Exhibit 2
ELSCINT LIMITED
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
(UNAUDITED)
Elscint Limited and Subsidiary Companies
Condensed Consolidated Financial Statements as of March 31, 2003 (Unaudited)
- --------------------------------------------------------------------------------
CONTENTS
Page
--------
Review Report of Condensed Consolidated Financial Statements 2
Condensed Consolidated Balance Sheets 3-4
Condensed Consolidated Statements of Operations 5-6
Condensed Consolidated Statements of Shareholders' Equity 7-8
Condensed Consolidated Statements of Cash Flows 9-12
Notes to the Condensed Consolidated Financial Statements 13-17
The Board of Directors
Elscint Limited
Review report of unaudited condensed consolidated financial statements
for the three-months period ended March 31, 2003
At your request, we reviewed the interim consolidated balance sheet of Elscint
Limited and its subsidiaries as of March 31, 2003, and the related condensed
consolidated statements of operations, shareholders' equity and cash flows for
the three-months period then ended.
Our review was made in accordance with the procedures prescribed by the
Institute of Certified Public Accountants in Israel, and included, inter-alia,
reading the aforementioned interim consolidated financial statements, reading
the minutes of the Shareholders' Meetings and of the Board of Directors and its
committees, and making inquiries of persons responsible for financial and
accounting matters.
The review reports of certain subsidiaries, including those consolidated by the
proportionate consolidation method, whose assets as of March 31, 2003 constitute
74% of the total consolidated assets and whose revenues for the three months
then ended constitute 100% of the total consolidated revenues, have been
reviewed by other auditors. Furthermore, the data included in the financial
statements relating to net asset value of the Company's investments in affiliate
and to its equity in its operating results is based on the financial statements
of such affiliate, which was reviewed by another auditor.
The foregoing procedures, which are limited in scope, do not constitute an
examination made in accordance with generally accepted auditing standards.
Therefore, we do not express an opinion on the interim consolidated financial
statements.
In the course of our review, including the reading of the review reports of the
other auditors referred to above, nothing came to our attention which would
indicate the necessity of making material changes to the interim consolidated
financial statements in order for them to be in conformity with generally
accepted accounting principles in Israel.
As discussed in Note 4 to the accompanying consolidated financial statements,
the Company is defendant in lawsuits and was served with additional claims out
of which two claims were filed in Israel with a request for a recognition as
representative claims.
Somekh Chaikin
Certified Public Accountants (Isr.)
Haifa, May 29, 2003
Elscint Limited and Subsidiary Companies
Condensed Consolidated Balance Sheets
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Convenience
translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
---------- ------ ------------
(Unaudited) (Audited) (Unaudited)
-------------------- ------------ --------------
U.S.$
Adjusted NIS (thousands) (thousands)
-------------------------------------- --------------
ASSETS
Current Assets
Cash and cash equivalents 95,084 258,452 93,679 20,287
Short-term investments and deposits 160,903 160,583 158,736 34,330
Accounts receivable - trade, net 18,724 17,085 19,153 3,995
Other accounts receivable and prepaid expenses 23,244 19,732 21,927 4,959
Hotels inventories 2,394 3,039 3,133 511
----------- ----------- ----------- ----------
300,349 458,891 296,628 64,082
----------- ----------- ----------- ----------
Long-term Accounts and Investments
Investments, loans and long-term receivables, net 343,808 369,517 355,236 73,353
Investments in affiliated company 28,683 - 32,764 6,120
Venture capital investment - 29,931 - -
----------- ----------- ----------- ----------
372,491 399,448 388,000 79,473
----------- ----------- ----------- ----------
Fixed Assets, Net 1,707,568 1,434,609 1,650,459 364,320
----------- ----------- ----------- ----------
Other Assets, Net 14,603 11,121 12,330 3,116
----------- ----------- ----------- ----------
Assets Related to Discontinuing Operation 31,103 174,016 115,026 6,636
----------- ----------- ----------- ----------
2,426,114 2,478,085 2,462,443 517,627
=========== =========== =========== ==========
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
3
Elscint Limited and Subsidiary Companies
Condensed Consolidated Balance Sheets
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Convenience
translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
---------- -------- ------------ -----------
(Unaudited) (Audited) (Unaudited)
---------------------- ------------ -----------
U.S.$
Adjusted NIS (thousands) (thousands)
--------------------------------------- -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Short-term credits 233,093 460,144 536,436 49,732
Accounts payable - trade 25,299 20,103 23,247 5,398
Accrued liabilities 87,877 67,877 87,834 18,749
Advance from customer in respect of project
in progress, net - 606 - -
----------- ----------- ----------- ----------
346,269 548,730 647,517 73,879
----------- ----------- ----------- ----------
Long-term Liabilities
Long-term debts 927,896 619,632 632,772 197,972
Deferred income tax liability 9,936 18,941 11,029 2,120
Liability for employee severance benefits, net 673 322 517 144
----------- ----------- ----------- ----------
938,505 638,895 644,318 200,236
----------- ----------- ----------- ----------
Liabilities Related to Discontinuing Operations 98,783 215,803 111,417 21,076
----------- ----------- ----------- ----------
Minority interest 30,369 28,873 29,799 6,479
----------- ----------- ----------- ----------
Contingencies and Commitments (see Note 4)
Shareholders' Equity 1,012,188 1,045,784 1,029,392 215,957
----------- ----------- ----------- ----------
2,426,114 2,478,085 2,462,443 517,627
=========== =========== =========== ==========
<FN>
* Reclassified.
</FN>
Date: May 31, 2003
/s/ A.R. Goren /s/ R. Lavine /s/ U. Levin
---------------------------------- ----------------------- ---------------------------
A.R. Goren R. Lavine U. Levin
Chairman of the Board of Directors President C.F.O
The accompanying notes are an integral part of the financial statements.
4
Elscint Limited and Subsidiary Companies
Condensed Consolidated Statements of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Convenience
translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
-------- --------- ------------ ------------
(Unaudited) (Audited) (Unaudited)
---------------------- ------------ ------------
U.S.$
Adjusted NIS (thousands) (thousands)
--------------------------------------- ------------
Revenues
Operating and managing hotels 40,048 42,071 212,297 8,544
Hotel leasing 3,494 - - 745
Revenue from long-term contracts - 945 1,550 -
----------- ----------- ----------- ----------
43,542 43,016 213,847 9,289
----------- ----------- ----------- ----------
Cost of revenues
Hotels operations and management 28,060 30,202 136,827 5,987
Cost of long-term contracts - 883 1,430 -
Depreciation of leased hotel 669 - - 143
----------- ----------- ----------- ----------
28,729 31,085 138,257 6,130
----------- ----------- ----------- ----------
Gross profit 14,813 11,931 75,590 3,159
Hotels' depreciation, amortization
and other operation expenses 13,264 13,411 63,175 2,830
Initial expenses, net 1,175 1,596 1,821 251
General and administrative expenses 7,169 7,050 32,433 1,529
----------- ----------- ----------- ----------
21,608 22,057 97,429 4,610
----------- ----------- ----------- ----------
Operating loss (6,795) (10,126) (21,839) (1,451)
Finance (expenses) income, net (5,973) 20,064 13,152 (1,274)
Other expenses, net (3,072) (28) (22,086) (655)
----------- ----------- ----------- ----------
(Loss) income before income taxes (15,840) 9,910 (30,773) (3,380)
Income taxes 1,359 361 5,363 290
----------- ----------- ----------- ----------
(Loss) income after income taxes (14,481) 10,271 (25,410) (3,090)
The Company's share in loss
of affiliated company (3,662) - (2,925) (781)
Minority interest in loss
of a subsidiary, net 72 8 903 15
----------- ----------- ----------- ----------
Net (loss) income from continuing Operations (18,071) 10,279 (27,432) (3,856)
----------- ----------- ----------- ----------
Net income from discontinuing operation 4,190 6,077 91,402 894
----------- ----------- ----------- ----------
Net (loss) income (13,881) 16,356 63,970 (2,962)
=========== =========== =========== ==========
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
5
Elscint Limited and Subsidiary Companies
Condensed Consolidated Statements of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Convenience
Translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
-------- -------- ------------ -------------
(Unaudited) (Audited) (Unaudited)
----------------------- ------------ -------------
U.S.$
Adjusted NIS (thousands) (thousands)
---------------------------------------- -------------
Basic (loss) earnings
per ordinary share (NIS 0.05
par value) from:
Continuing operations (1.08) 0.62 (1.64) (0.23)
Discontinuing operation 0.25 0.36 5.47 0.05
---------- --------- ---------- ----------
(0.83) 0.98 3.83 (0.18)
========== ========= ========== ==========
Diluted (loss) earnings per
ordinary share (NIS 0.05
par value) from:
Continuing operations (1.08) 0.54 (1.70) (0.23)
Discontinuing operation 0.25 0.35 5.24 0.05
---------- --------- ---------- ----------
(0.83) 0.89 3.54 (0.18)
========== ========= ========== ==========
<FN>
* Reclassified.
</FN>
6
Elscint Limited and Subsidiary Companies
Condensed Consolidated Statements of Shareholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Loans to
Cumulative Employees
foreign For
currency Purchase of Total
Share Capital translation Retained Company's shareholders'
capital surplus adjustments earnings shares equity
-------- -------- ------------ --------- ------------ -------------
Adjusted NIS (thousands)
------------------------------------------------------------------------------
Balance as of January 1, 2003
(audited) 5,449 741,196 39,120 255,930 (12,303) 1,029,392
Changes during the period
(unaudited)
Loss for the period - - - (13,881) - (13,881)
Foreign currency translation
adjustment - - (3,323) - - (3,323)
Interest on loan to employees
net of erosion - 85 - - (85) -
-------- -------- -------- --------- --------- -----------
Balance as of
March 31, 2003 (unaudited) 5,449 741,281 35,797 242,049 (12,388) 1,012,188
======== ======== ======== ========= ========= ===========
Balance as of January 1, 2002
(audited) 5,454 741,984 3,434 280,455 (13,096) 1,018,231
Changes during the period
(unaudited)
Net income for the period - - - 16,356 - 16,356
Foreign currency translation
adjustment - - 11,197 - - 11,197
Erosion net of interest on loans
to employees - (110) - - 110 -
-------- -------- -------- --------- --------- -----------
Balance as of March 31,
2002 (unaudited) 5,454 741,874 14,631 296,811 (12,986) 1,045,784
======== ======== ======== ========= ========= ===========
The accompanying notes are an integral part of the financial statements.
7
Elscint Limited and Subsidiary Companies
Condensed Consolidated Statements of Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Loans to
Cumulative employs
foreign for
currency Purchase Total
Share Capital translation Retained of company's shareholders'
capital surplus adjustments earnings shares Equity
--------- -------- ------------ ---------- ------------- --------------
Adjusted NIS (thousands)
--------------------------------------------------------------------------------------
Balance as of January 1, 2002
(audited) 5,454 741,984 3,434 280,455 (13,096) 1,018,231
Changes during the year
(unaudited)
Net income for the period - - - 63,970 - 63,970
Foreign currency translation
adjustment - - 35,686 - - 35,686
Incentive shares which were
returned to pool (2) (712) - - 714 -
Erosion net of interest on loan
to employees (3) (76) - - 79 -
Dividends * - - - (88,495) - (88,495)
--------- --------- --------- ---------- --------- -----------
Balance as of December 31,
2002 (audited) 5,449 741,196 39,120 255,930 (12,303) 1,029,392
========= ========= ========= ========== ========= ===========
<FN>
* Not including a dividend in the amount of NIS 3,456 thousand, in respect of
shares which are held by employees which was recorded as an expense in the
statement of operations.
</FN>
The accompanying notes are an integral part of the financial statements.
8
Elscint Limited and Subsidiary Companies
Condensed Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Convenience
translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
--------- --------- ------------ -----------
(Unaudited) (Audited) (Unaudited)
---------------------- ------------ -----------
U.S.$
Adjusted NIS (thousands) (thousands)
--------------------------------------- -----------
Cash Flows from Operating Activities:
Net (loss) income (13,881) 16,356 63,970 (2,962)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities
from continuing operations (A) 15,418 (12,719) (60,114) 3,290
---------- --------- --------- ---------
Net cash provided by
Operating activities from continuing operations 1,537 3,637 3,856 328
Net cash (used in) provided by
Operating activities from discontinuing operation (7,919) (17,059) 24,791 (1,690)
---------- --------- --------- ---------
Net Cash (used in) Provided by Operating
Activities (6,382) (13,422) 28,647 (1,362)
---------- --------- --------- ---------
Cash Flows from Investing activities:
Proceeds from sale of fixed assets 1,520 - 407 324
Purchase of fixed assets and other assets (78,626) (29,751) (178,039) (16,775)
Purchase of venture capital investment - (48) (4,920) -
Proceeds from sale of long-term investments
and loans - 1,106 3,485 -
(Purchase of) proceeds from short - term
investments and loans, net (4,926) 145 1,923 (1,051)
Purchase of long-term investments and loans - - (688) -
---------- --------- --------- ---------
Net cash used in investing activities from
continuing operations (82,032) (28,548) (177,832) (17,502)
Net cash provided by (used in) investing
activities from discontinuing operation 83,396 (521) (2,423) 17,793
---------- --------- --------- ---------
Net Cash Provided by (used in) Investing
Activities 1,364 (29,069) (180,255) 291
---------- --------- --------- ---------
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
9
Elscint Limited and Subsidiary Companies
Condensed Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Convenience
translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
-------- -------- ------------ -------------
(Unaudited) (Audited) (Unaudited)
--------------------- ------------ -------------
U.S.$
Adjusted NIS (thousands) (thousands)
-------------------------------------- -------------
Cash Flows from Financing
Activities:
Proceeds from long-term debts 6,549 4,005 4,713 1,397
Payments of long-term debt (5,047) (4,185) (144,941) (1,077)
Dividend distributed - - (88,495) -
Issuance share to minority in a subsidiary company - - 559 -
Change in short-term credits, net 4,806 4,505 175,002 1,026
----------- -------- --------- ---------
Net Cash Provided by (used in) Financing
Activities from continuing operations 6,308 4,325 (53,162) 1,346
----------- -------- --------- ---------
Net effect of exchange rate changes on cash 115 413 2,244 25
----------- -------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 1,405 (37,753) (202,526) 300
Cash and Cash Equivalents
at Beginning of period 93,679 296,205 296,205 19,987
----------- -------- --------- ---------
Cash and Cash Equivalents at End of Period 95,084 258,452 93,679 20,287
=========== ======== ========= =========
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
10
Elscint Limited and Subsidiary Companies
Condensed Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------------
Adjusted to the NIS of March 2003
Convenience
translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
------- -------- ------------ -----------
(Unaudited) (Audited) (Unaudited)
---------------------- ------------ -----------
U.S.$
Adjusted NIS (thousands) (thousands)
--------------------------------------- -----------
A. Adjustments to reconcile net (loss) income
to net cash provided by operating activities
from continuing operations:
Income and expenses not
involving cash flow:
Discontinuing operation (4,190) (6,077) (91,402) (894)
Depreciation and amortization 9,101 8,851 55,369 1,943
The Company's share in loss
of affiliated company 3,662 - 2,925 781
Decrease in value of investments
not of a temporary nature - - 4,043 -
Capital loss - - 172 -
Exchange differences on investments and loans, net 521 (18,328) (22,571) 111
Changes in liability for employee
severance benefits, net 143 (53) 85 31
(Profit) loss from evaluation of marketable securities (114) 36 480 (24)
Changes in deferred income taxes (1,915) 313 (5,810) (409)
Minority interest in loss of a subsidiary, net (72) (8) (903) (15)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable - trade, net 580 (1,692) (1,300) 124
Other accounts receivable and prepaid expenses (1,236) (2,003) (5,977) (264)
Hotel inventories 766 538 914 163
Increase (Decrease) in:
Accounts payable-trade 4,482 (852) (1,888) 956
Accrued liabilities 2,878 7,500 5,404 614
Advance from customer in respect of project
progress, net - (944) (1,550) -
Deposits from renters 812 - 1,895 173
---------- --------- --------- -------
15,418 (12,719) (60,114) 3,290
========== ========= ========= =======
<FN>
* Reclassified.
</FN>
The accompanying notes are an integral part of the financial statements.
11
Elscint Limited and Subsidiary Companies
- -----------------------------------------------------------------------------------------------------------------------------------
Condensed Consolidated Statements of Cash Flows
Convenience
translation
(Note 2B)
March 31, December 31, March 31,
2003 * 2002 2002 2003
-------- -------- ------------ -----------
(Unaudited) (Audited) (Unaudited)
---------------------- ------------ -----------
U.S.$
Adjusted NIS (thousands) (thousands)
--------------------------------------- -----------
B. Supplemental Schedule of Non-Cash
Transactions and Investing Activities
Purchase of fixed assets against increase in
accounts payable 26,566 19,391 35,245 5,668
======== ======== ======== =======
Purchase of other assets against increase in
accounts payable 1,212 - 1,260 259
======== ======== ======== =======
The accompanying notes are an integral part of the financial statements.
12
Note 1 - General
The accompanying unaudited financial statements do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months period ending March 31, 2003, are
not necessarily indicative of the results that may be expected for the
year ending December 31, 2003. For further information, refer to the
consolidated financial statements and footnotes thereto for the year
ended December 31, 2002.
These financial statements should be read in conjunction with the annual
audited financial statements of the Company as of December 31, 2002 and
their accompanying notes.
Note 2 - Significant Accounting Policies
A. The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles
("GAAP") in Israel for interim financial information.
All significant accounting policies have been applied consistently
with the year ended December 31, 2002.
B. Financial Statements in adjusted Israeli currency and Israeli GAAP
i. The financial statements are prepared on the basis of the
historical cost convention, adjusted for changes in the
general purchasing power of the Israeli currency (New Israeli
Shekel - "NIS") based on the changes in the Israeli consumer
price index (CPI).
Comparative data in the statements were adjusted to the NIS of
March 2003.
Below is data regarding the CPI and the U.S. dollar exchange
rate:
Exchange rate
of one
U.S. dollar CPI
------------- --------
March 31, 2003 4.687 116.02
March 31, 2002 4.668 110.66
December 31, 2002 4.737 115.12
Changes during the period:
January 1, 2003 - March 31, 2003 (1.06%) 0.78%
January 1, 2002 - March 31, 2002 5.71% 2.37%
January 1, 2002 - December 31, 2002 7.27% 6.49%
ii.The adjusted financial statements as of March 31, 2003 and for
the three months period then ended have been translated into
U.S. dollars using the representative exchange rate as of that
date (U.S.$ 1 = NIS 4.687). The translation was made solely for
the convenience of the reader. 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, unless otherwise indicated.
13
Note 2 - Significant Accounting Policies (cont'd)
C. Effect of new accounting standards not yet implemented
1. In July 2001, the Israel Accounting Standard Board ("The Board")
published the following two Standards:
(a) Accounting Standard No. 12 - Discontinuance of Adjustment of
Financial Statements. Pursuant to this standard, the
adjustment of financial statements will be discontinued as of
January 1, 2003. In December 2002, the Israel Accounting
Standards Board published Standard No. 17 which postponed the
implementation of Standard No. 12 until January 1, 2004.
Therefore, the adjustment of the financial statements will be
discontinued as of January 1, 2004.
The Company will continue preparing adjusted financial
statements in accordance with Opinion 36 of the Institute of
Certified Public Accountants in Israel until December 31,
2003. The adjusted amounts to be included in the financial
statements as of December 31, 2003 will constitute the
starting point for the nominal financial statements as of
January 1, 2004.
(b) Accounting Standard No.13 - Effect of Changes in the Rates of
Exchange of Foreign Currency. This standard deals with
translation of transactions in foreign currency and
translation of financial statements of outside activities for
the purpose of their inclusion in the financial statements of
the reporting entity, and supersedes the provisions of
Clarifications 8 and 9 to Opinion 36 which will be
discontinued upon the entry into effect of Accounting Standard
No. 12 described above.
Implementation of Standards No. 12 and No. 13 may have a significant
effect on the Company's financial statements. The extent of the effect
will depend upon the rate of inflation, the changes in the exchange
rate, the composition of the assets and the Company's sources of
financing.
14
D. Implementation of recently issued accounting standard
In February 2003, the Israeli Accounting Standards Board published
Accounting Standard No. 15 - Decline in the Value of Assets. The
standard provides procedures which a company must apply in order to
ensure that its assets in the consolidated balance sheet, are not
presented at an amount which is in excess of their recoverable value,
which is the higher of the net selling price or the present value of
the estimated future cash flows expected to be derived from use and
disposal of the asset. In addition, the standard provides rules for
presentation and disclosure with respect to assets whose value has
declined.
The Standard applies to financial statements for periods beginning
January 1, 2003. The standard provides that in most cases the
transition will be effected by means of the "from here on" method,
however a loss from decline in value of an assets, in the amount of the
difference between the book value on the commencement date of the
standard and the recoverable amount as at that date, shall be charged
to the statement of operations in the category "cumulative effect as at
beginning of the year of change in accounting method" if and only if,
the said loss was not recognized in the past solely due to the fact
that the net non-discounted future cash flows were greater than the
books value.
Implementation of Standard No. 15 does not have a significant effect on
the Company's financial statements as of March 31, 2003.
15
Note 3 - Business Segments and supplemental information
Three months ended March 31, 2003
-----------------------------------------------------------------------------------
Adjusted NIS (thousands)
-----------------------------------------------------------------------------------
Operating and Commercial and
managing hotels (1) entertainment center (2) Hotel leasing (3) Consolidated
------------------- ------------------------ ----------------- ------------
Revenues 40,048 - 3,494 43,542
=================== ======================== ================= ============
Operating income (loss) (4,613) (93) 2,825 (1,881)
=================== ======================== =================
Unidentifiable expenses (4,914)
------------
Total operating loss (6,795)
============
<FN>
(1) There is a seasonality in the hotels operation and management segment,
which is reflected by a revenue increase at the second and third quarter
of the year.
(2) In April 2002, SLS (a subsidiary of the Company), entered into an
agreement with a company controlled by the controlling interests in the
Company (hereinafter - "CDPM"), in the framework of which CDPM committed
to complete the construction of the commercial center, including, the
development work, as defined in the agreement, for a final and absolute
consideration of U.S. $57.7 million, which is to be paid based on the
progress of the work ("the Work Consideration"). The amount of the Work
Consideration was determined on the basis of a calculation of the amount
of work remaining to be performed, as at March 1, 2002. In respect of each
payment and/or expense paid by SLS to a sub-contractor, supplier,
professional adviser or other entity as part of the implementation of the
project from March 1, 2002 to the date CDPM commences work, the Work
Consideration will be adjusted accordingly. From March 1, 2002 until
March 31, 2003 SLS made such payments on account of implementation of
the project in the total sum of U.S. $25.2 million. The work in the
framework of the agreement does not include specific work, which was
detailed in the agreement (mainly - planning, marketing, tolls and
supervision), the cost of which is to be borne by SLS. In addition, the
agreement provides, that CDPM is to bear the cost of adaptations for
tenants, based on the specification detailed in the agreement and the
consideration for adaptations which are not included in the specification,
is to be determined based on a mechanism set forth in the agreement. In
the framework of the agreement CDPM committed to deliver the Commercial
Center to SLS in a state of being ready for operation, by March
2003. Actually, the date of operation of the commercial center had been
postponed for reasons not related to CDPM. Until the date of publication
of these financial statements the agreement had not yet been closed.
Nevertheless, for the request of SLS, CDPM is actually assisting in
construction and managing the project. Upon the closing of the agreement,
SLS is to pay to CDPM an advance of $3 million, on account of the Work
16
Consideration and, concurrently, CDPM is to provide SLS with a bank
guarantee, at the rate of 5% of the Work Consideration. In addition, SLS
committed, as part of the agreement, to assign to CDPM all the rights and
obligations, based on the agreements, which it signed with various
suppliers, except for those specified in the agreement. The agreement
includes a number of conditions, the breach of which is considered as a
fundamental breach, which confers the remedies stated in the agreement.
The agreement was approved by the General Meeting of the Company's
shareholders.
(3) In January 2003 SHH (a subsidiary of the Company) entered into an
agreement with an external hotel company, according to which the hotel was
leased for a period of 25 years in consideration for the payment of a
fixed amount in each one of the first four years, which from the fifth
year and until the end of the lease period is adjusted upwards at the rate
of 2.5% per year. The lease payments are paid once a quarter in advance.
The payments are guaranteed by a deposit in the amount of (pound) 2.5
million. The hotel company was granted an option to extend the lease by
two additional periods of 15 years each.
</FN>
Note 4 - Contingencies and Commitments
A. Following are the legal claims that the Court has been asked to
recognize as a representative claim. No material changes have occurred
in these claims or in other claims since the last audited financial
statements as of December 31, 2002.
B. (1) On September 8, 1999, the Company was served with a claim and
a motion for recognition of the claim as a representative
claim. This claim was filed against the Company, Elbit Medical
Imagine Ltd. ("EMI"), (the company's parent company), Elbit
Medical Holding Ltd., Elron and six former directors of the
Company. The motion was filed on behalf of all persons who
were minority shareholders of the Company at the date of
submission of the claim, as well as all minority shareholders
of the Company who held Company's shares on February 18, 1999.
The main allegation of the claim is that EMI, through the
actions of the former directors of the Company, caused
discrimination of the minority shareholders.
The requested relief is approximately U.S.$ 603 thousand for
the plaintiff and approximately U.S.$ 158 million for the
damages to the represented group, plus legal expenses.
Following the Court's decision in the claim mentioned in
clause B.ii. below, the parties agreed to postpone the hearing
of the case until a final decision will be given on the
plaintiffs appeal in the other claim, as stated in clause B.2.
below.
Management, based on a legal advice received, is of the
opinion that the ultimate outcome of this claim, the request
for recognizing the claim as a representative claim and the
effect, if any, this may have on the Company can not be
estimated at this stage and thus no provision has been
recorded in the financial statements.
(2) On November 2, 1999, a claim and a motion for recognition of
the claim as a representative claim were filed against the
Company, EMI, Elbit Medical Holdings Ltd., Europe Israel
(M.M.S) Ltd. ("EIL"), (indirect parent company of the
Company), Control Centers, Marina Herzlia Limited Partnership
1998, Elron and 25 past and present directors in the above
companies. The motion was served on behalf of those who held
shares of the Company on September 6, 1999, and continued to
hold such shares on the date of the claim, excluding the
respondents.
17
The claimants allege that the minority shareholders of the
Company have been discriminated as a result of the various
activities carried out by its controlling shareholders and its
Board of Directors. The remedy which has been requested by the
claimants is that EMI be compelled to execute the alleged
buy-out shares at U.S.$ 14 per share. Alternatively, the
Company and/or EMI and or other shareholders in the Company be
compelled to purchase the claimants' shares in the Company
according to an external valuation, or alternatively that the
claimants be paid compensation for the damages which they
allegedly suffered and the annulment of certain transactions
with controlling parties.
On August 16, 2000, the District Court of Haifa dismissed the
Application to recognize the claim as a Representative Claim.
Notwithstanding the above, the claim itself remains. Some of
the plaintiffs filed applications to the Israeli High Court
for permission to file an appeal on this dismissal. In
addition, the Government's Attorney General submitted his
supportive position with the plaintiffs allegation to the
Court. Following the company's claim that the Court's fees are
inappropriate to these type of claim, on August 3, 2001, the
District Court ordered the Plaintiffs to pay Courts' fees in
respect of some parts of the claim, in the sum of NIS 20
million not later than September 10, 2001, otherwise their
applications will be deleted, in respect to those parts of the
claim for which the fees would not be paid.
Note 4 - Contingencies and Commitments (cont'd)
Following a request by the plaintiffs the Court decided to
postpone the payment of the fees until further decision.
In a hearing that took place on April 25, 2002, the District
Court showed a strong tendency to accept the plaintiffs' view
concerning the court fees. However, the Company's counsel
strongly opposed such approach of the court, and in their
opinion, succeeded in shaking the court's position with regard
to its ability to cancel the previous decision of the court in
the interim procedure or its ability to enable the plaintiffs
to postpone the payment of these fees. The court decided to
render its ruling regarding the court fees at a later date,
which has not been determined as yet.
Management, based on a legal advice received, is of the
opinion that the ultimate outcome of the claim and the effect,
if any, this may have on the Company, can not be estimated at
this stage and thus no provision has been recorded in the
financial statements.
18
On January 26, 2003, the Company received a letter from one of
the insurers ("the Insurer") of EIL, EMI and the Company (the
"Insured Companies"), that provides insurance to the Insured
companies including insurance pertaining to this
representative claim.
In this letter, the Insurer made certain allegations against
the Insured Companies, including, inter alia, that the Insured
Companies breached their disclosure duties under section 6(a)
to the Insurance Contract Law, 1981, by failing to disclose to
the Insurer material information prior to the issuance of
additional cover to the policy purchased by EIL (the
"Policy"), effective as of July 1999 (the "Additional Cover"),
and prior to the replacement of the Policy and the Additional
Cover by the issuance of a new policy effective as of August
1999 (the "Replacement Cover"). The letter states that the
Policy, Additional Cover and
Replacement Cover issued by the Insurer will be cancelled
unless the Insured Companies indicate the circumstances were
different than those described in the letter. The Company
legal counsel sent a reply on behalf of EIL, EMI and the
Company on March 20, 2003, in which the allegations of the
Insurer were rejected. As of the date of the issuance of the
financial statements the company has not received an answer
from the Insurer to the Company's letter.
19