be due to PC during the first year of operation based on this 12-month figure. The NOI will be re-examined again after 24 months and 36 months of operation, which may lead to an upward adjustment of the final purchase price.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PC has received a further payment of EUR 13.35 million during September 2017 based on the SPA on account of the final proceed which will be calculated one year following the opening of the mall, subject to price adjustments in the next two years.
The EMA grants an orphan drug designation to promote the development of products that demonstrate promise for the treatment of rare diseases. EMA Orphan drug designation provides 10 years of market exclusivity in the EU, as well as, prospective grants receiving easement and assistant with developing and registration of drugs for marketing.
The Partner and EPI have agreed that the purchase price will be amended to INR 338 Crores (approximately Euro 47 million) instead of the INR 321 Crores (approximately Euro 44.6 million) agreed in the previous agreement. As part of the agreement, INR 110 Crores (approximately Euro 15.3 million) will be paid by the Purchaser in instalments until the Final Closing. The Final Closing will take place on September 1, 2018, when the final instalment of INR 228 Crores (approximately Euro 31.7 million) will be paid to EPI.
If the Partner defaults before the Final Closing, EPI is entitled to forfeit certain amounts paid by the Purchaser as stipulated in the revised agreement. All other existing securities granted to EPI under the previous agreement will remain in place until the Final Closing.
The agreement reflects an estimated value for the asset of €70.6 million including an additional forecasted payment at the end of May 2018 for new leases signed by the end of April 2018 (“earn out period”). The total expected net proceeds to PC, following the deduction of the related bank loan, earn out period and other working capital adjustments in accordance with the balance sheet of the SPV, are estimated to be circa €29.3 million.
At this point in time, there is no certainty that the transaction will be completed.
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accounting treatment of investments in shares of investees - pursuant to IAS 27:
When presenting the data from the separate financial statements of the parent company ("solo"), investments in shares of subsidiaries and jointly controlled entities are accounted for at cost, at fair value in accordance with IAS 39 or at equity. The Company has elected to account for said investments at equity and, accordingly, the investments in shares of subsidiaries, jointly controlled entities and associates are presented at equity.
C. | Presentation of the |
The Groups operations are characterized by diverse activities. Accordingly, management believes that its income statements should be presented in the “Single - step form”. According to this form, all costs and expenses (including general and administrative and financial expenses) should be considered as continuously contributing to the generation of the overall revenues and gains. Management also believes that its operating expenses should be classified by function to: (i) those directly related to each revenue (including general and administrative expenses and selling and marketing expenses relating directly to each operation); and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.
D. | Convenience translation: |
The balance sheet as of December 31, 2017 and statement of income, statement of other comprehensive income and statement of cash flows for the year then ended have been translated into U.S. Dollar using the representative exchange rate as of that date ($1= NIS 3.467). Such translation was made solely for the convenience of the U.S. readers. The dollar amounts so presented in these financial statements should not be construed as representing amounts receivable or payable in dollars or convertible into dollars but only a convenience translation of reported NIS amounts into U.S. Dollar, unless otherwise indicated. The convenience translation supplementary financial data is unaudited and is not presented in accordance with IFRS.
F-117
ELBIT IMAGING LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 3 - LOANS AND INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURE
Investment in joint venture held in Kochi, India:
The Company has rights under certain share subsection agreement to hold 50% shareholding in Indian SPV ("Project SPV"). The Project SPV has entered into an agreement for the purchase of a land located in Kochi, India according to which it has acquired 13 acres ("Property A") for a total consideration of INR 1,495 million (NIS 84 million) payable subject to fulfilment of certain obligations and conditions by the seller. Up to the balance sheet date the Project SPV has paid INR 720 million (NIS 40 million) to the seller in consideration for the transfer of title in Property A to the Project SPV. The Company's share in such acquisition amounts to approximately NIS 20 million.
On January 14, 2016, the Company has signed an agreement to waive any of its rights and interest in the Project SPV. The total consideration for the Company is INR 10 Crores (approximately NIS 5 million), which will be paid to the Company upon the closing of the transaction.
The transaction is subject to certain conditions precedent, and closing will take place (as extended) once these conditions are met and no later than June 30, 2018. The local Investor has provided certain security in order to guarantee the aforementioned deadline.
Additional information
December 31 | |||||||||
2 0 1 7 | 2 0 16 | ||||||||
(In thousand NIS) | |||||||||
Loans | 37,661 | 291,780 | |||||||
Investments | 34,011 | 163,349 | |||||||
71,672 | 455,129 |
NOTE 4 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS
A. | With respect to the |
F-118
The net proceed to the Company will be calculated following the repaymentELBIT IMAGING LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 5 - DISCONTINUED OPERATIONS
Sale of the secured bank loan, customary working capital adjustments and other agreed adjustments as of the closing date. During the period starting on the date of the signing of the LOI and terminating on the earlier to occur of the date of the execution of the SPA, or the date of the termination of the LOI by either party (the “Exclusivity Period”), the Seller and its representatives have undertaken to refrain from negotiating with any other third party other than the Purchaser for the purpose of selling the Target Shares or the Radisson Complex."Radisson complex"
On November 8,29, 2017, after the completion by the proposed purchaser of its due diligence investigations, agreement has been reached with the Purchaser so that the estimated net proceeds to the Company deriving fromhas announced, that its wholly owned indirect subsidiary (the "Vendor") has signed a definitive sale and purchase agreement (the "Agreement") for the sale of its holdingentire shareholding (comprising approx. 98.2% of the outstanding share capital) in the SPV is anticipatedcompany (the "SPV") which owns the Radisson Hotel Complex in Bucharest, Romania, based on a property value of €169.2 million (the "Transaction"). The Agreement has been signed with an acquisition vehicle jointly owned by two international investment funds (the "Purchaser").
The net proceeds that was derived from the Transaction (after offsetting the SPV's senior bank loan, working capital and other adjustments, as well as transaction expenses) was approximately €81 million. Part of the net proceeds equal to be approximately Euro 80€8 million was used to finance a vendor loan which has been granted for a period of which a certain amount will be granted as an3 years, bearing interest bearingat the rate of 5% per annum (the "Vendor Loan").
The Vendor Loan acts as collateral for customary post-closing liabilities of the SPV, whereby the Purchaser may offset adjudicated losses which may be incurred by it as a result of a breach of warranties or in respect of certain indemnities given by the Vendor in terms of the Agreement. Additionally, the Company has granted a letter of guarantee in favor of the Purchaser pursuant to which it has undertaken to fulfill the Vendor's undertakings and obligations under the Agreement (if and to the Purchaser.extent that the Vendor fails to do so).
In addition,On December 18, 2017 the Company andhas completed the Purchaser agreed that the signing and executiontransaction. Part of the Share Purchase Agreement betweenNet Proceeds were applied in order to repay the parties shall take place not later than November 23, 2017Company outstanding loan to Bank Hapoalim Ltd. in the amount of NIS 49 million (approximately Euro 11.6 million) and thatNIS 240 million were applied to an early repayment of interest and principal to the exclusivity period will be extended till that date. The Company anticipates that(series H) noteholders.
Following the closingClosing and consummation of the transaction, will take place during December 2017.the Company has ceased to operate the "Radisson Complex" hotel activity, and accordingly the said activity was classified as discontinued operation including comparative information.
TheSale of Elbit Fashion
On January 5, 2015 Elbit Fashion has completed the sale of the operation and business of "Mango" retail stores in Israel from Elbit Fashion to Fox- Wiesel Ltd (the "Closing") for consideration of approximately NIS 37.7 million. Following the Closing and consummation of the transaction, is subjectElbit Fashion has ceased to operate the execution of definitive agreements,"Mango" retail stores activity, and accordingly the fulfillment of certain conditions precedent to be specified in the definitive agreement, and the successful closing of the transaction. At this stage there can be no certainty that the definitive agreements will be signed on the terms indicated above, that the conditions precedent will be fulfilled in a timely manner, or that transaction will be successfully completed.said activity was classified as discontinued operation.
F-119
ELBIT IMAGING LTD.
NOTES TO THE UNAUDITED CONSOLIDATEDCONDENSED FINANCIAL STATEMENTS
Notwithstanding the above, PC announced that in accordance with the provision of its debt restructuring plan (“Plan”) it intends to repay to its bondholders in Poland, Israeli series A bondholders and Israeli series B bondholders (during October 2017), an aggregate amount of approximately EUR 18.8 million, representing 75% of the funds PC received in the last quarter from sale of real estate assets (“Mandatory Repayment Amount”) to be allocated as follows: (i) Polish bondholders - 8.33%, as determined in the plan; (ii) Israeli series A bondholders - 21.23%, as determined in the plan; (iii) Israeli series B bondholders - 31.16% which is the proportional amount that corresponds to the ratio between the outstanding debts of the two Israeli series of bonds.
PC intendsNOTE 5 - DISCONTINUED OPERATIONS (Cont.)
Results of discontinued operations:
Year ended December 31 | |||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||
(in thousand NIS) | |||||||||||||
Revenues from providing management services | 2,340 | 1,928 | - | ||||||||||
General and administrative expenses | - | - | - | ||||||||||
Financial income (expenses) , net | (205,290 | ) | 5,615 | (9,525 | ) | ||||||||
Other expense, net | (3,139 | ) | - | 45,860 | |||||||||
Profit (loss) before income taxes | (206,089 | ) | 7,543 | 36,335 | |||||||||
Income tax expenses | - | - | - | ||||||||||
(206,089 | ) | 7,543 | 36,335 | ||||||||||
Company's share in results of investee companies | 53,186 | 350 | 20,205 | ||||||||||
Profit (loss) from discontinuing operations | (152,903 | ) | 7,893 | 56,540 |
Reclassification of comparative information:
Year ended December 31, 2015 | |||||||||||||
As previously reported | Amendment | Reclassified | |||||||||||
(in thousand NIS) | |||||||||||||
Revenues from providing management services | 1,472 | - | 1,472 | ||||||||||
General and administrative expenses | (11,868 | ) | - | (11,868 | ) | ||||||||
Financial expenses, net | (67,888 | ) | 9,527 | (58,605 | ) | ||||||||
Other expense, net | (73,741 | ) | (42,917 | ) | (116,658 | ) | |||||||
Profit (loss) before income taxes | (152,025 | ) | (33,390 | ) | (185,659 | ) | |||||||
Income tax expenses | - | - | - | ||||||||||
(152,025 | ) | (33,390 | ) | (185,659 | ) | ||||||||
Company's share in results of investee companies | (40,755 | ) | (16,276 | ) | (57,031 | ) | |||||||
Profit (loss) from continuing operations | (192,780 | ) | (49,666 | ) | (242,690 | ) | |||||||
Profit (loss) from discontinued operations, net | 6,630 | 49,666 | 56,540 | ||||||||||
Profit (loss) for the year | (186,150 | ) | - | (186,150 | ) |
F-120
ELBIT IMAGING LTD.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE 5 - DISCONTINUED OPERATIONS (Cont.)
Statement of Cash flows
The statement of cash flows includes the following amounts relating to depositdiscontinued operations, the remaindermajority of the Mandatory Repayment Amount with a third-party trustee for the benefitwhich as of Israeli series A and series B bondholders and to submit a petitionDecember 2015, are attributable to the competent court in Israel requesting instructions with regard to the allocation of the remainder of the Mandatory Repayment Amount.discontinued fashion apparel and hotels operations:
Year ended December 31 | |||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||
(in thousand NIS) (except for per-share data) | |||||||||||||
Operating activities | (1,692 | ) | 1,928 | 42,916 | |||||||||
Other investment activities | 298,434 | 152,951 | 136,495 | ||||||||||
Other financing activities | - | - | - | ||||||||||
Net cash provided by (used in) discontinued operations | 296,742 | 159,081 | 179,411 |
On October 4, 2016 the PC has received the consent of the trustees of its Israeli series A bonds and series B bonds for the allocation of certain funds received by the Company between the Company’s series A bonds and series B bonds due for repayment of such bonds as detailed above. PC further advises that it has filed an application with the Israeli court to receive instructions as to the allocation of the remainder funds between the Israeli series A and series B bondholders and that a hearing was held on November 6, 2017. During the hearing the parties decided to take another week in order to find amicable solution for the dispute.
As the Company did not meet the aforementioned deadline the Bondholders were entitled to declare that all or a part of their respective outstanding debts become immediately due and payable.
On July 3, 2017, the Series H noteholders approved a resolution to waive their immediate repayment right, pursuant to the delay in publications of the financial statements and to extend the submission date of the Company’s annual financial statements for the year of 2016 until December 31, 2017 (the “Resolution”).
On July 10, 2017, the Series I noteholders approved the Resolution as well and therefore, Series H approval became valid.
F-121
INSIGHTEC LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 20162017
F-122
INSIGHTEC LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents
Page | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Balance Sheets | |
Consolidated Statements of Operations | |
Statements of Shareholders’ Equity | |
Consolidated Statements of Cash Flows | |
Notes to the Consolidated Financial Statements |
F-123
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and of Insightec Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Insightec Ltd. and its subsidiaries (the “Company”) as of December 31, 20162017 and 2015, and2016, the related consolidated statements of operations, shareholders’ equity and cash flows, for each of the three years in the period ended December 31, 2016. 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included considerationAs part of our audit, we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Insightec Ltd and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Brightman Almagor Zohar & Co.&Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
November 9, 2017
Tel Aviv, Israel
February 8, 2018
We have served as the Company’s auditor since 1999
F-124
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
December 31, | December 31, | |||||||||||||||||||
Note | 2 0 1 6 | 2 0 1 5 | Note | 2 0 1 7 | 2 0 1 6 | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 6,975 | $ | 15,215 | $ | 21,891 | $ | 6,975 | ||||||||||||
Deposits | 30,516 | 36,546 | 70,036 | 30,516 | ||||||||||||||||
Trade accounts receivables | 3,377 | 4,131 | 13,928 | 3,377 | ||||||||||||||||
Inventories | 3 | 3,186 | 5,303 | 3 | 5,792 | 3,186 | ||||||||||||||
Other receivables and current assets | 4 | 1,972 | 2,417 | 4 | 2,765 | 1,972 | ||||||||||||||
46,026 | 63,612 | 114,412 | 46,026 | |||||||||||||||||
Fixed assets, net | 5 | 850 | 743 | 5 | 3,230 | 850 | ||||||||||||||
Other long-term assets | ||||||||||||||||||||
Long term deposits and prepaid expenses | 3,177 | 3,598 | 172 | 3,177 | ||||||||||||||||
Total Assets | $ | 50,053 | $ | 67,953 | $ | 117,814 | $ | 50,053 | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Trade accounts payables | $ | 3,576 | $ | 2,837 | $ | 8,370 | $ | 3,576 | ||||||||||||
Other payables and current liabilities | 6 | 14,520 | 10,985 | 6 | 18,787 | 14,520 | ||||||||||||||
18,096 | 13,822 | 27,157 | 18,096 | |||||||||||||||||
Long-term liabilities | 546 | 872 | 926 | 546 | ||||||||||||||||
Total Liabilities | $ | 18,642 | $ | 14,694 | 28,083 | 18,642 | ||||||||||||||
Shareholders’ equity | 8 | 8 | ||||||||||||||||||
Ordinary shares, NIS 0.01 par value; authorized 175,000,000; shares issued and outstanding 14,056,212 on December 31, 2016 and 2015. | 35 | 35 | ||||||||||||||||||
Preferred B shares, NIS 0.01 par value; Authorized 15,000,000; shares issued and outstanding 14,037,888 on December 31, 2016 and 2015. | 34 | 34 | ||||||||||||||||||
Preferred B1 shares, NIS 0.01 par value; Authorized 33,000,000; shares issued and outstanding 32,201,524 on December 31, 2016 and 2015. | 85 | 85 | ||||||||||||||||||
Preferred C shares, NIS 0.01 par value; Authorized 29,000,000; shares issued and outstanding 27,519,391 on December 31, 2016 and 2015. | 72 | 72 | ||||||||||||||||||
Preferred D shares, NIS 0.01 par value; Authorized 51,000,000; shares issued and outstanding 48,473,238 on December 31, 2016.and 43,564,280 at December 31, 2015. | 133 | 120 | ||||||||||||||||||
Ordinary shares, NIS 0.01 par value; authorized 243,380,611; shares issued and outstanding 14,240,462 on December 31, 2017 and 14,176,212 on December 31, 2016. | 35 | 35 | ||||||||||||||||||
Preferred B shares, NIS 0.01 par value; Authorized 14,037,888; shares issued and outstanding 14,037,888 on December 31, 2017 and 2016. | 34 | 34 | ||||||||||||||||||
Preferred B1 shares, NIS 0.01 par value; Authorized 32,201,524; shares issued and outstanding 32,201,524 on December 31, 2017 and 2016. | 85 | 85 | ||||||||||||||||||
Preferred C shares, NIS 0.01 par value; Authorized 27,519,390; shares issued and outstanding 27,519,390 on December 31, 2017 and 2016. | 72 | 72 | ||||||||||||||||||
Preferred D shares, NIS 0.01 par value; Authorized 48,473,238; shares issued and outstanding 48,473,238 on December 31, 2017.and 2016. | 133 | 133 | ||||||||||||||||||
Preferred E shares, NIS 0.01 par value; Authorized 55,970,149; shares issued and outstanding 33,378,830 on December 31, 2017. | 95 | - | ||||||||||||||||||
Additional paid-in capital | 329,613 | 325,279 | 419,083 | 329,613 | ||||||||||||||||
Accumulated deficit | (298,561 | ) | (272,366 | ) | (329,806 | ) | (298,561 | ) | ||||||||||||
31,411 | 53,259 | 89,731 | 31,411 | |||||||||||||||||
$ | 50,053 | $ | 67,953 | $ | 117,814 | $ | 50,053 |
The accompanying notes are an integral part of the consolidated financial statements.
F-125
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||||||||||
Revenues | $ | 25,074 | $ | 16,146 | $ | 22,574 | $ | 32,083 | $ | 25,074 | $ | 16,146 | ||||||||||||
Cost of revenues | 13,671 | 9,854 | 12,320 | 16,390 | 13,671 | 9,854 | ||||||||||||||||||
Gross profit | 11,403 | 6,292 | 10,254 | 15,693 | 11,403 | 6,292 | ||||||||||||||||||
Research and development expenses, net of participations of $1,543, $2,159 and $1,758, on December 31, 2016, 2015 and 2014, respectively | 18,823 | 14,291 | 14,973 | |||||||||||||||||||||
Research and development expenses, net of participations of $306, $1,543 and $2,159, on December 31, 2017, 2016 and 2015, respectively | 24,840 | 18,823 | 14,291 | |||||||||||||||||||||
Sales and marketing expenses | 13,833 | 9,417 | 8,769 | 16,699 | 13,833 | 9,417 | ||||||||||||||||||
General and administrative expenses | 5,242 | 6,710 | 3,375 | 4,914 | 5,242 | 6,710 | ||||||||||||||||||
Operating loss | 26,495 | 24,126 | 16,863 | 30,760 | 26,495 | 24,126 | ||||||||||||||||||
Financing (income) expenses, net | (393 | ) | 70 | 143 | 135 | (393 | ) | 70 | ||||||||||||||||
Loss before taxes on income | 26,102 | 24,196 | 17,006 | 30,895 | 26,102 | 24,196 | ||||||||||||||||||
Taxes on income | 93 | 48 | 47 | 350 | 93 | 48 | ||||||||||||||||||
Loss for the year | $ | 26,195 | $ | 24,244 | $ | 17,053 | $ | 31,245 | $ | 26,195 | $ | 24,244 |
The accompanying notes are an integral part of the consolidated financial statements.
F-126
STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY(DEFICIENCY))
Dollars in thousands, except share and per share data
Number of Ordinary Shares | Number of Preferred B Shares | Number of Preferred B1 Shares | Number of Preferred C Shares | Number of Preferred D Shares | Ordinary Shares | Preferred B Shares | Preferred B1 Shares | Preferred C Shares | Preferred D Shares | Accumulated deficit | Additional paid-in capital | Total | Number of Ordinary Shares | Number of Preferred B Shares | Number of Preferred B1 Shares | Number of Preferred C Shares | Number of Preferred D Shares | Number of Preferred E Shares | Ordinary Shares | Preferred B Shares | Preferred B1 Shares | Preferred C Shares | Preferred D Shares | Preferred E Shares | Accumulated deficit | Additional paid-in capital | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – January 1, 2014 | 14,016,462 | 14,037,888 | 32,201,524 | 27,519,390 | - | $ | 35 | $ | 34 | $ | 85 | $ | 72 | - | $ | (231,069 | ) | 234,177 | $ | 3,334 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Shares D (Note 8) | - | - | - | - | 30,417,587 | - | - | - | - | 88 | - | 58,261 | 58,349 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of share options | 39,750 | - | - | - | - | -(*) | - | - | - | - | - | -(*) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | - | 3,183 | 3,183 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | - | - | - | - | (17,053 | ) | - | (17,053 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2014 | 14,056,212 | 14,037,888 | 32,201,524 | 27,519,390 | 30,417,587 | $ | 35 | $ | 34 | $ | 85 | $ | 72 | $ | 88 | $ | (248,122 | ) | $ | 295,621 | $ | 47,813 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – January 1, 2015 | 14,056,212 | 14,037,888 | 32,201,524 | 27,519,390 | 30,417,587 | - | $ | 35 | $ | 34 | $ | 85 | $ | 72 | $ | 88 | - | $ | (248,122 | ) | $ | 295,621 | $ | 47,813 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Shares D (Note 8) | - | - | - | - | 13,146,693 | - | - | - | - | 32 | - | 25,407 | 25,439 | - | - | - | - | 13,146,693 | - | - | - | - | - | 32 | - | - | 25,407 | 25,439 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | - | 4,251 | 4,251 | - | - | - | - | - | - | - | - | - | - | - | - | - | 4,251 | 4,251 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | - | - | - | - | (24,244 | ) | - | (24,244 | ) | - | - | - | - | - | - | - | - | - | - | - | - | (24,244 | ) | - | (24,244 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2015 | 14,056,212 | 14,037,888 | 32,201,524 | 27,519,390 | 43,564,280 | $ | 35 | $ | 34 | $ | 85 | $ | 72 | $ | 120 | $ | (272,366 | ) | $ | 325,279 | $ | 53,259 | 14,056,212 | 14,037,888 | 32,201,524 | 27,519,390 | 43,564,280 | 0 | $ | 35 | $ | 34 | $ | 85 | $ | 72 | $ | 120 | 0 | $ | (272,366 | ) | $ | 325,279 | $ | 53,259 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Shares D (Note 8) | - | - | - | - | 4,908,958 | - | - | - | - | 13 | - | 1,987 | 2,000 | - | - | - | - | 4,908,958 | - | - | - | - | - | 13 | - | - | 1,987 | 2,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of share options | 120,000 | - | - | - | - | (*) | - | - | - | - | - | 134 | 134 | 120,000 | - | - | - | - | - | - | (*) | - | - | - | - | - | - | 134 | 134 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | - | 2,213 | 2,213 | - | - | - | - | - | - | - | - | - | - | - | - | - | 2,213 | 2,213 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | - | - | - | - | (26,195 | ) | - | (26,195 | ) | - | - | - | - | - | - | - | - | - | - | - | - | (26,195 | ) | - | (26,195 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2016 | 14,176,212 | 14,037,888 | 32,201,524 | 27,519,390 | 48,473,238 | $ | 35 | $ | 34 | $ | 85 | $ | 72 | $ | 133 | $ | (298,561 | ) | 329,613 | $ | 31,411 | 14,176,212 | 14,037,888 | 32,201,524 | 27,519,390 | 48,473,238 | 0 | $ | 35 | $ | 34 | $ | 85 | $ | 72 | $ | 133 | 0 | $ | (298,561 | ) | $ | 329,613 | $ | 31,411 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Preferred Shares E (Note 8) | - | - | - | - | - | 33,378,830 | - | - | - | - | - | $ | 95 | - | 87,650 | 87,745 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of share options | 64,250 | - | - | - | - | - | - | (*) | - | - | - | - | - | - | 60 | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | - | - | - | - | - | - | - | 1,760 | 1,760 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | (31,245 | ) | - | (31,245 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2017 | 14,240,462 | 14,037,888 | 32,201,524 | 27,519,390 | 48,473,238 | 33,378,830 | $ | 35 | $ | 34 | $ | 85 | $ | 72 | $ | 133 | $ | 95 | $ | (329,806 | ) | $ | 419,083 | $ | 89,731 |
(*) Less than $1. |
The accompanying notes are an integral part of the consolidated financial statements.
F-127
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except share and per share data)
Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | 2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||||||||||
Cash flows - Operating Activities: | ||||||||||||||||||||||||
Loss for the year | $ | (26,195 | ) | $ | (24,244 | ) | $ | (17,053 | ) | $ | (31,245 | ) | $ | (26,195 | ) | $ | (24,244 | ) | ||||||
Adjustments to reconcile loss to net cash used in operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 404 | 391 | 170 | 634 | 404 | 391 | ||||||||||||||||||
Stock-based compensation | 2,213 | 4,251 | 3,183 | 1,760 | 2,213 | 4,251 | ||||||||||||||||||
Decrease (increase) in Interest Receivable | 212 | (117 | ) | (17 | ) | |||||||||||||||||||
Decrease (increase) in trade accounts receivable | 754 | 219 | (129 | ) | (10,551 | ) | 754 | 219 | ||||||||||||||||
Decrease (increase) in other receivables and Prepaid expenses | 396 | (732 | ) | (447 | ) | (1,059 | ) | 513 | (715 | ) | ||||||||||||||
Decrease (increase) in inventories | 2,117 | (2,249 | ) | 610 | (2,606 | ) | 2,117 | (2,249 | ) | |||||||||||||||
Increase (decrease) in trade accounts payables, other payables ,current liabilities and other long term liabilities | 3,948 | (413 | ) | 2,084 | ||||||||||||||||||||
Increase (decrease) in trade accounts payables, other payables, current liabilities and other long term liabilities | 9,441 | 3,948 | (413 | ) | ||||||||||||||||||||
Net cash used in operating activities | (16,363 | ) | (22,777 | ) | (11,582 | ) | (33,414 | ) | (16,363 | ) | (22,777 | ) | ||||||||||||
Cash flows - Investing Activities: | ||||||||||||||||||||||||
Restricted cash | - | - | (690 | ) | ||||||||||||||||||||
Purchase of fixed assets | (511 | ) | (551 | ) | (442 | ) | (3,014 | ) | (511 | ) | (551 | ) | ||||||||||||
Bank Deposit | 6,500 | 8,000 | (42,327 | ) | (36,461 | ) | 6,500 | 8,000 | ||||||||||||||||
Net cash provided by (used in) investing activities | 5,989 | 7,449 | (43,459 | ) | (39,475 | ) | 5,989 | 7,449 | ||||||||||||||||
Cash flows - Financing Activities: | ||||||||||||||||||||||||
Issuance of Preferred Shares, net | 2,134 | 25,439 | 58,349 | 87,805 | 2,134 | 25,439 | ||||||||||||||||||
Net cash provided by financing activities | 2,134 | 25,439 | 58,349 | 87,805 | 2,134 | 25,439 | ||||||||||||||||||
Increase (decrease) in cash and cash equivalents | (8,240 | ) | 10,111 | 3,308 | 14,916 | (8,240 | ) | 10,111 | ||||||||||||||||
Cash and cash equivalents at beginning of the year | 15,215 | 5,104 | 1,796 | 6,975 | 15,215 | 5,104 | ||||||||||||||||||
Cash and cash equivalents at end of the year | $ | 6,975 | $ | 15,215 | $ | 5,104 | $ | 21,891 | $ | 6,975 | $ | 15,215 | ||||||||||||
Supplemental information: | ||||||||||||||||||||||||
Income tax paid | 33 | 77 | 20 | 350 | 33 | 77 | ||||||||||||||||||
Interest received in cash | 247 | 279 | 17 | 478 | 247 | 279 |
The accompanying notes are an integral part of the consolidated financial statements.
F-128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 1 | - GENERAL |
Business Description:
A. | Insightec Ltd. (the “Company”) was incorporated in the State of Israel in March 1999 and commenced operations in the development, production and marketing of magnetic resonance imaging guided focused ultrasound treatment equipment shortly thereafter. The Company operates in one operating segment. |
The current main shareholders of the Company are as follows: Elbit Medical Technologies Ltd. (“EMT”); York Global Finance II S.à r.l., (“York”); Koch Disruptive Technologies (“Koch”); Focused Holdings LP and Focused Holdings Canada Limited (“Exigent”); Shanghai GEOC Hengtong Investment Limited Partnership (“GEOC”); General Electric Company (through its Healthcare division) (“GE Company” or “GE” ) and MediTech Advisors LLC (“MTA”).
The Company has wholly owned subsidiaries as follows: (i) in the United States of America, InSightec Inc. (formerly InSightec- TxSonics Inc.) which was incorporated in the State of Delaware, U.S.A. in November 1998; (ii) a wholly owned subsidiary in Japan, Insightec Japan Y.K., which was incorporated in Tokyo, Japan, in March 2005; and (iii) a wholly owned subsidiary in China, InSightec Trading (Shanghai) Co., Ltd., which was incorporated in Shanghai on December 2014 (together: the “Subsidiaries”). The Subsidiaries engaged in pre-sale activities, in managing clinical trials and in providing technical support to the Company’s customers.
B. | The industry in which the Company operates is characterized by rapid technological development. Substantially all of the Company’s current sales are derived from a few applications of the Company’s product line. Many of the Company’s development applications are in the early stages and there can be no assurance that these applications will be successful. The Company is continuing research and development for additional applications for such products. |
NOTE 2 | - SIGNIFICANT ACCOUNTING POLICIES |
The financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America.
A. | Functional currency and translation of foreign currencies: |
The currency of the primary economic environment in which the Company and its Subsidiary operate is the U.S. dollar (also “dollar”, “$US” or $). Accordingly, the Company and its Subsidiaries use the dollar as their functional and reporting currency.
Transactions and balances denominated in dollars are presented at their dollar amounts. Non-dollar transactions and balances are re-measured into dollars in accordance with the principles set forth in ACS 830-10 “Foreign Currency Translation” of the Financial Accounting Standards Board (“FASB”).
All exchange gains and losses from re-measurement of monetary balance sheet items resulting from transactions in non-dollar currencies are included in net financing income (expense) as they arise.
F-129
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 2 | - SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
B. | Principles of Consolidation: |
The Company’s financial statements include the financial statements of the Company and its Subsidiaries (the “Group”) after elimination of material inter-company transactions and balances.
C. | Use of estimates: |
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimatesestimates.
D. | Cash and cash equivalents: |
Cash and cash equivalents are comprised of cash and demand deposits in banks with maturity dates not exceeding three months from the date of deposit.
E. | Allowance for doubtful accounts: |
The allowance for doubtful accounts is computed for specific accounts, which, in management opinion are doubtful of collection.
F. | Inventories: |
Inventories are stated at the lower of cost or net realizable value. Inventory write–offs are provided for slow–moving items or technological obsolescence for which recoverability is not probable. Cost is determined for raw materials on the basis of moving average cost per unit. Cost is determined for finished products on the basis of standard cost, which approximates actual production cost (materials, labor and indirect manufacturing costs).
G. | Unites under Demo: |
Units assembled that are used for demonstration are classified out of inventory to fixed assets and depreciated over the estimated useful life of 2 years.
H. | Fixed assets: |
Fixed assets are presented at cost less accumulated depreciation. Depreciation is calculated based on the straight-line method over the estimated economic lives of the assets, as follows:
Years | |||
Electronic (including medical) equipment | 3-7 | ||
Office furniture and equipment | 7-14 | ||
Motor vehicles | 7 | ||
Leasehold improvements | 5 |
Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining term of the lease (including the period of renewal options that the Company intends to exercise).
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INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 2 | - SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
I. | Impairment of long–lived assets: |
The Company’s long-lived assets are reviewed for impairment in accordance with ACS 360-10 “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2016, no impairment losses have been identified.
J. | Revenue Recognition: |
In accordance with ASC Topic 605 “Revenue Recognition”, the Company recognizes revenues from sale of products when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable; and (iv) collection of the resulting receivable is reasonably assured. These criteria are usually met at the time of product shipment.
In instances in which the Company enters into transactions that represent multiple deliverables arrangements, with elements including system sales, installation at the customer’s site and technical service, the Company apply ASC 605-25 Multiple Elements Arrangements. The ASC requires allocation of arrangement consideration among the separate units of accounting based on their relative selling prices. The selling price for each unit of accounting is determined based on a selling price hierarchy using either vendor specific objective evidence (“VSOE”) of selling price, third party evidence of selling price (“TPE”) or the vendor’s best estimate of estimated selling price (“ESP”) for that deliverable. Use of the residual method is prohibited. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis.
Products are typically considered delivered upon shipment. In instances where final acceptance of the system is specified by the customer, revenue is deferred until all acceptance criteria have been met. Technical support services revenue is deferred and recognized ratably over the period during which the services are performed, which is typically from one to two years. The Company’s arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue.
In most instances, the Company is not able to establish VSOE for all deliverables in an arrangement with multiple elements, due to the Company’s history of infrequent sales in which each element is separately sold. When VSOE cannot be established, the Company attempts to establish selling price of each element based on BESP. BESP is generally used for services and it applies to a small proportion of the Company’s arrangements with multiple deliverables. BESP for services is based on technical support services, which are sold separately through renewals of annual contracts.
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
The Company determines ESP for a product or service by considering multiple factors including, but not limited to, geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. The determination of ESP is made through consultation with and formal approval by the Company’s management.
The Company regularly reviews VSOE and ESP and maintains internal controls over the establishment and updates of these estimates
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INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 2 | - SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
K. | Research and Development: |
Research and development costs are charged to operations as incurred. Grants received (mainly royalty-bearing) from the Government of Israel through the Office of the Chief Scientist (“OCS”) and from other sources, as participation in certain research and development projects. The accrual for grant receivable is determined based on the terms of the projects, provided that the criteria for entitlement have been met.
The grants are not to be repaid, but instead the Company is obliged to pay royalties as a percentage of future sales if and when sales from the funded projects will be generated. These grants are recognized as a deduction from research and development costs at the time the applicable entity is entitled to such grants on the basis of the research and development costs incurred. Since the payment of royalties is not probable when the grants are received, the Company records a liability in the amount of the estimated royalties for each individual contract, when the related revenues are recognized, as part of cost of revenues. For more information regarding OCS royalties’ commitment, see Note 7A.
L | Severance Pay: |
Israeli law and labor agreements determine the obligations of the Company to make severance payments to retiring employees and to employees leaving employment under certain other circumstances. The Company reached an agreement with its employees, according to which they would accept the provisions of Section No.14 of the Severance Compensation Law, 1963 (“Section 14”). Section 14 allows the Company to make deposits in severance pay funds according to the employees’ current salary. Such deposits release the Company from any further obligation with this regard. The deposits made are available to the employee at the time when the employer-employee relationship ends, regardless of cause of termination.
Severance expenses for the years ended December 31, 2014, 2015 and 2016 amounted to approximately $585, $660 and $718 respectively.
M. | Income taxes: |
The Company accounts for income taxes utilizing the asset and liability method in accordance with ACS 740-10, “Accounting for Income Taxes” of the FASB. Accordingly current tax liabilities are recognized for the estimated taxes payable on tax returns for the current year. Deferred tax liabilities or assets are recognized for the estimated future tax effects attributable to temporary differences between the income tax bases of assets and liabilities and their reported amounts in the financial statements and for tax loss carry forwards. Measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax laws, and deferred tax assets are reduced, if necessary, by a valuation allowance for the amount of tax benefits, the realization of which is not considered more-likely-then-not based on available evidence.
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INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 2 | - SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
N. | Concentration of credit risk: |
Financial instruments that potentially subject the Company’s to concentrations of credit risk consist principally of cash and cash equivalents, short and long-term deposits. Cash and cash equivalents, short and long-term deposits are invested in major banks in Israel and in the United States. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.
The Company has no significant off-balance sheet concentration of financial instruments subject to credit risk such as foreign exchange contracts, option contracts or other hedging arrangements.
O. | Stock-based compensation: |
The Company applies the provisions of ASC Topic 718 under which, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite service period.
Fair value is determined on the basis of private placements or other transactions in the Company’s equity securities and on the basis of other available evidence and management’s estimates, with the following weighted-average assumptions (annualized percentages):
Year ended December 31, | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
Risk-free interest rate | 1.63 | % | 1.73 | % | 1.63 | % | |||||||
Expected life of options | 5 | 5 | 5 | ||||||||||
Forfeiture rate | 3 | % | 9 | % | 3.5 | % | |||||||
Expected volatility | 55 | % | 60 | % | 64 | % | |||||||
Expected dividend yield | None | None | None |
Year ended December 31, | |||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||
Risk-free interest rate | 1.6 | % | 1.63 | % | 1.73 | % | |||||||
Expected life of options | 4.25-7 | 5 | 5 | ||||||||||
Forfeiture rate | 3 | % | 3 | % | 9 | % | |||||||
Expected volatility | 55 | % | 55 | % | 60 | % | |||||||
Expected dividend yield | None | None | None |
P. | Fair value of financial instruments: |
The financial instruments of the Company consist mainly of cash and cash equivalents, short and long-term interest-bearing bank deposits, current and non-current accounts receivable and trade accounts payable. In view of their nature, the fair value of the financial instruments is usually identical or close to their carrying amounts.
Q. | New Accounting |
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. This ASU provides updated guidance on eight specific cash flow issues to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments are effective for publicnonpublic business entities for fiscal years beginning after December 15, 2017,2018, and interim periods within thosefor fiscal years.years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company’s management intend to adopt the requirements of this standard effective January 1, 2018 and areCompany is currently evaluating the impact of the adoption on the statement of cash flows.
F-133
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 2 | - SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Q. | New Accounting |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. With respect to assets measured at amortized cost, such as held-to-maturity assets, the update requires presentation of the amortized cost net of a credit loss allowance. The update eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses as opposed to the previous standard, when an entity only considered past events and current conditions. With respect to available for sale debt securities, the update requires that credit losses be presented as an allowance rather than as a write-down. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company’s management intend to adopt the requirements of this standard effective January 1, 2020 and areCompany is currently evaluating the impact of the adoption on the financial condition and results of operations.
In February 2016, the FASB issued ASU 2016-02, Leases, in order to establish the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. This update introduces a new standard on accounting for leases, including a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure.sheet.. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company’s management intend to adopt the requirements of this standard effective January 1, 2019, and areCompany is currently evaluating the impact of the adoption on the financial condition and results of operations but would not expect the update to have a material effect on its financial operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, in order to clarify the principles of recognizing revenue. This standard establishes the core principle of recognizing revenue to depict the transfer of promised goods or services in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services. The FASB defines a five-step process that systematically identifies the various components of the revenue recognition process, culminating with the recognition of revenue upon satisfaction of an entity’s performance obligation. By completing all five steps of the process, the core principles of revenue recognition will be achieved. In March 2016, the FASB issued an update to the new revenue standard (ASU 2014-09) in the form of ASU 2016-08, which amended the principal-versus-agent implementation guidance and illustrations in the new revenue guidance. In April 2016, the FASB issued another update to the new revenue standard in the form of ASU 2016-10, which amended the guidance on identifying performance obligations and the implementation guidance on licensing. These ASUs were followed by two further updates issued during May 2016, including ASU 2016-11, which rescinds certain SEC guidance, such as the adoption of ASUs 2014-09 and 2014-16, including accounting for consideration given by a vendor to a customer, and ASU 2016-12, which is intended to clarify the objective of the collectability criterion while identifying the contract(s) with a customer. The new revenue standard (including updates) will be effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted only as ofnonpublic entities annual reporting periods beginning after December 15, 2016.2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company’s management intendintends to early adopt the requirements of this standard effective January 1, 2018, and, while evaluating2018.Although not completed, the impactCompany started its evaluation of the adoptioneffect of the new revenue recognition standard. Based on the initial evaluation, the Company expects that deliverables in legacy GAAP will be similar to performance obligations under the new standard and as such would not expect a material effect on its financial conditionposition and results of operations, they expect the adoption of this ASU to require the inclusion of additional disclosures surrounding the nature and timing of our revenue.operations.
F-134
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 2 | - SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
Q. | New Accounting |
In November 2016 the FASB issued ASU 2016-18 Statement of Cash Flows - Restricted Cash, the key requirements of the ASU are as follows:
1. | An entity should include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The ASU does not define the terms “restricted cash” and “restricted cash equivalents” but states that an entity should continue to provide appropriate disclosures about its accounting policies pertaining to restricted cash in accordance with other GAAP. The ASU also states that any change in accounting policy will need to be assessed under ASC 250. |
2. | A reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. |
3. | Changes in restricted cash and restricted cash equivalents that result from transfers between cash, cash equivalents, and restricted cash and restricted cash equivalents should not be presented as cash flow activities in the statement of cash flows. |
4. | An entity with a material balance of amounts generally described as restricted cash and restricted cash equivalents must disclose information about the nature of the restrictions. |
5. | For |
In August 2017, the FASB issued Accounting Standard Update (“ASU”) 2017-12 which targets improvements to accounting for hedging activities which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company early adopted this guidance withy no impact on its consolidated financial statements.
NOTE 3 | - INVENTORIES |
Composition:Composition:
December 31, | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
Raw materials | $ | 2,790 | $ | 2,574 | |||||
Finished products | 396 | 2,729 | |||||||
$ | 3,186 | $ | 5,303 |
December 31, | |||||||||
2 0 1 7 | 2 0 1 6 | ||||||||
Raw materials | $ | 4,451 | $ | 2,790 | |||||
Finished products | 1,341 | 396 | |||||||
$ | 5.792 | $ | 3.186 |
F-135
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 4 | - OTHER RECEIVABLES AND CURRENT ASSETS |
Composition:Composition:
December 31, | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
Office of the Chief Scientist | $ | 417 | $ | 1,320 | |||||
Prepaid expenses | 705 | 612 | |||||||
Governmental authorities (Mainly V.A.T) | 203 | 182 | |||||||
Others | 647 | 303 | |||||||
$ | 1,972 | $ | 2,417 |
December 31, | |||||||||
2 0 1 7 | 2 0 1 6 | ||||||||
Office of the Chief Scientist | $ | 235 | $ | 417 | |||||
Prepaid expenses | 700 | 705 | |||||||
Governmental authorities (Mainly V.A.T) | 451 | 203 | |||||||
Others | 1,379 | 647 | |||||||
$ | 2,765 | $ | 1,972 |
NOTE 5 | - FIXED ASSETS, NET |
Composition:Composition:
December 31, | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
Cost: | |||||||||
Electronic and medical equipment | $ | 7,292 | $ | 6,869 | |||||
Demo systems | 555 | 555 | |||||||
Office furniture and equipment | 495 | 445 | |||||||
Leasehold improvements | 1,758 | 1,753 | |||||||
$ | 10,100 | $ | 9,622 | ||||||
Accumulated depreciation: | |||||||||
Electronic and medical equipment | $ | 6,559 | $ | 6,212 | |||||
Demo systems | 555 | 555 | |||||||
Office furniture and equipment | 388 | 370 | |||||||
Leasehold improvements | 1,748 | 1,742 | |||||||
$ | 9,250 | $ | 8,879 | ||||||
Net book value | $ | 850 | $ | 743 |
December 31, | |||||||||
2 0 1 7 | 2 0 1 6 | ||||||||
Cost: | |||||||||
Electronic and medical equipment | $ | 9,906 | $ | 7,292 | |||||
Demo systems | 555 | 555 | |||||||
Office furniture and equipment | 570 | 495 | |||||||
Leasehold improvements | 2,083 | 1,758 | |||||||
$ | 13,114 | $ | 10,100 | ||||||
Accumulated depreciation: | |||||||||
Electronic and medical equipment | $ | 7,131 | $ | 6,559 | |||||
Demo systems | 555 | 555 | |||||||
Office furniture and equipment | 419 | 388 | |||||||
Leasehold improvements | 1,779 | 1,748 | |||||||
$ | 9,884 | $ | 9,250 | ||||||
Net book value | $ | 3,230 | $ | 850 |
Depreciation expense amounted to$170391 and $391$404 and $404$651 for the years ended December 31, 2014, 2015, 2016 and 2016,2017, respectively.
NOTE 6 | - OTHER PAYABLES AND CURRENT LIABILITIES |
Composition:Composition:
December 31, | |||||||||
2 0 1 7 | 2 0 1 6 | ||||||||
Payroll and related amounts | $ | 4,950 | $ | 4,294 | |||||
Advances and deferred income | 5,578 | 4,205 | |||||||
Accrued expenses to clinical researches | 3,263 | 3,320 | |||||||
Accrued for royalties | 742 | 615 | |||||||
Accrued commission | 708 | 390 | |||||||
Other accrued expenses | 3,546 | 1,696 | |||||||
Net book value | $ | 18,787 | $ | 14,520 |
December 31, | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
Payroll and related amounts | $ | 4,294 | $ | 2,708 | |||||
Advances and deferred income | 4,205 | 4,201 | |||||||
Accrued expenses to clinical researches | 3,320 | 2,391 | |||||||
Accrued for royalties | 615 | 426 | |||||||
Accrued commission | 390 | 345 | |||||||
Other accrued expenses | 1,696 | 914 | |||||||
Net book value | $ | 14,520 | $ | 10,985 | |||||
F-136
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 7 | - COMMITMENTS AND CONTINGENT LIABILITIES |
As of December 31, |
These restrictions may impair the Company’s ability to sell its technology assets (know-how) or to outsource manufacturing and the restrictions continue to apply even after the Company has paid the full amount of royalties, payable for the grants. In addition, the restrictions may impair the Company’s ability to consummate a merger or similar transaction in which the surviving entity is not an Israeli company.
The total amounts of grants received or were entitled to receive net of royalties paid or accrued including interest as of December 31, 20162017 was approximately $34,509.$35,878.
Royalty expenses to the OCS in the year ended December 31, 2014, 2015, 2016 and 2016,2017, amounted to $790, $565 and $877,$1,123, respectively and included in cost of revenues.
The Company rents its facilities under various operating lease agreements, which expire on various dates. In March 2005 the Company signed an operating lease agreement for its main facility in Israel which was amendment several times. The Last amendment was in December 2015, according to which the Company extended the leased in the same building for a period of 3 years until March 2019. |
The minimum rental payments (assuming no exercise of extension options in the agreements) are as follows:
Year | |||||
2017 | $ | 1,523 | |||
2018 | $ | 1,518 | |||
2019 | $ | 576 | |||
2020 | $ | 115 |
Year | |||||
2018 | $ | 1,603 | |||
2019 | $ | 739 | |||
2020 | $ | 384 | |||
2021 | $ | 384 |
Rental expense for the facilities amounted to $1,278, $1,272, $1,285 and $1,285$1,611 for the years ended December 31, 2014, 2015, 2016 and 2016,2017, respectively.
The Company leases vehicles under various operating lease agreements, which expire on various dates. The minimum rental payment is $137$147 which was already paid and included as part of short-term and long-term prepaid expenses in the balance sheet.
Vehicle lease expense amounted to $739, $766, $804 and $804$1,030 for the years ended December 31, 2014, 2015, 2016 and 2016,2017, respectively.
F-137
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 7 | - COMMITMENTS AND CONTINGENT LIABILITIES |
C. | In October 17, 2012 Technology, Co-operation, and Distribution Agreement, between the Company and GE (the “2012 Distribution Agreement”) was signed in which GE Company was awarded world-wide distribution rights for marketing and sales of the Company’s products. |
At a subsequent closing of the Series D Transaction (December 30, 2015), the Company and GE executed a third amendment to the 2012 Distribution Agreement, pursuant to which the Company was appointed as a non-exclusive distributer for GEHC’s MR Scanners in order for the Company to sell the scanners as an Integrated Therapy Platform (ITP) together with the Company’s products. In addition, the last remaining rights granted to GE to receive royalties payments from the Company was revoked and the term of the 2012 Distribution Agreement was extended for a period of five years from December 30, 2015.
In connection with the initial closing of the Series E Transaction (December 27, 2017) specified below, the Company and GE executed a fourth amendment to the 2012 Distribution Agreement, pursuant to which the Company is no longer authorized to serve as a non-exclusive distributer for GEHC’s MR Scanners in conjunction with the Company’s products as an Integrated Therapy Platform (ITP). In addition, the fourth amendment: (i) Makes changes to the applicable procedures for adding new products to the 2012 Distribution Agreement such that all new products will automatically be added to the agreement and thereafter the parties will have 60 days to agree upon pricing terms; (ii) Provides that “other MRI system original equipment manufacturers (OEMs)” to third parties and the Company’s dealers are to be included in the Company’s obligation to ensure that the transfer price for GE is lower than the lowest applicable price in the applicable territory; (iii) Provides that GE is no longer permitted to sell competing MRgFUS products in certain circumstances; and (iv) Includes a new provision which provides that, subject to GE giving the Company access to scanners for integration and validation and providing support for approving InSightec coils, InSightec will complete the compatibility, verification and testing between the (a) InSightec neuro system and GE’s Artist and Architect MRI systems by December 31, 2017; and (b) the Company’s “table top” neuro system and GE’s Premier (Rio) MRI system by June 30, 2018.
D. | The FUS Foundation (“FUSF”), a non-profit organization, whose mission is to develop new applications and accelerate the worldwide adoption of MRgFUS through research programs with leading research institutions. |
The FUSF agreed to finance the stage 1 Neuro research treatments during these years.
Expenses related to the FUSF support for the years ended December 31 2014, 2015 and 2016, amounted to $424, $247 and $ 152 respectively.
E. | On August 11, 2016 the Company entered into a non-exclusive Cooperation Agreement with Siemens Healthcare GmbH. In accordance with this Agreement the Company and Siemens will collaborate regarding R&D and the development of integration and system compatibility between the Siemens MR scanners and the Company’s therapy platforms. Upon the completion of the integration and system compatibility, each party will market and sell its component portion of the combined system. Each party will also provide end user support, warranty and maintenance services with regard to its component portion of the combined system. The term of the agreement commenced on the August 11, 2016 and will continue for a period of five years from the first commercial sale of the combined system (as defined in the agreement), and shall automatically renew for additional one year periods. |
F-138
The registered share capital of the Company is NIS 3,030,000 divided into (a) 175,000,000 Ordinary Shares, having a par value of NIS 0.01 each; (b) 51,000,000 Series D Preferred Shares, having a par value of NIS 0.01 each, (c) 29,000,000 Series C Preferred Shares, having a par value of NIS 0.01 each, (d) 15,000,000 Series B Preferred Shares, having a par value of NIS 0.01 each, and (e) 33,000,000 Series B-1 Preferred Shares, having a par value of NIS 0.01 each.
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 8 | - SHAREHOLDERS’ EQUITY |
Registered Share Capital: |
The registered share capital of the Company is NIS 4,215,828 divided into (a) 243,380,611 Ordinary Shares, having a par value of NIS 0.01 each; (b) 55,970,149 Series E Preferred Shares, having a par value of NIS 0.01 each, (c) 48,473,238 Series D Preferred Shares, having a par value of NIS 0.01 each, (d) 27,519,390 Series C Preferred Shares, having a par value of NIS 0.01 each, (e) 14,037,888 Series B Preferred Shares, having a par value of NIS 0.01 each, and (f) 32,201,524 Series B-1 Preferred Shares, having a par value of NIS 0.01 each.
B. | Series E Transaction: |
On December 13, 2017 the Company entered into a Series E Preferred Share Purchase Agreement with KDT Medical Investments Corporation (“KDT”), pursuant to which KDT and subsequent investors (including shareholders of the Company) invested a total sum of $150 million in the Company, at a price per share equals to $2.68 (the “Series E Transaction”) in consideration for 55,970,149 Series E Preferred Shares. The Series E Transaction was consisted of two closings: Initial closing, in which the Company raised approximately $90 million and subsequent closing, in which the Company raised approximately $60 million. [TBC following the Second Closing]
The Series E Transaction reflects a pre-money valuation for Insightec of approximately USD460 million (on a fully-diluted basis).
Holders of Preferred Stock shall have preferred rights in the event of a dividend distribution and certain material events as set forth in the transaction documents.
Following the consummation of the Series E Transaction
C. | Series D Transaction: |
On June 26, 2014 the Company entered into a Series D Preferred Share Purchase Agreement with York, as amended on September 7, 2014, on December 15, 2014, on February 10, 2015, on June 10, 2015 and on December 30, 2015 pursuant to which York and subsequent investors invested a total sum of $84.5 million in the Company, at a price per share equals to $1.94 (the “Series D Transaction”) in consideration for 43,564,282 Series D Preferred Shares.
Series D price per share was adjusted and reduced by 8% to $1.78. Therefore, on February 29, 2016 the investors of the Series D Transaction were issued additional 3,788,198 Series D Preferred Shares.
The Series D Transaction reflected a pre-money valuation (prior to the first Series D investment consummated on June 2014) of the Company of $200 million (on a fully diluted, as-converted basis).
In addition, Dr. Ferré was granted the right to invest an additional $2 million, at the same terms of the Series D Transaction, for the purchase of Series D preferred shares of the Company (in addition to the amounts invested under the Series D Transaction described above). Such right should have expired on the earlier of: (i) June 15, 2016; (ii) the date of consummation of an initial public offering (IPO) of the Company; or (iii) sale of the Company or its assets.
The Company’s board and the Company’s shareholders approved on June 8, 2016 and on June 15, 2016, respectively, the extension of Dr. Ferré right through June 30, 2016 and the assignment of the right by Dr. Ferré to certain investors. Accordingly, on June 30, 2016, certain investors exercised such right which was assigned to them, and purchased a total of 1,120,760 Series D Preferred Shares for total investment of $2 million.
The Series D Transaction reflected a pre money valuation (prior to the first Series D investment consummated on June 2014) of the Company of $200 million (on a fully diluted, as-converted basis).F-139
Since the Company’s aggregate revenues for 2014 and 2015 as reflected in its annual audited financial statements for such years were less than $60,000,000, pursuant to the terms of the Series D Transaction, the Series D price per share was adjusted and reduced by 8% to $1.78. Therefore, on February 29, 2016 the investors of the Series D Transaction were issued additional 3,788,198 Series D Preferred Shares.
Under the Series D Transaction, the parties have agreed to amend the AOA pursuant to which the maximum number of directors increased to 12, of which each of York and Elbit Medical (collectively, the “Major Securityholders”), will be entitled to appoint two persons as long as they hold in the aggregate 12.5% or more of the outstanding capital stock of the Company on an as-converted basis, and one person so long as such Major Securityholder, beneficially holds less than 12.5% but 5% or more of the outstanding capital stock of the Company on an as-converted basis. In addition, the Major Securityholders will be entitled to jointly appoint four additional directors. GE will be entitled to appoint one director as long as it holds 2.5% or more of the outstanding capital stock of the Company on an as-converted basis GEOC will be entitled to appoint one director as long as it holds 3% or more of the outstanding capital stock of the Company on an as-converted basis. Focused Holdings LP will be entitled to appoint one director as long as Focused Holdings LP and Focused Holdings Canada Limited hold, together with their respective affiliates, 5% or more of the outstanding capital stock of the Company on an as-converted basis.
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 8 | - SHAREHOLDERS’ EQUITY (Cont.) |
The Company’s CEO shall also serve as a director. For so long as Elbit and York hold together an aggregate of at least 50.01% of the Shares then issued and outstanding, the Designated Directors they have appointed will have the right to jointly and unanimously appoint the Company’s Chief Executive Officer subject to any additional requirements provided by Law.
General Provisions: |
(1) | Series |
(2) | Each Ordinary Share and each Preferred Share shall confer upon its holder the right to receive notices of, and to attend and vote in General Meetings. Each holder of Ordinary Shares shall have one vote for each Ordinary Share held by him. Each holder of Preferred Shares shall have one vote for each Ordinary Share into which the Preferred Shares held by such holder may be converted. |
(3) | The Company’s Amended and Restated Articles of Association (the “AOA”) provides, inter alia, for (i) special majority requirements with respect to certain resolutions, e.g. dividend distribution, issuance of shares ranking equal or senior to the Preferred Shares, material change in the line of |
(4) | According to the AOA, the holders of the Preferred Shares are entitled, inter alia, to a ‘dividend preference’, to the extent such dividend is declared by the Board of Directors of the Company, and a ‘liquidation preference’ in the events stipulated thereunder. |
(5) | The AOA further provides that the holders of the Preferred Shares have the right, at any time, to convert all or any of the shares held by them into Ordinary Shares and that automatic conversion shall apply in certain circumstances. |
NOTE 9 | - STOCK OPTION PLANS |
As of December 31, 2016, 30,699,0152017, 34,438,755 options are outstanding under all the Company’s options plans.
A. | 2006 Option Plan (“2006 Original Plan”) and 2006 Revised Option Plan (“2006 Revised Plan”): |
On January 30, 2006 the Company’s Board of Directors approved and adopted an option plan to employees, officers, directors and consultants (“2006 Original Plan”).
On December 3, 2012 the Company’s Shareholders approved, following the Board’s approval, to amend 2006 Plan (“2006 Revised Plan”) and to adopt US Annex. The total number of options reserved for issuance under the 2006 Revised Plan is 35,000,000 out of which 20,000,000 options reserved under the US Annex.
The vesting period of the options granted prior to December 11, 2014, under 2006 Revised Plan and US Annex is as follows: 25% of the Options shall become vested each year on the anniversary of the Grant Date (such that the Options shall become fully vested on the fourth anniversary of the Grant Date). The options granted under this plan expire after seven years from the Grant Date.
F-140
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 9 | - STOCK OPTION PLANS (Cont.) |
A. | 2006 Option Plan (“2006 Original Plan”) and 2006 Revised Option Plan (“2006 Revised Plan”)(Cont.): |
On December 11, 2014 the Company’s Shareholders approved, following the Board’s approval, to amend the 2006 Revised Plan and the US Annex in order to include a cashless exercise mechanism. In addition, according to such amendment the vesting period of the options granted under 2006 Revised Plan and US Annex is as follows: 50% of the Options shall become vested on the second anniversary of the Grant Date, additional 25% of the Options shall become exercisable on the third anniversary of the Grant Date, and additional 25% of the Options shall be exercisable on the fourth anniversary of the Grant Date (such that the Options shall be fully vested on the fourth anniversary of the Grant Date).
On March 28, 2017 the Company’s Shareholders approved, following the Board’s approval, to amend the 2006 Revised Plan and the US Annex and to extend the term of all options granted under 2006 Revised Plan by three years (the “Extension”). Following the Extension, the revised term of the Options will be 10 years from the Commencement Date, as such term defined under the 2006 Revised Plan. The Extension would apply to all options granted with the exception of options granted to employees who ceased to be employed by the Company prior to February 7, 2017 and have not exercised their options as of this date. For the avoidance of any doubt, the Extension will apply to options granted to directors, who ceased to be directors of the Company prior to February 7, 2017, which were not expired as of the date of the above shareholders resolution.
B. | Grant of Options: |
On December 11, 2014, the Company granted 6,771,612 and 1,354,322 options to Dr. Ferré and Mr. Delevic, respectively, reflecting 5% and 1% of the Company’s fully diluted share capital on the date of the closing of the Subsequent Investment (as such term is defined in the Series D Transaction), pursuant to a Service Agreement between the Company and Crandon Capital Partners LLC (“Crandon”), dated December 15, 2014, under which Crandon will provide the Company certain services (“Services”), including Chairman of the Board, through Dr. Maurice R. Ferré and active director services, through Mr. Ivan Delevic (the “Services Agreement”).
The exercise price per share shall be equal to the original issue price of the Series D Preferred Shares ($1.94 which was reduced to $1.78). Such options shall vest as follows: (i) 25% of the options shall vest on January 1, 2015; (ii) 25% shall vest on January 1, 2016; and (iii) 50% shall vest upon the achievement of certain goals and milestones (as specified in the grant letter). The options were granted under the 2006 Revised Plan, except as modified under the CEO Employment Agreement in the event of a Change in Control or termination, and in accordance with the terms of the grant letter. The value of the benefit calculated under the Black-Scholes formula, is about $5.6 million.
On December 28, 2015, the Company granted an option to purchase 250,000 Ordinary Shares of the Company to Dr. Kobi Vortman, the Company’s CEO at that time and currently an executive vice chairman of the Board. The grant date of the options shall be January 1, 2016. The exercise price per share shall be $1.94 (which was reduced to $1.78). The options shall vest as follows: (i) 25% of the options shall have immediate vesting upon allocation; (ii) 25% shall vest one year after the grant date; and (iii) 50% shall vest upon the achievement of certain goals and milestones (as specified in the grant letter). The options were granted under the 2006 Revised Plan and in accordance with the terms of the grant letter, which will providesprovide a cashless exercise mechanism. The value of the benefit calculated under the Black-Scholes formula, is about $174.
F-141
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 9 | - STOCK OPTION PLANS (Cont.) |
B. | Grant of Options: (Cont.) |
Furthermore, the Company granted 180,000 and 500,000 Restricted Shares Units (the “RSUs”), representing 180,000 and 500,000 Ordinary Shares of the Company, to Dr. Ferré and to Mr. Jun Tao (who serves as Senior VP of strategic Marketing & Business Development of the Company), respectively, which was granted effectively on June 15, 2016. Such RSUs shall expire on the earlier of: (i) June 30, 2019; or (ii) the effective date of the termination of services or employment, as applicable. Each RSU granted shall vest upon the achievement of certain goals and milestones (as specified in the grant letter). The grantees shall not pay any consideration for converting the granted RSUs to Shares. The RSUs granted to Dr. Ferre are subject to the terms described above, except as modified under the CEO Employment Agreement in the event of a Change in Control or termination.
Additionally, the Company granted to Dr. Ferré and to Mr. Jun Tao 7,114,096 and 1,500,000 options, respectively, each option to purchase one Ordinary Share of the Company, at an exercise price per share of $12.57 and $1.78, respectively, which was granted effectively on June 15, 2016 and on June 6, 2016, respectively.
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
Dr. Ferré’s options shall vest as follows: (i) 25% of the options were vested on January 1, 2017; (ii) 25% shall vest on January 1, 2018; (iii) 50% shall vest upon the achievement of certain goals
and milestones (as specified in the grant letter)... The options were granted under the 2006 Revised Plan and in accordance with the terms of the grant letter. The options granted to Dr. Ferre are subject to the terms described above, except as modified under the CEO Employment
Agreement in the event of a Change in Control or termination. The value of the benefit calculated under the Black&Scholes formula, is about $315.
On September 12, 2016, the Company granted an option to purchase 100,000 Ordinary Shares of the Company to each of Mr. Eugene Saragnese and Mr. Tom Gentile at an exercise price per share of $1.78. The vesting period of such options shall be one year, such that the options shall be fully vested on the first anniversary of their grant date. The options were granted under the Amended and Restated 2006 Stock Option Plan and the US Annex and in accordance with the terms of the grant letter. The value of the benefit calculated under the Black-Scholes formula, is about $29.
The value of the benefit calculated under the Black-Scholes formula, is about $29.
On March 2017, the Company approved to each of the following directors: Jeremy Blank, Morry Blumenfeld, Ron Hadasi, Boaz Lifschitz and Howard Chu a grant of 30,000 options (“Directors Options”), each option to purchase one Ordinary Share of the Company, at an exercise price per share of $1.30. 50% of the Options shall become vested 2 years after the Grant Date and additional 25% each year thereafter (i.e. on the 3rd and 4th anniversary of the Grant Date (as defined below), such that the Directors Options shall be fully vested on the fourth anniversary of the Grant Date). The Directors Options shall be granted under 2006 Revised Plan and the US Annex. The grant of the options to each director is subject to the approval of each shareholder that appointed the director. The Grant Date of the Directors Options (“Grant Date”) shall be the later of: (i) the date of the approval of the Company’s shareholders meeting, and: (ii) the date of the approval of the shareholder who appointed the director. The Company received the approval of the shareholders appointed Morry Blumenfeld and Howard Chu.
F-142
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 9 | - STOCK OPTION PLANS (Cont.) |
B. | Grant of Options: (Cont.) |
On December 27, 2017, as part of finder’s fee consideration in connection with the Series E Transaction, the Company issued such finder a warrant to purchase 1,995,240 Ordinary Shares of the Company (the “Warrant”). The Warrant shall be exercisable, in whole or in part, at any time during the period commencing December 27, 2017 and ending on the earliest of: (i) December 31, 2024; (ii) immediately prior to consummation of an Exit Event; and (iii) immediately prior to consummation of an IPO, as such terms defined in the Warrant. The exercise price per share shall be $2.68 and the Warrant also includes a cashless exercise mechanism.
In addition, during 2014, 2015, 2016 and 20162017 additional options were granted to new and current employees, officers and officers.others.
C. | Fair |
The weighted average fair value (in dollars) of the options granted during 2014, 2015, 2016 and 20162017 according to Black-Scholes option-pricing model, amounted to $0.62, $0.7, $0.15 and $0.15 per$0.04per option, respectively. Fair value was determined on the basis of private placements of the Company’s equity securities and on the basis of other available evidence and management’s estimates.
D. | A summary of the status of the Company’s share option plans as of December 31, 2014, 2015 and 2016, as well as changes during each of the years and period then ended, is presented below: |
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | ||||||||||||||||||||||
Share options | Weighted average exercise price | Share options | Weighted average exercise price | Share options | Weighted average exercise price | |||||||||||||||||||
(US dollars) | (US dollars) | (US dollars) | ||||||||||||||||||||||
Outstanding - beginning of year | 23,803,919 | 1.50 | 23,533,919 | 1.49 | 11,998,500 | 1.26 | ||||||||||||||||||
Granted | 9,194,096 | 10.13 | 500,000 | 1.94 | 12,706,718 | 1.67 | ||||||||||||||||||
Cancelled | (2,179,000 | ) | 1.84 | (230,000 | ) | 1.87 | (1,131,549 | ) | 1.12 | |||||||||||||||
Exercised | (120,000 | ) | 1.12 | - | (39,750 | ) | 1.12 | |||||||||||||||||
Outstanding - year end | 30,699,015 | 4.06 | 23,803,919 | 1.50 | 23,533,919 | 1.49 | ||||||||||||||||||
Options exercisable year end | 15,432,993 | 1.40 | 10,905,764 | 1.56 | 3,866,050 | 1.52 |
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||||||||||||||
Share options | Weighted average exercise price | Share options | Weighted average exercise price | Share options | Weighted average exercise price | ||||||||||||||||||||
(US dollars) | (US dollars) | (US dollars) | |||||||||||||||||||||||
Outstanding - beginning of year | 30,699,015 | 4.06 | 23,803,919 | 1.50 | 23,533,919 | 1.49 | |||||||||||||||||||
Granted | 3,986,240 | 1.99 | 9,194,096 | 10.13 | 500,000 | 1.94 | |||||||||||||||||||
Cancelled | (182,250 | ) | 0.92 | (2,179,000 | ) | 1.84 | (230,000 | ) | 1.87 | ||||||||||||||||
Exercised | (64,250 | ) | 0.92 | (120,000 | ) | 1.12 | - | ||||||||||||||||||
Outstanding - year end | 34,438,755 | 3.84 | 30,699,015 | 4.06 | 23,803,919 | 1.50 | |||||||||||||||||||
Options exercisable year end | 22,322,450 | 1.88 | 15,432,993 | 1.40 | 10,905,764 | 1.56 |
F-143
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 9 | - STOCK OPTION PLANS (Cont.) |
E. | The following table summarizes information about share options outstanding as of December 31, |
Outstanding as of December 31, 2015 | Exercisable as of December 31, 2015 | |||||||||||||||||||||
Range of exercise prices | Number outstanding | Weighted average remaining contractual life | Weighted average exercise price | Number exercisable | Weighted average exercise price | |||||||||||||||||
(US dollars) | (in years) | (US dollars) | (US dollars) | |||||||||||||||||||
0.0025 | 25,000 | 1.2 | 0.0025 | 25,000 | 0.0025 | |||||||||||||||||
1.12 | 14,490,985 | 4.3 | 1.12 | 6,618,297 | 1.12 | |||||||||||||||||
1.94 | 8,995,934 | 5.9 | 1.94 | 3,970,467 | 1.94 | |||||||||||||||||
6 | 42,000 | 1.2 | 6 | 42,000 | 6 | |||||||||||||||||
6.6 | 250,000 | 1 | 6.6 | 250,000 | 6.6 | |||||||||||||||||
23,803,919 | 10,905,764 |
Outstanding as of December 31, 2017 | Exercisable as of December 31, 2017 | ||||||||||||||||||||
Range of exercise prices | Number outstanding | Weighted average remaining contractual life | Weighted average exercise price | Number exercisable | Weighted average exercise price | ||||||||||||||||
(US dollars) | (in years) | (US dollars) | (US dollars) | ||||||||||||||||||
0.92 | 12,391,485 | 5.4 | 0.92 | 11,893,735 | 0.92 | ||||||||||||||||
1.30 | 12,934,934 | 7.6 | 1.30 | 6,651,951 | 1.30 | ||||||||||||||||
2.68 | 1,995,240 | 7 | 2.68 | 1,995,240 | 2.68 | ||||||||||||||||
6-12.57 | 7,117,096 | 8.5 | 12.56 | 1,781,524 | 12.56 | ||||||||||||||||
34,438,755 | 22,322,450 |
Outstanding as of December 31, 2016 | Exercisable as of December 31, 2016 | |||||||||||||||||||||
Range of exercise prices | Number outstanding | Weighted average remaining contractual life | Weighted average exercise price | Number exercisable | Weighted average exercise price | |||||||||||||||||
(US dollars) | (in years) | (US dollars) | (US dollars) | |||||||||||||||||||
0.0025 | 25,000 | 0.3 | 0.0025 | 25,000 | 0.0025 | |||||||||||||||||
1.12 | 12,480,985 | 3.4 | 1.12 | 9,000,543 | 1.12 | |||||||||||||||||
1.78 | 10,205,934 | 5.2 | 1.78 | 6,094,450 | 1.78 | |||||||||||||||||
1.94 | 870,000 | 5.4 | 1.94 | 310,000 | 1.94 | |||||||||||||||||
6-12.57 | 7,117,096 | 6.5 | 12.56 | 3,000 | 6 | |||||||||||||||||
30,699,015 | 15,432,993 | 1.4 |
Outstanding as of December 31, 2016 | Exercisable as of December 31, 2016 | ||||||||||||||||||||
Range of exercise prices | Number outstanding | Weighted average remaining contractual life | Weighted average exercise price | Number exercisable | Weighted average exercise price | ||||||||||||||||
(US dollars) | (in years) | (US dollars) | (US dollars) | ||||||||||||||||||
0.0025 | 25,000 | 0.3 | 0.0025 | 25,000 | 0.0025 | ||||||||||||||||
1.12 | 12,480,985 | 3.4 | 1.12 | 9,000,543 | 1.12 | ||||||||||||||||
1.78 | 10,205,934 | 5.2 | 1.78 | 6,094,450 | 1.78 | ||||||||||||||||
1.94 | 870,000 | 5.4 | 1.94 | 310,000 | 1.94 | ||||||||||||||||
6-12.57 | 7,117,096 | 6.5 | 12.56 | 3,000 | 6 | ||||||||||||||||
30,699,015 | 15,432,993 | 1.4 |
Total estimated share-based compensation expense, related to all of the Company’s share-based awards, recognized in the year ended December 31, 20162017 and 20152016 was comprised as follows:
Year ended December 31, | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
Cost of revenues | $ | 72 | $ | 73 | |||||
Research and development | 672 | 684 | |||||||
Sales and marketing | 257 | 445 | |||||||
General and administrative | 1,212 | 3,049 | |||||||
Total share-based compensation expense | $ | 2,213 | $ | 4,251 |
Year ended December 31, | |||||||||
2 0 1 7 | 2 0 1 6 | ||||||||
Cost of revenues | $ | 48 | $ | 72 | |||||
Research and development | 396 | 672 | |||||||
Sales and marketing | 228 | 257 | |||||||
General and administrative | 1,088 | 1,212 | |||||||
Total share-based compensation expense | $ | 1,760 | $ | 2,213 |
F-144
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 10 | - INCOME TAXES |
A. | Law for the Encouragement of Capital Investments-1959: |
In January 6, 2011 an amendment to the Law for the Encouragement of Capital Investment-1959 (the “Law”) was published. The amendment has a substantial effect on the current provisions of the Law. The followings are the major changes in the amendment:
The tax rates applicable to Approved Industrial Enterprise would be 6% and 12% for those located in Preferred Area A or elsewhere, respectively, with effectiveness for the taxable year 2 of 2015 and onwards. Prior to 2015 the following tax rates will be applicable:
For the years 2011-2012 10% and 15%, respectively and for the years 2013-2014 7% and 12.5%, respectively. The amendment to the law is not expected to have material impact on the Company’s consolidated financial statements.
B. | Law for the Encouragement of Industry (Taxation), 1969: |
The Company is an “Industrial Company” under the Law for the Encouragement of Industry (Taxation), 1969 and, therefore, is entitled to certain tax benefits, mainly accelerated rates of depreciation and the right to deduct public issuance expenses for tax purposes.
C. | Deferred Taxes: |
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The Company has accumulated losses for Israeli tax purposes as of December 31, 20162017 in the amount of approximately $230,000.$300,000.
The Israeli tax loss carry forwards have no expiration date. The Company expects that during the period these losses are utilized, its undistributed earnings will be tax exempt. Since the Company has no intention to distribute such earnings, there will be no tax benefit available from such tax losses and no deferred taxes have been included in these financial statements for these losses.
D. | Tax rates applicable to the Company: |
The corporate tax rate in Israel is 26.5%25% and 24% in 20142016 and 2015.2017.
InOn August 5, 2013 the Israeli parliament (the Knesset) passed the Law for Changes in National Priorities (Legislative Amendments for Achieving Budget Objectives in the Years 2013 and 2014) - 2013, by which, inter alia, the corporate tax rate would be raised by 1.5% to a rate of 26.5% as from 2014. On January 4, 2016, the Knesset plenum approved a legislationbill to amend the Income Tax Ordinance, including a reduction in corporate income tax lawby 1.5% from 26.5% to 25%, as offrom January 1, 2016 to 25% (1.5% decrease).2016.
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DollarsUnder an amendment enacted in thousands, except shareDecember 2016 to the Israel Income Tax Ordinance of 5721-1961, or the Tax Ordinance, the corporate tax rate will decrease to 24% for 2017 and per share data)23% for 2018 and thereafter.
E. | Tax Assessments: |
The Company and InSightec Inc. have not received final tax assessments since inception. The Company and InSightec Inc. have tax assessments considered final through the year 20112012 and 2012,2013, respectively. InSightec Japan Y.K. had final tax assessment through the year 2011.2012.
In light of losses for both financial reporting and tax purposes for all years presented, a reconciliation of the effective income tax rate has not been presented.
F-145
INSIGHTEC LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
NOTE 11 | - GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS |
A. | Geographic information: |
Year ended December 31, | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
% | % | % | |||||||||||
Revenues: | |||||||||||||
America | 43 | 23 | 21 | ||||||||||
Europe | 13 | 38 | 35 | ||||||||||
ROW | 44 | 39 | 44 |
Year ended December 31, | |||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||
% | % | % | |||||||||||
Revenues: | |||||||||||||
America | 43 | 43 | 23 | ||||||||||
Europe | 23 | 13 | 38 | ||||||||||
ROW | 34 | 44 | 39 |
B. | Revenues by major customers: |
Year ended December 31, | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
% | % | % | |||||||||||
Customer A | 10 | 34 | 31 | ||||||||||
Customer B | 9 | 12 | 10 | ||||||||||
Year ended December 31, | |||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||
% | % | % | |||||||||||
Customer A | 14 | 10 | 34 | ||||||||||
Customer B | 8 | 9 | 12 |
C. | Fixed assets:Substantially all fixed assets are located in Israel. |
NOTE 12 | - TRANSACTIONS AND BALANCES WITH RELATED PARTIES |
A. | Transactions: |
Year ended December 31, | |||||||||||||
2 0 1 6 | 2 0 1 5 | 2 0 1 4 | |||||||||||
Revenues | $ | - | $ | 4,811 | $ | 7,083 | |||||||
Cost of revenues | $ | - | $ | 254 | $ | 302 | |||||||
Research and development costs (14.C) | $ | - | $ | - | $ | 30 | |||||||
Sales and marketing | $ | - | $ | - | $ | - |
Year ended December 31, | |||||||||||||
2 0 1 7 | 2 0 1 6 | 2 0 1 5 | |||||||||||
Revenues | $ | - | $ | - | $ | 4,811 | |||||||
Cost of revenues | $ | - | $ | - | $ | 254 | |||||||
Research and development costs (14.C) | $ | - | $ | - | $ | - | |||||||
Sales and marketing | $ | - | $ | - | $ | - |
B. | Balances: |
December 31, | |||||||||
2 0 1 6 | 2 0 1 5 | ||||||||
Trade accounts receivables | $ | - | $ | 1,905 | |||||
Trade accounts payables | $ | - | $ | - |
December 31, | |||||||||
2 0 1 7 | 2 0 1 6 | ||||||||
Trade accounts receivables | $ | - | $ | - | |||||
Trade accounts payables | $ | - | $ | - |
F-146
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to hereby sign this annual report on its behalf.
Elbit Imaging Ltd. | ||
Date: | By: | /s/ Ron Haddasi |
Name: | Ron Haddasi | |
Title: |