Exhibit 13.1
ELSCINT LIMITED
2004
ANNUAL REPORT
To the Shareholders of Elscint Limited:
We are pleased to present the Elscint Limited Annual Report for the year
ended December 31, 2004. In 2004, Elscint experienced growth and expansion in
the hotel and leisure business, established operations at the Arena commercial
and entertainment center at the Herzliyah Marina, consolidated our interests in
the biotechnology sector and acquired the apparel company, Mango, the owner of
eight retail stores in Israel which sells women's apparel.
Since our last Annual Report, we made substantial progress toward becoming
a significant player in the hotel and leisure sector in Europe. Recent
activities highlighting our achievements in this effort include:
o We opened our newest hotel in London, the Riverbank Park Plaza, for
a soft opening in April 2005 and commenced regular operations in
June 2005. This hotel includes approximately 400 rooms and 66
additional apartment-hotel luxury suites.
o In Hungary, we made progress in converting the former National
Ballet Institute Building into an ultra-luxury hotel. This hotel is
centrally located on Budapest's prestigious Andrassy Boulevard.
o In Bucharest, Romania, we are extensively renovating and remodeling
the Bucuresti Hotel to conform to international standards as a
four-star deluxe hotel. In addition, we are expanding the Centre
Ville apartment/hotel complex adjacent to the Bucuresti, which when
completed will have 438 deluxe hotel rooms and 294 apartments. The
rooms and apartments will be leased on both a long and short-term
basis.
o In Antwerp, Belgium, we are in the final stages of upgrading and
repairing the Aquatopia attraction within the Astrid Park Plaza
Hotel.
o Lastly, in June 2004, we signed management agreements with the
Rezidor Group regarding the future management of two hotels
presently under development- the "Ballet Institute" in Budapest,
which will be operated under the "Regent" brand; and the Bucuresti
Hotel in Bucharest, which will be operated under the "Radisson SAS"
brand. The Rezidor Group will commence management of these hotels
following the completion of the renovation of the respective
facilities.
In addition, in May 2005, Elscint completed the acquisition of 100% of the
equity and voting rights of Mango, the Israeli distributor and retailer of the
internationally renowned retail brand name MANGO-MNG(TM). Mango operates eight
retail facilities in various cities in Israel. Concurrently with this
acquisition, Mango executed a distribution agreement with the owners of the
MANGO-MNG(TM) brand name for a 10-year period.
Finally, on June 8, 2005, we announced that an independent committee of
our parent company, Elbit Medical Imaging, or EMI, approached Elscint regarding
a possible combination of the two companies in a share-for-share transaction,
whereby EMI would acquire the shares of Elscint it does not already own. As a
result of this action, we established our own independent committee to discuss
and review the proposal, and, if deemed appropriate, to negotiate the terms and
conditions upon which such a transaction may be concluded. For a fuller
discussion of this
proposed transaction, please see "Item 4 - Recent Developments" of the Form 20-F
(as defined below).
There is no assurance that our independent committee will continue
discussions with respect to this proposed transaction, or that, if our
independent committee does continue discussions with EMI's independent
committee, a transaction will be agreed upon or consummated.
Full details with respect to the developments highlighted above, and our
other activities during 2004 and up to mid 2005, are included in Elscint's
Annual Report on Form 20-F for the year ended December 31, 2004, which was filed
with the Securities and Exchange Commission on June 30, 2005 (the "Form 20-F").
We would like to take this opportunity to thank our shareholders and the
members of the Elscint team for their work and faith during 2004. We remain
dedicated to increasing shareholder value and pledge to manage Elscint in such
fashion. Thank you for your continued support.
With our sincerest regards,
Abraham (Rami) Goren Rachel Lavine
Executive Chairman of the Board of Directors President
2
SUMMARY AND BACKGROUND
Elscint Limited is currently engaged in the following businesses:
o Development, construction, ownership and operation of hotel projects
in Europe and elsewhere and through wholly owned and jointly
controlled subsidiary companies;
o Ownership, operation and management of the Arena commercial and
entertainment center;
o Asset leasing;
o Investment in a biotechnology company; and,
o Ownership, operation and management of the apparel distribution
company Mango Israel, since May 2005.
The information included in this report to shareholders is accurate
as of the date of the filing by Elscint with the Securities and Exchange
Commission of the Form 20-F.
STOCK PRICES
Elscint's ordinary shares are listed on the New York Stock Exchange
under the symbol ELT. The annual high and low sale prices for the ordinary
shares for the five most recent full fiscal years were:
Year
December 31, Ended Low($) High($)
------------ ------------ -------
2000 3 13/16 10 1/4
2001 3.51 5.00
2002 2.95 6.14
2003 3.35 4.9
2004 3.81 5.54
The quarterly high and low sale prices for our ordinary shares
during the two most recent full fiscal years and the subsequent first and second
quarter were:
2003
First Quarter 3.35 4.19
Second Quarter 3.78 4.41
Third Quarter 3.80 4.30
Fourth Quarter 3.80 4.90
3
2004
First Quarter 4.4 5.54
Second Quarter 3.81 5.14
Third Quarter 3.95 4.99
Fourth Quarter 3.88 4.4
2005
First Quarter 4.13 6.99
Second Quarter 5.35 7.74
The monthly high and low sale prices for our ordinary shares during
the six months of January 2005 through June 2005 were:
Month Low($) High($)
------ -------
June 2005 6.24 7.74
May 2005 5.35 5.99
April 2005 5.45 6.09
March 2005 6.11 6.65
February 2005 4.9 6.99
January 2005 4.13 4.89
On June 30, 2005, the closing price of our ordinary shares was
$5.99.
SELECTED FINANCIAL DATA
The following selected consolidated financial data of Elscint
Limited and its subsidiaries (together, "Elscint", the "Company", "our Company",
"we" or "us") as of December 31, 2004 and 2003 and for each of the years ended
December 31, 2004, 2003 and 2002 has been derived from the Consolidated
Financial Statements. The selected consolidated financial data as of December
31, 2002, 2001 and 2000 and for each of the years ended December 31, 2001 and
2000 has been derived from audited consolidated financial statements not
included in the Form 20-F. The Consolidated Financial Statements (as defined
below) were prepared in accordance with Israeli generally accepted accounting
principles ("Israeli GAAP"), and audited by Brightman Almagor & Co., an
independent registered public accounting firm in Israel, and a Member Firm of
Deloitte Touche Tohmatsu, except for certain subsidiaries and an associate which
were audited by other auditors. You should read the selected consolidated
financial data together with "Item 5 - Operating and Financial Review and
Prospects" of the Form 20-F and the consolidated financial statements included
in the 20-F and the accompanying notes (the "Notes") thereto (the "Consolidated
Financial Statements").
The selected consolidated financial data presented in this report
includes information for 2004, 2003, 2002, 2001 and 2000. The selected financial
data for the years ended December 31, 2003, 2002, 2001 and 2000 are stated in
values adjusted for the change in the general purchasing power of the Israeli
currency (NIS adjusted to the Israeli Consumer Price Index as of December 2003).
The 2004 selected consolidated financial information is presented in reported
value (as this term is defined in the Note 2A to the Consolidated Financial
Statements). The 2004 information is presented in NIS as well as a convenience
translation to U.S. dollars.
4
Currency Translation
For the reader's convenience only, some financial information has
been translated from New Israeli Shekels ("NIS"), to the U.S. dollar, using the
representative exchange rate as published by the Bank of Israel at December 31,
2004 (U.S.$1.00 = NIS 4.308). The dollar amounts reflected in these convenience
translations should not be construed as representing amounts that can actually
be received or paid in dollars or convertible into dollars (unless otherwise
indicated), all information about exchange rates is based on the Bank of Israel
rates.
In addition, certain information with respect to other currencies
has been translated, for the reader's convenience only, into NIS and U.S.
dollar, using the representative exchange rates as published by the Bank of
Israel as at December 31, 2004.
5
Income statement data as per Israeli GAAP:
Convenience
translation
Year ended December 31, December 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000 2004
---------- --------- ----------- ---------- ----------- -----------
Reported Adjusted US $
---------- ------------------------------------------------------
NIS (thousand) (thousand)
---------------------------------------------------------------------- ------------
Revenues
Hotels operations and management 218,365 189,205 206,679 139,223 106,051 50,688
Commercial center operations 55,263 20,106 -- -- -- 12,828
Asset leasing 13,238 13,495 -- -- -- 3,073
Long-term contracts -- -- 1,509 10,028 19,983 --
---------- ----------- ----------- ----------- ----------- -----------
286,866 222,806 208,188 149,251 126,034 66,589
---------- ----------- ----------- ----------- ----------- -----------
Cost of revenues
Hotels operations and management 137,622 128,301 133,207 95,851 68,606 31,946
Commercial center operations 59,885 21,975 -- -- -- 13,901
Asset leasing 3,175 3,510 -- -- -- 737
Long-term contracts -- -- 1,392 7,311 17,900 --
---------- ----------- ----------- ----------- ----------- -----------
200,682 153,786 134,599 103,162 86,506 46,584
---------- ----------- ----------- ----------- ----------- -----------
Gross profit 86,184 69,020 73,589 46,089 39,528 20,005
Hotels' depreciation, amortization
and operating expenses 64,513 50,432 61,503 31,550 22,688 14,975
Initiation expenses 1,611 4,303 1,773 3,960 1,813 374
Selling and marketing expenses 14,046 8,948 -- -- -- 3,260
General and administrative expenses 27,608 29,355 31,574 25,790 23,262 6,409
---------- ----------- ----------- ----------- ----------- -----------
107,778 93,038 94,850 61,300 47,763 25,018
---------- ----------- ----------- ----------- ----------- -----------
Operating loss before finance income
(expenses), net (21,594) (24,018) (21,261) (15,211) (8,235) (5,013)
Finance income (expenses), net (34,805) (41,262) 12,805 65,093 (20,211) (8,079)
---------- ----------- ----------- ----------- ----------- -----------
Operating loss after finance income
(expenses), net (56,399) (65,280) (8,456) 49,882 (28,446) (13,092)
Other expenses, net (9,361) (16,176) (21,502) (13,114) 2,617 (2,173)
---------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes (65,760) (81,456) (29,958) 36,768 (25,829) (15,265)
Tax benefits (647) (8,384) (5,221) 5,383 4,634 (151)
---------- ----------- ----------- ----------- ----------- -----------
Loss after income taxes (65,113) (73,072) (24,737) 31,385 (30,463) (15,114)
Share in loss of an associated company (6,611) (7,019) (2,847) (9,712) (3,240) (1,535)
Minority interest in loss (profit)
of a subsidiary (724) 746 879 1,288 -- (168)
---------- ----------- ----------- ----------- ----------- -----------
Loss from continuing operations (72,448) (79,345) (26,705) 22,961 (33,703) (16,817)
Net profit from discontinuing
operations 11,067 12,972 88,983 33,935 76,471 2,569
---------- ----------- ----------- ----------- ----------- -----------
Net profit (loss) (61,381) (66,373) 62,278 56,896 42,768 (14,248)
========== =========== =========== =========== =========== ===========
Basic earnings (loss) per ordinary
share (NIS 0.05 par value) from:
Continuing operations (4.37) (4.75) (1.60) 1.37 (2.02) (1.01)
Discontinuing operation 0.67 0.78 5.33 2.03 4.58 0.16
---------- ----------- ----------- ----------- ----------- -----------
(3.70) (3.97) 3.73 3.40 2.56 (0.85)
========== =========== =========== =========== =========== ===========
Weighted average number of ordinary
shares (NIS 0.05 par value) used
in the computation of basic
earnings (loss) per share 16,597,181 16,690,643 16,690,643 16,690,643 16,690,643 16,597,181
========== =========== =========== =========== =========== ===========
Diluted earnings (loss) per ordinary
share (NIS 0.05 par value) from:
Continuing operations (*) (*) (1.66) (*) (*) (*)
Discontinuing operation (*) (*) 5.10 (*) (*) (*)
-----------
3.44
===========
Weighted average number of ordinary shares
(NIS 0.05 par value) used in the
computation of diluted earnings per share 17,424,643
===========
(*) anti dilutive
6
Income statement data as per U.S. GAAP (*) :
Convenience
translation
Year ended December 31, December 31,
----------------------------------------------------
2004 2003 2002 2001 2000 2004
--------- -------- -------- -------- -------- -----------
Reported Adjusted US $
--------- -----------------------------------------
NIS (thousands) (thousand)
---------------------------------------------------- ----------
a) Net income and comprehensive income:
Loss from continuing operations (63,960) (30,334) (19,340) (8,969) (26,221) (14,847)
Net profit from discontinuing operations 11,067 50,121 51,834 33,935 76,471 2,569
------- ------- ------- ------- ------- -------
Net profit (loss) (52,893) 19,787 32,494 24,966 50,250 (12,278)
======= ======= ======= ======= ======= =======
Total comprehensive income (loss) (35,529) 40,156 76,656 42,362 41,900 (8,247)
======= ======= ======= ======= ======= =======
b) Earnings per ordinary share (NIS 0.05 par value)
Basic and diluted earnings (loss) per ordinary share:
Continuing operations (3.85) (1.81) (1.16) (0.54) (1.57) (0.89)
Discontinuing operation 0.67 2.98 3.10 2.03 4.58 0.15
------- ------- ------- ------- ------- -------
3.18 1.18 1.94 1.49 3.01 0.74
======= ======= ======= ======= ======= =======
Weighted average number of shares (NIS 0.05 per
value) used in the computation of basic and
diluted earning (loss) per share (thousands) 16,597 16,691 16,691 16,691 16,689 16,597
======= ======= ======= ======= ======= =======
(*) For further information as to the differences between Israeli and U.S.
GAAP, as applicable to the Company's financial statements, see Note 24
to the Consolidated Financial Statements.
Selected balance sheet data as per Israeli GAAP :
Convenience
As at December 31, translation
---------------------------------------------------------------- December 31,
2004 2003 2002 2001 2000 2004
---------- --------- ---------- --------- -------- ----------
Reported Adjusted US $
---------- ---------------------------------------------------
NIS (thousands) (thousands)
----------------------------------------------------------------- ----------
Current assets 256,854 313,747 288,779 478,961 490,126 59,623
Long-term receivable and
investments 81,428 104,131 377,733 380,204 538,301 18,902
Fixed assets 2,185,325 2,003,427 1,606,786 1,334,237 911,132 507,271
Assets related to discontinuing
operation 14,700 16,228 111,983 186,930 304,155 3,412
Total assets 2,550,956 2,448,449 2,397,284 2,392,033 2,248,093 592,144
Short-term credits 135,429 407,599 522,242 438,513 369,063 31,436
Long-term liabilities 1,325,803 850,470 627,268 608,303 598,544 307,754
Liabilities related to
discontinuing operation 71,410 82,217 108,469 250,623 266,744 16,576
Shareholders' equity 882,880 946,198 1,002,154 991,287 918,577 204,940
7
Selected balance sheet data as per U.S. GAAP (*):
Convenience
As at December 31, translation
---------------------------------------------------------------- December 31,
2004 2003 2002 2001 2000 2004
---------- --------- ---------- --------- -------- ----------
Reported Adjusted US $
---------- ---------------------------------------------------
NIS (thousands) (thousands)
----------------------------------------------------------------- ----------
Current assets 256,854 313,747 288,779 478,961 490,126 59,623
Long-term receivable and
investments 53,662 61,207 327,849 335,720 496,995 12,456
Fixed assets 2,295,918 2,071,334 1,620,657 1,327,588 925,431 532,943
Assets related to discontinuing
operation 14,700 16,228 153,413 186,930 304,155 3,412
Total assets 2,672,673 2,506,973 2,431,655 2,363,510 2,219,520 620,389
Short-term credits 135,429 407,599 522,242 438,513 369,063 31,436
Long-term liabilities 1,411,817 902,302 676,531 652,246 600,155 327,720
Liabilities related to
discontinuing operation 71,410 82,217 187,048 250,623 266,744 16,576
Shareholders' equity 921,675 946,198 914,369 923,867 882,508 213,945
(*) For further information as to the differences between Israeli and U.S.
GAAP, as applicable to the Company's financial statements, see Note 24
to the Consolidated Financial Statements.
Exchange Rates
The exchange rate between the NIS and U.S. dollar published by the Bank of
Israel was NIS 4.416 to the dollar on June 30, 2005. The exchange rate has
fluctuated during the six month period beginning January 2005 through June 30,
2005 from a high of NIS 4.574 to the dollar to a low of NIS 4.299 to the dollar.
The monthly high and low exchange rates between the NIS and the U.S. dollar
during the six month period beginning January 2005 through June 30, 2005, as
published by the Bank of Israel, were as follows:
Month High Low
1 U.S. dollar = 1 U.S. dollar =
January 2005 4.414 4.352
February 2005 4.392 4.357
March 2005 4.379 4.299
April 2005 4.395 4.360
May 2005 4.416 4.348
June 2005 4.574 4.405
8
The exchange rates of the NIS in relation to foreign currencies listed
below published by the Bank of Israel at year-end for the past five years are as
follows:
December 31,
---------------------------------------------
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
U.S. Dollar 4.308 4.379 4.737 4.416 4.041
Pound 8.308 7.849 7.633 6.400 6.032
Sterling
Euro 5.877 5.533 4.970 3.907 3.763
The average exchange rate between the NIS and U.S. dollar, using the
average of the exchange rates on the last day of each month during the period,
for each of the five most recent fiscal years was as follows:
Year ended December 31, Exchange Rate
----------------------- ----------------
2000 4.067 NIS/$1
2001 4.219 NIS/$1
2002 4.738 NIS/$1
2003 4.548 NIS/$1
2004 4.483 NIS/$1
9
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the Consolidated
Financial Statements.
A "critical accounting policy", is one that (i) is important to the
portrayal of an entity's financial condition and results of operations and (ii)
requires management's most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain. We believe that our critical accounting policies,
estimates and assumptions, the impact of which is material to our financial
condition or operating performance, or the nature of which is material because
of the level of subjectivity and judgment necessary for highly uncertain
matters, are those described below.
The preparation of the Consolidated Financial Statements in conformity
with accounting principles generally accepted in Israel ("Israeli GAAP"),
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. We evaluate, on an on-going basis, our estimates,
including, but not limited to, those related to impairment of real estate assets
and investments, allocation of the consideration within a business combination,
assessment of the probable outcome of litigation matters in which we are
involved and other contingent liabilities, allowance for doubtful debts,
determination of subsidiaries' functional currency, and current and deferred
taxes. We base our estimates on past experience, on professional advice or on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments as to
the carrying values of assets and liabilities that are not readily apparent from
other sources. In preparing the Consolidated Financial Statements and forming
our estimates and judgments with respect to certain amounts included therein, we
have utilized available information including, among other factors, our past
history as above mentioned, industry standards and the current economic
environment, while giving due consideration to materiality. It is possible that
the ultimate outcome, as anticipated by us in formulating our estimates inherent
in these Consolidated Financial Statements, will either not materialize or prove
to be substantially different. Moreover, application of the critical accounting
policies described below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, the actual outcome
could differ from these estimates. Other companies may use different estimates,
which may have an impact on the comparability of our results of operations to
those of companies in similar businesses.
For information as to material differences between Israeli GAAP and U.S.
GAAP as applicable to us, see Note 24 to the Consolidated Financial Statements.
Issues regarding the Consolidated Financial Statements, that (i) in
accordance with Israeli GAAP, are subject to considerable judgment; and that
(ii) involve critical assumption and estimates, are in general similar to those
under U.S. GAAP.
10
IMPAIRMENT AND DEPRECIATION OF REAL ESTATE PROPERTIES, DEVELOPMENT ASSETS
We evaluate the existence of any other-than-temporary decline, and hence,
the need for an impairment loss on our real estate assets (operating or under
construction), when indicators of impairment are present. Our evaluation is
based, as from January 1, 2003, on the higher of (i) our estimated selling price
in the open market or (ii) the estimated value-in-use, based on discounted
operational cash flows (before interest and income tax charges), expected to be
generated by those assets ("cash flows"; and collectively - "recoverable
amounts"). Through December 31, 2002, the valuation was based on estimated
undiscounted operational cash flows or on our estimated selling price, whichever
is higher. The impairment loss is recorded to the extent that the carrying
amount of each asset exceeds its recoverable amount.
Fair value estimates represent the best estimates based on industry
trends, market rates, prices and transactions. Our value-in-use estimation
involves estimating the future cash flows expected to be derived from continuing
use of the assets and from their ultimate disposal. Such value is based on
reasonable and supportable assumptions as well as on historical results adjusted
to reflect our best estimate of future market and economic conditions that we
believe will exist during the remaining useful life of the assets. The discount
rate used in measuring the value-in-use, reflects economic environment risks,
current market assessments regarding the time value of money, industry risks as
a whole and risks specific to the assets, and is the return that investors would
require if they were to choose an investment that would generate cash flows of
amounts, timing and risk profile equivalent to those that the enterprise expects
to derive from the assets. Such rate is generally estimated from the rate
implied in current market transactions for similar assets. When an
asset-specific-rate is not directly available in the market, we use a substitute
rate to estimate the discount rate, by evaluating, as much as possible, a market
assessment of: (a) the time value of money for the periods through the end of
the assets' useful life; and (b) the possible risk that future cash flows will
differ in amount or timing from estimates.
Based on our estimates of future cash flows, our real estate assets were
determined to be recoverable, with the exception of the provisions for
impairment made by us in previous and current years. As for the current and
accumulated provisions for impairment loss - see Notes 9 and 18I to the
Consolidated Financial Statements.
The recognition of an impairment to property and the potential impairment
calculation are subject to a considerable degree of judgment, the results of
which, when applied under different principles or different conditions or
assumptions, are likely to result in materially different amounts and could have
a material adverse impact on the Consolidated Financial Statements. The
evaluation of future cash flows expected to be generated by each property is
subject to significant uncertainty in the estimation of future income and
expenses of each of our real estate assets, and the future capital expenditures.
In preparing these projections, we make a number of assumptions concerning
market share of the asset, benchmark operating figures such as occupancy rates,
average room rate (in respect of hotels), rental and management fees rates (in
respect of the commercial and entertainment center), collection rates, market
prospects, industry labor cost prospects, operating efficiency of the management
companies and the scope of maintenance and other operating expenses.
Depreciation of real estate is based on the estimated useful life of the
property (50 years, in respect of commercial and entertainment center and 67 or
95 years, as the case may be, in respect of hotels), using the straight-line
method. Changes in our estimates regarding the expected economic useful life of
our assets, might significantly affect our depreciation expenses.
11
Under different assumptions or conditions, the asset impairment analysis
or the depreciation rates may yield a different outcome, which may alter the
impairment analysis on our assets, as well as the gain or loss on the eventual
disposition of the assets.
For information on the material differences between Israeli GAAP and US
GAAP relating to impairment of real estate assets and/or investments in investee
companies - see subsections A7. and A8. to Note 24 to the Consolidated Financial
Statements. In accordance with U.S GAAP, we should also use critical estimates
by determining the useful life of each group of assets. An indication that an
asset may be impaired may sometimes indicate that the remaining useful life, the
depreciation rates or the residual value for the asset, needs to be reviewed and
adjusted under accounting standards applicable to the asset, even if no
impairment loss is to be recognized for the asset and vice versa.
BUSINESS COMBINATIONS
We allocate the purchase price of acquired companies and properties to the
tangible and intangible assets acquired and liabilities assumed, based on their
estimated fair values. In order to allocate the purchase price attributed to
each acquired company and/or asset (tangible and intangible; monetary and
non-monetary) and liabilities, we identify and estimate the fair value of each
of the main acquired tangible assets (land, building, improvement, other
equipment and other monetary and non-monetary items) and estimate any other
identifiable intangible assets. Such valuations require us to make significant
estimates and assumptions. We believe that our estimates used as the basis for
this allocation are reasonable under the circumstances. A different method of
allocation may cause (i) an increase or decrease (as the case may be) in our
depreciation costs; (ii) the need to provide an impairment loss for each of the
acquired companies' assets, or to amend it; and (iii) an increase or decrease
(as the case may be) in gain (loss) derived from the disposal of these assets.
LITIGATION, OTHER CONTINGENT LIABILITIES AND ALLOWANCE FOR DOUBTFUL DEBTS
a. We are currently involved in various litigation disputes in substantial
amounts. We make provision for contingent obligations (including those in
respect of discontinuing operation) when the obligations are probable and
their amounts can reasonably be estimated. We include in the Consolidated
Financial Statements provisions which are based on, among other factors,
legal consultation and past experience, and which in our opinion are
deemed adequate to cover the costs and resources necessary to satisfy the
potential liabilities under these claims. The outcome of such contingent
liabilities may differ materially from our assessment. We periodically
evaluate these assessments and make appropriate adjustments to 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.
We are involved in litigation matters, the amount or outcome of which may
not be estimable (e.g., class actions). Due to the uncertainties related
to the possible outcome and/or the amounts and/or ranges of losses in
these litigation matters, neither our management nor our legal advisors
are able to make a reasonable estimate of the liability that could result
from an unfavorable outcome and accordingly no provision is provided
12
for such claims in the Consolidated Financial Statements. As additional
information becomes available, we will re-assess the potential liability
related to our pending litigation and will revise our estimates
accordingly. Such revisions in our estimates of the potential liability
could materially impact our results of operations and financial position.
See also Notes 16B and 16C to the Consolidated Financial Statements.
b. We examine, on an ongoing basis, the volume of credit extended to our
customers in the ordinary course of business (including long term loans to
third parties, in line with and regarding our business) and accordingly,
record a provision for doubtful debts based on those factors affecting
credit risks, based upon our best judgment. We periodically evaluate the
quality and value of loans granted by us to various third parties in the
ordinary course of business, taking into consideration the security which
was provided, the term of the loans and our past experience with these
third parties. If our estimate of collectibility differs from the cash
received, the timing and amount of our reported results of operations
could be adversely affected.
FUNCTIONAL CURRENCY OF INVESTEE COMPANIES
In preparing the Consolidated Financial Statements, we are required to
evaluate the functional currency of certain subsidiaries operating outside of
Israel (especially in Central Europe). In principle, the functional currency is
the currency which management believes, based on qualitative criteria, reflects
the economic nature of the events and circumstances relevant to the operating
subsidiary ("investee") or currency that is extensively used in or has a
significant effect on its activity. The functional currency is determined based
on management's judgment and involves consideration of all relevant economic
factors and circumstances affecting each subsidiary (e.g., the currency of the
financial environment that significantly influences management in determining,
inter alia, selling prices and payment conditions, or the currency used by
management for the purpose of decision making). Generally, the currency in which
each subsidiary executed (denominated and settled) the majority of its financing
and transactions, which include purchases, billings, collections and payments
(i.e., currency in which receivables and payments from current activity are
denominated and settled or in which they are retained following their
conversion) and the currency in which a majority of costs pertaining to the
supply of services (e.g. payroll, maintenance and other expenditures) are
denominated and settled, may indicate the functional currency. In these
instances, the nature of the subsidiary's operations must also be considered. A
significant change in the financial environment, or in the foregoing factors in
whole or in part, may require management to re-assess its determination of the
functional currency (see also Note 2A.(3)(ii) to the Consolidated Financial
Statements).
When any subsidiary's functional currency is deemed to be other than the
reporting currency, then any gain or loss associated with the translation of
that subsidiary's financial statements, for consolidation purposes, is charged
directly to a separate item in the shareholders' equity, namely "cumulative
foreign currency translation adjustments". Exchange rate differences on net
monetary items included in the subsidiary's financial statements which are
denominated in, or linked to, currencies other than the functional currency, are
recorded directly to the statements of operations. See also "Item 11 -
Quantitative and Qualitative Disclosure About Market Risks - Exchange Rate
Exposure" and "Exposure to Net Investment Value of Foreign Entity" of the Form
20-F.
In the event the functional currency changes into a currency other than
the local one, the amount of the foreign currency translation adjustment and/or
the net income in each reported
13
year following the date the change was implemented could be materially affected.
For information on currencies involved in our global operations, see "Item 11 -
Quantitative and Qualitative disclosure about market risks - Table I - foreign
currency risks" of the Form 20-F.
ACCOUNTING FOR INCOME TAXES
As part of the preparation of the Consolidated Financial Statements, we
are required to estimate our income taxes in each of the jurisdictions in which
we operate. This process involves an estimate by us of our actual current tax
exposure, together with assessing temporary differences resulting from different
treatment of items, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities that are included in our balance sheet.
Considerable management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We evaluate the weight
of all available evidence to determine whether it is probable that some portion
or all of the deferred income tax assets could be realized. As of December 31,
2004 we recorded a valuation allowance for substantially all of our deferred tax
assets (net, after provisions) primarily consisting of certain net operating
losses, as well as other temporary differences between book and tax accounting,
(see Note 15F to the Consolidated Financial Statements). The valuation allowance
was recorded due to uncertainties surrounding our ability to utilize some or all
of our deferred tax assets. In assessing the need for the valuation allowance,
we consider future taxable income, the time limitations on the utilization of
losses (see Note 15D to the Consolidated Financial Statements), and ongoing,
prudent and feasible tax planning strategies. In addition, the calculation of
our tax liabilities involves dealing with uncertainties in the application
and/or interpretation of complex tax laws, tax regulations, and tax treaties in
respect of various jurisdiction in which we operate and which frequently vary.
Tax authorities may interpret certain tax issues in a manner other than that
which we have adopted. Should such contrary interpretive principles be adopted
upon adjudication of such cases, our tax burden of the group may be
significantly increased. If the realization of deferred tax assets in the future
is considered probable, an adjustment to the deferred tax assets would increase
net income during the period in respect of which such determination is made. In
the event that actual results differ from these estimates or that we adjust
these estimates in future periods, we may incur additional taxes, which could
materially affect our financial position and results of operations. We have
recorded liabilities for anticipated tax issues based on our estimate of
whether, and the extent to which, we may become subject to additional tax
payments. If we ultimately determine that payment of these amounts is
unnecessary, we will reverse the liability and recognized a tax benefit during
the period of the determination. We record an additional charge in our provision
for tax in the period in which we determine that the tax liability recorded in
our books is less than we anticipate the ultimate assessment to be. As to tax
issues affecting our U.S. subsidiary - see Note 15B(2) to the Consolidated
Financial Statements.
The computation of current and deferred tax liabilities does not include
taxes that would have arisen in the event of a sale of the investments in
investees (except those that are to be liquidated), or upon receiving the
retained earnings as dividends, since in respect of some dividends from profits
thereof and/or gains to be generated from their realization are tax exempt, and
in respect of others, it is management's policy not to dispose of such
investments and/or not to offer, in the foreseeable future, their retained
earnings as a dividend distribution or otherwise, in a manner causing a material
tax burden on us (see Note 15B(1)c to the Consolidated Financial Statements). In
assessing the need to provide a tax liability in respect of the abovementioned,
we consider, among others, feasible tax planning strategies. Different
assumptions or other policies adopted by management, might significantly affect
our tax expenses.
14
As stated in Note 15G to the Consolidated Financial Statements, final tax
assessments have been received, in respect of the Company and some of our
subsidiaries, from 1997 to 2002, while some have not yet been assessed since
incorporation. See, in addition, Note 16C(4) to the Consolidated Financial
Statements. Tax authorities may, at this stage, challenge our tax strategy, and
thus our income or loss for tax purposes could be significantly affected, so
that our tax expenses (current and deferred) may, therefore, increase or our
recorded valuation allowance may decrease, significantly. Furthermore, our tax
strategy might be impacted by new laws or rulings.
Recently issued accounting standards
For information on recently issued accounting standards under US GAAP - see Note
24A to the Consolidated Financial Statements.
For information on recently issued accounting standards under Israeli GAAP - see
Note 2U to the Consolidated Financial Statements.
(A) Operating Results
The following table presents for the periods indicated the ratio of
certain statements of operation items to total revenues:
Year ended December 31,
---------------------------------
2004 2003 2002
% % %
------- ------ ------
Total revenues
Hotels operation and management 76.1 84.9 99.3
Commercial center operations 19.3 9.0 --
Asset leasing 4.6 6.1 --
Long term contracts -- -- 0.7
------- ----- -----
100.0 100.0 100.0
Cost of revenues
Hotels operation and management 48.0 57.5 64.0
Commercial center operations 20.9 9.9 --
Asset leasing 1.1 1.6 --
Long term contracts -- -- 0.7
------- ----- -----
70.0 69.0 64.7
Gross profit 30.0 31.0 35.3
Hotels' depreciation, amortization
and operating expenses 22.5 22.7 29.5
Initiation expenses 0.6 1.9 0.8
Selling and marketing expenses 4.9 4.0 --
General and administrative expenses 9.5 13.2 15.1
------- ----- -----
Operating loss before finance income
(expenses), net (7.5) (10.8) (10.1)
Finance income (expenses), net (12.2) (18.5) 6.1
------- ----- -----
Operating loss after finance income
(expenses), net (19.7) (29.3) (4.0)
Other expenses, net (3.3) (7.3) (10.3)
------- ----- -----
Loss before income taxes (23.0) (36.6) (14.3)
Tax benefits (0.2) (3.8) (2.5)
------- ----- -----
Loss after income taxes (22.8) (32.8) (11.8)
Share in loss of an associated company (2.3) (3.1) (1.4)
Minority interest in loss (profit)
of a subsidiary (0.3) 0.3 0.4
------- ----- -----
Loss from continuing operations (25.4) (35.6) (12.8)
Net profit from discontinuing operation 3.9 5.8 42.7
------- ----- -----
Net profit (loss) (21.5) (29.8) 29.9
======= ===== =====
15
Summary of Fiscal 2004 Operations
In the year ended December 31, 2004, the following activities have
significantly influenced our operations:
o Our hotels and leisure segment operational results improved, mainly
as a result of increased occupancy rate in the Victoria London hotel
and commencement of operations in the Centreville apartment hotel of
additional renovated apartments during the year, higher occupancy
rates, and higher rental rates.
o The Aquatopia attraction within the Astrid Park Plaza facility
operated during the entire year ended December 31, 2004 as opposed
to operating for four months for the year ended December 31, 2003.
o The Arena operated during the entire year ended December 31, 2004 as
opposed to partial operating on a partial basis since June 2003 for
the year ended December 31, 2003.
o Most of the Arena attractions commenced operations in April 2004.
Fiscal 2004 compared to Fiscal 2003
The following discussion and analysis should be read in connection with
the Consolidated Financial Statements in Item 18 and the other financial
information included elsewhere in the Form 20-F.
Revenue from our hotels and leisure segment
-------------------------------------------
The revenues from our hotels and leisure segment are derived from room
rentals, food and beverage sales, rental of commercial area and other services.
Our results of operations are significantly influenced by occupancy and room
rates at our hotels, and the ability to manage our costs. Future operating
results could be adversely impacted by many factors including those discussed in
the "Risk Factors" included in Item 3 of the Form 20-F. As of December 31, 2004,
our hotel segment included seven operating hotels (including an apartment hotel)
with more than 862 rooms and/or apartments (which represents the number of rooms
Elscint owns based on our pro-rata ownership of each hotel) and three hotels
under various stages of construction or renovation. The revenues from our hotels
and leisure segment for the year ended December 31, 2004 were NIS 218.4 million
($ 50.7 million) as compared to NIS 189.2 million for the year ended December
31, 2003, an increase of NIS 29.2 million or 15.4%.
Our hotels, which operate in various countries, report their operating
results in currencies other than the NIS ("functional currency"), which is
generally the currency of their country of residence. We translate our
subsidiaries' results of operations into our reporting currency (which is the
NIS) based on the exchange rate on the transaction date, or for sake of
practicality, using the average exchange rate for the reported period. Through
December 31, 2003 we used the representative exchange rate as of the year end
for such translation). See also our discussion in "Critical Accounting Policies
and Estimates", above. Therefore, a devaluation of the NIS against each
functional currency will cause an increase in our revenues in reported NIS and a
revaluation
16
of the NIS against each functional currency will cause a decrease in our
revenues in reported NIS. We believe that an analysis of our hotels and leisure
segment should, therefore, be presented in the functional currency of each of
our operating hotels. The following table summarizes our hotels and leisure
segment revenues in their functional currency and in reported NIS:
- ------------------------- -------------------------------------------- ---------------------------------------------------
Functional Revenues in functional currency Revenues in reported NIS (thousands)
currency
- ------------------------- -------------- -------------- -------------- ----------------- ----------------- ---------------
2004 2003 Change (%) 2004 2003 Change (%)(*)
- ------------------------- -------------- -------------- -------------- ----------------- ----------------- ---------------
Euro (thousands) 21,444 19,442 10.3% 119,218 107,574 10.8%
- ------------------------- -------------- -------------- -------------- ----------------- ----------------- ------------
GBP (thousands) 8,655 7,724 12.0% 70,928 60,597 17.0%
- ------------------------- -------------- -------------- -------------- ----------------- ----------------- ------------
Romanian Lei 189,053 143,066 32.1% 26,225 19,252 36.2%
(millions)
- ------------------------- -------------- -------------- -------------- ----------------- ----------------- ------------
S.A Rand 2,832 2,682 5.6% 1,994 1,782 11.9%
(thousands)
- ------------------------- -------------- -------------- -------------- ----------------- ----------------- ------------
Total 218,365 189,205 (15.4%)
- ------------------------- -------------- -------------- -------------- ----------------- ----------------- ------------
(*) This change reflects the real change in revenues (in functional currency)
plus the devaluation of the NIS against each functional currency.
Revenues from our hotels in The Netherlands and Belgium have increased by
10.3% for the year ended December 31, 2004, (in reported NIS - 10.8%) mainly due
to full-scale operations of the Aquatopia attraction within the Astrid Park
Plaza facilities for the year ended December 31, 2004.
Revenues from our UK hotels have increase by 12%, mainly due to achieving
higher occupancy and average room rates in Victoria London and the Sherlock
Holmes hotels. In reported NIS we had an increase of 17% (as compared to 12% in
GBP) due to devaluation of the NIS against the GBP.
Revenues from Our Centreville apartments hotel (that form a part of the
Bucuresti complex) have increased by 32.1% mainly due to renovations and the
operation of additional apartments during the year ended December 31, 2004. In
addition, the Centerville apartment hotel achieved higher occupancy rates and
higher rental rates during the year ended December 31, 2004.
In addition, we believe that the following performance measures, which are
widely used in the hospitality industry, are important to our discussion of
operating performance:
Total available rooms equals the number of rooms available multiplied by
the number of days in the reported period. We use total available rooms as a
measure of capacity in our system of hotels. Rooms under significant renovation
or construction are excluded from total available rooms.
17
Average occupancy represents total paid rooms occupied divided by total
available rooms. We use average occupancy as a measure of the utilization of
capacity in our hotels.
Revenue per available room ("RevPAR") represents total room revenues
divided by total available rooms. We use RevPAR as an index for comparative
performance in our system of hotels.
The average RevPAR for our operating hotels (excluding the UK leased hotel
and the Centreville apartments hotel) for the year ended December 31, 2004 was
NIS 461 ($107) as compared to NIS 429 for the year ended December 31, 2003.
Revenues from the Arena
-----------------------
The revenues of the Arena are derived from rent fees, management fees and
operations of the Arena attractions.
In general, the rent fee per square meter is composed of the higher of a
minimum rent per square meter and a percentage of the lessee's revenues. The
minimal rent per square meter in the Arena varies between $10 - $90 and depends
on the business segment of the lessees, the quality of the location at the Arena
and the size of the tenant area space.
We charge management fees to the Arena tenants in order to cover our
expenses related to the operation of the Arena such as security, cleaning,
marketing, utilities, maintenance and other operating costs. In accordance with
the management agreements, the management fees charges are defined mainly on the
basis of cost plus margin. We have decided, for the time being, to charge a
management fee on a lower based fixed charge per square meter, in order to
support the tenants in the beginning of their operations until the Arena
achieves the level of activity and market positioning in accordance with our
business plans.
Both the rent fees and the management fees are denominated in NIS and
adjusted to the Israeli CPI.
The Arena is a two-story building consisting of two above - ground floors,
and a parking lot consisting of approximately 1,500 parking spaces in three
underground floors. The total area of the Arena is approximately 120,000 square
meters of which 26,500 square meters are leaseable, 60,000 square meters are
parking spaces and the remaining areas are public spaces. As of December 2004
and May 2005, we had signed lease agreements relating to approximately 21,800
and 23,200 square meters, respectively, out of approximately 26,500 square
meters leasable space. The remaining space is in various stages of negotiations.
We have decided, for the time being, that the parking lot is available for the
Arena visitors with no charge. This strategic decision might be changed in the
future.
Our total revenues from the Arena for the year ended December 31, 2004
were NIS 55.3 million ($12.8 million) as compared to NIS 20.1 million for the
year ended December 31, 2003.
This increase is attributed to an increase in revenues from rent fees and
management fees which have increased by NIS 30.0 million ($ 6.9 million) due to
the fact that the Arena achieved almost full scale operations at the end of
2004, as compared to operations in 2003 on a partial basis, beginning in June
2003.
In addition most of the Arena attractions commenced operations at the end
of the first
18
quarter of 2004, accordingly revenues from these operations totaled NIS 6.2
million ($1.5 million) for the year ended December 31, 2004 as compared to NIS
0.2 million for the year ended December 31, 2003.
Revenues from asset leasing
---------------------------
On January 6, 2003 the Bernard Shaw hotel was leased to a company engaged
in the hotel business for a term of 25 years in consideration for a payment of a
fixed amount in each one of the first four years and from the fifth year on, the
amount will be adjusted upwards at the rate of 2.5% per annum. In accordance
with generally accepted accounting principles the revenues from this lease is
recognized by the straight-line method over the lease term. Total revenue
derived from this lease for the year ended December 31, 2004 was NIS 13.2
million ($3.1 million) as compared to NIS 13.5 million for the year ended
December 31, 2003. The difference is attributable to exchange rate differences.
Gross profit
------------
Total gross profit for the year ended December 31, 2004 was NIS 86.2
million ($20.0 million), or 30.0% of total revenues, as compared to NIS 69.0
million, or 31.0% of total revenues, for the year ended December 31, 2003.
Our hotel segment gross profits increased to NIS 80.7 million ($18.7
million), or 37.0% of the hotel segment revenues for the year ended December 31,
2004 from NIS 60.9 million, or 32.2% of the hotel segment revenues for the year
ended December 31, 2003. The increase is the result of increase in revenues of
the hotel segment and to improved efficiency in our costs of revenues of this
segment.
The Arena has a gross loss in the amount of NIS 4.6 million ($1.1 million)
for the year ended December 31, 2004 as compared to NIS 1.9 million for the year
ended December 31, 2003. The Arena gross loss is explained by two factors: (i)
the Arena achieved almost full-scale operations only at the end of 2004. As a
result, Arena's revenues does not represent full- scale operations during 2004
while most of the Arena's operational expenses are fixed and do not vary with
the Arena's revenues or leased spaces. We expect that during 2005 the Arena will
achieve full-scale operations; and (ii) the Arena's cost of revenues includes
depreciation costs in the amount of NIS 31.1 million ($7.2 million) for the year
ended December 31, 2004 as compared to NIS 11.0 million for the year ended
December 31, 2003. Excluding these depreciation costs, the Arena's gross profit
would be NIS 26.5 million ($6.2 million) or 47.8% of the Arena's revenues for
the year ended December 31, 2004 as compared to NIS 9.1 million or 45.2% for the
year ended December 31, 2003.
Operating expenses
------------------
Our operating expenses are as follows:
Hotels' depreciation, amortization and operating expenses for the year
ended December 31, 2004 were NIS 64.5 million ($15.0 million) as compared to NIS
50.4 million for the year ended December 31, 2003. This increase is mainly due
to an increase in the hotels' operating expenses to NIS 25.8 million ($ 6.0
million) for the year ended December 31, 2004 as compared to NIS 18.4 million
for the year ended December 31, 2003 which is attributed to the increase in the
volume of the hotel operations. The operating expenses include fixed expenses of
each hotel (which do not vary with the hotel revenue, occupancy rate or gross
profit) such as insurance and
19
local taxes, and variable expenses, such as management fees, incentive fees and
expenses reimbursements to Park Plaza. In addition, we had an increase in our
hotels' depreciation and amortization expenses to NIS 38.7 million ($9.0
million) for the year ended December 31, 2004 from NIS 32.0 million for the year
ended December 31, 2003 which is attributed mainly to the depreciation expenses
of the Aquatopia attraction which commenced operation in the fourth quarter of
2003.
Initiation expenses for the year ended December 31, 2004 were NIS 1.6
million ($0.4 million) as compared to NIS 4.3 million for the year ended
December 31, 2003. These expenses represent mainly a write-off of project
development costs that were previously capitalized for which their expected
economic benefit is doubtful and initiation costs of new projects mainly in the
hotel segment.
Selling and marketing expenses for the year ended December 31, 2004 were
NIS 14.0 million ($3.3 million) as compared to 8.9 million for the year ended
December 31, 2003. This increase is attributed to the continuing advertising and
marketing effort to achieve a recognized brand name for the Arena. Selling and
marketing expenses consist of an advertising campaign, public relations, wages
and other related costs.
General and administrative expenses for the year ended December 31, 2004
were NIS 27.6 million ($6.4 million) as compared to NIS 29.4 million for the
year ended December 31, 2003. This decrease is mainly due to a decrease in
general and administrative expenses mainly consisting of a decrease in salaries
in our biotechnology segment mainly due to the fact that Elscint has decided to
postpone future investment in this segment. This decrease was offset in part by
an increase in the Arena's general an administrative expenses due to fact that
Arena had a full year operations for the year ended December 31, 2004 as
compared to six months of operations for the year ended December 31, 2003.
General and administrative expenses include executive and administrative
salaries, legal, accounting and professional fees, director's fees and
insurance, donations, rental expenses, and depreciation.
Operating loss
--------------
As a result of the foregoing factors, operating loss for the year ended
December 31, 2004 was NIS 21.6 million ($5.0 million), as compared to NIS 24.0
million for the year ended December 31, 2003.
Finance expenses, net
---------------------
Finance expenses for the year ended December 31, 2004 were NIS 34.8
million ($8.1 million), as compared to NIS 41.3 million for the year ended
December 31, 2003.
Our finance expenses, net consist of the followings:
(i) Interest expenses on bank loans.
(ii) Interest income on deposits and loans.
(iii) Exchange rate differences on our net monetary assets (mainly
deposits and bank loans).
(iv) In respect of the year ended December 31, 2003, we also
20
have finance income (expenses) which were attributed to inflationary
erosion of our net monetary assets. (See detailed explanation
below).
Interest expenses on our bank loans (prior to capitalization of such
expenses to fixed assets under construction) for the year ended December 31,
2004 amounted to NIS 78.8 million ($18.3 million) as compared to NIS 59.9
million for the year ended December 31, 2003. The increase is attributable
mainly to (i) an increase in our bank borrowings for the year ended December 31,
2004 mainly in respect of credit facility for the construction of our Riverbank
hotel in London, (ii) an increase in the average interest margin rate on our
banks loans and (iii) the devaluation of the NIS against the Euro and the GBP
for the year ended December 31, 2004, which caused an increase in the reporting
amount of interest in NIS. In accordance with Israeli GAAP, Elscint capitalized
for the year ended December 31, 2004 interest expenses related to bank loans to
fixed assets under construction (mainly to the Riverbank hotel project) in the
sum of NIS 20.6 million ($4.8 million) as compared to NIS 18.9 million for the
year ended December 31, 2003. As a result, the interest on bank loan included in
our statement of operations for the year ended December 31, 2004 amounted to NIS
58.1 million ($13.5 million) as compared to NIS 41.0 million for the year ended
December 31, 2003.
Interest income on deposits and loans was NIS 2.9 million ($ 0.7 million)
for the year ended December 31, 2004 as compared to NIS 5.3 million for the year
ended December 31, 2003.
Exchange rate income in respect of our net monetary assets (prior to
capitalization of such exchange rate results to fixed assets under construction)
for the year ended December 31, 2004 was NIS 20.8 million ($4.8 million) as
compared to exchange rate expenses of NIS 11.8 million for the year ended
December 31, 2003. Out of these exchange rate difference results, Elscint
capitalized to fixed assets under construction, exchange rate expenses relating
to bank loans in the amount of NIS 0.6 million for the year ended December 31,
2004 as compared to exchange rates income capitalized to such assets in the
amount of NIS 26.4 million for the year ended December 31, 2003. As a result,
the exchange rate differences income included in our statement of operations for
the year ended December 31, 2004 amounted to NIS 21.4 million ($5.0 million) as
compared to exchange rate difference expenses of NIS 38.2 million for the year
ended December 31, 2003. Our finance expenses, net, were significantly
influenced, for the year ended December 31, 2004, from applying a new Israeli
accounting standard that ceased the adjustment of our financial statements for
inflation. In general terms, the adjustments of our financial statements for
inflation results in additional finance expenses when our monetary assets are
higher than our monetary liabilities and there is an increase in the CPI during
the reported year. On the other hand, we would have finance income in instances
when our monetary assets are less than our monetary liabilities, and there is an
increase in the CPI during the reported year. As a result of applying this new
standard we had no income or expenses due to inflationary erosion for the year
ended December 31, 2004 as compared to finance income due to inflationary
erosion of NIS 31.8 million for the year ended December 31, 2003.
21
Other expenses, net
-------------------
Other expenses, net for the year ended December 31, 2004 were NIS 9.4
million ($2.2 million) compared to NIS 16.2 million for the year ended December
31, 2003. Other expenses, net for the year ended December 31, 2004 resulted
primarily from impairment loss in respect of our investments in the Astrid Park
Plaza hotel and the Aquatopia attraction in the amount of NIS 10.5 million ($2.4
million). For additional information see Note 9C to the Consolidated Financial
Statements. In addition, we have a loss from realization of fixed assets in the
amount of NIS 10.3 million ($2.4 million) in respect Arena's attractions assets
disposition. This was offset, in part, by a gain from realization of foreign
currency translation adjustments in respect of repayment of a shareholder loan
by the Victoria Amsterdam hotel and Utrecht Park Plaza hotel to the Company in
the amount of NIS 12.4 million ($2.9 million) and gain derived from deferred
consideration received in respect of realization of Algotech shares in the
amount of NIS 3.4 ($0.8 million).
Share in loss of an associated company
--------------------------------------
Share in loss of an associated company, Gamida, was NIS 6.6 million ($1.5
million) for the year ended December 31, 2004 as compared to NIS 7.0 million for
the year ended December 31, 2003.
Loss from continuing operations
-------------------------------
As a result of the foregoing factors, we had a loss from continuing
operations for the year ended December 31, 2004 of NIS 72.4 million ($16.8
million) or NIS 4.37 ($1.01) basic loss per share, as compared to NIS 79.3
million or NIS 4.75 basic loss per share for the year ended December 31, 2003.
Net profit from discontinuing operation
---------------------------------------
Net profit from discontinuing operation for the year ended December 31,
2004 was NIS 11.1million ($2.6 million) or NIS 0.67 ($0.16) basic earnings per
share, as compared to NIS 13.0 million or NIS 0.78 basic earnings per share for
the year ended December 31, 2003. Net profit from a discontinuing operation
constitutes mainly the collection of receivables previously written off and to
exchange rate differences gain attributed to monetary assets pertaining to a
discontinuing operation.
Loss
----
As a result of the foregoing factors, loss for the year ended December 31,
2004 was NIS 61.4 million ($14.2 million) or NIS 3.70 ($0.85) basic loss per
share, as compared to NIS 66.4 million or NIS 3.97 basic loss per share for the
year ended December 31, 2003.
Fiscal 2003 compared to Fiscal 2002
Revenue from our hotels and leisure segment
-------------------------------------------
As of December 31, 2003, our hotel segment included seven operating hotels
(including an apartments hotel) with more than 1,013 rooms (which are the number
of rooms Elscint owns based on its pro rata ownership in each particular hotel)
and three hotels under various stages of construction or renovation. The
revenues from our hotels and leisure segment for the year ended
22
December 31, 2003 were NIS 189.2 million as compared to NIS 206.7 million for
the year ended December 31, 2002, a decrease of NIS 17.5 million or 8.4%.
The following table summarizes our hotels and leisure segment revenues in
their functional currency and in adjusted NIS:
- -------------------------- ---------------------------------------------- --------------------------------------------------
Functional Revenues in functional currency Revenues in adjusted NIS (thousands)
currency
- -------------------------- ---------------- -------------- -------------- ---------------- --------------- -----------------
2003 2002 Change (%) 2003 2002 Change (%)(*)
- -------------------------- ---------------- -------------- -------------- ---------------- --------------- -----------------
Euro (thousands) 19,442 19,287 0.8% 107,574 94,036 14%
- -------------------------- ---------------- -------------- -------------- ---------------- --------------- -----------------
GBP (thousands) 7,724 10,195 (25%) 60,597 76,289 (20%)
- -------------------------- ---------------- -------------- -------------- ---------------- --------------- -----------------
Romanian Lei 143,066 248,680 (42%) 19,252 34,724 (44%)
(millions)
- -------------------------- ---------------- -------------- -------------- ---------------- --------------- -----------------
S.A Rand 2,682 3,005 (11%) 1,782 1,630 (9%)
(thousands)
- -------------------------- ---------------------------------------------- ---------------- --------------- -----------------
Total 189,205 206,679 (8%)
- -------------------------- ---------------------------------------------- ---------------- --------------- -----------------
(*) This change reflects the real change in revenues (in functional currency)
plus the devaluation/revaluation (net of inflationary erosion) of the NIS
against each functional currency.
Revenues from our hotels in The Netherlands and Belgium increased by 0.8%
for the year ended December 31, 2003, while in adjusted NIS we reported an
increase of 14%. The difference is attributable to the devaluation of the NIS
against the Euro for the year ended December 31, 2003.
Revenues from our UK hotels decreased by 25% (in adjusted NIS - 20%)
mainly due to the change in the Bernard Shaw Hotel activity from hotel operation
to assets leasing in January 2003, which contributed revenue of GBP 3.4 million
for the year ended December 31, 2002. Excluding the Bernard Shaw Hotel's
revenues for the year ended December 31, 2002 we have had an increase (in GBP)
in our revenues of 14%, which is attributed to increased revenues from our other
UK hotels, mainly due to achieving higher occupancy. In adjusted NIS (excluding
the Bernard Shaw Hotel) we reported an increase of 19% (as opposed to 14% in
GBP) due to devaluation of the NIS against the GBP for the year ended December
31, 2003.
Our Bucuresti complex is composed of two separate units: Bucuresti Hotel
and Apartments Hotel ("Centreville"). The decrease in revenues was 42% mainly
due to the closing of the Bucuresti Hotel for renovations in December 2002,
offset in part by the revenues derived from the Centreville apartments hotel,
which was under various stages of renovation during the first half of 2003.
The average RevPAR for our operating hotels (excluding the UK leased hotel
and the Centreville apartments hotel) for the year ended December 31, 2003 was
NIS 429 as compared to NIS 474 for the year ended December 31, 2002.
23
Revenues from the Arena
-----------------------
The Arena commercial and entertainment center was officially opened, on a
partial basis, in June 2003. The majority of the Arena's revenues were composed
of rent fees and management fees. Our revenues from the Arena for the year ended
December 31, 2003 were NIS 20.1 million.
As of December 2003, we had signed lease agreements relating to
approximately 19,500 square meters out of approximately 26,500 square meters of
leaseable space. The remaining space is in various stages of negotiations.
Revenues from asset leasing
---------------------------
On January 6, 2003 the Bernard Shaw Hotel was leased to a company engaged
in the hotel business for a term of 25 years in consideration for a payment of a
fixed amount in each one of the first four years and from the fifth year and
thereafter the amount is adjusted upwards at the rate of 2.5% per annum. In
accordance with generally accepted accounting principles the revenues from this
lease is recognized by the straight-line method over the lease term. Total
revenue derived from this lease for the year ended December 31, 2003 was NIS
13.5 million
Gross profit
------------
Total gross profits for the year ended December 31, 2003 were NIS 69.0
million, or 31.0% of total revenues, as compared to NIS 73.6 million, or 35.3%
of total revenues, for the year ended December 31, 2002. Cost of revenues of the
hotels and leisure segment for the year ended December 31, 2002 included a
subsidy received from the Belgian government in respect of hotel's employees'
salaries in the amount of NIS 5.3 million. Without the subsidy the gross profits
for the year ended December 31, 2002 would be NIS 68.3 million or 32.8% of total
revenues. The Arena experienced gross losses in the amount of NIS 1.9 million
for the year ended December 31, 2003. The Arena's gross losses are explained by
two factors: (i) the Arena was partially opened in June 2003 and therefore did
not achieve full-scale operations in that year. As a result, the Arena's
revenues do not represent full- scale operations during 2003 while most of the
Arena's operational expenses are fixed and do not vary with the Arena's revenues
or leased spaces. (ii) the Arena's cost of revenues includes depreciation costs
in the amount of NIS 11.0 million for the year ended December 31, 2003.
Excluding these depreciation costs, the Arena's gross profit would be NIS 9.7
million or 45.6% of the Arena's revenues for the year ended December 31, 2003.
Operating expenses
------------------
Our operating expenses are as follows:
Hotels' depreciation, amortization and operating expenses for the year
ended December 31, 2003 were NIS 50.4 million as compared to NIS 61.5 million
for the year ended December 31, 2002. The decrease in these expenses is mainly
due to the change in the Bernard Shaw Hotel activity from hotel operations to
leasing the property in January 2003 and to the closing of the Bucuresti hotel
for renovations in December 2002. As a result, the depreciation cost relating to
the Bernard Shaw Hotel was classified as a cost of revenues related to asset
leasing and we have no depreciation costs in respect of the Bucuresi hotel for
the year ended December 31, 2003. In addition, we have no significant operating
costs related to the Bernard Shaw Hotel and to the Bucuresti hotel for the year
ended December 31, 2003. The operating expenses include fixed expenses of each
hotel (which do not vary with hotel revenue, occupancy rate or gross profit)
24
such as insurance and local taxes, and variable expenses, such as management
fees, incentive fees and expenses reimbursements to Park Plaza.
Initiation expenses for the year ended December 31, 2003 were NIS 4.3
million as compared to NIS 1.8 million for the year ended December 31, 2002.
These expenses represent mainly a write-off of project development costs that
were previously capitalized for which their expected economic benefit is
doubtful and initiation costs of new projects in the hotel segment.
Selling and marketing expenses for the year ended December 31, 2003 were
NIS 8.9 million as compared to nil for the year ended December 31, 2002. These
expenses are attributable to marketing efforts for the Arena that was opened in
June 2003.
General and administrative expenses for the year ended December 31, 2003
were NIS 29.4 million as compared to NIS 31.6 million for the year ended
December 31, 2002. This decrease is mainly due to the decrease in salaries and
related expenses attributable mainly to dividend payments with respect to
incentive shares issued to employees against loans provided by the Company, for
which the sole security for the repayment of these loans are the issued shares.
These dividend payments were recorded as expenses in the statement of operations
for the year ended December 31, 2002. The decrease in general and administrative
expenses was partially offset by an increase in such expenses (mainly salaries
and related expenses) attributable to the commencement of operation of the Arena
in June 2003.
Operating loss
--------------
As a result of the foregoing factors, operating loss for the year ended
December 31, 2003 was NIS 24.0 million, as compared to NIS 21.3 million for the
year ended December 31, 2002.
Finance expenses, net
---------------------
Finance expenses for the year ended December 31, 2003 were NIS 41.3
million, as compared to finance income, net of NIS 12.8 million for the year
ended December 31, 2002.
Interest expenses on bank loans for the year ended December 31, 2003
amounted to NIS 59.9 million as compared to NIS 51.0 million for the year ended
December 31,2002. The increase is attributable mainly to (i) an increase in our
bank borrowings for the year ended December 31, 2003, (ii) an increase in the
average interest margin rate on our banks loans and (iii) the devaluation of the
NIS against the Euro and the GBP for the year ended December 31, 2003 which
caused an increase in the reporting amount of interest.
Exchange rate income (net of inflationary erosion) in respect of our bank
loans for the year ended December 31, 2003 was NIS 47.8 million as compared to
NIS 25.9 for the year ended December 31, 2002. In the year ended December 31,
2003 Elscint capitalized finance income related to bank borrowings (interest,
exchange rate differences and inflationary erosion) to fixed assets under
construction (mainly to the Arena and the Riverbank hotel project) in the sum of
NIS 7.3 million as compared to finance expenses of NIS 22.6 million for the year
ended December 31, 2002.
In addition we have finance expenses, net (including exchange rate
differences and inflationary erosion) derived from bank deposits in the amount
of NIS 17.4 million for the year ended December 31, 2003 as compared to finance
income of NIS 21.1 million for the year ended December 31, 2002.
25
Other expenses, net
-------------------
Other expenses, net, for the year ended December 31, 2003 were NIS 16.2
million compared to NIS 21.5 million for the year ended December 31, 2002. Other
expenses, net, for the year ended December 31, 2003 resulted primarily from
impairment of long-lived assets and investments in the amount of NIS 43.7
million. This was offset in part by a gain from realization of Algotech shares
in the amount of NIS 24.7 and gain from realization of foreign currency
translation adjustments in respect of repayment of a shareholder loan by SHH to
the Company in the amount of NIS 5.8 million.
Share in loss of an associated company
--------------------------------------
Share in loss of an associated company, Gamida, was NIS 7.0 million as
compared to NIS 2.8 million for the year ended December 31, 2002. This increase
is mainly due to the inclusion of Gamida's loss for all of fiscal 2003 while for
the year ended December 31, 2002 we included Gamida's losses only for the
three-month period ended December 31, 2002.
Loss from continuing operations
-------------------------------
As a result of the foregoing factors, we had a loss from continuing
operations for the year ended December 31, 2003 of NIS 79.3 million or NIS 4.75
basic loss per share, as compared to NIS 26.7 million or NIS 1.6 basic loss per
share for the year ended December 31, 2002.
Net profit from discontinuing operation
---------------------------------------
Net profit from discontinuing operation for the year ended December 31,
2003 was NIS 13.0 million or NIS 0.78 basic earnings per share, as compared to
NIS 88.9 million or NIS 5.33 basic earnings per share for the year ended
December 31, 2002. This decrease resulted primarily from the inclusion of the
results of the sub-assemblies segment (i.e our factory in Ma'alot) for the year
ended December 31, 2002 and from the gain derived from the sale of this segment
(which is a part of our discontinuing operation) in December 2002 (see Item 4 -
"Principal Capital Expenditures and Divestitures" of the Form 20-F).
Net profit (loss)
-----------------
As a result of the foregoing factors, loss for the year ended December 31,
2003 was NIS 66.4 million or NIS 3.97 basic loss per share, as compared to net
profit of NIS 62.3 million or NIS 3.73 basic earnings per share for the year
ended December 31, 2002.
(B) LIQUIDITY AND CAPITAL RESOURCES
Overview
--------
Our capital resources are (i) lines of credit obtained from Israeli and
foreign banks and financial institutions, (ii) financing margins resulting from
the refinancing of loans extended to the subsidiaries owning our assets (iii)
proceeds from sales of assets and (iv) our available cash and cash equivalents.
Such resources are used for subordinated debt investments in our real estate
assets that are built by Elscint's wholly owned and jointly controlled
subsidiaries that are formed for the construction and operation of our various
real estate assets. The subordinated debt-financing portion is typically 30%,
and Elscint's portion of such amount varies based on the portion of its
ownership in the relevant subsidiary. The balance of the amount needed for the
26
construction of the assets is financed through the mortgage of the underlying
real estate in favor of local banks that provide financing. The subordinated
debt financing to our wholly owned and jointly controlled subsidiaries is
typically provided by Elscint through shareholder loans that are subordinated to
the bank loans provided to the subsidiary.
Our short-term liquidity needs include funds for interest and principal
payments on our outstanding indebtedness, corporate general and administrative
expenses and capital expenditures. Our long-term liquidity needs include funds
for construction and/or renovation of our hotels and initiation of new projects.
Due to the Company's nature of activity as an entrepreneurial company within the
real estate business, our ability to obtain the necessary funding relies mainly
on our ability to realize our real estate assets (by their improvement and sale
to third parties or by obtaining re-financing loans) and we depend on real
estate market conditions which may significantly effect our liquidity and
capital resources.
Our ability to fund operations, make planned capital expenditures, make
required payments on any securities we may issue in the future and remain in
compliance with the financial covenants under our loans agreements will be
dependent on our future operating performance. Our future operating performance
is dependent on a number of factors, many of which are beyond our control,
including occupancy rates of our hotel rooms and the room rates we can charge.
These factors are impacted by prevailing economic conditions and financial,
competitive, regulatory and other factors. In the event that our plans change,
our assumptions change or prove to be inaccurate, business conditions change, or
if other capital resources and projected cash flow otherwise prove to be
insufficient to fund our operations (due to unanticipated decrease in revenues,
or increase in expenses and other unforeseen events), we may be required to seek
additional financing. There are no assurances that, under such circumstances we
will be able to obtain such financing.
Fiscal 2004 cash flows compared to fiscal 2003 cash flows
---------------------------------------------------------
Cash flows from operating activities
------------------------------------
Net cash provided by continuing operating activities for the year ended
December 31, 2004 was NIS 4.6 million ($1.1 million), as compared to net cash
used in continuing operating activities of NIS 5.1 million for the year ended
December 31, 2003. This change was primarily due to improvement in our cash flow
from the hotels and leisure segment, offset in part by an increase in finance
expenses, net (expenses on bank borrowings which were not capitalized to fixed
assets under construction, net of interest income on banks deposits, net).
Net cash used in discontinuing operating activities for the year ended
December 31, 2004 was NIS 0.4 million ($0.1 million), as compared to NIS 12.2
million for the year ended December 31, 2003. The negative cash flow for the
year ended December 31, 2003 is mainly attributed to realizations of bank
guarantees previously provided to a foreign bank in respect of a former
customer's liabilities to the foreign bank. These guarantees lapsed at the end
of 2003 and we are now attempting to collect these debts from those costumer.
As a result of the foregoing factors, net cash provided by operating
activities for the year ended December 31, 2004 was NIS 4.2 million ($1.0
million) as compared to net cash used in operating activities of NIS 17.4
million for the year ended December 31, 2003.
27
Cash flows from investing activities
------------------------------------
Net cash used in continuing investing activities for the year ended
December 31, 2004 was NIS 197.8 million ($45.9 million), as compared to NIS
165.5 million for the year ended December 31, 2003. This change was primarily
due to a decrease in the proceeds from sale of long term investment and loans to
NIS 4.3 million ($1.0 million) for the year ended December 31, 2004 (mainly
attributed to the deferred consideration received from the realization of
Algotech shares and to collection of long term loans receivable from tenets) as
compared to NIS 274.7 million for the year ended December 31, 2003 (mainly
relating to the refund of bank deposit in the amount of NIS 243.7 million that
served as security for a loan in the same amount and proceeds in the amount of
NIS 28.3 million from the sale of Algotech shares in November 2003). This was
partially offset by (i) a decrease in the purchase of fixed and other assets to
NIS 208.7 million ($48.4 million) for the year ended December 31, 2004 (mainly
relating to the construction of the Riverbank hotel project and to renovation of
apartments in the Bucuresti complex) from NIS 417.0 million for the year ended
December 31, 2003 (mainly relating to construction of the Arena and Riverbank
hotel project) and (ii) an increase in the proceeds from realization of fixed
assets to 20.5 (mainly in respect of realization of our U.S subsidiary's
building in June 2004) as compared to NIS 1.6 million for the year ended
December 31, 2003.
Net cash provided by discontinuing investing activities for the year ended
December 31, 2004 was NIS 2.1 million ($0.5 million), as compared to of NIS 94.7
million for the year ended December 31, 2003. This decrease is mainly
attributable to the proceeds received from the buyer of the sub-assemblies
segment at the beginning of year 2003.
As a result of the foregoing factors, net cash used in investing
activities for the year ended December 31, 2004 was NIS 195.7 million ($45.4
million) as compared to NIS 70.8 million for the year ended December 31, 2003.
Cash flows from financing activities
------------------------------------
Net cash provided by financing activities for the year ended December 31,
2004 was NIS 133.8 million ($31.1 million), as compared to NIS 94.0 million for
the year ended December 31, 2003.
Net cash provided by financing activities for the year ended December 31,
2004 was mainly attributable to the following:
o Proceeds from long-term debts in the amount of NIS 308.7 million ($71.7
million) which is attributed mainly to long-term refinancing loan agreement of
the Victoria Amsterdam hotel and Utrecht Park Plaza hotel (see below), in the
amount of NIS 211.0 million ($ 49.0 million) and draw-downs of funds under the
long-term credit facility provided for the construction of the Riverbank hotel
in the amount NIS 95.5 million ($ 22.2 million).
o Payment of long term debts in the amount of NIS 134.0 million ($31.1
million) which is attributed mainly to repayment of previous bank loans of the
Victoria Amsterdam hotel and Utrecht Park Plaza hotel in the amount of NIS
126.0 million ($ 29.2 million) subsequent to the refinancing loan provided.
o In addition, we executed payments of short term credits, net, in the
amount of NIS 40.9 million ($9.5 million).
28
Net cash provided by financing activities for the year ended December 31,
2003 was mainly attributable to the following:
o Proceeds from long-term debts in the amount of NIS 364.9 million which is
attributed mainly to (i) long-term refinancing loan agreement of the Bernard
Shaw Park Plaza hotel, in the amount of NIS 162.1 million and (ii) a long-term
credit facility provided for the construction of the Arena in the amount of NIS
195.1 million,
o Payments of long term debts in the amount of NIS 324.0 million which is
attributed mainly to repayment of previous bank loans of the Shaw Park Plaza
hotel in the amount of NIS 67.2 million subsequent to the refinancing loan
provided and a repayment of a long-term bank loan in the amount of NIS 243.7
million out of the deposit that served as security for the aforementioned loan.
o In addition, we were provided with a short term credit, net, in the amount
of NIS 53.0 million, attributed mainly to draw-downs of funds under the
long-term credit facility which was provided for the construction of the
Riverbank.
Major balance sheet items movements that affect our liquidity
-------------------------------------------------------------
Cash and cash equivalents decreased to NIS 41.8 million ($9.7 million) as
at December 31, 2004, as compared to NIS 98.5 million as at December 31, 2003.
This decrease is primarily attributed to the ongoing cash investments in the
construction of our projects (mainly the Riverbank hotel project and for
completion of the construction works in the Arena), repayment of long-term bank
loans and operational expenses. It was offset in part by a refinancing loan
provided to our hotels in the Netherlands and to proceeds from realization of
our U.S subsidiary's building
Fixed assets, net, increased to NIS 2,185.3 million ($507.3 million) at
December 31, 2004, from NIS 2,003.4 million at December 31, 2003, primarily due
to the continuing investment in the construction of the Riverbank hotel project
as well as the completion of the construction works of the Arena, and to
devaluation of the NIS against the functional currencies of our investees. This
was offset, in part, by the assets' annual depreciation.
Short-term credit and long-term debt increased to NIS 1,461.2 million
($339.2 million) as at December 31, 2004, from NIS 1,258.1 million at December
31, 2003. This increase is attributable mainly to obtaining new bank facilities
for the year ended December 31, 2004 (see "financing" below) and the devaluation
of the NIS against the GBP and the Euro for the year ended December 31, 2004,
offset in part by repayment of a long-term bank loans.
As of December 31, 2004, we had bank loans in the aggregate amount of NIS
690.2 million ($ 160.2 million), which, as a result of receipt of waiver letters
from the respective banks, had a maturity of January 1, 2006. These amounts
consist of: (i) a bank loan in the amount of NIS 294.5 million ($ 68.4 million),
secured by certain collaterals of BEA, for which the bank has provided a letter
consenting to reschedule the loan for a period of 10 years, subject to our
furnishing additional agreed upon securities and execution of a definitive long
term loan agreement; and (ii) a loan agreements in the amount of NIS 395.7
million ($ 91.8 million) in respect of which, as of the balance sheet date, we
were not in compliance of certain financial and
29
operational covenants. Should we fail to provide the banks with the additional
securities, sign the definitive agreements or fail to comply with the covenants
in the loan agreements, then these loans could be reclassified as short-term
debt. Such classification in our financial statements may improperly reflect our
working capital ratio as well as other financial indicators. since the
real-estate assets which were financed by these loans are classified as
non-current assets. In addition, if we fail to reach agreements with these banks
in the future, our debt may become immediately repayable and we may be unable to
make the necessary payments or obtain additional or replacement financing on
favorable terms. Although the parties to the agreements follow the terms and
conditions provided therein in respect of the long term repayment schedule or in
accordance with the agreement with the bank, as the case may be, and although we
believe we will reach a favorable resolution of these matters, we cannot be
certain that this will occur.
Financing
---------
In the year ended December 31, 2004 we drew funds mainly from the
following facilities:
o In December 2003 our jointly controlled subsidiary, Riverbank Hotel
Holding B.V. ("RBH"), signed a long term credit facility agreement
with a bank according to which the bank has made available to RBH a
credit facility in the aggregate amount of GBP 67.0 million (in
which Elscint's share is GBP 33.5 million). In accordance with the
agreement the facility shall be used initially for the payment of
the short-term credit facility previously provided by the bank and
the remaining proceeds will finance the cost incurred in connection
with construction of the hotel. The loan bears annual interest at
the basic rate of the bank plus a margin of 1.4%, provided that the
interest rate shall in no event be less then LIBOR plus 2.2% per
annum. The loan is repayable over a period of 10 years commencing
the earliest date of (i) August 27, 2007 or (ii) the Economic
Completion Date as determined in the agreement, and the remaining
balance is repayable as a bullet repayment at the end of the period.
These repayment terms are subject to compliance by RBH with certain
financial and operational covenants as stipulated in the agreement.
As part of the agreement the bank was provided with (i) a charge
over RBH's tangible fixed assets and shares, (ii) a guarantee in
favor of the bank provided severally by Elscint Ltd. and companies
of the Red Sea Group ("RSG") each in the amount 7.1% of the
outstanding loan and (iii) a joint construction completion guarantee
in favor of the Bank was provided by Elscint Ltd. and RSG. In
addition, RBH has taken upon itself to comply with a number of
financial and operational covenants as specified in the loan
agreement. In the year ended December 31, 2004 RBH draw funds under
this facility in the amount of GBP 22.9 million (Elscint's share is
GBP 11.4 million) that used for the construction of the Project. As
of December 31, 2004, RBH'S outstanding loan amount to GBP 61.6
million.
o In October 2004 our Jointly controlled subsidiaries, Victoria Hotel
C.V ("VHCV") and Utrecht Victoria Hotel B.V ("Utrecht") together
with The Mandarin Hotel B.V (a company in the RSG) signed an
agreement with a bank for a refinancing loan in the amount of Euro
80.0 million, in which Elscint's jointly controlled subsidiaries'
share is Euro 71.7 million. An amount of Euro 42.4 million served as
repayment of a previous bank loan extended to the Jointly controlled
subsidiaries and the remaining amount was used for repayment of
shareholder loans, which increased our available cash. Approximately
Euro 4.6, million is repayable during the first 5 years and the
30
remainder is to be paid as a bullet repayment at the end of the term
(September 30, 2009). The interest rate on this loan was fixed by a
swap transaction at the rate of 5.1% per annum.
As a security for the loan the borrowers have provided the bank,
amongst others, with charge over the borrowers' real estates and
moveable assets, pledge on the borrowers shares, lease agreements,
management agreements, income receivables accounts, and insurance
rights.
As part of the agreement, it was determined that all borrowers and
guarantors are jointly and severally responsible towards the bank
for each of the other borrower.
In addition, the borrowers have took upon themselves to comply with
a number of financial and operational covenants as specified in the
loan agreement.
Asset disposition
-----------------
o In November 2003, the Company sold to a third party its interest
(approximately 16%, fully diluted) in Algotech. The proceeds from
this sale were approximately $7.8 million (subject to adjustments)
out of which an amount of $6.3 million has been received as of
December 31, 2003. During the year ended December 31, 2004 and 2005
Elscint has received additional and final proceeds in the amount of
$0.7 million and $0.4 million, respectively.
o In April 2004, Elscint Inc. signed an agreement with an unrelated
third party for the sale of its building in Rockleigh, New Jersey.
Upon the closing of the agreement, in June 2004, Elscint Inc.
received total consideration in the amount of $4.75 million.
Assets held for sale
--------------------
At the moment, Elscint has no specific assets held for sale.
31
Contractual obligations
-----------------------
Our contractual obligations are comprised mainly of long-term loans from
banks and financial institutions and long-term operating leases. These
obligations are linked to foreign currencies (mainly U.S. dollar, GBP and the
Euro). In the following table we summarize our significant contractual
obligations as of December 31, 2004 in NIS while translating them by the
representative exchange rate as of December 31, 2004 between the NIS and the
currency in which the obligation is denominated. Therefore, actual payments of
these amounts (as they will be presented in the financial statements of the
Company in preceding years) are significantly dependent on the exchange rate of
the NIS against foreign currencies and can be significantly different than those
presented in the following table.
- ----------------------------- ------------------------------------------------------------------------------------------
Contractual obligations NIS (million)
- ----------------------------- ------------------ ----------------- -------------------- -------------------- -----------
Less than one year 2-3 years 4-5 years More than 5 years Total
- ----------------------------- ------------------ ----------------- -------------------- -------------------- -----------
Long-term debt obligations 90 826(ii) 307 568 1,791
(i)
- ----------------------------- ------------------ ----------------- -------------------- -------------------- -----------
Operating lease obligation 5 11 11 553 580
(iii)
- ----------------------------- ------------------ ----------------- -------------------- -------------------- -----------
Construction services (iv) 83 -- -- -- 83
- ----------------------------- ------------------ ----------------- -------------------- -------------------- -----------
Others (v) 2 2 -- -- 4
- ----------------------------- ------------------ ----------------- -------------------- -------------------- -----------
Total 180 839 318 1,121 2,458
- ----------------------------- ------------------ ----------------- -------------------- -------------------- -----------
(i) These amounts include payments of principal and interest in respect
of our long term debt. For additional information in respect of the
long-term loan, see Note 13 to the Consolidated Financial Statements
and "Item 11- Quantitative and Qualitative Disclosures About Market
Risk" of the Form 20-F.
(ii) a. Bank loans include loans granted to the Company from an Israeli
bank totaling NIS 294.5 million, secured by a first ranking
pledge of BEA shares and certain additional first and second
ranking pledges on shares of BEA's subsidiaries, and further
secured by first or second ranking pledges on assets and
interests acquired by means of the credit line, and as may be
required by the bank. In addition, the Company undertook to
comply with certain financial covenants, namely maintaining,
throughout the duration of the credit, of a minimum ratio of
shareholders' equity to total balance sheet assets. The bank has
informed the Company, of its principal consent to reschedule the
repayment of the aforementioned loans for a period of 10 years,
and all subject to the furnishing by the Company of additional
agreed upon securities as well as the execution of detailed
agreements between the parties. The Company's management
estimates, based on such understandings, that subject to its
provision of such security, the balance of the loan will be
rescheduled for a long-term period. The bank has informed the
Company in writing, that it does not intend to demand repayment
of the loans prior to January 1, 2006. The bank has also informed
the Company that in any event of a full or partial sale, issuance
or a
32
refinancing by the Company, or in any other event constituting a
trigger event, occurring prior to January 1, 2006, a repayment of
a certain amount, as agreed upon by and between the parties or
failing such agreement as determined by the bank, is to be
executed.
b. Within the framework of agreements for the receipt from Israeli
banks of long-term foreign currency credit facilities in an
aggregate amount, in which the Company's share totals to NIS
395.7 million, (for financing hotels and the Arena construction),
the companies owning the properties undertook in favor of the
banks to comply, throughout the duration of the credit, with
certain financial and operating covenants. Should such companies
fail to comply with all or any of such covenants, or upon the
occurrence of certain events as detailed in the agreements, the
banks will then be entitled to demand the immediate repayment of
the loans. As of December 31, 2004, the borrowers are yet to
comply with certain covenants, which in the opinion of the
managements thereof do not affect their repayment ability
(principal and/or interest) to the banks on a regular basis and
the actual repayments, as aforesaid. The parties to the
agreements follow the terms and conditions provided therein in
respect of the long-term repayment schedule or in accordance with
the agreement with the bank, as the case may be. The borrowers'
managements are of the opinion, based on previous experience that
the banks will not call for immediate repayment of the credit, as
a result of such temporary breaches. The Company's management
believes therefore that these loans are vested with a long-term
nature. In addition, the banks have informed the Company in
writing as to their consent to extend the term of the
above-mentioned credit facilities until January 1, 2006.
(iii) Our operating lease obligations are subject to periodic adjustment
of the lease payments as stipulated in the agreements. In this table
we included the lease obligations based on the lease payments for
the recent year. For additional information in respect of our
operating lease obligations see Note 9B to the Consolidated
Financial Statements.
(iv) This refers to contracts with supplier and subcontractors in respect
of the construction of our projects.
(v) Includes NIS 3.0 million ($0.7 million) in respect of agreement
between Elscint and the Israeli Tax Authorities for final tax
assessment for the years 1999 trough 2002 as well as various
agreements for supply of services by third parties in the Company's
ordinary course of business.
In addition, we have agreed with the Rezidor group, regarding the future
management of two hotels, currently under construction and/or renovation
(the National Ballet Building in Hungary, which is intended to operate
under the "Regent" brand name and the Bucuresti hotel in Bucharest, which
is planned to operate under the brand name "Radisson SAS"). As part of
these agreements we undertook to complete the renovation of the hotels
within a period of three years from the execution date of the agreements.
Should we fail to comply with such undertaking then the Rezidor group can
terminate the agreements with immediate effect upon written notice.
33
Derivative Instruments
----------------------
For information about financial instruments used, profile of debt,
currencies, interest rate structure, and the use of financial instruments, see
"Item 11 - Quantitative and Qualitative Disclosure about Market Risk" of the
Form 20-F.
34
Loans
A. Set forth below is information with respect to loans taken by us, by
our subsidiaries and by our jointly controlled companies. The loans granted to
our jointly controlled companies are presented in the table at their full value:
- --------------------- ------------------- ------------------ ------------------------------------- --------------------------------
Amount of Loan
and Amount
Outstanding as of
Borrower and lender 12/31/04 Interest on Loan Security for Loan Other Information
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: 3 Credit With respect to Various pledges (first and As long as any of the
facilities in the Loan I- LIBOR + second ranking) on shares of facilities are outstanding,
aggregate total 2.85% wholly owned and jointly the ratio between equity and
Elscint Ltd. of approximately controlled subsidiary total assets has to be not
$68.3 million With respect to companies less than 25%
Loan II - LIBOR
Amount + 2.85% As per a letter received from
Lender: outstanding - the bank, the bank will not
With respect to demand the repayment of the
Bank Hapoalim Loan I in USD - Loan III - LIBOR loan prior to January 1, 2006
$0.7 million + 2.85%
Loan II in Euro
-Euro 35.1
million
Loan III in GBP
10.2 million
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: Utrecht Victoria the Interest o Mortgage on both hotels o 6% of principal to be
Hotel B.V.- on the loan (and the Mandarin hotel not paid during first five years
Victoria Hotel C.V. Euro 14.0 million is hedged by owned by Elscint) commencing December 31, 2004
and Utrecht a SWAP
Victoria Hotel B.V. Amount transaction, o First priority security o Balance to be paid at
(and The Mandarin outstanding Euro accordingly on moveable property, bank end of term (September 30,
Hotel B.V. -a 14.0 million the fixed accounts (operating income and 2009)
company owned by interest debt service reserve), rights
the Red Sea Group) Victoria Hotel rate is of the borrowers under their o Elscint has no interest
C.V. - 5.11% per management agreements and in the Mandarin hotel
Euro annum insurance proceeds included in the refinancing
57.8 million loan. Since all borrowers
Lender: o First ranking pledge on have joint and several
Amount shares of borrowers which own liability, Elscint has a
Merrill Lynch outstanding Euro the rights to the land mutual indemnity arrangement
International 57.7 million with the owner of the
Mandarin hotel with respect
to liabilities of each
borrower under the loan, l
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
35
- --------------------- ------------------- ------------------ ------------------------------------- --------------------------------
Amount of Loan
and Amount
Outstanding as of
Borrower and lender 12/31/04 Interest on Loan Security for Loan Other Information
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: GBP 58.2 million the interest o Mortgage on hotel o GBP 12.7 million payable
on the loan in quarterly installments
Shaw Hotel Holding Amount is hedged by o Fixed and floating charge over a period of 25 years
B.V. outstanding - GBP a SWAP over the borrower's tangible from June 2003.
58.1 million transaction, fixed assets
accordingly o GBP 21.3 million payable
the fixed o Rights to all revenues in quarterly installments
Lender: interest and profits that will be from June 2008 over a period
rate is 5.8% received from the long term of 20 years.
Bradford & Bingley per annum lease agreement with Accor
Plc and The o GBP 24.2 million payable
Governor and as a bullet repayment in 2027.
Company of The Bank
of Scotland o First ranking pledge on
shares of subsidiary that owns
the rights to the land
o GBP 95 thousand deposited
to guarantee interest payments
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: Loan: Prime -1% o $500,000 deposit to o Capital repayments
guarantee repayment of loan commenced on October 1, 2003
Park Plaza Hotel Rand 20 million with monthly installments of
(Sandton) o Mortgage on hotel Rand 33 thousand. In each
(Proprietary) Ltd. Amount succeeding year the monthly
outstanding - o Rand 5 million bond over installments will increase by
Rand 19.3 million the hotel's movables and Rand 17 thousand
debtors
Lender:
Nedcor Investment
Bank Ltd
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: Credit Facility - LIBOR + 1.65% o First priority mortgage o GBP 14.1 million of the
on the land and the building loan repayable in 20
Victoria Hotel GBP 39.9 millions and lien on all moveable quarterly installments
Holding B.V. assets. First ranking pledge commencing March 2003;
Amount on Victoria Hotel Holding balance repayable in one
outstanding -GBP B.V's shares. payment in December 2012
37.1 millions
Lender: o Guarantees by each of
Elscint and a company of the
Bank Hapoalim B.M Red Sea Group in the amount
London Branch equal to 2.5% of total costs
of the project
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
36
- --------------------- ------------------- ------------------ ------------------------------------- --------------------------------
Amount of Loan
and Amount
Outstanding as of
Borrower and lender 12/31/04 Interest on Loan Security for Loan Other Information
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: Two loans, each First loan - o Pledge on a security The Bank has restricted its right
for $13.0 million LIBOR + 1% deposit of $14 million to realize the Elscint guarantee,
BEA Hotels Eastern by linking it to the realization
Europe B.V. Amount Second loan - o Lien on Domino and of the pledge over the Bucuresti
outstanding - $26 LIBOR + 2.5% Bucuresti shares shares owned by Domino (except
million for certain instances stipulated
o Lien on BEA Hotel Eastern in the loan agreement)
Lender: Europe shares and a floating
lien on its assets
Bank Leumi Le
Israel Ltd. o A floating lien on
Domino's assets
o Undertaking to maintain
existing ownership structure
of hotel
o Unlimited guarantee by
Elscint
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: Credit facility - LIBOR + 2.2% o Liens on all assets, Half of the loan will be repayable
GBP 67 million including leasehold rights to in quarterly installments over 10
Riverbank Hotel the land and goodwill of hotel years commencing at the earliest
Holding B.V. Amount owning subsidiary of (i) August 27, 2007 or (ii)
outstanding - GBP the Economic Completion Date as
61.7 million o First ranking pledge on determined in the agreement and
shares of subsidiary that owns the remaining balance will be
Lender: the rights to the land repayable as a bullet repayment
after 10 years
Bank Hapoalim B.M o A joint construction
London Branch completion guarantee provided
by Elscint and a subsidiary of
the Red Sea Group
o A guarantee in favor of
the bank by Elscint and a
company in the Red Sea Group
each in the amount equal to
7.1% of the outstanding loan
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: GBP 14.2 million LIBOR + 1.4% o Fixed and floating lien o Half of the loan
on rights to borrower's repayable in quarterly
Grandis Netherlands Amount assets, including goodwill installments over 10 years
Holding B.V. outstanding -GBP commencing December 2002.
12.7 million o First ranking pledge on Balance to be repaid after 10
shares of subsidiary that owns years (December 2012)
the rights to the land
Lender:
o (pound)5.4 million of the loan
Bank Hapoalim B.M is guaranteed by Elscint
London Branch Limited and Red Sea for 50%
each
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
37
- --------------------- ------------------- ------------------ ------------------------------------- --------------------------------
Amount of Loan
and Amount
Outstanding as of
Borrower and lender 12/31/04 Interest on Loan Security for Loan Other Information
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
Borrower: Credit Facility LIBOR + 2.5% o Mortgage on Arena and the As per letter received, the bank
-$46 million land will not demand the repayment of
S.L.S Sails Ltd. the loan prior to January 1, 2006
Amount o First ranking pledge on
outstanding - $46 shares of subsidiary that owns
million the rights to the land
Lender:
o Floating lien on assets
Bank Discount of center owning subsidiary
and rights with respect to
current and future tenants
o A guarantee by Elscint
- --------------------- ------------------- ------------------ ------------------------------------ --------------------------------
B. Our subsidiaries and jointly controlled companies which are engaged in
construction and/or the operation of hotels and the Arena entered into loan
agreements with banks and financial institutions, which include an undertaking
of those companies to comply with certain financial and operational covenants
("covenants") throughout the duration of the respective loans. The covenants
include:, achieving certain operational milestones on certain specified dates
(e.g. scope of lease, etc.); complying with debt cover ratio, "loan outstanding
amount" to secured assets value ratio; complying with certain restrictions on
interest rates; maintaining certain cash balances for current operations;
maintaining equity to project cost ratio and net profit to current bank's debt;
occupancy percentage; average room or rental fee rates; and others. In addition,
we have also entered into credit agreement under which we undertook to comply
with certain financial covenants, namely maintaining, a minimum ratio of
shareholders' equity to total balance sheet assets throughout the duration of
the loan. In the event the Borrowers will not be in compliance with these
covenants, the lenders have the right to call the loan for immediate repayment.
38
Impact of Devaluation on Results of Operations and on Monetary Assets and
Liabilities
- -------------------------------------------------------------------------
The following table sets forth, for the periods indicated, certain
information with respect to the rate of inflation in Israel, the rate of
devaluation of the NIS in relation to the U.S. dollar and the rate of inflation
in Israel adjusted for the NIS-dollar devaluation:
Annual
Devaluation
Israeli Closing Adjusted
Consumer Israeli Exchange Annual for Annual
Year ended Price Index Inflation Rate of the Devaluation Inflation
December 31, (Units) (1) rate (%) (2) Dollar (3) Rate (%) (4) (%) (5)
------------ ----------- ------------ ---------- ------------ -------
2000 168.5 0 NIS 4.041 (2.7) (2.7)
2001 170.9 1.4 NIS 4.416 9.2 7.7
2002 182.01 6.5 NIS 4.737 7.2 0.65
2003 178.58 (1.88) NIS 4.379 (7.56) (5.77)
2004 180.74 1.20 NIS 4.308 (1.62) (2.78)
- --------------------------------------------------------------------------------
(1) For purposes of this table, the CPI figures use 1993 as base equal
to 100. These figures are based on reports of the Israeli Central
Statistics Bureau.
(2) Annual inflation is the percentage change in the CPI in Israel
between December of the year indicated and December of the preceding
year.
(3) Closing exchange rate is the rate of exchange between the NIS and
the dollar at December 31 of the year indicated, as reported by the
Bank of Israel.
(4) Annual devaluation is the percentage increase in the value of the
dollar in relation to the NIS during the year indicated.
(5) The percentage of the annual devaluation adjusted for annual
inflation is obtained by dividing the percentage of the annual
devaluation rate plus 1 by the percentage of the annual Israeli
inflation rate plus 1, minus 1. For information about inflation
rates and exchange rates of foreign currencies of autonomous units,
see Note 2 to the Consolidated Financial Statements.
303A.11 Foreign Private Issuer Disclosure
- -----------------------------------------
Corporate Governance - Differences between NYSE requirements and home
country practice
As an Israeli company listed on the NYSE we are permitted to follow our
home country practice in lieu of certain provisions of the NYSE corporate
governance requirements and disclose any significant ways in which such
corporate governance practices differ from those followed by domestic companies
under NYSE listing standards. The following summarizes significant ways in which
our corporate governance practices differ from those required to be
39
followed by domestic companies under NYSE listing standards. This summary does
not refer to any or all NYSE corporate governance rules from which we are exempt
by virtue of our being a "controlled company". The following also excludes all
requirements, which have either not yet come into force or those which we have
voluntarily elected to follow.
Executive Sessions: Under NYSE Rules, non-management directors of each
domestic listed company must meet at regularly scheduled executive sessions
without management. Our home country practice does not have any such
requirements.
Shareholder approval of Equity Compensation Plans: Under NYSE Rules
shareholders must be given the opportunity to vote on all equity-compensation
plans and material revisions thereto, with certain limited exemptions as
described therein. We intend to follow the requirements of the Israeli Companies
Law under which requirement for shareholders approval is generally required in
circumstances where our directors or controlling shareholders would be entitled
to receive equity under the equity-compensation plan.
Corporate governance guidelines: Under NYSE Rules domestic listed
companies must adopt and disclose their corporate governance guidelines. Our
home country practice does not have any such requirements.
Internal Auditor and Certified Public Accountant
The Companies Law requires the board of directors of a public company to
appoint an internal auditor proposed by the audit committee and approved by the
board of directors. A person who does not satisfy certain independence
requirements may not be appointed as an internal auditor. The role of the
internal auditor is to examine, among other things, the compliance of the
company's conduct with applicable law and orderly business procedures. Following
the recommendation of our audit committee, our board of directors appointed, on
March 22, 2004, Josef Greitzer from Greitzer, IE and IA Services. Prior to that
the Company's internal director was Mr. Eli Birnboim, CPA, of the offices of
Rosenblum-Holtzman, CPA. NYSE rules requires each listed company to have an
internal audit function. We are of the opinion that these requirements do not
have merits, materially different to Israeli laws.
External Directors; Independent Directors
The Companies Law requires Israeli public companies (including companies
whose shares were offered to the public outside of Israel) to appoint at least
two external directors. The Companies Law provides for certain qualifications
with which a candidate for external directorship must comply. Among such
requirements, a person may not be appointed as an external director if such
person or person's relative, partner or employer, or any entity controlled by
such person, has, at the date of appointment, or had at any time during the two
years preceding such date, any affiliation with the company, any entity
controlling the company at the date of his appointment or any entity controlled
by the company or by the entity controlling the company. The term "affiliation"
is broadly defined in the Companies Law.
In addition, no person may serve as an external director if such person's
position or other business creates, or may create, conflict of interest with the
person's position as a director, or if such position or other business may
impair such person's ability to serve as a director. The Companies Law provides
for additional qualification requirements that are imposed on such candidates.
40
External directors must be appointed by a general meeting of shareholders,
and the approval of such appointment requires that at least a majority of the
votes of shareholders present at the general meeting voted for such proposal,
provided that (i) such majority vote at the general meeting must include at
least one third (1/3) of the total votes of non-controlling shareholders present
and voting at such general meeting, excluding abstaining votes, or (ii) the
total number of votes of the shareholders mentioned in clause (i) above that
voted against such proposal does not exceed one percent (1%) of the total voting
rights in the company.
The initial term of an external director is three years and such term may
be extended for an additional three-year period. Each committee of a company's
board of directors that is authorized to exercise powers of the board of
directors is required to include at least one external director, and all
external directors must be members of the company's audit committee.
An external director is entitled to reimbursement of expenses and to
monetary and other compensation as provided in regulations promulgated under the
Companies Law, but is otherwise prohibited from receiving any other
compensation, directly or indirectly, in connection with services provided by
such person as an external director.
Mr. Moshe Lion and Mr. Benny Gal were elected in August 28, 2003 as our
external directors for their second three-year term. Under a recent amendment to
the Companies Law, at least one of the external directors is required to have
financial expertise and the other external director is required to have
professional expertise. This amendment will come into effect upon the
determination of qualifications for financial and professional expertise by
specific regulations.
Under NYSE rules, a controlled company, which is a company in which more
than 50% of the voting power is held by an individual, a group or another
company, need not comply with listing requirements regarding a majority of
independent board members, the establishment of a nominating/corporate
governance committee and a compensation committee. Our board of directors has
determined that we are a controlled company, based on approximately 61% of our
voting power being held by our parent company, EMI, and we are therefore exempt
from such requirements. Nevertheless, our current composition of the board of
directors consists of a majority of independent directors, though there is no
assurance that such composition will be sustained in the future.
41
Elscint Limited Corporate Directory
- ------------------------------------------------------------------------------------------
Board of Directors Registered Office
Abraham (Rami) Goren, Executive 13 Mozes Street
Chairman of the Board of Directors Tel Aviv 67442, Israel
Rachel Lavine, President Tel: (011-972-3) 608-6020
Shimon Yitzchaki, President of Elbit Fax: (011-972-3) 696-2022
Medical Imaging Ltd.
Transfer Agent and Registrar
Moshe Lion, CPA, Chairman of the
Provident Fund Investment Committee of American Stock Transfer and Trust Co.
Bank Tefahot 59 Maiden Lane
New York, NY 10038
Benny Gal, Director of Gal-BSD Advertising Ltd. Tel: (212) 936-5100
Fax: (718) 921-8331
Shlomo Ben Eliyahu, independent legal
and financial consultant Investor Contacts
Shmuel Peretz, president of the Israel Anne McBride Company, Inc.
Aircraft Industries' European division 630 Third Avenue
New York, NY 10017
Corporate Officers Tel: (212) 983-1702
Fax: (212) 983-1736
Abraham (Rami) Goren, Executive
Chairman of the Board of Directors Auditors
Rachel Lavine, President
Marc Lavine, Secretary and General Counsel Brightman Almagor & Co.,
Uri Levin, Chief Financial Officer Member of Deloitte Touche Tohmatsu
(as of July 2005)