Hotels
General
The goal of our hotel business is to develop or acquire, hold and operate, generally via management companies, deluxe hotel properties, that are conveniently located near major transportation stations which provide the business and vacation traveler with upscale quality accommodation.
In addition to our operational hotels, we develop hotels within our mixed-use projects (both commercial and residential) and furthermore, hold interests in certain plots and properties intended to be developed or refurbished into hotels, see "Hotels under development or renovation" below.
Ownership Structure of Hotels
Our ownership percentage in our hotels varies, and the interests in those hotels that are not owned by us are owned by various unrelated third parties.
Management of Hotels
Rezidor manages two of our hotels in Belgium and our Radisson Blu hotel complex in Romania.
Under the respective management agreements signed with Rezidor, we undertook to pay Rezidor certain agreed upon fees which are calculated as a percentage from the respective hotel’s revenue as well as a certain agreed upon percentage from the gross operating profit of each such hotel. We also undertook to participate in certain portions of the expenses incurred by Rezidor in the course of performance of their obligations (mainly marketing and advertising expenses), up to a certain percentage of the room revenues.
We are generally entitled to terminate the management agreements with Rezidor subject to payment of a termination fee. In regards to the agreement to manage the Radisson Blu Bucharest Hotel we can terminate the agreement only in limited circumstances set forth in the agreement.
Business Concept and Strategy
Our business concept and strategy for our hotels include the following elements:
Location: Our hotels are generally situated in close proximity to major railway links into cities, such as the central railway station in Antwerp (situated opposite our Radisson Blu Astrid Antwerp Hotel and next to the Park Inn Antwerp). The Antwerp station accommodates the services of the high-speed Train de Grand Vitesse (the “TGV”).
Service: Our hotels make considerable efforts to offer personal services at an upscale level with a true commitment to service
Customer base: Our hotels’ principal target customer base is the business traveler and the tourist industry, both individuals and in groups.
Management: Our hotels focus on strategic cooperation and affiliation with Rezidor who has with the know-how and expertise in hotel management, which enables optimal use of a centralized reservation system, and which provides the advantage of a unified management system that promotes the efficiency of the operation and control of our hotels.
Strategy: Our strategy for our hotel business is to increase the performance of our hotels' portfolio and to examine the development of new hotels subject to market condition. The duration of our holding and managing of our hotel portfolio varies and is dependent upon business cycles, economic conditions, property yields, and trends affecting the hotel industry or capital market opportunities.
Operating Hotels
The table below provides information with regard to our operating hotels:
|
Name and Rate of Hotel
|
Title
|
Our Share
|
Approximate Constructed Area
(square feet)
|
Total Rooms and description
|
Average Occupancy Rates During 2013 (%)
|
Additional information
|
|
Radisson Blu Astrid Antwerp
Antwerp, Belgium
Four Star Deluxe
|
Freehold
|
100%
|
223,000
|
247 rooms including business class suites & 19 new luxury apartments
|
78%
|
Includes an oceanarium attraction, 18 conference rooms, a bar, a restaurant and a fully equipped health club with a pool
|
|
Radisson Blu Bucharest
Bucharest, Romania
Five Star Hotel and ApartHotel (formerly Centerville)
|
Freehold
|
77%
|
900,000
|
424 rooms suites, executive suites and one exclusive royal suite and 294 apartments in a level of 4 and 5 stars
|
71%
|
The complex of both hotels includes several restaurants, a spa and a world class health academy, casino, shopping area and supermarket services
|
|
Park Inn
Antwerp, Belgium
Three star boutique
|
Freehold
|
100%
|
32,250
|
59 rooms going from standard to junior suite with terrace
|
85%
|
Includes a restaurant, a lounge and a fitness room
|
The average room rate for 2013 for our Radisson hotel in Belgium was ˆ119 (approximately $164.0); for our Park Inn hotel in Belgium was ˆ93 (approximately $128.0); and for our hotel complex in Romania was ˆ85(approximately $117).
In 2013 revenue per available room for our hotels in Belgium and Romania was ˆ90 (approximately $124) and ˆ61 (approximately $84), respectively.
Recent Disposition of Hotels
In March 2012, we entered into a share purchase agreement with PPHE Hotel Group Limited (“PPHE,” formerly known as Park Plaza Hotels Limited) for the sale of our holdings in certain subsidiaries which own a 50% interest in the following hotels in the Netherlands: the Park Plaza Victoria Amsterdam Hotel, the Park Plaza Utrecht Hotel, the Arthotel Amsterdam and the Park Plaza Airport Hotel. These hotels were jointly owned by us and PPHE and were managed by PPHE. The transaction reflected an asset value of ˆ169 million for all four hotels. The total net consideration payable to us was ˆ26.5 million. In addition, approximately ˆ58 million of our subsidiaries’ share (50%) of banks loans was assumed by PPHE by virtue of the purchase of those
subsidiaries and were eliminated from our consolidated balance sheet. The consideration was paid to us as follows: (i) ˆ23 million in cash; (ii) 700,000 ordinary shares of PPHE, with a market price of approximately ˆ2.0 million, based on the quotation of such shares’ price on the London Stock Exchange as of March 30, 2012; and (iii) an additional payment in the aggregate amount of up ˆ1.5 million that shall be made on the fourth anniversary of the date of transfer and shall be subject to certain adjustments, based on the PPHE shares’ market price, as set forth in the agreement.
Hotels under Development or Renovation
Plot in Tiberius, Israel
In July 2007 we entered into an agreement with the Israel Land Administration, according to which we leased a plot of approximately 44,600 square meters near Tiberius, Israel for a term of 49 years (through 2056) with an option to extend the lease term for an additional 49 years. The total consideration paid amounted to NIS 30.6 million. Under the agreement, we undertook to complete the construction work of the hotel within a period not exceeding 36 months (July 2010). During 2010 we received an extension of an additional three years until July 2013 to complete the construction of the hotel. As of the date of this Annual Report, we believe that further extension will be obtained. Also under the agreement, we provided the Israel Land Administration with two bank guarantees in the aggregate amount of NIS 14 million (in order to secure our undertakings under the lease agreement). The agreement may be terminated upon a breach
of its terms.
Pursuant to our policy with respect to projects under construction, the development and construction work on this project will not commence until satisfactory financing to fund the construction and development is obtained, whether through bank loans, by receiving advance payments on units sold or by introducing new investment partners to participate in the project.
Medical Companies
On November 24, 2010, we restructured our holdings in the medical companies InSightec and Gamida, under Elbit Medical Technologies Ltd. (formerly Enter Holdings 1 Ltd.), an Israeli company traded on the TASE ("Elbit Medical"). As of the date of this annual report, we hold 85% of Elbit Medical's share capital (on a fully diluted basis).
On March 13, 2011, we entered into a credit facility with Elbit Medical, pursuant to which we provided Elbit Medical with a credit line up to an aggregate amount of NIS 39 million. The amounts drawn down from the credit facility do not bear any interest but are linked to the Israeli consumer price index. During 2012, the amount of the credit line was increased to NIS 51 million and the maturity date was extended to April 1, 2015. As of the date of this annual report Elbit Medical has drawn down NIS 51 million from the credit facility.
On March 9, 2010, we entered into a credit facility with InSightec, pursuant to which we provided InSightec with a credit line up to an aggregate amount of NIS 58.9 million. In July 2012, the credit facility was assigned to Elbit Medical in consideration of a loan from us to Elbit Medical in an amount of NIS 62 million (approximately $17.8 million), linked to the U.S. dollar exchange rate and bearing interest at an annual rate of 6.0%. The maturity date of the loan is October 1, 2016, with the option to prepay at any time at the sole discretion of Elbit medical, and subject to approval of Elbit Medical's Audit Committee. As of the date of this annual report the outstanding balance of the loan, including accumulated interest, was $19.4 million.
We indirectly hold, through Elbit Medical, approximately 48.7% of the outstanding share capital (41.9% on a fully diluted basis) of InSightec, a company that operates in the image guided treatment field.
On March 25, 2014, InSightec notified Elbit Medical that its Board of Directors has approved the terms of a non-binding draft term sheet with an investor which is not a current shareholder of InSightec (the “Investor”), pursuant to which the Investor shall purchase InSightec share capital. The proposed investment shall be based on a company valuation which is significantly higher than the company valuation set on the previous round of capital investment in InSightec.
On April 6, 2014, InSightec notified Elbit Medical that the aforementioned non-binding term sheet was entered between the parties. To date, no definitive agreement has been signed, the investment amount is yet to be finalized, and there is no certainty that the negotiation of such non-binding term sheet will lead to the conclusion of a definitive agreement or that a transaction will be completed. The execution of a definitive agreement is subject to certain conditions precedent, including but not limited to, the approval of the authorized corporate organs of each of Elbit Medical, other shareholders of InSightec and the Investor.
On February 23, 2012, InSightec and InSightec’s wholly owned subsidiary concluded a series of agreements with GE through its healthcare division ("GEHC") pursuant to which GEHC will provide financing to InSightec in the form of convertible notes up to a total of $13.75 million, bearing interest at a rate of 6% per annum or a rate equivalent to the interest applicable to the financing provided by us and Elbit Medical. The convertible notes are due and payable by October 1, 2016, and will be convertible into Series B-1 Preferred Shares of InSightec. In addition, we and Elbit Medical entered into a series of agreements with InSightec and GEHC pursuant to which, among other things, the financing granted to InSightec by us and Elbit Medical during 2010 and 2011 was amended to provide similar loan terms and security mechanisms
as set forth in the funding agreement, so that Elbit Medical and us will receive convertible notes convertible on the same terms and up to the same amounts as the GEHC notes. The loans and convertible notes issued to GEHC and Elbit Medical and the note that were issued to us are secured, pari passu, by floating charges over the assets of InSightec and its wholly owned subsidiary.
On December 6, 2012, InSightec completed its issuance of Series C preferred shares for an aggregate amount of $30.9 million, which included $27.6 million invested by GE and $3.9 million invested by other investors. According to the terms of the transaction, GE and we converted all the existing shareholders loans that had been granted to InSightec into InSightec's series B-1 preferred shares in accordance with the terms of those loans. The transaction reflected a post-money valuation of InSightec of approximately $105.9 million (or pre-money valuation of $75 million and following the conversion of the loans as described above). As part of the transaction GE and InSightec entered into a Technology, Co-Operation and Distribution Agreement, which regulates the commercial relationship between the parties, including, amongst other things, with respect to product exclusivity, cooperation
with respect to the development and sale of the parties' complementary products, distribution, marketing and sales, intellectual property rights and licenses, sale terms and conditions, and similar items. Under the Technology, Co-Operation and Distribution Agreement, InSightec is prohibited from developing systems that would be compatible with MRI systems manufactured by companies other than GE for a defined time period. After completion of the transaction we no longer have the right to appoint the majority of InSightec's board members and therefore we ceased to consolidate InSightec's financial statements, and our investment in InSightec is presented based on the equity method.
Certain decisions of InSightec are required to be approved by a vote of the holders of at least 70% of the Series B Preferred Shares, Series B-1 Preferred Shares and Series C Preferred Shares of InSightec voting together as a single class, such as the issuance of shares ranking equal or senior to the existing preferred shares, amending InSightec's Articles of Association, the sale of all or substantially all of InSightec's assets and/or intellectual property, and effecting an initial public offering of InSightec's shares subject to certain limitations and terms and conditions. certain decisions as to matters affecting a class of the Preferred Shares are required to be approved by a vote of holders of at least 80% (70%, in the case of the Series C Preferred Shares) of the applicable class, such as an increase or decrease in the authorized
shares of such class (regardless of whether all the shares of such class authorized at such time have been issued) or an amendment of any of the rights or privileges of such class.
Business description
InSightec develops and markets the ExAblate, the first FDA-approved system for magnetic resonance imaging guided focused ultrasound treatment equipment ("MRgFUS"). InSightec’s objective is to transform the surgical environment for the treatment of a limited number of forms of benign and malignant tumors by replacing invasive and minimally invasive surgical procedures with an incision-less surgical treatment solution. The system is designed to deliver safe and effective non-invasive treatments while reducing the risk of disease, potential complications, as well as the direct and indirect costs associated with surgery. In October 2004, InSightec received FDA approval to market the ExAblate in the United States for the treatment of uterine fibroids, a type of benign tumor of the uterus. Prior to that, in October 2002, InSightec received authorization to affix the CE marking (marketing approval in the EEA) to the ExAblate,
enabling it to market the system for the treatment of uterine fibroids in the European Economic Area and certain Asian countries. InSightec also has regulatory approval to market the ExAblate for the treatment of uterine fibroids in Canada, Russia, Brazil, Mexico, Korea, Taiwan, Australia, New Zealand Singapore Japan and China, as well as for the treatment of breast cancer in Korea. In May 2007, InSightec also received CE marking for the pain palliation of bone metastases. In February 2013, the Clalit healthcare fund agreed to cover treatments executed at Sheba Medical Center using ExAblate technology to treat uterine fibroids.. In October 2012 the U.S. FDA approved ExAblate to treat pain from bone metastases in patients who do not respond or cannot undergo radiation treatment for their pain. In December 3, 2012, ExAblate Neuro (known as ExAblate 4000), was awarded the European CE mark for the
treatment of neurological disorders in the brain including essential tremor, Parkinson’s disease and neuropathic pain. In October 2013 the Israeli Ministry of Health approved ExAblate Neuro for the treatment of neurological movement disorders including Essential Tremor and tremor-dominant Parkinson’s disease.
In July 2013 ExAblate systems also received an extended European CE Mark for the local treatment of cancerous and benign primary and secondary bone tumors. In June 2013 InSightec received expended CE approval for local treatment of bone tumors. In July 2013, InSightec received the approval of the China Food and Drug Administration (CFDA) for non invasive treatment of uterine fibroids. In August 2013 InSightec received the approval of the Health Canada Administration for the treatment of uterine fibroids and treatment for pain result from bone tumors. In October 2014 InSightec received the approval of the Israeli Ministry of Health to register in the medical devices register for treatment of movement disorder resulting from neuro diseases.
ExAblate is currently the only non-invasive treatment for uterine fibroids approved for use in Japan. InSightec is also in various stages of development and clinical research for the application of its MRgFUS technology to the treatment of other types of benign and malignant tumors. These additional applications are being developed to take advantage of the modular design of the ExAblate, which enables it to function as a common platform for multiple MRgFUS-based surgical applications. Currently, InSightec has an installed base of more than 100 units in academic hospitals, community hospitals, MRI clinics and physician-formed joint ventures. Currently, the ExAblate is operable only with certain MRI systems manufactured by GE.
InSightec’s MRgFUS technology integrates the therapeutic effects of focused ultrasound energy with the precision guidance and treatment outcome monitoring provided by MRI systems. Ultrasound is a form of energy that can pass harmlessly through skin, muscle, fat and other soft tissue, and is widely used in diagnostic applications. The ExAblate uses a phased-array transducer that generates a high intensity, focused beam of ultrasound energy, or a sonication, aimed at a small volume of targeted tissue. The focused ultrasound energy provides an incision-less therapeutic effect by raising the temperature of the targeted tissue mass high enough to ablate, or destroy it, while minimizing the risk of damage to overlaying and surrounding tissue.
InSightec believes that by combining the non-invasive therapeutic effects of focused ultrasound energy and the precise “real-time” data provided by the MRI system, it has developed an effective, non-invasive treatment solution for uterine fibroids.
InSightec also believes that its MRgFUS technology can be applied to the treatment of other medical conditions, providing similar advantages by presenting both physicians and patients with a safe and effective incision less surgical treatment option for several medical conditions, including a number of indications for which there are currently few effective treatment options.
In January 2012 a team at the University of Virginia Medical Center completed a feasibility study testing the use of ExAblate Neuro for the treatment of essential tremor in fifteen adult patients. The results show significant tremor suppression at the three-month follow up period and a very positive safety profile. This supported additional phase-I studies performed in Canada, Korea and Japan all of which were completed in early 2013. This accumulated data has led to a phase-III study for essential tremor under FDA approval that includes eight sites globally. This study commenced in 2013 and is expected to continue until 2015.
The ExAblate is also being evaluated in additional feasibility studies for Parkinson’s Disease in Korea and the United States. These studies commenced in 2013 and are expected to continue until 2015.
In March 4, 2014, focused ultrasound was successfully used for the first time in the treatment of a brain tumor. The patient had a recurrent glioma, a portion of which was thermally ablated using InSightec's Exablate Neuro system. The treatment was conducted at the FUS Center of University Children's Hospital Zurich.
Distribution and Marketing
InSightec's main distribution channel is through GE, as a non-exclusive distributor. In addition, InSightec distributes and markets its products directly and through the entering into distribution agreements with third parties. Distribution agreements are generally for a term of between one and five years, with an option to extend the agreement based on the performance of the distributor.
InSightec has contracted with several non-exclusive distributors in Europe and Asia who market and sell its systems.
Business Concept and Strategy
InSightec’s strategic objective is to continue to expand its approved applications, as well as the product development efforts and clinical studies for additional applications. If the results of its clinical studies are positive, InSightec intends to pursue regulatory approval in the United States and other targeted jurisdictions to market the ExAblate for these additional treatment applications.
In addition, InSightec aims to become the market leader in MRgFUS systems and to achieve a significant improvement in the quality and efficacy of the treatment while demonstrating cost effectiveness. To that effect, InSightec is developing the ExAblate® Neuro, a unique system targeted at non-invasive treatment of brain tumors and central nervous system targets. InSightec is contemplating entering into a strategic cooperation with partners in the relevant markets. In addition, InSightec aims to raise additional funds from its shareholders or new investors. InSightec aims to develop a new surgical method that would enable non-invasive treatment in several clinical applications. In addition, Insightec is examining the use of MRgFUS as an additional instrument in the radiation oncology unit. In addition, InSightec aims to expand the marketing of the ExAblate to additional countries, such as the United States, Europe, Asia and
Ukraine. InSightec also aims to develop further applications to its existing systems, such that each purchased system will be used to treat a variety of diseases.
Gamida Cell Ltd.
We indirectly hold, through Elbit Medical, approximately 31% of the outstanding share capital (29.1% on a fully diluted basis) of Gamida. Other shareholders of Gamida include Clal Biotechnology Industries, Israel Healthcare Venture, Teva Pharmaceuticals, Amgen, Denali Ventures and Auriga Ventures.
In May 2012 Gamida finalized an internal investment round of $10.0 million by its existing shareholders. We invested $3.0 in order to preserve our ownership percentage in Gamida.
In January 2014 Gamida finalized an additional internal investment round of $2.9 million by its existing shareholders. We invested $1.0 million in order to preserve our ownership percentage in Gamida.
On March 7, 2014, Gamida received a non-binding proposal contemplating its purchase by a global pharmaceutical company (the “Purchaser”). The proposed consideration for such purchase is expected to include a payment of a significant amount upon closing, as well as certain milestone-based payments (contingent upon development, regulatory approvals or sales related to Gamida’s product), with such proposed consideration expected to amount to up to several hundred million dollars. No definitive agreement has been signed to date and there is no certainty that the negotiation of such non-binding proposal will lead to the conclusion of a definitive agreement or that a transaction will be completed. The execution of a definitive agreement is subject to certain conditions precedent, including but not limited to, the approval of the authorized corporate organs of each of Gamida,
Elbit Medical, other shareholders of Gamida and the Purchaser.
Gamida’s leading product, NiCord®, is in clinical development (Phase I/II) for potential use as a hematopoietic (blood) stem cell (HSC) transplantation product in patients with hematological malignancies (blood cancer) such as leukemia and lymphoma, and serious genetic blood diseases such as sickle cell disease (SCD) and thalassemia. HSC transplantation from bone marrow (also called bone marrow transplantation) is currently the standard of care treatment for many of these patients, but we believe there is a significant unmet need for patients who cannot find a fully matched bone marrow donor. NiCord is derived from a unit of umbilical cord blood whose HSC have been expanded in culture using our NAM platform technology. Clinical results obtained to date suggest that NiCord may effectively address this unmet need.
On February 14, 2013 Gamida announced successful results of Nicord’s Phase I/II study for treating patients with hematological malignancies. An additional Phase I/II clinical study with respect to patients suffering of SCD is ongoing. On September 9, 2013 Gamida announced the successful transplantation of the first patient in Gamida's Phase I/II study of NiCord using a single unit of cord blood. Additional indications and products are in development for cancer, hematological diseases, autoimmune diseases and regenerative medicine.
Another Gamida product, - StemEx®, which was developed through the joint venture between Gamida and Teva Pharmaceutical Industries Ltd. (the “Joint Venture”), completed its phase II/III clinical study in hematological malignancies . A Phase II/III study of StemEx® compared the use of StemEx as part of a transplantation regimen to a historical control group in the treatment of patients with blood cancer, such as leukemia and lymphoma. The study reached its primary endpoint of improving overall survival at 100 days post transplantation. On August 19, 2012, the Joint Venture met with the FDA, for the purpose of discussing the regulatory path to approval of StemEx® in the U.S. In July 2013, the FDA advised Gamida that Gamida would need to conduct a randomized Phase III clinical trial in order to apply for marketing approval. In light of these discussions, Gamida understood
that the control group of the Phase III Clinical Trial that was carried out should be modified. Under these circumstances, the Special Protocol Assessment, as originally formulated, shall not constitute as binding. Consequently, the probability of achieving revenue from the sale of the StemEx was reduced due to the significant additional investment that will be required and the possibility that Gamida will not enter into a strategic partnership for commercialization of StemEx®.
Residential Projects
Under our residential sector we initiate, construct and sell residential units and other mixed-use real estate projects predominantly residential, located in CEE and in India.
Joint Venture with PC to Develop Residential Projects in India
In August 2008 we entered into a joint venture agreement with PC for the development of major mixed-use projects in India (except for projects which are only or mainly commercial and entertainment centers, which will be developed only by PC and are excluded from the framework of this joint venture) (the "EPI Agreement"). Under the terms of the EPI Agreement, amongst other things PC was allotted 47.5% of the shares of our subsidiary Elbit Plaza India Real Estate Holdings Limited (“EPI”). EPI is developing two mixed-use projects (the Bangalore and the Chennai projects) in India in conjunction with local Indian partners and has engaged with certain third parties with the intent to develop an additional project on the Kochi Island. As of the date of the execution of the EPI Agreement through the date of this annual report, the Kochi Island project was held through a special purchase vehicle other than EPI. We agreed
that 50% of our rights in the Kochi Island project will be held in favor of PC, and we undertook and guaranteed to transfer the holdings in the Kochi project to EPI or 50% to PC within 12 months following the execution of the EPI Agreement, or alternatively to repay the consideration paid by PC for the rights in the project. This undertaking and guarantee have since been extended until August 25, 2013. On November 11, 2013, PC notified us of its demand that we repay the amount paid by PC for the Kochi Island project together with the interest accumulated thereupon, amounting to approximately ˆ4.3 million (US$ 5.8 million) due to alleged failure to timely meet certain conditions set forth in the EPI Agreement. On November 24, 2013 we rejected PC's claims of such failure and demand for repayment.
Under the EPI Agreement, PC has paid us approximately $126 million, reflecting 50% of all loans and financing invested by us in the Bangalore, Chennai and Kochi projects as of such date. The loans and financing were used to, or designated to be used for, the purchase of the plots of land and for other associated costs related to EPI’s real estate activities.
Following the execution of the EPI Agreement, PC and us each hold 50% of the voting rights (excluding the voting rights relating to the Series B shares constituting 5% of the currently issued and outstanding share capital of EPI, which are held by our former Executive Vice Chairman, so long as the resolution tabled for vote may impact its rights) in EPI and 47.5% of the equity. The additional 5% of the equity rights that are held by our former Executive Vice Chairman were allotted to him in accordance with the agreement executed by us and our former Executive Vice Chairman in January 2008. For additional information, see "Item 6.B. Directors, Senior Management and Employees - Compensation of Directors and Officers - Agreements with our Former Executive Vice Chairman."
Under the EPI Agreement, we and PC each have the right to appoint 50% of the board members in EPI, rights of first refusal for transfer of shares and tag along rights. Future issuances of shares by EPI are subject to pro-rata preemptive rights.
The EPI Agreement cancelled and replaced a previous sourcing agreement between the parties from October 2006, under which we undertook to offer PC potential real estate development sites sourced by us in India, suitable for commercial and entertainment center development projects as well as mixed-use projects (the “Sourcing Agreement”). The EPI Agreement provides that if it will be terminated before October 2021, the parties shall enter into the Sourcing Agreement again for the period commencing as of the termination of the EPI Agreement until October 2012.
Residential Projects
As at the date of this Annual Report, our Residential Project segment of operations includes one project which is designated for development and 8 projects which are not designated for development in the foreseeable future. Our projects are located in Poland, Romania and India.
Project Proposed For Development
The following projects have been proposed by the board of directors of PC:
|
Name of Project
|
Location
|
Title
|
Share %
|
Approximate Land Area (square meters)
|
Approximate Gross Built
Area (square meters)
|
Estimated Project Phase Completion
|
|
Chennai
|
Chennai, Tamil Nadu State, India
|
Ownership
|
801, 2
|
340,000 (of which rights to 302,400 obtained so far)
|
210,0003 (for sale)
|
2015-2018
|
|
1
|
For information regarding the EPI Agreement, a joint venture agreement signed with PC in respect to our India operations, see “ - joint venture with PC to Develop Mixed-Use Projects in India” above.
|
|
2
|
For information regarding the rights of Mr. Abraham (Rami) Goren, our former Executive Vice Chairman of the board of directors, in the projects, see "Item 6.B. Directors, Senior Management and Employees - Compensation of Directors and Officers - Agreements with our Former Executive Vice Chairman."
|
|
|
3 As EPI is currently operating to secure a joint development agreement with local developer(s) for the development of the project land, this approximate GBA reflects the currently negotiated transaction. Correspondingly, this figure is comprised of two elements - plotted development parcels for sale and built up villa.
|
Since we intend to establish a joint development for the development of the above project, we estimate that we will not have to bear additional costs for its completion, since only our joint development partner will bear the costs and the revenues will be divided between us according to the agreed terms.
Projects Not Designated For Development In The Foreseeable Future
|
Name of Project
|
Location
|
Title
|
Share %1
|
Approximate Land Area (square meters)
|
Approximate Gross Built
Area (square meters)
|
Estimated Completion
|
|
Łódź
|
Łódź, Poland
|
Ownership
|
100
|
33,500
|
80,000
|
-
|
|
Plaza BAS Joint Venture
|
Fountain Park
|
Bucharest, Romania
|
Ownership
|
12.5
|
14,000
|
16,600
|
-
|
|
Acacia Park
|
Ploiest, Romania
|
Ownership
|
25
|
12,500
|
32,000
|
-
|
|
Green Land
|
Ploiest, Romania
|
Ownership
|
25
|
18,400
|
25,800
|
-
|
|
Poiana Brasov
|
Brasov, Romania
|
Ownership
|
25
|
73,000
|
138,000
|
-
|
|
Pine Tree Glade
|
Brasov, Romania
|
Ownership
|
25
|
28,300
|
40,000
|
-
|
|
Bangalore Project
|
Bangalore, Karnataka State, India
|
Freehold and Development Rights
|
2, 3,4
|
667,600 (of which rights to 218,500 obtained so far) 4
|
310,000
|
-
|
|
Kochi
|
Kochi, Kerala State, India
|
Freehold and
Development Rights
|
502,3,5
|
166,000
(of which rights to 52,600 obtained so far)
|
575,000
|
-7
|
|
1
|
Represents share percentage owned by PC.
|
|
2
|
For information regarding the EPI Agreement, a joint venture agreement signed with PC in respect to our India operations, see “ - joint venture with PC to Develop Mixed-Use Projects in India” above.
|
|
3
|
For information regarding the rights of Mr. Abraham (Rami) Goren, our former Executive Vice Chairman of the board of directors, in the projects, see "Item 6.B. Directors, Senior Management and Employees - Compensation of Directors and Officers - Agreements with our Former Executive Vice Chairman."
|
|
4
|
The original scope of the project was reduced from approximately 440 acres to 165 acres. The above data relates to the project as revised pursuant to a framework agreement dated July 22, 2010.
|
|
5
|
For information regarding the allotment of our shares in the Kochi project SPV see "Kochi, Kerala state, India".
|
Set forth below is certain additional information with respect to our mixed-use projects which are predominantly residential:
Bangalore, Karnataka State, India
Amended Framework Agreement - In March 2008 EPI entered into an amended and reinstated share subscription and framework agreement (the "Amended Framework Agreement") with a third party (the "Partner") and a wholly owned Indian subsidiary of EPI ("SPV") to acquire up to 440 acres of land in Bangalore, India (the "Project Land") in certain phases as set forth in the agreement. As of December 31, 2013, the Partner has surrendered land transfer deeds (or similar instruments) in favor of the SPV to a trustee nominated by the parties for approximately 54 acres for a total aggregate consideration of approximately INR 2,843 million (approximately $46 million). Upon the actual transfer of title of the 54 acres, the Partner will be entitled to receive 50% of the equity in the SPV.
In addition, the SPV has paid to the Partner advances of approximately INR 2,536 million (approximately $41 million) on account of future acquisitions by the SPV of a further 51.6 acres which are yet to be registered on the SPV’s name.
As discussed below, on July 22, 2010, EPI, the SPV and the Partner entered into a new set of arrangements constituting a new framework agreement, which, as of December 31, 2013, has not yet come into effect (the "New Framework Agreement"). The New Framework Agreement provides that in case it does not eventually come into full force and effect, the terms of the Amended Framework Agreement will govern, according to which our additional investments in the Project Land may reach up to INR 10,500 million (approximately $192 million). Nevertheless, although certain conditions precedent under the New Framework Agreement have not been met, EPI, the SPV and the Partner are pursuing the project in accordance with the provisions of the New Framework Agreement.
New Framework Agreement – The New Framework Agreement established new commercial understandings pertaining, inter alia, to the joint development of the Project Land and its size and financing, the commercial relationships and working methods between the parties and the distribution mechanism of revenues and profits from the Project Land. In accordance with the New Framework Agreement, the following commercial terms, amongst others, were agreed between the parties:
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EPI will remain the holder of 100% of the equity and voting rights in the SPV;
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the scope of the new Project will be decreased to approximately 165 acres instead of 440 acres (the "New Project");
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the Partner undertook to complete the acquisitions of the additional land and/or the development rights therein in order to obtain the ownership and/or the development rights over the 165 acres;
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The land over and above the 54 acres (which are currently registered on the name of the SPV) up to 165 acres (i.e. 165 acres minus 54 acres = 111 acres) will not get registered on the SPV’s name.
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the SPV and/or EPI will not be required to pay any additional amounts in respect of such land acquisitions or with respect to the Project and its development; and
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the Project will be re-designed as an exclusive residential project.
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The Project will be executed jointly by the Partner and the SPV. The Partner (or any of its affiliates) will also serve as the general contractor of the Project and the marketing manager of the Project. Under the New Framework Agreement the Partner is also committed to maximum construction cost threshold, minimum sales price and a detailed timeline and budget with respect to the development of the Project.
The net proceeds from the Project (including the proceeds from any sale by the Partner or any transaction with respect to the original lands which do not form part of the 165 acres) will be distributed (following a reserve mechanism to enable the Partner to utilize a portion of the proceeds for construction costs and expenses) in a manner by which our share will be approximately 70% until such time that EPI's investment in the amount of INR 5,780 million (approximately $93.4 million) ("EPI's Investment") plus an internal return rate of 20% per annum calculated from September 30, 2009 (the "IRR") is paid to the SPV (on behalf of EPI (the "Discharge Date").
Following the Discharge Date, EPI will not be entitled to receive any additional profits from the Project and it will transfer to the Partner the entire shareholdings in the SPV for no consideration. In addition, the Partner has a call option, subject to applicable law and regulations, to acquire the entire shareholdings of the SPV, at any time, in consideration for EPI’s Investment plus the IRR calculated on the relevant date of acquisition.
The terms of the New Framework Agreement will enter into full force and effect upon execution of certain ancillary agreements as set forth therein; nevertheless EPI, the SPV and the Partner are pursuing the Project in accordance with the New Framework Agreement. From January 1, 2012 the SPV operations are no longer consolidated proportionately (50%) with our operations, due to our implementation of IFRS 11 and the investment in the SPV being accounted on the equity method.
Planning Status - In January 2011, the Partner submitted the development plans pertaining to approximately 84 acres included in the scope of the new project of 165 acres to the local planning authority, the Bangalore Development Authority (“BDA”). In October 2011, the BDA notified the Partner that the development plans cannot be considered due to future eminent domain proceedings with respect to the lands on which the new project is proposed to be situated (among other lands in the same area). The government has not yet published any notice in that respect, as required by law in order to validate such eminent domain plan.
In January 2012, the Partner applied to the State High Court, requesting to issue a court order directing the BDA to consider the development plans. In March 2012, the court awarded a judgment pertaining to approximately 49 acres, ordering the BDA to consider the development plans relating to such 49 acres (the "Development Plan"), while ignoring any future eminent domain program that may be considered by the state authorities. In December 2012, the BDA decided to submit the development plan pertaining to the 49 acres to the Sensitive Zone Sub-Committee of the BDA, and in January 2013 the Sensitive Zone Sub-Committee of the BDA granted its approval to the Development Plan.
In May 2013, the court awarded a judgment with respect to the additional 35 acres, ordering the BDA to consider the development plan relating to such 35 acres.
On December 31, 2013, a valuation was prepared by an independent appraiser who valued the project in two methods: residual method and comparable method.
The valuation according to the residual method was performed in accordance with the New Framework Agreement, for 163 Acres and under the assumptions of developing a residential project. The comparable method was performed in accordance with the current land holdings, held by the SPV (i.e.:54 acres) which were compared to other assets in the close neighborhood.
As for December 31, 2013 due to the uncertainty to develop the project in the foreseeable future with the partner according to the New Framework Agreement, the Group measured the net realizable value of the project according to the comparable method. As a result the Group has written down trading properties and advances on account of trading properties in the amount of NIS 263 million ($75.9 million).
During 2013 we commenced investigation of alternative business models vis-à-vis the Partner with the objective to reduce our dependence on its performance, alongside the pursue of the New Framework Agreement.
Chennai, Tamil Nadu State, India
In December 2007, EPI executed agreements for the establishment of a special purpose vehicle (“Chennai Project SPV”) together with a local partner in Chennai (the "Local Partner"). Subject to the fulfillment of certain conditions, the Chennai Project SPV will acquire the ownership and development rights in and up to 135 acres of land situated in the Sipcot Hi-Tech Park in the Siruseri District of Chennai, India. Due to changes in market conditions, EPI and Chennai Project SPV decided to limit the extent of the project to approximately 83 acres.
Under these agreements, EPI’s investment in the Chennai Project SPV will be a combination of investment in shares and compulsory convertible notes. Pursuant to the agreement, EPI will hold 80% of the equity and voting rights in the Chennai Project SPV, while the Local Partner will retain the remaining 20%. The land for the project is to be acquired by Chennai Project SPV in stages subject to such land complying with certain regulatory requirements and the due diligence requirements of EPI.
As of December 31, 2013, the Chennai Project SPV had completed the purchase of approximately 75 acres out of the total approximately 83 acres. EPI's share of aggregate consideration paid in connection with the transaction was INR 2,367 million (approximately $38.2 million). In addition, as of such date EPI paid advances in the amount of INR 564 million (approximately $9.1 million) in order to secure the acquisition of the additional 8 acres. As of the date of this report these additional 8 acres are yet to be registered on the SPV.
The shareholders' agreement entered into by the parties in respect of the management of the Chennai Project SPV provides for a five member board of directors, four of whom are appointed by EPI. The shareholders agreement also includes pre-emptive rights and certain restrictions pertaining to transferring of securities in the Chennai Project SPV. Profit distributions declared by the Chennai Project SPV will be distributed in accordance with the parties' proportionate shareholdings, subject to EPI’s entitlement to receive certain preferential payments out of the Chennai Project SPV’s cash flow, pursuant to the terms set forth in the agreements.
The consummation of the agreements will be accomplished in stages, and is subject to the fulfillment of certain regulatory requirements, as well as to our satisfactory due diligence investigations, in respect of each stage. However, EPI is currently negotiating certain changes in the project's implementation plan and holding structure, which would require changes also in the respective agreements. Among other things, should those changes be accepted, EPI shall not be required to advance more financing to the project in addition to the amounts mentioned above and shall hold all the issued and outstanding share capital of the SPV. Furthermore, EPI is currently operating to secure a joint development agreement with local developers for the development of the project land, in accordance with the guidelines discussed above.
On December 31, 2013 a valuation was prepared by an independent appraiser who valued the project using two separate methods: a residual method and a comparable method.
The valuation according to the residual method was performed on 84 acres, in accordance with the decision to limit the extent of the project and under the assumptions of developing a residential project. The valuation according to the comparable method was performed on 75 acres which are the actual land plots held by the Chennai Project SPV.
As it is our intention to negotiate a joint development agreement in order to develop the land, we find the residual approach more suitable for the valuation of the project. However, since there is uncertainty regarding our ability to develop the project in the foreseeable future, we measured the net realizable value of the project on a discounted basis.
Kochi, Kerala State, India
In September 2006, we, together with an Indian corporation (the "Project SPV") wholly owned by an unrelated third parties (the "Third Party Shareholders"), entered into a transaction (as amended in January 2007) consisting of a land purchase agreement and a share subscription agreement, for the purchase of land located in Kochi, India. In accordance with the terms of the land purchase agreement, the Project SPV acquired13 acres ("Property A") located in the city of Kochi in the Kerala State of India, for a total consideration of INR 1,495 million (approximately $27.3 million), payable subject to fulfillment of certain obligations and conditions by the seller in respect of the land including obtaining all permissions required for construction thereon and making good and marketable title with regard to Property A and others (the "Conditions Precedent"), out of which an advance
of approximately 25% of the total purchase price was paid to the seller in consideration for the transfer of title in Property A to the Project SPV. The land purchase agreement further provides that an additional 28 acres (approximately 113,300 square meters) ("Property B") would be transferred by the seller to the Project SPV without any consideration and the seller will be entitled to receive 40% of the constructed area which will be built by the Project SPV on Property B. As of December 31, 2013, the seller has failed to transfer Property B and, accordingly, the seller was not awarded any percentage out of the planned constructed area.
The agreement also provides that if the seller fails to comply with the Conditions Precedent by an agreed date, the Project SPV and we will have the right to terminate the agreement.
Under the share subscription agreement, we will receive 50% of the equity (by having the right to appoint two members of the Project SPV's board of directors) and voting rights in the Project SPV, subject to obtainment of certain regulatory provisions in respect of the land and the securing of sanctioned plans for the project, which as of December 31, 2013 have not been fully obtained.
On November 11, 2013, PC notified us of its demand that we repay the amount paid by PC for the Kochi Island project together with the interest accumulated thereupon, amounting to approximately ˆ4.3 million (US$ 5.8 million) due to alleged failure to timely meet certain conditions set forth in the EPI Agreement. On November 24, 2013 we rejected PC's claims of such failure and demand for repayment.
As of December 31, 2013 due to our uncertainly of the feasibility of developing the project in the foreseeable future we measured the fair value of the project according to the comparable model. As a result the SPV recorded NIS 30 million impairment expenses.
Fashion Apparel
Our fashion business is operated through our wholly owned subsidiary Elbit Fashion.
In April 2012, we completed the sale of all our shares in Elbit Trade & Retail Ltd. ("Elbit Trade") and all the interests in G.B. Brands, Limited Partnership ("GB Brands"), which was the franchisee of the GapTM and Banana RepublicTM brands, to Gottex Models Ltd. (“Gottex”). The purchase price paid by Gottex under the agreement was NIS 25 million, plus the agreed value of the GAP inventory as of the closing date and adjustments based on the agreed value of the working capital attributed to the GAP activity as of the closing date.
On March 22, 2012, we entered into a termination agreement with G-Star International B.V. to end our exclusive license to distribute G-StarTM products in Israel within the time period set forth in the agreement.
Following the assignment of the franchise agreement to it from Elbit Trade & Retail Ltd., Elbit Fashion is the exclusive Israeli distributor and retailer of the internationally renowned retail brand name MANGO-MNG™. The exclusive distribution rights for Mango products in Israel were granted to us by Punto Fa for a ten-year period ending in 2015. Under the agreement with Punto Fa which was assigned to Elbit Fashion, Elbit Fashion has agreed to guarantee annual minimum purchases at rates and subject to terms and conditions specified in the agreement. Elbit Fashion has also assumed Elbit Trade's rights and obligations under an agreement with Punto Fa for the purchase of certain marketing, public relations and store-support services by Elbit Fashion. Elbit Fashion currently operates 28 Mango stores in Israel, with one additional store that is expected to commence construction by August 2014.
Revenues classified by geographical markets and by business segments
The following table sets forth our breakdown of revenues by each geographic market in which we operate, for each of the last three years (in NIS thousands):
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2013
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2012
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2011
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Convenience Translation in U.S. Dollars for
2013
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Israel
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149,192 |
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152,470 |
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183,552 |
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42,983 |
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Western Europe
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104,412 |
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169,211 |
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171,359 |
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30,081 |
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Central and Eastern Europe
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269,896 |
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342,784 |
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246,860 |
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77,757 |
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Other and Allocations
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(33,156 |
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(35,556 |
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(14,871 |
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(9,552 |
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Total Revenues
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490,344 |
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628,909 |
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586,900 |
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141,269 |
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The following table sets forth our breakdown of revenue by business segments for each of the last three years (in NIS thousands):
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2013
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2012
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2011
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Convenience Translation in U.S. Dollars for
2013
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Commercial and Entertainment Centers
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162,639 |
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300,641 |
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111,726 |
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46,857 |
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Hotels
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202,791 |
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276,703 |
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286,548 |
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58,424 |
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Medical Companies*
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74,670 |
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286,031 |
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53,324 |
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21,512 |
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Residential Projects
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1,622 |
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3,544 |
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Fashion Apparel
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149,192 |
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152,470 |
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183,552 |
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42,982 |
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Other and Allocations*
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(98,948 |
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(388,558 |
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(51,794 |
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(28,506 |
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Total
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490,345 |
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628,909 |
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586,900 |
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141,269 |
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* Because we lost control over InSightec during 2012 revenues were classified to discontinued operations.
** Other and Allocations includes equity method adjustments to eliminate revenues of our equity method investments that are reviewed on a full basis. See note 23 to our financial statements.
Seasonality
Hotels
The business activities of our hotels are influenced by several factors that affect our revenues and gross operating profit. These factors include (i) fluctuations in business activity in certain seasons, which affects the volume of traffic in the business community, (ii) holiday seasons, such as Christmas and Easter and (iii) weather conditions. In Western Europe, these factors generally cause the first and third quarters to be weaker than the second and fourth quarters.
The first quarter, which is the period immediately following the Christmas season and the height of the European winter, is traditionally characterized by lower revenues and gross operating profit resulting from lower occupancy rates and reduced room rates. During the third quarter, there is generally a decrease in local business activities due to the summer holidays, which, together with a tendency for local tourist traffic to seek out resort destinations, also generates slower results. This is offset somewhat by increase in international tourism, but the impact of this increase is, in turn, offset by lower room rates, particularly for groups.
However, during the second quarter, there is generally a marked increase due to more favorable weather conditions (spring to early summer), the Easter holiday and the corresponding revival of both business and tourist activity. The fourth quarter is usually the strongest period due to increased business in October and November, the Christmas and New Year’s holiday season and a significant year-end increase in business activities.
Fashion Apparel
Elbit Fashion’s business is influenced by seasonal shifts in the apparel market. During the winter season (December - February) and summer season (June - August), the apparel market, including Elbit Fashion, commences discount sales to the public, which consequently increases Elbit Fashion’s revenues and causes a decrease in the gross profit margin for such periods. In addition, Elbit Fashion’s revenues may fluctuate due to seasonal purchasing by consumers, especially around holidays, such as Passover, which usually falls in the second quarter, and the Jewish New Year and other holidays, in the third and fourth quarters.
Patents and Proprietary Rights; Licenses
PC is the registered owner of a European Community trademark “Plaza Centers + figures.” During 2008, both we and PC have applied to the Trade Mark Registry in India, for the registration of trademarks for our Indian operations. The Indian applications are still pending.
Pursuant to our agreements with Rezidor, our hotels are managed under the names: “Radisson Blu” and “Park Inn.” We have also registered our CenterVille operations as a trademark in Romania. In November 2010 we entered into an agreement with Rezidor pursuant to which the CenterVille apartment hotel, now known as the ApartHotel, which is located next to the Radisson Blu Bucharest Hotel, will be managed by Rezidor so that both hotels will be operated as one complex, under the “Radisson Blu” brand. We still utilize the trade mark of CenterVille in connection with the ApartHotel.
InSightec’s intellectual property includes ownership of 107 patents, out of which 40 are registered in the United States, 55 in various European countries, six in Japan and six in China. In addition, InSightec has submitted 60 patent applications, which remain pending and in process.
InSightec has registered trademarks for “ExAblate,” ExAblate 2000” and “InSightec” in the United States, European Union, Canada and Israel.
In our fashion and retail operation, our products are traded under the trademark: MANGO-MNG™ - pursuant to a license granted by Punto-FA.
Competition
Commercial and entertainment centers
We have been active in emerging markets since 1996, when we opened the first western-style commercial and entertainment center in Hungary and began to implement our vision of offering western-style retail and entertainment facilities to a growing middle class and an increasingly affluent consumer base. Over the past 18 years, we have expanded our operations in Central Europe and eastward into Poland, Greece, the Czech Republic, Latvia, Serbia, Romania, Bulgaria and India, and have proven our ability to anticipate and adapt to market trends and deliver innovative large-scale projects.
We have a number of competitors in CEE countries in which we operate or intend to operate in the commercial and entertainment centers business, particularly in the larger capital cities. The following factors, however, should be noted:
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shopping centers which are not in close proximity and which do not draw their clientele from the same population areas are not considered competitive;
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we believe that large retail centers (known as "power centers"), even if they compete with our centers directly merely by virtue of their proximity to our commercial and entertainment centers, are at a disadvantage because they do not offer the entertainment facilities that are offered at our commercial and entertainment centers, and which we consider to be a significant element in the attraction of our patrons. These power centers also lack a wide range of services and common areas; and
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in the regional cities of our targeted countries, competitive activity is more limited. In these cities, we compete with traditional shopping outlets. These outlets lack the added benefit of the entertainment activities that our centers offer and, accordingly, we believe that they have difficulty competing with us.
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In addition to several ad hoc entrepreneurial projects, there are a number of significant groups operating commercial and entertainment centers in CEE with whom we compete directly, namely Globe Trade Centre SA, ECE Projekt Management GmbH TriGranit Holding Limited and Atrium European Real Estate. We compete with these chains, and with other developers, in the pre-development stage, in the cost of acquisition of such sites, in the development stage (in retaining suitably qualified architects, consultants and contractors), in receiving financing and in the operational stage, if the centers compete for the patronage of the same population. We also compete for quality “brand name” tenants to occupy rental units. In locations where competing centers are being constructed simultaneously, the first center to open generally enjoys an advantage over its competitor, which is the reason behind our emphasis
on the expeditious completion of construction operations.
In Pune, India, our main competitors in commercial and entertainment centers are Phoenix Market City (which is a 1 million square foot mall) and Inorbit Mall (which is a 275,000 square foot mall). We also compete with small malls such as Central and Mariplex Gold located in Kalyani Nagar and from a mall located in Bund Garden Road.
Hotels
The lodging industry in Europe has traditionally been classified on a grading system, with five-stars representing a luxury hotel and one-star a budget hotel. Our Radisson Blu Bucharest Hotel is rated a five-star luxury hotel, our Radisson Blu Astrid Antwerp is rated a four star deluxe hotel and our Park Inn is rated a three star hotel.
Each of our hotels competes with other hotels in its geographic area for clientele, including hotels associated with other franchisers, which may have different reservation networks than those that may be available to us. We compete with other facilities on various bases, including room prices, quality, service, location, reservation service, marketing tools and amenities customarily offered to the traveling public. Levels of demand are dependent upon many factors, including general and local economic conditions and changes in levels of tourism and business-related travel. Our hotels depend upon both business and tourist travelers for revenues.
Many of these other companies are larger than us. However, we believe that our hotels nevertheless offer quality and value for competitive prices. In addition, our cooperation with Rezidor, using the Radisson Blu and Park Inn brands assists us in gaining recognition. This recognition is established as Rezidor is one of the fastest growing management companies in Europe.
Competition
Medical Companies - InSightec
Competition to MRgFUS treatments include traditional surgical modalities, minimally invasive surgery, and competing image guided high intensity focused ultrasound ( HIFU) systems.
Minimally invasive procedures involving tissue ablation methods include radiofrequency ablation where electromagnetic energy is inserted into the body with a special needle, microwave ablation, laser, cryoablation which ablates tissue through freezing, embolization of the blood vessels, and irreversible electroporation, are potential competitors of InSightec. Depending upon the medical indication treated these methods may have regulatory approval in various geographies, including CE marking in Europe and FDA approval in the US.
InSightec faces competition from both traditional and minimally invasive treatments of uterine fibroids and the other medical conditions that InSightec has targeted for its future applications. Traditional treatment methods for uterine fibroids and other medical conditions that InSightec has targeted for product development are more established, accepted and practiced widely among physicians, and reimbursed by healthcare insurance. Competitive treatments for uterine fibroids, which are approved by the FDA and CE marked include hysterectomy, myomectomy, radiofrequency ablation, cryotherapy, and uterine artery embolization. Competitive treatments for bone metastases include microwave ablation, radiofrquency, and external beam radiation therapy. Similarly for medical procedures that are under investigation by InSightec there are a number of competitive treatment modalities.
In recent years, GE’s main competitors in magnetic resonance imaging, Philips and Siemens, have developed MRgFUS devices; Philips has designed and manufactures its own system, Sonalleve, whereas Siemens has partnered with Chongqing Haifu, a Chinese manufacturer of therapeutic ultrasound systems. In 2010 Philips announced that their MRgHIFU Sonalleve device for treatment of uterine fibroids received CE Mark and is available commercially in Europe and other countries that recognize the CE regulation. In 2011 ECR Philips also announced that Sonalleve has been cleared for treating painful bone metastases. As of January 2012, Philips has installed at least 22 systems worldwide. Some sites are participating in an FDA Phase III study for the treatment of uterine fibroids. They are also conducting a clinical trial for CFDA approval in China. This validates the uterine fibroid application for which InSightec’s ExAblate received FDA
approval in 2004. Siemens and Chonqing Haifu have treated 23 patients in a Chinese study, and one paper has been published on this data. Chonqing has no systems installed outside of China and in early 2014 they announced that the system had received CFDA approval for the treatment of uterine fibroids.
We are currently aware of two Chinese companies (YDME and Chongqing Haifu) that have developed ultrasound guided HIFU devices to treat cancer. In 2008, YDME received FDA approval to start a phase I pancreatic cancer study in the United States but terminated that study due to its own financial reasons. The Chongqing Haifu system is used for initial clinical trials in China, including uterine fibroids as mentioned above. There are two HIFU companies that have developed devices specific for the treatment of prostate cancer. A French company called EDAP TMS and a U.S. company called USHIFU LLC offer ultrasound-guided focused ultrasound devices for treating prostate cancer. Both are conducting FDA Phase III clinical trials for full gland ablation treatment of prostate cancer.
In the area of treating brain disorders (tremor, tumors, CNS, stroke, mediated drug delivery) using MRgFUS, InSightec faces potential competition from the French company Supersonic Imagine. The company has been developing a product similar in capabilities to InSightec’s ExAblate Neuro device. The Supersonic Imagine device is still in a pre-clinical development stage.
At present, to our knowledge, the Chinese ULSgFUS companies have focused their marketing efforts in Asia. Chongqing Haifu has placed systems in the United Kingdom (1), Spain (1), Russia (1) and Italy (1) and obtained a CE mark for treating liver and kidney cancer. The French (EDAP TMS) and U.S. (Focus Surgery Inc. and USHIFU Inc.) FUS companies focus on ultrasound-guided treatment of prostate cancer disease. To the extent InSightec enters the U.S. or European markets for the treatment of prostate cancer it may face competition from both of these companies.
In addition, the bio-medical field is characterized by rapid development and massive research and development activities, having potential for direct or non-direct competition resulting from the discovery or development of more advanced, efficient or cost-effective treatments or technologies by third parties providing better solutions to the same diseases, while making InSightec’s (or Gamida's) technologies or solutions inferior, obsolete or irrelevant. Such occurrence could adversely impact InSightec’s (and Gamida's) future business and financial performance
Residential Projects
In Bangalore, India, the main current competitors in residential projects are “White meadows” villas by Prestige Group, “Palm retreat” villas by Adarsh Developers (Resale), “Wind mills of your mind” villas by Total Environment and “Lakeside Habitate” by Prestige group as well as other small scale developers.
In Chennai, India, the main competitors in residential projects are “Panache” villa developed by Olympia, “Grand Elora” row houses developed by Joy Housing, “Pavillion” villas and Row houses by Casa Grande “Greenwood” plots developed by Arihant, “Hub 6” plots developed by Divyashree and “The Village” Villas developed by Phoenix as well as other small scale developers
Fashion Apparel
Elbit Fashion operates in a competitive market characterized by a large and increasing number of international and local brand stores and independent stores in Israel. Elbit Fashion’s direct competitors include brand stores such as H&M, Zara, Castro, Fox, H&O, Honigman, Renuar and Golf which are located in the vast majority of the shopping centers in Israel. Increased competition could result in pricing pressure or loss of market share and adversely affect Elbit Fashion’s revenues and profitability. Elbit Fashion’s competition strategy includes: investing in branding, maintaining a compatible pricing strategy, expanding the existing customer loyalty program, spreading the chain of stores, making them accessible to the Israeli consumer, offering leading innovativeness in fashion apparel trends and providing a unique buying experience and service.
Governmental Regulation
Commercial and entertainment centers
The development, construction and operation of commercial and entertainment centers are subject to various regulatory controls, which vary according to the country of activity. Some countries require that a developer provide an environmental report on the land before building permit applications are considered, while in other countries we usually have direct contact with the local authorities to receive basic information on environmental issues. In certain European countries, antitrust permits must be obtained before a foreign investor is allowed to acquire shares of a local entity. In most Eastern European countries, construction work may only begin after the lapse of the objection period provided for third parties whose interests may be affected by such permits, at which time the contestation permit becomes final. If restitution claims made by former land owners in respect of project sites are upheld, these claims can jeopardize
the integrity of title to the land and the ability to develop the land. Generally, construction must commence within a specified period following issuance of the permit, otherwise, the construction permit may expire.
Generally, the approval process for construction projects requires compliance with local zoning plans which state the conditions for construction and development and the designated permitted uses for the property. After review by the relevant authorities to verify that the developer complies with the local zoning plan, the developer must apply for a building permit, which includes the building design, permits, utility plans, surveys, environmental reports and any other documentation required by applicable law. Construction may commence upon receipt of a final valid building permit. Building permits are usually limited in time, and if construction does not commence before the expiration of the building permit, a developer will have to obtain a new building permit prior to construction. After completion, finished buildings are subject to operational inspection by applicable authorities such as environmental, sanitation, labor,
utility and fire authorities. Once all approvals are obtained, an occupancy permit can be obtained for the building.
Foreign direct investment (“FDI”) in the construction development sector in India is governed by provisions of the Foreign Exchange Management Regulation and the consolidated FDI policy issued by the Department of Industrial Policy and Promotion (“DIPP”) of the Indian Ministry of Commerce and Industry, and updated / revised from time to time through various Press Notes (“FDI Policy”). The last release with respect to the FDI Policy was a Consolidated FDI Policy circular issued by the DIPP, with effect from April 17, 2014. FDI in the construction development sector is subject to certain conditionalities under the FDI Policy. Under the FDI Policy, FDI is allowed up to 100% under the automatic route in townships, housing, built-up infrastructure and construction-development projects (which includes, but is not restricted to, housing, commercial premises,
hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure), subject to restrictions pertaining, inter alia, to the following matters: (a) minimum area to be developed under each project; (b) minimum capitalization; (c) non-repatriation of original investment for a period of 3 (three) years from the date of remittance (lock-in period); (d) project completion schedule; (e) conformance with local laws and applicable standards; (f) obtaining necessary approvals; (g) supervision by the state government/municipal/local body concerned and (h) prohibition of the sale of undeveloped plots where specific types of infrastructure, as per the FDI Policy and applicable prescribed regulations, have not been made available.
Under the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000, we cannot acquire any agricultural land without a prior approval of the Reserve Bank of India (“RBI”) and proposals relating to acquisition of agricultural land are considered in consultation with the Government of India, and such approval process can be time consuming.
Due to the urbanization process in India, former agricultural lands and villages were merged into expanding urban areas, and as a result, those lands and the buildings that were built on them became subject to various municipal regimes, some of which were legislated by municipal authorities that no longer exist. As a result, in certain locations throughout India, it is impossible to initiate rezoning activities and/or obtain building permits from the currently governing municipal authorities, with respect to lands and buildings that were handled by the former municipal authorities. Those problems are being solved either by specific legislation or by other solutions, such as municipal tax assessments that define the new land usage. The solutions may vary from state to state within India. There is no assurance that those solutions will be validated by future legislations or recognized by the respective authorities, at any time
in the future.
Certain commercial and entertainment centers projects, as well as our other projects in India, are being carried out through joint ventures with Indian partners. The RBI has from time to time, amended certain provisions under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations (2000), relating to the pricing norms for issuance of shares by an Indian company to persons residing outside India. These regulations include provisions stipulating that the shares of an unlisted company have to be issued at a price not less than the fair valuation, and in case of issuance on preferential allotment, the issuance price cannot be less than the price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by the RBI from time to time, according to the fair valuation of the shares. Recently the RBI has expressed intent to withdraw
pricing norms of financial instruments (viz. shares and debentures) both at the time of initial investment as well as at the time of the exit. However, the operating guidelines on such withdrawal have not yet been notified. Furthermore, certain provisions of the Companies Act, 2013 have also recently been amended, which pertain to compliances to be made by Indian companies in relation to the issue and allotment of shares on rights or preferential basis. These provisions include a new requirement of obtaining a valuation report where shares are to be issued on a preferential basis.
There is an increasing awareness of environmental issues in CEE and India. This may be of critical importance in areas where soil pollution may be prevalent. If a property that we acquire turns out to be polluted, such a finding will adversely affect our ability to construct, develop and operate a commercial and entertainment center, a hotel or a residential project on such property. This may have a significant impact on development budget and schedules and may have a detrimental effect on the viability or marketability of the development or cause legal liability in connection with a portfolio asset. We may be liable for the costs of removal, investigation or remedy of hazardous or toxic substances located on or in a site owned or leased by us, regardless of whether we were responsible for the presence of such hazardous or toxic substances. The costs
of any required removal, investigation or remedy of such substances may be substantial and/or may result in significant budget overruns and critical delays in construction schedules. The presence of such substances, or the failure to remedy such substances properly, may also adversely affect our ability to sell or lease such property or to obtain financing using the applicable property as a security.
Residential Projects
For information regarding governmental regulation applicable to our residential and mixed-use real estate projects, see "Governmental Regulations - Commercial and Entertainment Centers” above.
Hotels
The development, construction and operation of hotels and leisure facilities, including advertising tariffs and hotels, health safety issues, environmental regulations, activities conducted within the premises of the hotels (such as restaurants, bars, shops, health clubs, and in particular the sale of alcohol, food and beverage to the public), installations and systems operating within the hotel (elevators, sprinkler systems, sanitation, fire department etc.), terms of employing personnel, as well as methods of rating the hotels, are all subject to various regulatory controls, which vary according to the country of activity.
In the countries in which we operate, the operation of hotels requires licenses for the operation of the building as a hotel and the obtaining of local municipal and police approvals for the means of access to and egress from the hotel for motor vehicles. In addition, in most countries we are required to obtain licenses for the sale of alcohol on the premises and the operation of a restaurant and tourism services. Our hotels are also required to comply with regulations regarding food, hygiene, the operation and maintenance of the swimming pool, casino, elevators, health, sanitation, electricity and fire hazards prevention.
In addition, in the countries in which we operate hotels we are required to comply with various regulations in connection with employees, in particular working hours’ regulations. For each grade there is a minimum wage mandated. Among other things, the provisions of the collective labor agreement obligate the employer to provide money for employees for a number of funds. Also, the total obligations of companies that might arise from the termination of employees cannot be predicted.
In India, under the FDI Policy, 100% foreign investment is allowed under the automatic route for the hotels sector subject to the conditions mentioned above. The term “hotel” includes restaurants, beach resorts and other tourism complexes providing accommodation and/or catering and food facilities to tourists.
Medical Companies - InSightec
The testing, manufacture and sale of InSightec’s products are subject to regulation by numerous governmental authorities, principally the FDA, the EEC, and corresponding state and foreign regulatory agencies.
The U.S. Safe Medical Devices Act of 1990 (the “SMDA”) includes various provisions which are applicable to each of the existing products of InSightec and may result in the pre-market approval process (a process whereby the FDA approves a new system that has no predicate devices that have been approved in the past) for such products becoming lengthier and more costly. Under the SMDA, the FDA can impose new special controls on medical products. These include the promulgation of performance standards, post-market surveillance requirements, patient registries, and the development and dissemination of guidelines and other actions as the FDA may deem necessary to provide a reasonable assurance and effectiveness.
In June 1993, directive 93/42/EEC for medical devices was adopted by the EEC. In June 1998, this directive replaced the local regulation and ensured free transfer of qualified medical equipment among member states. Medical devices that meet the established standards, receive certification represented by the symbol “CE”. There are two types of certifications that are granted: (1) general certification of a company and (2) certification for a specific product. InSightec decided to comply with Medical Device Directive 93/42/EEC ("MDD") and with the international standard ISO 13485 entitled “Medical Devices - Quality management systems - requirements for regulatory purposes”. InSightec obtained a certification of compliance with the standard in March 2004, and is subject to annual audits by the European Notified Body to renew the certification in accordance with all applicable updates of the standard and
the MDD.
Fashion Apparel
The principal regulatory requirements for our Fashion Retail operations in Israel include: (i) compliance with the Israeli Consumer Protection Law, 5741-1981 and the regulations promulgated thereunder; (ii) compliance with the Israeli Protection of Privacy Law (5741-1981); (iii) maintaining various licenses and permits issued by local and national governmental authorities (including receiving applicable standards from the Israeli consumer standard institute for certain imported accessories); (iv) compliance with employment regulations; (v) compliance with customs and other importing regulations; and (vi) non-infringement of intellectual property rights of any party.
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C.
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ORGANIZATIONAL STRUCTURE
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Our significant subsidiaries and companies in which we have a significant interest as of the date of this annual report are as follows:
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NAME OF COMPANY
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COUNTRY OF ORGANIZATION
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DIRECT/INDIRECT OWNERSHIP PERCENTAGE
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Plaza Centers N.V.
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The Netherlands
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62.5% (1)
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Elscint Holdings & Investment N.V.
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The Netherlands
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100%
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Elbit Medical Technologies Ltd.
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Israel
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90% (2)
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Elbit Plaza India Real Estate Holdings Limited
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Cyprus
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50% (3)(4)
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Elbit Fashion Ltd.
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Israel
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100%
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Elbit Ultrasound (Luxemburg) B.V./Sa r.l.
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Luxemburg
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100%
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___________________
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(1)
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Approximately 58% on a fully diluted basis.
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(2)
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Approximately 85% on a fully diluted basis.
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(3)
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We hold 47.5% of the shares in EPI directly, and an additional 47.5% through PC. For additional information as to the joint venture signed between us and PC regarding EPI, see “Item 4.B Business Overview - Residential Projects.”
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(4)
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For details as to the grant of 5% of EPI’s equity to Mr. Abraham (Rami) Goren, our former Executive Vice Chairman of the board of directors, see "Item 6.B. Directors, Senior Management and Employees - Compensation of Directors and Officers - Agreements with our Former Executive Vice Chairman."
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D.
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PROPERTY, PLANTS AND EQUIPMENT
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Our operational portfolio consists of various freeholds, leaseholds and other tangible assets. For details as to such real estate portfolio, see “Item 4.B Business Overview.” Below we present information regarding certain tangible fixed assets including leasehold properties that do not form part of our operational portfolio, but rather serve as basis for our and our subsidiaries’ offices and management, as of March 31, 2014.
On July 19, 2012 we signed a lease agreement for approximately 1,180 square meters of space, including storage area and parking spaces, for management and administrative purposes in an office building in Bnei-Brak, Israel, to which we relocated our offices in May 2013. The agreement is for a period of five years with an option to extend for an additional period of five years. The annual aggregate rental fee (including management fees and index linkage pursuant to the lease agreement, and excluding VAT) to be paid by us will be approximately NIS 2 million (approximately $0.6 million) on an annual basis.
PC’s headquarters are located in an office building located on Andrassy Boulevard, Budapest, Hungary. The building is located on an 800 square meter plot and consists of four floors, an atrium and a basement, with a total built area of approximately 2,000 square meters.
PC also owns a villa converted into an office building, located in the center of Bucharest. The total office area is approximately 700 square meters build on a plot of approximately 600 square meters and consists of three floors, a basement and a garage.
Elbit Fashion leases approximately 550 square meters of office space in Tel Aviv, Israel, for its management and administration activities (not including stores) until June 2014, with an option to extend the lease for a 10-year period. The annual rental and management fees payable by Elbit Fashion are NIS 588 thousand (approximately $169 thousand).
Elbit Plaza India Management Services Pvt. Ltd. and HOM India Management Services Pvt. Ltd. lease on a 50-50% basis approximately 250 square meters of office space in Bangalore, Karnataka, India, for its management and administration activities. The term of the lease is until September 1, 2015, with an option to extend the lease for an additional three-year period. The annual rental and management maintenance fees payable by Elbit Plaza India Management Services Pvt. Ltd. and HOM India Management Services Pvt. Ltd. are INR 2,754,000 (approximately $51,000) and INR 162,000 (approximately $3000), respectively, with an annual increase in the monthly rental fees of 5%.
InSightec leases its main office and research and development facilities, located in Tirat Carmel, Israel, pursuant to a lease that expires in March 2016. Pursuant to such agreement, InSightec occupies approximately 4,849 square meters in Tirat Carmel and Or-Yehuda. Total annual rental expenses under these leases are approximately $1.2 million. InSightec also leases offices in Dallas, Texas for an annual rental fee of approximately $81,000, offices in Milwaukee, Wisconsin for an annual rental fee of approximately $55,000, offices in Japan, Tokyo for an annual rental fee of approximately $30,000 and offices in China, Shanghai for an annual rental fee of $24,000.
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UNRESOLVED STAFF COMMENTS.
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Not applicable.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
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Overview
We operate primarily in the following principal fields of business:
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Commercial and Entertainment Centers - Initiation, construction and sale of commercial and entertainment centers and other mixed-use real property projects, predominantly in the retail sector, located in Central and Eastern Europe and in India, primarily through Plaza Centers N.V. ("PC"), of which we own approximately 62.5% of its share capital. In certain circumstances and depending on market conditions, we operate and manage commercial and entertainment centers prior to their sale;
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Hotels - Hotel operation and management primarily in major European cities;
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Medical Industries - through our investee entities we are dealing with (a) research and development, production and marketing of magnetic resonance imaging guided focused ultrasound treatment equipment and (b) development of stem cell population expansion technologies and stem cell therapy products for transplantation and regenerative medicine;
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Residential Projects - Initiation, construction and sale of residential projects and other mixed-use real property projects, predominately residential, located primarily in India; and
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Fashion Apparel - Distribution and marketing of fashion apparel and accessories in Israel.
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During 2012, we completed a transaction to sell all of our investments in commercial centers in the United States. In addition, as discussed below in 2012 we lost majority control over our subsidiary InSightec Ltd. (“InSightec”), the entity operating the medical industry and devices business. Accordingly, both of these operations are presented in these financial statements as discontinued operations. (It should be noted, however, that we may pursue additional investments in the retail and commercial real estate sectors).
Our revenues from the sale of real estate and trading property are subject to the execution and consummation of sale agreements with potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial amounts and as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period comparisons of our historical results of operations may not necessarily be meaningful or indicative and that investors should not rely on them as a basis for future performance.
Our functional currency is NIS. Our consolidated financial statements are also presented in NIS. Since our revenues and expenses are recorded in various currencies, our results of operations are affected by several inter-related factors, including the fluctuations of the NIS compared to other currencies at the time we prepare our financial statements.
Financial data included in this discussion were derived from our consolidated financial statements and the analysis herein is based on our general accounting records and published statistical data. Such financial data have been rounded to the nearest thousand or million.
The following acquisitions and other activities affected our operational results for 2011, 2012, 2013 and 2014 (to date) and may continue to affect our operational results in the coming years.
2014
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On April 13, 2014 Elbit Medical announced that on March 25, 2014, InSightec notified Elbit Medical that its Board of Directors has approved the terms of a non-binding draft term sheet with an investor which is not a current shareholder of InSightec (the “Investor”), pursuant to which the Investor shall purchase InSightec share capital. The proposed investment shall be based on a company valuation which is significantly higher than the company valuation set on the previous round of capital investment in InSightec.
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On April 6, 2014, InSightec notified Elbit Medical that the aforementioned non-binding term sheet was entered between the parties. To date, no definitive agreement has been signed, the investment amount is yet to be finalized, and there is no certainty that the negotiation of such non-binding term sheet will lead to the conclusion of a definitive agreement or that a transaction will be completed. The execution of a definitive agreement is subject to certain conditions precedent, including but not limited to, the approval of the authorized corporate organs of each of Elbit Medical, other shareholders of InSightec and the Investor.
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On March 31, 2014 we formally notified Mr. Mordechay Zisser of the termination of his services as our chief executive officer and executive president, effective as of such date, and have yet to appoint a new chief executive officer. In addition, on March 13, 2014 new board members were appointed and Mr. Shimon Yitzhaki (whose membership on the Board had ceased following the election) ceased to serve as the Executive Chairman of our Board of Directors, effective as of even date and on March 21, 2014, Mr. Ron Hadassi was appointed Chairman of our Board of Directors. On or about April 10, 2014, Mr. Yitzhaki
was surrendered with an employment termination notice.
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On March 26, 2014 PC announced that it has agreed to make certain commercial amendments to its debt restructuring plan (the “Amended PC Plan”), which it intends to submit to the District Court of Amsterdam in the Netherlands (the “Dutch Court”). According to such announcement, the Amended PC Plan shall include the following material understandings:
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The Amended PC Plan shall be contingent upon a cash injection of ˆ20 million into PC (the “Equity Contribution”), and will become effective only once such Equity Contribution has been made.
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PC shall issue to the holders of unsecured debt, i.e. the outstanding Israeli Series A and B Notes and the Polish Notes (“Unsecured Debt”), shares of PC equal to 13.5% of PC's share capital (following the Equity Contribution) for no consideration. Such issuance of shares will be distributed among the holders of Unsecured Debt pro rata to the relative share of each relevant creditor in the Deferred Debt (as defined below) ("Deferred Debt Ratio").
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o
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All principal payments of any Unsecured Debt (“Deferred Debt”) due during 2013-2015 shall be deferred for three years from the date of approval of the Amended PC Plan by the Dutch Court (“Approval Date”). If within two years from the Approval Date PC repays 50% or more of the Unsecured Debt, the remaining principal payments shall be deferred for an additional one year.
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Interest payments for the Unsecured Debt that were due during the suspension of payments period will be added to the principal and will be payable together with it. Following the expiration of the suspension of payments order (“Effective Date”), interest payments will be payable on their respective due dates.
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o
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As of January 1, 2014, the annual interest rate of the Unsecured Debt shall be increased by 1.5%.
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o
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Following the Effective Date, PC shall pay to the holders of the Unsecured Debt an amount of ˆ10.5 million on account of the interest payments that were due during 2014.
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o
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PC, its directors and officers and us shall be fully released from all claims.
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Following the Effective Date, PC will be required to assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of the Unsecured Debt, to be allocated among the holders of Unsecured Debt in accordance with the Deferred Debt Ratio.
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o
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PC will be permitted to engage in investments only if its cash reserves contain an amount equal to general and administrative expenses and interest payments for the Unsecured Debt for a six-month period (for this purpose also receivables with a high probability of being collected in the subsequent six-month period will be taken into account in calculating the required minimal cash reserve).
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The Amended PC Plan shall also include, inter alia: (i) certain limitations on distribution of dividends and incurring of new indebtedness; (ii) a negative pledge on direct and indirect holdings of PC on real estate assets; (iii) financial covenants and undertakings of PC with respect to the sale and financing of certain projects and investment in new projects; and (iv) a commitment to publish quarterly financial statements as long as the Unsecured Debt is outstanding.
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o
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The Amended PC Plan will be subject to the approval of PC's unsecured creditors, a meeting of which is scheduled to be held on June 26, 2014, at the Dutch Court. For a discussion of PC’s debt restructuring process, see “2013” below.
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·
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On March 18, 2014, Elbit Medical announced that Gamida received a non-binding proposal contemplating its purchase by the Purchaser. The proposed consideration for such purchase is expected to include a payment of a significant amount upon closing, as well as certain milestone-based payments (contingent upon development, regulatory approvals or sales related to Gamida’s product), with such proposed consideration expected to amount to up to several hundred million dollars. No definitive agreement has been signed to date and there is no certainty that the negotiation of such non-binding proposal will lead to the conclusion of a definitive agreement or that a transaction will be completed. The execution of a definitive agreement is subject to certain conditions precedent, including but not limited to, the approval of the authorized corporate organs of each of Gamida, Elbit Medical, other
shareholders of Gamida and the Purchaser.
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·
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On March 13, 2014 we announced the results of the Extraordinary General Meeting of shareholders, in which the following nominees were duly elected as members of our board of directors in place of all of the previous non-external members of the Board: Alon Bachar, Eliezer Avraham Brender, Ron Hadassi, Shlomo Kelsi, Yoav Kfir, Boaz Lifschitz and Nadav Livni.
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On February 20, 2014 following the satisfaction of all conditions required to be satisfied prior to the effectiveness of the Debt Restructuring (other than registration of liens in favor of the trustees of the new series of notes) the Debt Restructuring, pursuant to which our outstanding unsecured financial debt was cancelled in exchange for the issuance of Series H Notes, Series I Notes and ordinary shares was consummated and came into effect. The Series H Notes and the Series I Notes were listed on the TASE, and the New Shares were listed on NASDAQ and the TASE. For a discussion of the approval and consummation of the Debt Restructuring, please see the Forms 6-K we filed on September 18, 2013, January 2, 2014 and February 20, 2014.
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On September 18, 2013, our unsecured financial creditors (the holders of our publicly-traded Series 1 and Series A to Series G notes and Bank Leumi approved the Debt Restructuring under Section 350 of the Israeli Companies Law, and on January 1, 2014, the Court approved the Debt Restructuring. Following the Court Ruling, a holder of our Series B Notes that had filed the Previous Action filed an appeal with the Israeli Supreme Court arguing that the Court erred in approving the Debt Restructuring, with specific reference to the Court's approval of the provision of the Debt Restructuring that provides exemption from personal civil liability for our officers and directors (other than Mr. Mordechai Zisser) and the denial of the Previous Action. The appeal is still outstanding, and is scheduled to be heard in February 2015.
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In accordance with the terms of the Debt Restructuring, our unsecured financial creditors were issued 509,713,459 ordinary shares, which represented 95% of our share upon effectiveness of the Debt Restructuring on a fully diluted basis (except for certain options issued to our employees and officers) and before the issuance of our ordinary shares to Bank Hapoalim (as detailed herein). According to the terms of the Debt Restructuring, the outstanding balance under our unsecured financial debt was extinguished and converted into these ordinary shares and new notes issued by us to our unsecured financial creditors. The aggregate principal amount of the two series of new notes issued pursuant to the Debt Restructuring is equal to NIS 666 million (approximately $190.3 million). The principal amount of the first series of new notes is equal to NIS 448 million (approximately $128.7 million), repayable in a single payment by May
31, 2018. The principal amount of the second series of new notes is equal to NIS 218 million (approximately $62.3 million), repayable in a single payment by November 30, 2019. Both series of the new notes bear interest at the rate of 6% per annum and are linked to the Israeli consumer price index, while interest on the first series of new notes is payable in cash on a semi-annual basis, and interest on the second series of new notes will be payable on the final maturity date. In addition, the new notes include mandatory prepayment provisions in the event we pay cash, distribute dividends or make any other distribution within four and half years following the date of issuance thereof, such that we will be obligated to prepay an amount equal to the amount distributed. In addition, the New Notes will be secured by first ranking and second ranking floating charges that will be placed on all of our assets in favor of the
Series H and Series I Trustees, respectively, and first-ranking and second ranking fixed pledges that will be placed on our various holdings and rights in our subsidiaries Elbit Ultrasound (Luxembourg) B.V./S.ar.l (through which we hold a controlling stake in PC) and Elscint Holdings and Investments N.V. as well as any amounts which we shall be entitled to receive therefrom (including under all and any shareholders loans advanced by us to those companies, if any). Furthermore, our Articles of Association were amended such that (i) a decision by the Company to engage in a field of business that is new to the Company and
its subsidiaries and is material to the Company requires the unanimous approval of all of the members of the Board present and lawfully entitled to vote at the relevant meeting and (ii) in certain events a person contemplating purchase of our shares shall be required to offer to acquire ordinary shares representing at least 10% of our voting rights in connection with such purchase.
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In connection with the Debt Restructuring we issued 16,594,036 ordinary shares to Bank Hapoalim pursuant to the terms set forth in the Refinancing Agreement. Pursuant to the Refinancing Agreement the outstanding loan amount (approximately $48 million) will be repayable by the Company following a period of three years period from the closing (i.e, February 20, 2017) and will bear interest of LIBOR +3.8%, which will be payable quarterly, and an additional 1.3% which will be payable on the final maturity date (the “Loan”). In addition, pursuant to the Refinancing Agreement (i) first-ranking fixed charges will be placed on our holdings and other rights in certain of our subsidiaries holding our
hotels in Romania and Belgium as collateral securing our debt to Bank Hapoalim under the Refinancing Agreement. Such charges shall be placed in addition to the existing securities that Bank Hapoalim held under the loan previously received from Bank Hapoalim, i.e., a first ranking pledge over an amount of 86 million shares of PC, representing approximately 29% of PC's outstanding shares and on our holdings (100%) in Elbit Fashion Ltd. (ii) in the event that the Loan is paid before May 31, 2014 Bank Hapoalim shall return to us, without consideration, 8,423,368 Ordinary Shares and (iii) we are subject to certain prepayment obligations in the event of prepayment of the aforementioned new notes or distribution. For further details regarding the Refinancing Agreement, please see the Form 6-K we filed on November 14, 2013.
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As discussed under the activities of years 2011 and 2012 below, we granted Eastgate Property LLC (“Eastgate”) a warrant to purchase our ordinary shares, as subsequently amended (the “Warrant”). Pursuant to an understanding between us and Eastgate, in connection with the Debt Restructuring Eastgate exercised the Warrant for 1,924,215 ordinary shares immediately following the consummation of the Debt Restructuring, at which time the Warrant was terminated. For further details regarding the Warrant, please see the Form 6-K we filed on February 20, 2014.
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Our unsecured debt prior to the entering into effect of the Debt Restructuring included approximately $12.8 million principal amount of bank debt held by Bank Leumi. In connection with the Debt Restructuring we issued to an escrow agent for the benefit of Bank Leumi approximately NIS 8.0 million (approximately $2.3 million) in principal amount of our Series H Notes, approximately NIS 3.9 million (approximately $1.1 million) in principal amount of our Series I Notes, and 9,090,122 ordinary shares. We have outstanding disputes with Bank Leumi with respect to the validity of certain pledges over accounts held by us at Bank Leumi and consequently, whether the debt we owe to Bank Leumi is classified as unsecured or secured. Upon the resolution of such disputes, these securities will be transferred to Bank Leumi or to us (or one of our subsidiaries).
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On January 13, 2014 PC announced that its subsidiary (in which it holds approximately 70% of its voting power) had reached an agreement to sell its 50% equity stake in the Uj Udvar project in Budapest, Hungary. As a result of the transaction, PC received cash proceeds of ˆ2.4 million (NIS 11.2 million).
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2013
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In February 2013 we announced that we would temporarily cease making all principal payments due under our Series A and Series B debentures and all interest payments due under all of our publicly-traded debentures; for a discussion of these announcements please see the Form 6-Ks we filed on February 5, 2013, and February 19, 2013, respectively. In March 2013 we entered into a letter of undertaking (the “Letter of Undertaking”) with the trustees of the Company’s Series 1, C, D, E, F and G note holders regarding our activities during an interim period, under which, inter alia, it was agreed that we and the entities controlled by us (excluding PC) would
not make any payments to our respective creditors, other than under certain circumstances. For a discussion of the Letter of Undertaking, please see the Form 6-K we filed on March 21, 2013. For a discussion of the terms of the Debt Restructuring, please see "2014" above.
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As described below in "2012", in August and November 2012, acting through our wholly owned subsidiary Elbit Imaging Financing Services, Limited Partnership (“Elbit Financing”), we entered into two bond structured transactions with two leading global financial institutions (the “Counterparties”). On February 20, 2013, the Counterparties notified us of the early termination of the transactions as a result of the decline in the market price of our outstanding debentures and consequent failure to meet the loan-to-value covenants under the agreements governing the transactions.
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In March 2013, we received a letter from Bank Leumi demanding repayment within ten days of the outstanding balance of approximately $14.1 million (approximately NIS 49 million) due primarily under certain loans made by Bank Leumi to us pursuant to a refinancing agreement dated May 5, 2011. Bank Leumi stated that it was taking this action in light of our then-financial condition and our having informed Bank Leumi that we would not pay the principal and the interest due on March 29, 2013. Bank Leumi also informed us that it had placed a freeze on the Leumi Accounts (certain accounts maintained by us with Bank Leumi in which we held cash and trading securities in the amount of approximately NIS 8 million) until the outstanding amounts due are repaid. Bank Leumi also notified us that should such repayment
not be made within ten days Bank Leumi was reserving its rights to take all actions necessary in order to protect its rights under the loan agreements including offsetting any amounts in the Leumi accounts against the loans. Bank Leumi also claimed that it has certain pledges registered in its favor and therefore it is a secured creditor and should not be included in the Debt Restructuring. For a discussion of the treatment of our debt to Bank Leumi under the Debt Restructuring, please see " – 2014" above.
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On May 29, 2013 PC successfully completed the sale of its 50% interest in an entity which mainly holds interests in an office complex project located in Pune, Maharashtra. The transaction valued the entity at ˆ33.4 million and, as a result, PC received gross cash proceeds of approximately ˆ16.7 million.
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On June 6, 2013, we received a letter from Bank Hapoalim, demanding repayment within seven days of the outstanding balance of the loan owed to Bank Hapoalim under the March 31, 2011 Facility Agreement, without prejudicing its right under any other loan facility to which we are a party as a guarantor or otherwise. Bank Hapoalim stated that it was taking this action in light of our alleged breaches under the loan, including, inter alia, non-payment to Bank Hapoalim on March 31, 2013 of approximately $14.5 million, failure to satisfy certain financial covenants under the loan and adverse change in our financial position. On November 4, 2013, the
Company had announced that the Company and Bank Hapoalim had reached general terms of agreement between the parties, and on November 12, 2013, we had announced certain amendments to the said general terms of agreement. On November 26, 2013, our unsecured financial creditors voted on the general terms of agreement to be entered into with Bank Hapoalim. At the Meeting, unsecured financial creditors holding approximately 70.6% of the aggregate voting power that had participated in the meeting voted in favor of the refinancing. On December 29, 2013 we entered into a new facility agreement with Bank Hapoalim based on the aforementioned general terms of agreement, and on February 20, 2014,
the transactions under the agreement were consummated. For further discussion of the terms and the closing of the Refinancing Agreement, please see "2014" above.
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In July 2013 PC completed the sale of 100% of its interest in an entity which holds the interest in a plot of land in Prague. The transaction values the entity at approximately ˆ1.9 million (NIS 9 million). The net cash consideration after deducting a liability to a third party amounted to ˆ1.3 million (NIS 6.2 million).
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A subsidiary of PC was party to a loan with a commercial bank, secured by PC’s notes that PC had repurchased, that was due to be repaid in September 2013. Due to a rating downgrade that resulted in a loan covenant breach, PC entered into negotiations with the bank and the two parties agreed upon an early repayment of the loan that was consummated during the first half of 2013.
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The loan balance, including accrued interest, was approximately ILS 77.5 million (approximately ˆ16.3 million). To finance the early repayment of the loan, PC sold ILS 66 million (approximately ˆ13.7 million) of the notes it had repurchased that served as the loan’s collateral.
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On October 31, 2013 the consortium of shareholders of Dream Island, in which PC holds a 43.5% stake, completed the sale of the Dream Island project land to the Hungarian State for approximately ˆ15 million. The proceeds of the transaction were used by the consortium to repay a proportion of a secured bank loan.
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On November 14, 2013, PC reached an agreement to sell Koregaon Park Plaza, a retail and entertainment center located in Pune, India, subject to the satisfaction of certain closing conditions, including consent of the financing bank which as of the date of this annual report have yet to be obtained. The transaction values the center in the amount of ˆ40.3 million (NIS 192.9 million). Following the repayment of the outstanding related bank loan, PC will receive aggregate gross cash proceeds from the purchaser totaling approximately ˆ18.5 million (NIS 88.5 million), which will be paid to it in several installments. As of December 31, 2013, PC received an advance of approximately ˆ2.3 million (NIS 11.5 million) and is expected to collect the remaining consideration between years 2014 and 2016. It should be noted, however, that PC's counter
party in this transaction is currently subject to certain governmental investigation (not relating to us) and that there is uncertainty as to its ability to continue to pursue the transaction.
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PC announced on November 18, 2013 that it had filed for reorganization proceedings (preliminary suspension of payments) with the Dutch Court and submitted a restructuring plan to the Dutch Court. Further to that announcement, PC announced that the Dutch Court had granted its application for preliminary suspension of payment proceedings. PC noted further that in order to resolve its liquidity situation it had filed with the Dutch Court a restructuring plan proposed to its creditors. On March 26, 2014 PC announced that it has agreed to make certain commercial amendments to such plan, which it intends to submit to the Dutch Court. The Amended PC Plan proposes, inter alia, that all principal payments due during the years 2013-2015 of any unsecured debt shall be deferred for three years from the date of approval of
the Amended PC Plan by the Court (“Approval Date”). If within two years from the Approval Date PC manages to repay 50% of such unsecured debt, then the remaining principal payments shall be deferred for an additional one year. Under the Amended PC Plan, following the removal of the suspension of payments order by the Dutch Court, PC will have to assign 75% of the net proceeds received from the sale or refinancing of any of its assets to early repayment of its unsecured debt, to be allocated among the holders of such unsecured debt. PC will be allowed to execute actual investments only if its cash reserves contain an amount equal to general and administrative expenses and interest payments for such unsecured debt for a six-month period. In addition, the Amended PC Plan includes other provisions such as: compensation to the note holders by increasing the interest rate on the notes, issuance of shares to PC’s unsecured financial creditors equal to 13.5% of PC’s share
capital, placing a negative pledge on PC's assets, certain limitations on distribution of dividends and incurring of new indebtedness, financial covenants and undertakings of PC with respect to the sale and financing of certain projects and investment in new projects, and commitment to publish quarterly financial statements as long as such unsecured debt is outstanding. The Amended Plan shall be contingent upon a cash injection of approximately ˆ20 million in PC, by way of a rights issuance, and we, PC, its directors and officers shall be fully released from claims. During the restructuring process PC’s creditors will be subject to a moratorium. In addition, PC noted that it will approach its creditors to seek approval for the Amended PC Plan. Pursuant to PC's announcements, the Dutch Court has determined that the PC creditors meeting for the purpose of voting on the Amended PC Plan will take place on June 26, 2014
at the district court in Amsterdam. For a discussion of PC’s reorganization proceedings, please see the Forms 6-K we filed on November 14, 2013, November 20, 2013 and November 25, 2013. For a discussion regarding the proposed amendment to the restructuring plan – see “ - 2014” above.
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2012
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On December 6, 2012, InSightec completed its issuance of Series C preferred shares for an aggregate amount of $30.9 million, which included $27.6 million invested by GE Healthcare, a division of the General Electric Company (“GE”) and $3.9 million invested by other investors. According to the terms of the transaction, GE and us converted all the existing shareholders loans that had been granted to InSightec into InSightec's series B-1 preferred shares in accordance with the terms of those loans. The transaction reflected a post money valuation of InSightec of approximately $105.9 million (or pre-money valuation of $75 million and following the conversion of the loans as described above). As part of the transaction, on October 17, 2012, InSightec and GE entered into a Technology, Co-operation, and Distribution Agreement (the "Cooperation
Agreement") relating, inter alia, to product exclusivity, cooperation with respect to the development and sale of the parties' complementary products, distribution, marketing and sales, intellectual property rights and licenses, sale terms and conditions, and similar items. Under the Cooperation Agreement, InSightec is prohibited from developing systems that would be compatible with MRI systems manufactured by companies other than GE. Following the closing of the transaction, our holdings in InSightec (through our subsidiary Elbit Medical 90%) were reduced to approximately 48.2% (approximately 40.7% on a fully diluted basis). After completion of the transaction Elbit Medical no longer has the right to appoint the majority of InSightec's board members and therefore ceased to consolidate InSightec's financial statements, and its investments in InSightec are presented based on the equity method.
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In November 2012 PC's board of directors approved the extension of the repurchase of its series A through B Notes in an amount of up to NIS 750 million. During 2012, PC purchased a total of NIS 271 million par value of its debentures, for a total consideration of NIS 247 million.
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In August 2012 we (through our wholly owned subsidiary Elbit Financing) entered into a NIS 75 million bond structured transaction with a Counterparty, pursuant to which we purchased a NIS denominated zero-coupon credit linked note due to mature on October 2, 2013 (the “CLN”) from the Counterparty or its affiliate. The CLN referenced a portfolio of the Company’s bonds (having a market value of NIS 75 million). The bond portfolio was purchased by us under the Company's bond repurchase program that was announced on May 23, 2011 and in the framework of the transaction it sold the bond portfolio to the Counterparty. In consideration, the Counterparty paid us the
market value of the bond portfolio and arranged for the issuance of the CLN at an issue price of NIS 37.5 million.
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In addition, in November 2012 we entered into a NIS 150 million bond structured transaction with another Counterparty pursuant to which we received a NIS 75 million credit line for the purchase of a portfolio of the Company’s bonds having an aggregate market value of up to NIS 150 million. We were permitted to purchase the bond portfolio within a 10-week utilization period commencing at the effective date of the transaction. In the framework of the transaction, we had the right to sell to the Counterparty bonds that were acquired by it and which comprised the bond portfolio in consideration for a payment by the Counterparty of the agreed-upon financing amount not to exceed 50% of the aggregate market value of the bond portfolio and that would be determined by the parties. The
Company utilized approximately NIS 21 million of the credit line.
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During the terms of the respective transactions, all the proceeds derived from the bond portfolio (principal and interest) were to be retained by the Counterparty. Immediately following the scheduled respective termination date of each of the transactions, subject to no early termination event having occurred the Counterparty was to deliver to us the remaining, unamortized portion of the respective bond portfolio. Under the terms of the respective transactions, an early termination of the transaction could occur upon a trigger event linked to a decrease in the market value of the respective bond portfolio below a pre-defined threshold. For a discussion of the termination of this transaction, please see " – 2013" above.
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In June 2012 certain indirect subsidiaries of EPN GP, LLC and EPN EDT Holdings II, LLC (the “EPN Group”) sold 47 of the shopping centers it held to BRE DDR Retail Holdings LLC for a purchase price of $1.43 billion. On the closing of the transaction all the property level financing was repaid by the EPN Group or assumed by the buyer. The closing of the transaction took place in July 2012. In addition, in July 2012, the two remaining shopping centers were sold for an aggregate amount of $41 million.
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On April 5, 2012 the Company and Eastgate amended the warrant granted in connection with the $30 million term loan agreement dated September 21, 2011, with effect as of March 22, 2012, pursuant to which we agreed to cancel the proposed increase in the number of shares issuable under the warrant on and after such date and to reduce the exercise price from $3.00 per share to zero. The amendment also contained appropriate modifications to the adjustment provisions of the warrant as a result of the foregoing changes. For a discussion of the exercise of the warrant, see “ - 2014” above.
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In March 2012 one of our wholly owned indirect subsidiaries entered into a share purchase agreement with PPHE Hotel Group Limited (“PPHE,”) for the sale of our holdings in certain subsidiaries, which owned a 50% interest in the following hotels in the Netherlands: the Park Plaza Victoria Amsterdam Hotel, the Park Plaza Utrecht Hotel, the arthotel Amsterdam and the Park Plaza Airport Hotel. These hotels were jointly owned by us and PPHE and were managed by PPHE. The transaction reflected an asset value of ˆ169 million for all four hotels. The total net consideration payable to us was ˆ26.5 million. The consideration was paid as follows: (i) ˆ23 million in cash; (ii) PPHE issued and allotted to us 700,000 ordinary shares of PPHE, with a then-current
market price of approximately ˆ2.0 million, based on the quotation of such shares’ price on the London Stock Exchange as of March 30, 2012; and (iii) an additional payment in the aggregate amount of up ˆ1.5 million that shall be made on the fourth anniversary of the closing and shall be subject to certain adjustments, based on the PPHE shares’ market price, as set forth in the agreement. The total profit generated from the sale of the hotels amounted to approximately NIS 188 million, out of which we recognized NIS 134 million in shareholders’ equity due to the application of the revaluation model and NIS 54 million in the income statement.
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In January 2012 we and Elbit Trade & Retail Ltd. ("Elbit Trade"), previously a wholly-subsidiary of ours, entered into an agreement with Gottex Models Ltd. (“Gottex”) for the sale of all of our shares in Elbit Trade and all of its interests in GB Brands, Limited Partnership (“GB Brands”), which is the franchisee of the Gap brand in Israel. The transaction closed in April 2012. The purchase price paid by Gottex under the agreement was NIS 25 million, plus the agreed value of the Gap inventory as of the closing date and adjustments based on the agreed value of the working capital attributed to the Gap activity as of the closing date. We recorded a gain in the amount of NIS 9.4 million.
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In June 2012, a fire event occurred at a shopping center of PC’s subsidiary in Pune, India, which resulted in a temporary close-down of the shopping center.
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On February 23, 2012, InSightec and InSightec’s wholly owned subsidiary concluded a series of agreements with GE through its healthcare division (“GEHC”) pursuant to which GEHC agreed to provide financing to InSightec in the form of convertible notes up to a total of $13.75 million, bearing interest at a rate of 6% per annum or a rate equivalent to the interest applicable to the financing provided by us and Elbit Medical. The convertible notes will be due and payable by October 1, 2016, and will be convertible into Series B-1 Preferred Shares of InSightec. In addition, we and Elbit Medical entered into a series of agreements with InSightec and GEHC pursuant to which, among other things, upon Elbit Medical obtaining the approval of its shareholders the financing granted to InSightec by us and Elbit Medical during 2010 and 2011 will
be amended to provide similar loan terms and security mechanisms as set forth in this funding agreement, so that Elbit Medical and us will receive convertible notes convertible on the same terms and up to the same amounts as the GEHC notes. The loans and convertible notes issued to GEHC and Elbit Medical and the note that will be issued to us will be secured, pari passu, by floating charges over the assets of InSightec and its wholly owned subsidiary. The loans were converted to Series B-1 shares as part of the closing of the InSightec Series C preferred shares issuance discussed above.
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2011
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In November 2011, PC opened the Torun Plaza in Torun, Poland, a city of 200,000 inhabitants located in the north-west of Poland. This commercial and entertainment center comprises 40,000 square meters of gross lettable area spread over two floors with approximately 1,100 parking spaces. The center includes an eight screen cinema, fantasy park entertainment center as well as over 120 shops with international and local brands.
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On October 3, 2011, our 77% held subsidiary, S.C. Bucuresti Turism S.A ("BUTU") completed a refinancing of its Radisson Blu Hotel located in Bucharest, Romania. According to the facilities agreement, a leading international European bank granted BUTU a loan of up to ˆ71.5 million to be drawn down in two tranches, of which Tranche A in the amount of approximately ˆ62.5 million was drawn down on September 29, 2011. The proceeds of the drawn down of Tranche A were used, inter alia, to repay BUTU's current outstanding bank facility and to repay to us our shareholder loans in the amount of approximately ˆ25 million. Tranche B was not drawn down by BUTU and subsequently expired.
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On September 22, 2011, PC undertook that it would not make any further distributions during 2011 other than a distribution of ˆ30 million that was subsequently made on September 23, 2011, pursuant to an agreement entered into between PC and its Series A and Series B bondholders. Furthermore, PC undertook in the agreement that distributions in the years 2012 and 2013 will be subject to the following conditions:
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any distribution of dividends (including a repurchase of shares that is not at an attractive price to PC) will not exceed ˆ30 million;
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any distribution of dividends will be derived only from the net cash flow derived from the realization of assets at a rate which will not exceed 50% of the cash flow from the realization of the foregoing assets;
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if a distribution is made and the bonds meet certain agreed upon average yield rates, PC will maintain certain reserve amounts secured in favor of the bondholders which may be used to repurchase or repay the bonds; and
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if a distribution is made and the bonds meet certain agreed upon average yield rates, PC will be entitled to make distributions between ˆ30 million and ˆ50 million and it will maintain an amount equal to the distribution amount exceeding ˆ30 million as a reserve secured in favor of the bondholders which may be used to repurchase or repay the bonds.
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On September 21, 2011, our wholly owned indirect subsidiary, Elbit USA, LLC, entered into a secured term loan agreement (the “Term Loan Agreement”) with Eastgate, for a term loan in the amount of $30 million (the "Term Loan"). As part of and in connection with the Term Loan, we granted to Eastgate a warrant to purchase our ordinary shares at an exercise price of $3.00 per share payable in cash, in exchange for the cancellation of debt or by forfeiting shares having a market value equal to the exercise price (i.e., "cashless exercise"), during a two-year period commencing on March 31, 2012. It was further agreed that if the Term Loan is repaid by March 22, 2012, six months from the closing, the warrant would entitle Eastgate to purchase up to 3.3% of our outstanding
shares at the date of exercise. Otherwise, the warrant would entitle Eastgate to purchase up to 9.9% of our outstanding shares at the date of exercise. The exercise price and/or number of shares issuable upon exercise of the warrant are subject to adjustment for certain corporate events, transactions and dilutive issuances of securities. On September 22, 2011, we filed a prospectus supplement with the SEC under our shelf registration statement dated March 14, 2011, to register the warrant and up to 3,000,000 ordinary shares which may be issuable upon the exercise of the warrant. The Warrant was amended to enable purchase up to 3.3% of our fully diluted share capital (subject to certain exceptions) at the time of exercise of the Warrant, for no consideration, until March 31, 2014. Pursuant to an understanding between us
and Eastgate, in connection with the Debt Restructuring, on February 20, 2014 Eastgate exercised the Warrant for 1,924,215 ordinary shares immediately following the consummation of the Debt Restructuring, at which time the Warrant was terminated.
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On September 19, 2011, EDT Retail Trust, a trust traded on the Australian Stock Exchange (“EDT”), distributed an interim dividend payment of $26 million. Elbit Plaza USA, L.P. (“Elbit Plaza USA”) received a total distribution amount of $11.8 million. Each of ours and PC’s share in such distribution was approximately $5.9 million.
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On September 23, 2011, PC paid an interim cash dividend payment of ˆ30 million to its shareholders, of which we received ˆ18.7 million, out of which ˆ8.7 million was used to serve our debt to an Israeli bank under a loan agreement dated March 2011 pursuant to which we pledged 29% of PC's outstanding shares.
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On July 14, 2011, EPN Group concluded the off-market takeover bid made for all of the units in EDT not already held by it. As a result of the purchases of EDT’s units during the offer period, EPN Group increased its interest in EDT from approximately 47.8% to approximately 96.4%. In August 2011 EPN Group completed the compulsory acquisition of the remaining EDT units and the EPN Group became the holder of 100% of the outstanding units of EDT, following which EDT was removed from the official list of the Sydney Stock Exchange and was voluntarily liquidated (while transferring the US REITs it held to the EPN Group).
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In May 2011, PC's board of directors approved the repurchase of up to NIS 150 million of its series A through B Notes, to be made from time to time in the open market. During 2011, PC purchased an additional total of NIS 168 million par value of its debentures (with adjusted value of NIS 194 million), for a total consideration of NIS 152 million.
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In May 2011, our board of directors approved the repurchase of up to NIS 150 million of our Series A through G Notes, to be made from time to time in the open market. During 2011, we purchased NIS 67.7 million par value of our notes for an amount of approximately NIS 53 million.
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In March 2011, we entered into a new financing agreement (subsequently amended) with an Israeli bank in the amount of $70 million, replacing the previous financing agreement.
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In March 2011, we issued additional unsecured non-convertible Series D Notes to investors in Israel by expanding the existing series in an aggregate principal amount of approximately NIS 96 million for gross proceeds of approximately NIS 108 million.
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On February 9, 2011, we filed a shelf registration statement on Form F-3 with the SEC, which became effective on March 14, 2011, pursuant to which we may offer and sell from time to time a combination of ordinary shares, senior and subordinated debt securities, warrants and units in one or more offerings up to a total dollar amount of $300,000,000.
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In January 2011, PC issued additional Series A and B Notes for an aggregate consideration of approximately NIS 300 million.
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Critical judgment in applying accounting policies and use of estimates
General
In the application of our accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In addition, in the process of applying our accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized in our consolidated
financial statements.
The following are the critical judgments and key sources of estimation uncertainty, that management has made in the process of applying our accounting policies and that have the most significant effect on the amounts recognized in our consolidated financial statements.
Use of estimates
Write down of trading properties
The recognition of a write down to our trading properties is subject to a considerable degree of judgment and estimates, the results of which, when applied under different principles, conditions and assumptions, are likely to result in materially different results and could have a material adverse effect on our consolidated financial statements.
This valuation becomes increasingly difficult as it relates to estimates and assumptions for projects in the preliminary stage of development in addition to current economic uncertainty and the lack of transactions in the real estate market in the CEE and India for same or similar properties.
We are responsible for determining the net realizable value of our trading properties. In determining net realizable value of the vast majority of trading properties, we utilize the services of an independent third party recognized as a specialist in valuation of properties. Independent valuation reports as of December 31, 2013 and 2012 were prepared by Cushman & Wakefield and Jones Lang Lasalle, respectively.
On an annual basis, we review the valuation methodologies utilized by the independent third party valuator service for each property. The main features included in each valuation are:
1. Operating trading properties (mainly commercial centers)
The net realizable value of operating commercial centers includes the rental income from current leases and assumptions in respect of additional rental income from future leases in the light of current market conditions. The net realizable value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. We use assumptions that are mainly based on market conditions existing at the reporting date.
The principal assumptions underlying our estimation of net realizable values for operating commercial centers are those related to the receipt of contractual rentals, expected future market rentals, void periods, maintenance requirements and appropriate discount rates. These valuations are regularly compared to actual market yield data and actual transactions made by us and those reported by the market, if available. Expected future rentals are determined on the basis of current market rentals for similar properties in the same location and condition.
2. Undeveloped trading properties
The vast majority of our undeveloped real estate assets are lands which are designated for development of shopping centers and residential units.
The net realizable value in case of an undeveloped project is determined based on our business plans for the specific project as of the balance sheet date. Some of our lands are designated for future development in the foreseeable future. Other undeveloped lands are in early planning stage or are planned to be sold at their current status.
A considerable degree of judgment is required in order to determine whether a specific real estate project can be developed in the foreseeable future or not. The most significant factors in such decision are: market conditions in the sounding area of the project, availability of bank financing for the development, competition in the area, zoning and building permits to the project, our liquidity and ability to invest equity into the project, our ability to enforce the joint development agreement on our partners in a joint venture project (mainly residential projects in India), the scale of the project and our ability to execute it and others. As explained below, the status of the project, as determined by us in each reporting period, also determines the net realizable value which will be used in the preparation of the financial statements. Therefore a change in each of the factors mentioned below may lead to a change in the
status of a project (from project designated for future development to project in hold) and may cause an additional write-down which was not recognized in our financial statements for the year ended December 31, 2013.
As for accounting policies in respect of the measurement of net realizable value for undeveloped trading property, see note 2L to our consolidated financial statements for the year ended December 31, 2013.
2.1. Critical assumptions under the residual method
Estimations of fair value under the residual method involve in general, critical estimation and take into account special assumptions in the valuations, many of which are difficult to predict, with respect to the future operational cash flows expected to be generated from the real-estate asset and the yield rate which will be applied for each real estate asset. Actual results could be significantly different than the estimates and could have a material effect on our financial results.
Determination of the operational cash flow expected to be generated from the real estate assets 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 period such assets may yield results. Such determination is subject to significant uncertainties. In preparing these projections, we make assumptions, the majority of which relate to the market share of the real estate assets, benchmark operating figures such as occupancy rates and average room rate (in respect of hotels) rental and management fees rates (in respect of commercial and entertainment centers), selling price of apartments (in respect of residential units), time period to complete the real estate assets under construction, costs to complete the establishment of the real estate asset, expected operational expenses
and others. In addition, the process of construction is long and subject to approvals and authorization from local authorities. It may occur that building permits will expire and will cause us additional preparations and costs, and may cause construction to be delayed or abandoned.
The yield rate reflects economic environment risks, current market assessments regarding the time value of money, industry risks as a whole and risks specific to each asset, and it also reflects 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 we expect to derive from the assets. Such rate is generally estimated from the rate implied in current market transactions for similar assets, or where such transactions do not exist, based on external appraisers.
2.2. Critical assumptions under the comparable method
Valuation by comparison is essentially objective, in that it is based on an analysis of the price achieved for sites with broadly similar development characteristics. Valuation by comparison is generally used if evidence of actual sales can be found and analyzed on a common unit basis, such as site area, developable area or habitable room.
Where comparable development cannot be identified in the immediate area of the subject site or when sales information is not clearly available through common channels of information (internet, newspapers, trade journals, periodic, market research) it is necessary to look further for suitable subjects for comparison and to make necessary adjustments to the price in order to account for dissimilarities between the comparable development and the subject site. Such adjustments include, but are not limited to:
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Adjustment in respect of the time of the transaction. Market conditions at the time of the sales transaction of a comparable property may differ from those on the valuation date of the property being valued. Factors that impact market conditions include rapidly appreciating or depreciating property values, changes in tax laws, building restrictions or moratoriums, fluctuations in supply and demand, or any combination or forces working in concert to alter market conditions from one date to another.
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Adjustment in respect of asking price and condition of payment. The special motivations of the parties to the transaction in many situations can affect the prices paid and even render some transactions as non-market value transactions. Examples of special conditions of sale include a higher price paid by a buyer because the parcel has synergistic, or marriage, value; a lower price paid because a seller was in a hurry to conclude the sale; a financial, business, or family relationship between the parties involved in the transaction, unusual tax considerations; lack of exposure of the property in the (open) market; or the prospect of lengthy litigation proceedings.
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Adjustment in respect of size, shape and surface area. Where the physical characteristics of a comparable property vary from those of the subject property, each of the differences is considered, and the adjustment is made for the impact of each of these differences on value.
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Adjustment in respect of location. The locations of the comparable sale properties and the subject property are compared to ascertain whether location and the immediate environs are influencing the prices paid. The better the location a property is located in, the more such location is worth; and conversely, a worse location would result in lower value. An adjustment is made to reflect such differences based on the valuator's professional experience. Extreme location differences may indicate that a transaction is not truly comparable and are subsequently disqualified.
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Litigation and other contingent liabilities
We are involved in litigation and other contingent liabilities in substantial amounts including certification requests for class actions. See note 18B to our annual consolidated financial statements. We recognize a provision for such litigation when it is probable that we will be required to settle the obligation and the amount of the obligation can be reliably estimated. We evaluate the probability and outcome of these litigations based on, among other factors, legal opinions and consultations as well as past experience. The outcome of such contingent liabilities may differ materially from management's 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. In rare circumstances, mainly with
respect to class actions, when the case is unique, complicated and involves prolonged and uncommon proceedings, we cannot reliably estimate the outcome of such cases.
Accounting for income taxes
The calculation of our tax liabilities involves uncertainties in the application and/or interpretation of complex tax laws, tax regulations and tax treaties, in respect of various jurisdictions in which we operate and which vary from time to time. In addition, tax authorities may interpret certain tax issues in a manner other than that which we have adopted. Should such contrary interpretive principles be adopted upon adjudication of such cases, our tax burden may be significantly increased. In calculating our deferred taxes, we are required to evaluate (i) the probability of the realization of our deferred income tax assets against future taxable income and (ii) the anticipated tax rates in which our deferred taxes would be utilized. See note 18B5 to our annual consolidated financial statements.
Potential penalties, guarantees issued and expired building permits
Penalties and guaranties are part of our ongoing construction activities, and result from obligations we have towards third parties, such as banks and municipalities. Our management is required to provide estimations regarding risks evolving from such potential guarantees or penalties that we may have to settle. In addition, our operations in the construction area are subject to valid authorizations and building permits from local authorities. Under certain circumstances we are required to determine whether the building permits we obtained have not yet expired. It may occur that building permits have expired which might impose on us additional costs and expenses or delays, and even abandonment of projects under construction.
Fair value of hotels
As of December 31, 2013, we determined the fair value according to accepted evaluation methods for real estate properties. The factors taken into account in assessing valuations may include;
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Assuming a transaction/price between willing buyer and a willing seller, without duress and an appropriate time to market the property to maximize price;
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Capitalization rates used to value the asset, market rental levels and lease expirations;
|
|
|
·
|
Average room rate of the hotels;
|
|
|
·
|
Discounted cash flow models;
|
|
|
·
|
Available sales evidence; and
|
|
|
·
|
Comparisons to valuation professionals performing valuation assignments across the market.
|
When the fair value of hotels is determined based upon the discounted cash flows ("DCF") approach, which is the major model we implement, the assumptions underlying the model, as well as the ability to support them by means of objective and reasonable market demonstrations, so they can be viewed as assumptions that market participants may have used, are significant in determining the fair value of the hotels. Among the predominant assumptions that may cause substantial changes in the fair value while using the DCF model are: the capitalization rate, the expected net operating income and the interest rate for discounting the cash flows, all considering the degree of certainty, or uncertainty, of the markets in which we operate.
The IFRS 13 standard requires that we categorize fair value valuations into one of three levels based on the degree to which the significant inputs of fair value are observable. Under IFRS 13, Level 3 is related to fair value measurements derived from valuation techniques that include significant inputs for the asset or liability that are not based on observable market data (unobservable inputs). Due to the factors discussed above, we categorized those hotels which are measured at the DCF approach as Level 3.
Fair value of associate
Following our loss of control over InSightec in December 2012 discussed above, we ceased to consolidate InSightec's financial statements. As of that date we account for the remainder of our investment in InSightec based on the equity method, whereas the cost of the remaining investment was determined based on the fair value of InSightec as of such date.
As a result, in 2012 we recorded a gain in the amount of NIS 216 million, which was presented under discontinued operations. The fair value of our remaining investment in InSightec amounted to NIS 150 million as of that date.
We determined the fair value of InSightec using a third party appraiser who has the required skills, experience and ability, based on the value of InSightec's shares reflected in the last round of investment in InSightec by GE. In our opinion, which is based (inter alia) on the opinion of the third party appraiser, it is more appropriate to use that value as opposed to other economic models even though GE was already a shareholder of InSightec at the time of such investment.
The total value of InSightec was allocated to our interest, based on the liquidation preference of each type of InSightec's shares held by us (as provided in InSightec's Articles of Association) given the occurrence of certain corporate changes such as sale, liquidation, merger, initial prospectus offering or incorporation. We used the Black-Scholes model for the valuation process.
In light of our investment in different shares of InSightec, our management's forecast as to the timing of any corporate change, as well as determining the probability of the occurrence of each change, requires broad judgmental consideration, and therefore has a material effect on InSightec's fair value, and accordingly on the gain recognized by us in our consolidated financial statements as of December 31, 2012.
Critical judgment in applying accounting policies
Capitalization of financing costs
We capitalize finance costs to real estate assets under construction from commencement of activities for the preparation of the assets for their intended use or sale. Such determination requires management to use critical estimations and assumptions as well as judgment to determine whether a specific asset under construction or development is qualified for capitalization. Borrowing costs qualified for capitalization includes, inter alia, foreign exchange differences on borrowing to the extent that they are considered as an adjustment to interest costs. In order to determine whether foreign exchange differences are considered as an adjustment to the interest expenses, management is required, for each specific loan, to evaluate the alternative borrowing cost for a loan that would have been provided in the functional currency of the borrower under the same terms and conditions as the actual loan. Such
determination requires management to use a considerable degree of judgment and estimations. Another critical judgment is required to capitalize non-specific borrowing costs to qualified assets, in cases in which our relevant entity that raised the borrowing is not the one that owns the qualified asset. Furthermore, additional critical judgment is required to suspend capitalization of borrowing costs during periods in which a disruption of development activities occurs, if such disruption continues over a significant period of time. Finally, the determination that a real estate asset is no longer designated for development or construction requires considerations of judgment. In view of the continuous financial crisis, we decided to suspend capitalizing of finance to all of our projects effective July 1, 2013.
Classification of trading property as current/non-current asset
We classify our assets and liabilities as current or non-current based on the operating cycle of each of our operations (generally 12 months). Careful consideration is required with respect to assets and liabilities associated with our operations of commercial centers and trading property, the operating cycle of which by their nature is generally more than 12 months. For this operation, assets and liabilities are classified as current only if the operating cycle is clearly identifiable. In accordance with the guidance set forth in IAS 1, when we cannot clearly identify the actual operating cycle of a specific operation the assets and liabilities of that operation are classified as non-current. Our determination of our inability to clearly identify the actual operating cycle is a matter of judgment, and a different conclusion can materially affect the classification of current assets and current liabilities. See also note
2E to our financial statements included elsewhere in this annual report.
Classification of operating commercial centers as trading property rather than investment property
We classified operating shopping centers as trading property rather than investment property even though we currently earn rental income from these properties. Our business model is to sell the shopping centers in the ordinary course of our business. An operational commercial center becomes attractive to potential buyers when its occupancy reaches at least 95%. Based on our historical experience, this threshold ensures that we will gain the best price for these projects.
The lingering real estate and financing crisis in CEE over the last four years has forced us to revise our approach in order to accomplish our business model (i.e., to sell our operational commercial centers) by expanding the time period in which operational commercial centers are sold. Specifically, said objective change in economic environment dictated us to apply the criterion of "ready for intended use" by lengthening the period required to reach the defined occupancy threshold, before the operational commercial center is indeed ready for its intended use (that is, prepared for sale). Accordingly, any rentals obtained during that interim period are incidental to the sale of our shopping centers and constitute part of the activities required to bring them to their intended use.
Consequently, in the interim period from completion of construction until the shopping center is sold, we are maintaining and operating our completed shopping centers, and during this interim period the shopping centers are classified as trading property.
Recently issued accounting standards
For information on recently issued accounting standards under IFRS, see note 2AE to our annual consolidated financial statements.
Presentation method of financial statements
We are involved in investments in a wide range of different activities. Accordingly, management believes that its income statements should be presented in the “single-step form.” According to this form, all costs and expenses (including general and administrative and financial expenses) should be considered as continuously contributing to the generation of overall income and gains. We also believe that our operating expenses should be classified by function to: (i) those directly related to each revenue source (including general and administrative expenses and selling and marketing expenses relating directly to each operation); and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.
Our strategy in respect of PC's commercial and entertainment centers is to dispose of commercial and entertainment centers upon completion, subject to certain exceptions. In response to the lingering real estate and financing crisis in CEE, and following discussion with the SEC, our management determined that PC no longer retains sufficient consistent historical experience of trading property realizations in order to clearly identify the actual operating cycle of selling its trading property. Under such circumstances, we decided to utilize for accounting reporting purposes an assumed operating cycle of 12 months. Revenues from these commercial and entertainment centers are mainly derived from their disposal to third parties, while until a disposal occurs we collect rental income from our completed commercial centers. Therefore, rental income from commercial centers (from the first day of their operations till the sale thereof)
may not be sustainable in the future upon PC selling the commercial centers as part of its business cycle.
Our revenues from the sale of commercial and entertainment centers and other real estate properties are subject to the execution and consummation of sale agreements with potential purchasers. In periods when we consummate a sale of a real estate asset we record revenues in substantial amounts and as a result we may experience significant fluctuations in our annual and quarterly results. We believe that period-to-period comparisons of our historical results of operations may not necessarily be meaningful or indicative and that investors should not rely on them as a basis for future performance.
Our policy in respect of the hotels segment is to designate the hotels to be managed and operated by our management companies. Consequently, our hotel assets are presented as part of our property, plant and equipment in the financial statements.
In these financial statements we initially applied IFRS 11 "Joint Arrangements" which is effective for annual periods beginning on or after January 1, 2013. IFRS 11 requires that the Company will have classified its joint arrangements as joint ventures and, accordingly, the Company is required to use the equity method of accounting as prescribed by IAS 28 –"Investment in Associates and Joint Ventures". Prior to the adoption of IFRS 11, the Company’s respective interests in its joint arrangements were classified as a jointly controlled entity and the
Company’s share of the assets, liabilities, revenue, income and expenses were proportionately consolidated in the consolidated financial statements. IFRS 11 requires retrospective application for periods starting January, 1, 2012 and, accordingly, financial statements for the comparison year of 2011 have not been amended and the Company's joint ventures are accounted for using the proportionate consolidation model.
Translation of statements of income of foreign operations
The majority of our businesses, which operate in various countries, report their operational results in their respective functional currency which differs from the NIS (our reporting and functional currency). We translate our subsidiaries’ result of operations into NIS based on the average exchange rate of the functional currency against the NIS. Therefore, a devaluation of the NIS against each functional currency would cause an increase in our reported revenues and the costs related to such revenues in NIS while an increase in the valuation of the NIS against each functional currency would cause a decrease in our revenues and costs related to such revenues in NIS.
Statements of income
| |
|
|
|
| |
|
|
|
|
|
|
|
2 0 1 1 (*) |
|
|
2 0 1 3 |
|
| |
|
|
|
|
Convenience
translation
(Note 2D)
|
|
| |
|
|
|
|
|
|
| |
|
(Except for per-share data)
|
|
|
|
|
|
|
Revenues and gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from sale of commercial centers
|
|
|
8,614 |
|
|
|
67,594 |
|
|
|
3,525 |
|
|
|
2,482 |
|
|
Revenues from Hotels operations and management
|
|
|
202,791 |
|
|
|
206,746 |
|
|
|
286,548 |
|
|
|
58,424 |
|
|
Revenues from fashion merchandise and other
|
|
|
149,192 |
|
|
|
144,141 |
|
|
|
185,082 |
|
|
|
42,982 |
|
|
Total revenues
|
|
|
360,597 |
|
|
|
418,481 |
|
|
|
475,155 |
|
|
|
103,888 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income from Commercial centers
|
|
|
129,748 |
|
|
|
147,185 |
|
|
|
111,745 |
|
|
|
37,381 |
|
|
Gain from changes of shareholding in investees
|
|
|
- |
|
|
|
9,369 |
|
|
|
- |
|
|
|
- |
|
|
Gain from sale of real estate assets
|
|
|
- |
|
|
|
53,875 |
|
|
|
- |
|
|
|
- |
|
|
Total revenues and gains
|
|
|
129,748 |
|
|
|
210,428 |
|
|
|
111,745 |
|
|
|
37,381 |
|
|
Total revenues and gains
|
|
|
490,345 |
|
|
|
628,909 |
|
|
|
586,900 |
|
|
|
141,269 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses and losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial centers
|
|
|
124,737 |
|
|
|
213,367 |
|
|
|
159,626 |
|
|
|
35,937 |
|
|
Hotels operations and management
|
|
|
179,137 |
|
|
|
186,760 |
|
|
|
240,784 |
|
|
|
51,610 |
|
|
Cost of fashion merchandise and other
|
|
|
142,417 |
|
|
|
154,220 |
|
|
|
211,743 |
|
|
|
41,031 |
|
|
General and administrative expenses
|
|
|
60,643 |
|
|
|
48,771 |
|
|
|
61,857 |
|
|
|
17,471 |
|
|
Share in losses of associates, net
|
|
|
339,030 |
|
|
|
102,127 |
|
|
|
7,568 |
|
|
|
97,677 |
|
|
Financial expenses
|
|
|
337,423 |
|
|
|
187,667 |
|
|
|
164,001 |
|
|
|
118,088 |
|
|
Financial income
|
|
|
(3,930 |
) |
|
|
(28,303 |
) |
|
|
(65,571 |
) |
|
|
(5,834 |
) |
|
Change in fair value of financial instruments measured at fair value through profit and loss
|
|
|
68,407 |
|
|
|
50,229 |
|
|
|
(275,537 |
) |
|
|
3,536 |
|
|
Write-down, charges and other expenses, net
|
|
|
841,462 |
|
|
|
302,093 |
|
|
|
290,276 |
|
|
|
242,424 |
|
| |
|
|
2,089,326 |
|
|
|
1,216,931 |
|
|
|
794,747 |
|
|
|
601,940 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,598,981 |
) |
|
|
(588,022 |
) |
|
|
(207,847 |
) |
|
|
(460,671 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses (tax benefit)
|
|
|
(31,937 |
) |
|
|
(9,212 |
) |
|
|
63,283 |
|
|
|
(9,201 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,567,044 |
) |
|
|
(578,810 |
) |
|
|
(271,130 |
) |
|
|
(451,470 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from discontinued operations, net
|
|
|
2,034 |
|
|
|
94,826 |
|
|
|
24,101 |
|
|
|
586 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the year
|
|
|
(1,565,010 |
) |
|
|
(483,984 |
) |
|
|
(247,029 |
) |
|
|
(450,884 |
) |
|
(*)
|
Amounts for the year ended December 31, 2011 were not amended due to application of IFRS 11 and therefore are presented as originally reported. See above “Presentation method of financial statements”.
|
| |
|
|
|
| |
|
|
|
|
|
|
|
2 0 1 1 (*) |
|
|
2 0 1 3 |
|
| |
|
|
|
|
Convenience
translation
(Note 2D)
|
|
| |
|
|
|
|
|
|
| |
|
(Except for per-share data)
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,155,645 |
) |
|
|
(315,746 |
) |
|
|
(264,919 |
) |
|
|
(332,945 |
) |
|
Non-controlling interest
|
|
|
(409,365 |
) |
|
|
(168,238 |
) |
|
|
17,890 |
|
|
|
(117,939 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(1,565,010 |
) |
|
|
(483,984 |
) |
|
|
(247,029 |
) |
|
|
(450,884 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,157,404 |
) |
|
|
(414,126 |
) |
|
|
(284,610 |
) |
|
|
(333,452 |
) |
|
Non-controlling interest
|
|
|
(409,640 |
) |
|
|
(164,684 |
) |
|
|
13,480 |
|
|
|
(118,018 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(1,567,044 |
) |
|
|
(578,810 |
) |
|
|
(271,130 |
) |
|
|
(451,470 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from discontinued operation, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,760 |
|
|
|
98,380 |
|
|
|
19,691 |
|
|
|
507 |
|
|
Non-controlling interest
|
|
|
274 |
|
|
|
(3,554 |
) |
|
|
4,410 |
|
|
|
79 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2,034 |
|
|
|
94,826 |
|
|
|
24,101 |
|
|
|
586 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - (in NIS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operation
|
|
|
(46.49 |
) |
|
|
(16.64 |
) |
|
|
(11.44 |
) |
|
|
(13.39 |
) |
|
From discontinued operations
|
|
|
0.07 |
|
|
|
3.95 |
|
|
|
0.79 |
|
|
|
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(46.42 |
) |
|
|
(12.69 |
) |
|
|
(10.65 |
) |
|
|
(13.37 |
) |
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operation
|
|
|
(46.49 |
) |
|
|
(16.64 |
) |
|
|
(11.44 |
) |
|
|
(13.39 |
) |
|
From discontinued operations
|
|
|
0.07 |
|
|
|
3.95 |
|
|
|
0.79 |
|
|
|
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(46.42 |
) |
|
|
(12.69 |
) |
|
|
(10.65 |
) |
|
|
(13.37 |
) |
(*) Amounts for the year ended December 31, 2011 were not amended due to application of IFRS 11 and therefore presented as originally reported. See above "Presentation method of financial statements".
2013 compared to 2012
Income - Revenues and Gains
Total income (revenues and gains) in 2013 amounted to NIS 490 million ($141 million), compared to NIS 629 million in 2012.
Total revenues in 2013 amounted to NIS 360 million ($104 million), compared to NIS 418 million in 2012.
The Decrease is mainly attributable to:
|
|
(i)
|
Revenues from sale of commercial centers decreased to NIS 8 million ($2 million) in 2013 compared to NIS 68 million in 2012. In 2013 the revenues were attributable to sale of a plot by PC in the Czech Republic. In 2012, the revenues were attributable to the sale of land by PC in Bulgaria.
|
|
|
(ii)
|
Revenues from hotel operations and management decreased to NIS 203 million ($58 million) in 2013 compared to NIS 207 million in 2012. The decrease was mainly attributable to a decrease in revenues from our hotel in Romania offset by an increase in the revenues from our hotels in Belgium. The average occupancy rate decreased from 75% in 2012 to 73% in 2013 and the average room rate increased from ˆ91 in 2012 to ˆ95 in 2013.
|
|
|
(iii)
|
Revenues from fashion merchandise and other increased to NIS 149 million ($43 million) in 2013 compared to NIS 144 million in 2012. Revenues in 2013 include solely the operations of the Mango brand while the revenues in 2012 include revenues of the Mango brand (NIS 127 million) and revenues of the GAP brand (NIS 17 million) until April 2012 (the date of its sale by us). The increase of NIS 22 million ($6 million) in revenues attributed to Mango operations in 2013 compared to 2012 was attributed to an improvement in the revenues of existing stores as well as the opening of new stores during 2013.
|
Total gains and other in 2013 amounted to NIS 130 million ($37 million) compared to NIS 210 million in 2012. An analysis of our gains and other is set forth below:
|
|
(i)
|
Rental income from commercial centers decreased to NIS 130 million ($37 million) in 2013 compared to NIS 147 million in 2012. The decrease was mainly attributable to the closing of a certain location of PC's Fantasy Park operations during 2013, which resulted in a decrease of NIS 18 million ($5 million) in income. PC's commercial centers operations contributed income of NIS 113 million ($33 million) in each of the years 2013 and 2012 attributable to the operations of six operating commercial centers through the years. The average occupancy rate in 2013 was 86% - 100% compared to 80%-98% in 2012.
|
|
|
(ii)
|
Gain from a sale of real estate assets in 2013 was NIS 0 as compared to gain of NIS 54 million attributable to the sale of four Dutch hotels in March 2012.
|
|
|
(iii)
|
Gain from a change of shareholding in investee in 2013 was NIS 0 as compared to NIS 9 million attributable to the sale of the retail activity of GAP in April 2012.
|
Expenses and losses
Our expenses and losses in 2013 amounted to NIS 2,089 million ($602 million) compared to NIS 1,217 million in 2012. An analysis of our expenses and losses is set forth below:
|
|
(i)
|
Expenses of commercial and entertainment centers decreased to NIS 125 million ($36 million) in 2013 compared to NIS 213 million in 2012. The expenses in 2012 included an amount of NIS 68 million attributable to the cost of plot which was sold in Bulgaria during 2012 compared to cost of NIS 10 million ($2.9 million) in 2013.
|
The cost attributable to the income from the operation of commercial centers and the Fantasy Park operations was NIS 115 million ($33 million) in 2013 compared to NIS 145 million ($ 42 million) in 2012. The decrease in these operational costs is attributable to the decrease in income derived from the operations of Fantasy Park as discussed above and the decrease in PC's general and administrative expenses mainly due to a decrease in stock-based compensation expenses and other operational costs.
|
|
(ii)
|
Cost of hotel operations and management decreased to NIS 179 million ($52 million) in 2013 compared to NIS 187 million in 2012, mainly attributable to the decrease in activity as discussed above.
|
|
|
(iii)
|
Cost of fashion merchandise and other decreased to NIS 142 million in 2013 compared to NIS 154 million in 2012. The decrease resulted from the sale of the retail activity of GAP in April 2012 offset by an increase resulted from the increase in Mango activity as discussed above.
|
|
|
(iv)
|
General and administrative expenses increased to NIS 61 million ($18 million) in 2013 compared to NIS 49 million in 2012. General and administrative expenses less non-cash expenses amounted to NIS 51 million ($15 million) in 2013 compared to NIS 35 million in 2012. Such increase in 2013 resulted mainly from cost and expenses relating to the process of consummating the Debt Restructuring.
|
|
|
(v)
|
Share in losses of associates, net increased to NIS 339 million ($98 million) in 2013 compared to NIS 102 million in 2012. Such losses in 2013 resulted mainly from write down of trading properties by our joint-venture entities in India as well as losses attributable to the operation of our medical activity. The losses in 2012 were mainly from write down of trading property by joint ventures entities of PC operating in Eastern Europe.
|
|
|
(vi)
|
Financial expenses increased to NIS 337 million ($97 million) in 2013 compared to NIS 188 million in 2012. Such amount includes:
|
(a) Interest and CPI-linked borrowings in the amount of NIS 365 million ($105 million) in 2013 compared to NIS 379 million in 2012;
The decrease in interest and CPI-linked borrowings in the amount of approximately NIS 14 million ($4 million) was mainly attributable to a repayment of outstanding principal of PC's notes during 2013.
(b) Loss from foreign currency translation differences in the amount of NIS 4 million ($1 million) in 2013 compared to NIS 33 million in 2012;
The decrease in exchange rate differences and other loss in the total amount of approximately NIS 29 million was mainly attributable to non-cash expenses attributed to the effect of the change in the exchange rate between the U.S. dollars and NIS on the Company's U.S. dollar denominated loans which are recorded in NIS and are measured in U.S. dollars.
These were offset by:
(c) Gain from repurchase of notes in the amount of NIS 0 million in 2013 compared to gain of NIS 113 million in 2012; and
(d) Financial expenses capitalized to qualified assets in the amount of NIS 31 million ($9 million) in 2013 compared to NIS 112 million in 2012.
|
|
(vii)
|
Financial income decreased to NIS 4 million ($1 million) in 2013 compared to NIS 28 million in 2012. Such decrease was attributable mainly to a decrease in the scope of our deposit and receivable during the year as well as a decrease in the interest rate.
|
|
|
(viii)
|
Losses from changes in fair value of financial instruments amounted to NIS 68 million ($20 million) in 2013 compared to a gain of NIS 50 million in 2012. This decrease was mainly attributable to the following:
|
|
|
(i)
|
Changes in fair value of financial instruments (mainly PC's notes which are measured at fair value through profit and loss) amounted to NIS 60 million in 2013 compared to a gain of NIS 98 million in 2012; and
|
|
|
(ii)
|
Loss from change in fair value of derivatives, embedded derivative and marketable securities (mainly swap transactions executed mainly by PC in respect of its notes) amounted to a loss of NIS 8 million in 2013 compared to loss in the amount of NIS 48 million in 2012.
|
|
|
(ix)
|
Write-down, charges and other expenses, net, increased to NIS 841 million ($242 million) in 2013 compared to NIS 302 million in 2012. The write-down in 2013 was attributable to:
|
|
|
i.
|
Write-down and impairment of PC's trading property, advances on account of trading properties and investment property in the amount of NIS 615 million ($177 million);
|
|
|
ii.
|
Write-down of our trading property and advances on account of trading property in India in the total amount of NIS 132 million ($38 million);
|
|
|
iii.
|
Impairment of goodwill related to our hotels business and to our hotels under development in the total amount of NIS 56 million($16 million); and
|
|
|
iv.
|
Initiation and other expenses, net in the total amount of NIS 38 million ($11 million)
|
As a result of the foregoing factors, we recognized loss before income tax in the total amount of NIS 1,599 million ($461 million) in 2013 compared to NIS 588 million in 2012.
Tax benefits amounted to NIS 32 million ($9 million) in 2013 compared to NIS 9 million in 2012. The increase in tax income was attributable mainly to timing differences related to PC's notes measured at fair value through profit and loss.
The aforementioned resulted in loss from continuing operations in the amount of NIS 1,567 million ($451 million) in 2013 compared to NIS 579 million in 2012.
Profit from discontinued operations, net, amounted to NIS 2 million ($0.6 million) in 2013 compared to NIS 95 million in 2012. Such profit in 2012 includes (a) gain from loss of control over our subsidiary InSightec in our medical segment in December 2012 in the amount of NIS 216, offset by (b) loss from InSightec's operations during 2012 in the amount of NIS 64 million and (c) loss from selling our U.S. investment properties in the amount of NIS 58 million.
The aforementioned resulted in a loss of NIS 1,565 million ($451 million) in 2013, of which a loss of NIS 1,155 million ($333 million) was attributable to our equity holders and NIS 409 million ($118 million) was attributable to the non-controlling interest. The loss in 2012 included loss of NIS 316 million attributable to our equity holders and NIS 168 million attributable to the non-controlling interest.
The deficit in our shareholders' equity as of December 31, 2013 amounted to NIS 409 million ($118 million) out of which a deficit of NIS 1,033 million ($298 million) is attributable to the equity holders of the Company and shareholders' equity of NIS 624 million ($180 million) is attributable to the non-controlling interest. Following the consummation of the Debt Restructuring (as described above) the shareholder equity attributable to the Company was increased in the total amount of approximately NIS 1.9 billion ($0.5 billion). Accordingly the total pro-forma shareholder equity of the Company following the consummation
of the Debt Restructuring amounted to NIS 1.5 billion ($0.4 billion). This amount of shareholders equity attributable to the equity holders of the Company is approximately NIS 0.9 billion ($ 0.25 billion) and NIS 0.6 billion is attributable to the non-controlling interest.
The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2013 (in NIS million)
|
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
203 |
|
|
|
8 |
|
|
|
75 |
|
|
|
149 |
|
|
|
- |
|
|
|
(75 |
) |
|
|
360 |
|
|
Rental income from commercial centers
|
|
|
- |
|
|
|
154 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(24 |
) |
|
|
130 |
|
|
Gain from sale of real estate assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Gain from loss of control over a subsidiary
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total revenues and gains
|
|
|
203 |
|
|
|
162 |
|
|
|
75 |
|
|
|
149 |
|
|
|
- |
|
|
|
(99 |
) |
|
|
490 |
|
|
Costs and expenses
|
|
|
179 |
|
|
|
132 |
|
|
|
73 |
|
|
|
142 |
|
|
|
300 |
|
|
|
(372 |
) |
|
|
454 |
|
|
Research and development expenses
|
|
|
- |
|
|
|
- |
|
|
|
42 |
|
|
|
- |
|
|
|
- |
|
|
|
(42 |
) |
|
|
- |
|
|
Other expenses (income), net
|
|
|
56 |
|
|
|
613 |
|
|
|
- |
|
|
|
- |
|
|
|
132 |
|
|
|
32 |
|
|
|
833 |
|
|
Segment profit (loss)
|
|
|
(32 |
) |
|
|
(582 |
) |
|
|
(40 |
) |
|
|
7 |
|
|
|
(432 |
) |
|
|
282 |
|
|
|
(797 |
) |
|
Financial expenses (income), net
|
|
|
(27 |
) |
|
|
(51 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
(1 |
) |
|
|
(81 |
) |
|
Share in losses of associates, net
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
(340 |
) |
|
|
(339 |
) |
|
Unallocated general and administrative expenses
|
|
|
|
(61 |
) |
|
Unallocated financial expenses
|
|
|
|
(257 |
) |
|
Financial income
|
|
|
|
4 |
|
|
Changes in fair value of financial instruments measured at FVTPL
|
|
|
|
(68 |
) |
|
Loss before income taxes
|
|
|
|
(1,599 |
) |
|
Income taxes
|
|
|
|
32 |
|
|
Profit from continuing operations
|
|
|
|
(1,567 |
) |
|
Profit from discontinued operation
|
|
|
|
2 |
|
|
Loss for the year
|
|
|
|
(1,565 |
) |
2012 compared to 2011
Income - Revenues and Gains
Total income (revenues and gains) in 2012 amounted to NIS 629 million compared to NIS 587 million in 2011.
Total revenues in 2012 amounted to NIS 418 million compared to NIS 475 million in 2011.
The increase is mainly attributable to:
|
|
(i)
|
Revenues from sale of commercial and entertainment centers increased to NIS 68 million in 2012 compared to NIS 4 million in 2011. In 2012 PC consummated the sale of land in Bulgaria which generated revenues of NIS 68 million.
|
|
|
(ii)
|
Revenues from hotel operations and management decreased to NIS 206 million in 2012 compared to NIS 286 million in 2011. The decrease was mainly attributable to the sale of the four Dutch hotels in March 2012. This decrease was partially set off by an increase in the revenues from our hotels in Belgium and Romania. The average occupancy rate in these hotels was approximately 75% in 2012 and 72% in 2011, however the average room rate decreased from ˆ92 in 2011 to ˆ91 in 2012 for an average number of rooms of 1,026 in 2011 and 2012.
|
|
|
(iii)
|
Revenues from the sale of fashion retail and other decreased to NIS 144 million in 2012 compared to NIS 185 million in 2011. The decrease was mainly attributable to the sale of the retail activity of GAP in April 2012, partially offset by the increase in the revenues attributable to the activity of Mango. The same store revenues in Mango amounted to NIS 126 million in 2012 compared to NIS 106 million in 2011.
|
Total gains and other in 2012 amounted to NIS 210 million compared to NIS 112 million in 2011. Set forth below is an analysis of our gains and other:
|
|
(i)
|
Rental income from commercial centers increased to NIS 147 million in 2012 compared to NIS 112 million in 2011 as a result of the operation of six centers in 2012, of which six operated throughout the year, compared to the operation of five centers in 2011, four of which operated throughout the year (excluding income in respect of one commercial center which under IFRS 11 is accounted for under the equity method). The increase in revenues was also due to the increase in the average occupancy rates from 78%-90% in 2011 to 80%-98% in 2012.
|
|
|
(ii)
|
Gain from a sale of real estate assets increased to NIS 54 million compared to nil in 2011 attributable to the sale of four Dutch hotels in March 2012.
|
|
|
(iii)
|
Gain from a sale of shareholding in investee increased to NIS 9 million compared to nil in 2011 attributable to the sale of the retail activity of GAP in April 2012.
|
Expenses and losses
Our expenses and losses in 2012 amounted to NIS 1,217 million compared to NIS 795 million in 2011. Set forth below is an analysis of our expenses and losses:
|
|
(i)
|
Expenses of commercial and entertainment centers increased to NIS 213 million in 2012 compared to NIS 160 million in 2011 as a result of the operation of six commercial centers in 2012 compared to the operation of four commercial centers in 2011 as discussed above (excluding expenses in respect of one commercial center which under IFRS 11 is accounted for under the equity method). In addition, expenses in 2012 included NIS 68 million attributable to the sale of plots of land in Bulgaria.
|
|
|
(ii)
|
Cost of hotel operations and management decreased to NIS 186 million in 2012 compared to NIS 241 million in 2011. The decrease was mainly attributable to the sale of the four Dutch hotels in March 2012 as discussed above.
|
|
|
(iii)
|
Cost of fashion apparel and other decreased to NIS 154 million in 2012 compared to NIS 212 million in 2011. The decrease resulted from the sale of the retail activity of GAP in April 2012.
|
|
|
(iv)
|
General and administrative expenses decreased to NIS 49 million in 2012 compared to NIS 62 million in 2011. General and administrative expenses less non-cash expenses amounted to NIS 35 million in 2012 compared to NIS 37 million in 2011.
|
|
|
(v)
|
Share in losses of associates, net increased to NIS 102 million in 2012 compared to NIS 8 million in 2011. The share in losses in 2012 resulted mainly from write-down of trading property by PC's joint venture entities, which was included in these paragraphs as results of the implementation of IFRS 11.
|
|
|
(vi)
|
Financial expenses increased to NIS 188 million in 2012 compared to NIS 164 million in 2011. Such amount includes:
|
|
|
(a)
|
interest and CPI-linked borrowings in the amount of NIS 379 million in 2012 compared to NIS 464 million in 2011;
|
The decrease in interest and CPI-linked borrowings in the amount of approximately NIS 85 million was mainly attributable to (i) a decrease of NIS 38 million in the interest expense attributable to the Company's and PC’s notes as result of repayment of outstanding principal and buyback of the notes during 2012 and (ii) a decrease of NIS 28 million attributable to an increase in CPI, to which our and some of PC's notes are linked (1.44% in 2012, compared to 2.53% in 2011).
|
|
(b)
|
loss from foreign currency translation differences and other in the amount of NIS 33 million in 2012 compared to a gain in the amount of NIS 38 million in 2011;
|
The increase in exchange rate differences and others loss in the total amount of approximately NIS 71 million was mainly attributable to noncash expenses attributed to the effect of the change in the exchange rate between the Euro and NIS on PC's' notes, which are recorded in NIS and are measured in Euros.
| |
(c)
|
gain from buy-back of notes in the amount of NIS 113 million in 2012 compared to NIS 64 million in 2011; and
|
| |
(d)
|
financial expenses capitalized to qualified assets in the amount of NIS 112 million in 2012 compared to NIS 198 million in 2011.
|
|
|
(vii)
|
Financial income decreased to NIS 28 million in 2012 compared to NIS 66 million in 2011. Such decrease was attributable mainly to a decrease in the scope of our deposit and receivable during the year as well as a decrease in the interest rate.
|
|
|
(viii)
|
Losses from changes in fair value of financial instruments amounted to NIS 50 million in 2012 compared to a gain of NIS 276 million in 2011. This decrease was mainly attributable to the following:
|
|
|
(i)
|
Loss from changes in fair value of financial instruments (measured at fair value through profit and loss (mainly PC's notes)) amounted to NIS 98 million in 2012 compared to a gain of NIS 353 million in 2011; and
|
|
|
(ii)
|
Gain from change in fair value of derivatives, embedded derivative and marketable securities (mainly swap transactions) executed by PC in respect of its notes amounted to NIS 48 million in 2012 compared to loss in the amount of NIS 77 million in 2011.
|
|
|
(ix)
|
Write-down, charges and other expenses, net, increased to NIS 302 million in 2012 compared to NIS 290 million in 2011. The increase was attributable to the write-down in PC's trading property in Eastern Europe in the amount of NIS 301 million in 2012 compared to NIS 283 million in 2011.
|
As a result of the foregoing factors, we recognized loss before income tax in the total amount of NIS 588 million in 2012 compared to NIS 208 million in 2011.
Tax benefits amounted to NIS 9 million in 2012 compared to tax expenses in the amount of NIS 63 million in 2011. The decrease in tax expenses was attributable mainly to timing differences related to PC's notes measured at fair value through profit and loss.
The above resulted in loss from continuing operations in the amount of NIS 579 million in 2012 compared to NIS 271 million in 2011.
Profit from discontinued operations, net, amounted to NIS 95 million in 2012 compared to NIS 24 million in 2011. Such profit in 2012 includes (a) gain from loss of control over our subsidiary InSightec in our medical segment in December 2012 in the amount of NIS 216 million, offset by (b) loss from InSightec's operations during 2012 in the amount of NIS 64 million and (c) loss from selling our U.S. investment properties in the amount of NIS 58 million.
The above resulted in a loss of NIS 484 million in 2012, of which a loss of NIS 316 million was attributable to our equity holders and NIS 168 million was attributable to the non-controlling interest. The loss in 2011 included NIS 265 million attributable to our equity holders and profit in the amount of NIS 17 million attributable to the non-controlling interest.
The following table provides supplemental information of our results of operations per segment, for the year ended December 31, 2012 (in NIS million)
|
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
223 |
|
|
|
125 |
|
|
|
69 |
|
|
|
143 |
|
|
|
2 |
|
|
|
(171 |
) |
|
|
391 |
|
|
Rental income from commercial centers
|
|
|
- |
|
|
|
175 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
|
Gain from sale of real estate assets
|
|
|
54 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
54 |
|
|
Gain from loss of control over a subsidiary
|
|
|
- |
|
|
|
- |
|
|
|
217 |
|
|
|
9 |
|
|
|
- |
|
|
|
(217 |
) |
|
|
9 |
|
|
Total revenues and gains
|
|
|
277 |
|
|
|
300 |
|
|
|
286 |
|
|
|
152 |
|
|
|
2 |
|
|
|
(388 |
) |
|
|
629 |
|
|
Costs and expenses
|
|
|
203 |
|
|
|
384 |
|
|
|
70 |
|
|
|
155 |
|
|
|
10 |
|
|
|
(255 |
) |
|
|
567 |
|
|
Research and development expenses
|
|
|
- |
|
|
|
- |
|
|
|
41 |
|
|
|
- |
|
|
|
- |
|
|
|
(41 |
) |
|
|
- |
|
|
Other expenses (income), net
|
|
|
(7 |
) |
|
|
294 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
289 |
|
|
Segment profit (loss)
|
|
|
81 |
|
|
|
(378 |
) |
|
|
175 |
|
|
|
(3 |
) |
|
|
(8 |
) |
|
|
(95 |
) |
|
|
(228 |
) |
|
Financial expenses (income), net
|
|
|
33 |
|
|
|
47 |
|
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
(82 |
) |
|
Share in losses of associates, net
|
|
|
- |
|
|
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
|
- |
|
|
|
(94 |
) |
|
|
(102 |
) |
|
Unallocated general and administrative expenses
|
|
|
|
(49 |
) |
|
Unallocated financial expenses
|
|
|
|
(105 |
) |
|
Financial income
|
|
|
|
28 |
|
|
Changes in fair value of financial instruments measured at FVTPL
|
|
|
|
(50 |
) |
|
Loss before income taxes
|
|
|
|
(588 |
) |
|
Income taxes
|
|
|
|
9 |
|
|
Profit from continuing operations
|
|
|
|
(579 |
) |
|
Profit from discontinued operation
|
|
|
|
95 |
|
|
Loss for the year
|
|
|
|
(484 |
) |
* As we lost control over InSightec in 2012, revenues were classified to discontinued operations.
|
B.
|
Liquidity and Capital Resources
|
General
As discussed above in "Item 4. History and Development of the Company – Recent Events", on February 20, 2014, the consummation of our Debt Restructuring took place resulting, inter alia, in the following:
|
|
·
|
Cancellation of our unsecured financial debt subject matter of the Debt Restructuring as of such date (subject to the pending dispute with Bank Leumi);
|
|
|
·
|
509,713,459 ordinary shares were issued to our unsecured financial creditors;
|
|
|
·
|
We issued NIS 448 million aggregate principal amount of Series H notes and NIS 218 million aggregate principal amount of Series I notes; and
|
|
|
·
|
Our corporate debts (i.e., the outstanding series A-G and 1 notes, the secured debts to Bank Hapoalim and the outstanding debt to Bank Leumi) were reduced from approximately NIS 2.8 billion (approximately $0.8 billion) to NIS 0.8 billon (approximately $ 0.2 billion).
|
Our capital resources include the following: (a) proceeds from sales of commercial and entertainment centers and other real estate properties (hotels and residential) subject to market conditions; (b) proceeds from sale of our holdings in the medical business and fashion business subject to market conditions (c) new lines of credit obtained from banks and financial institutions as well as refinancing of our existing real estate project while increasing their leverage; and (d) available cash and cash equivalents.
See “ - Overview” above for information on the major transactions and events carried out by us in 2011, 2012 and 2013, which resulted in material changes in our liquidity and capital resources.
Such resources are generally used for the following purposes:
| |
(i)
|
Equity investments in our commercial and entertainment centers, our hotels and our residential projects, which are constructed by our wholly owned and jointly-controlled subsidiaries or joint ventures (special purpose entities that are formed for the construction of our real estate projects (a “Project Company”)). We generally finance approximately 30%-35% of such projects through equity investments in the Project Companies, while the remaining 65%-70% is generally financed through a credit facility secured by a mortgage on the project constructed by the respective Project Company, registered in favor of the financial institution that provides such financing. The equity investments in the Project Companies are typically provided by us (and our partners, if any) through shareholder loans that are subordinated to the credit facilities provided
to the Project Company;
|
| |
(ii)
|
Interest and principal payments on our notes and loans;
|
| |
(iii)
|
Additional investment in Elbit Fashion, mainly for opening of new stores;
|
| |
(iv)
|
Additional investment in our medical segment;
|
| |
(v)
|
Equity investments in yielding assets in Western Europe;
|
| |
(vi)
|
Other investments; and
|
| |
(vii)
|
Payment of general and administrative expenses.
|
Liquidity
The sectors in which we compete are capital intensive. We require substantial up-front expenditures for land acquisition, development and construction costs, investment in investments in research and development, the ongoing maintenance of our hotels and retail segments and equity investments in the Western Europe real property market. Accordingly, we require substantial amounts of cash and financing for our operations. We cannot be certain that such external financing will be available on favorable terms, on a timely basis or at all, or that the amounts we earn from our projects will be as we planned.
Also, during recent years the world markets experienced a financial crisis from which they have not fully recovered that resulted in lower liquidity in the capital markets and lower liquidity in bank financing for real property projects. The financial crisis also affected our ability to obtain financing in CEE and India for our commercial shopping centers and residential projects in those countries, especially for projects under developments. Lower liquidity may result in difficulties to raise additional debt or less favorable interest rates for such debt. In addition, construction loan agreements generally permit the drawdown of the loan funds against the achievement of pre-determined construction and space leasing or selling milestones. If we fail to achieve these milestones (including as a result of the global financial crisis and the significant decrease in the number and volume of transactions in general), the availability
of the loan funds may be delayed, thereby causing a further delay in the construction schedule.
If we are not successful in obtaining financing to fund our planned projects and other expenditures, our ability to develop existing projects and to undertake additional development projects may be limited and our future profits and results of operations could be materially adversely affected. Our inability to obtain financing may affect our ability to construct or acquire additional land plots, shopping centers and hotels, and we may experience delays in planned renovation or maintenance of our hotels and commercial centers, or in completion of the construction of our trading property that could have a material adverse effect on our results of operations.
The followings list describes major transactions and events in 2013, 2012 and 2011, which resulted in material changes in our liquidity:
Sources of Cash from Major Transactions and Events:
2013
|
|
·
|
In December 2013 the consortium of shareholders of Uj Udvar, in which PC indirectly holds a 35% stake, completed the sale of the Uj Udvar project to a private investor for consideration of EUR 2.4 million (NIS 11 million).
|
|
|
·
|
On November 14, 2013, PC reached an agreement to sell Koregaon Park Plaza, a retail and entertainment located in Pune, India, subject to the satisfaction of certain closing conditions, including consent of the financing bank. The transaction values the asset in an amount of EUR 40.3 million (NIS 192.9 million), which is the asset’s current carrying amount. Following the repayment of the outstanding related bank loan, PC will receive an aggregate gross cash proceeds from the purchaser totaling approximately EUR 18.5 million (NIS 88.5 million) which will be paid in several installments. As of December 31, 2013, PC received an advance of approximately EUR 2.3 million (NIS 11.5 million) and is expected to collect the remaining consideration between 2014 and 2016. It should be noted, however, that PC's counter party in this transaction is
currently subject to certain governmental investigation (not relating to us) and that there is uncertainty as to its ability to continue pursuing the transaction.
|
|
|
·
|
On October 31, 2013 the consortium of shareholders of Dream Island, in which PC holds a 43.5% stake, has completed the sale of the Dream Island project land to the Hungarian State for approximately EUR 17 million. The proceeds of the transaction were used by the consortium to repay a proportion of the secured bank loan.
|
|
|
·
|
In July 2013 PC completed the sale of 100% of its interest in a vehicle which holds the interest in the Prague 3 project (“Prague 3”), a logistics and commercial centre in the third district of Prague. The transaction values the asset at approximately EUR 11 million (NIS 53 million) and, as a result, further to related bank financing and other adjustments to the statement of financial position, PC has received cash proceeds of net EUR 7.6 million (NIS 36 million) .
|
|
|
·
|
In July 2013 PC completed the sale of 100% of its interest in an entity which holds the interest in plot of land in Prague. The transaction values the asset at approximately EUR 1.9 million (NIS 9 million).The net cash consideration after deducting a liability to third party amounted to EUR 1.3 million (NIS 6 million).
|
|
|
·
|
On May 29, 2013 PC completed the sale of its 50% interest in an Investee which mainly holds interests in an office complex project located in Pune, India. The total transaction value was EUR 33.4 million (NIS 158 million) and, PC has received gross cash proceeds of approximately EUR 16.7 million (NIS 79 million) in line with its holding.
|
|
|
·
|
In June 2012, a fire event occurred at the Koregaon Plaza shopping center in Pune, India, which resulted in a temporary close-down of the shopping center. PC's subsidiary maintains comprehensive general liability and property insurance, including business interruption insurance. During 2013 PC received an amount of NIS 32 million from the insurance company.
|
2012
|
|
·
|
On December 6, 2012, InSightec completed its issuance of Series C preferred shares for an aggregate amount of $30.9 million, which included $27.6 million invested by GE and $3.9 million invested by other investors. According to the terms of the transaction, GE and we converted all the existing shareholders loans that had been granted to InSightec into InSightec's series B-1 preferred shares in accordance with the terms of those loans. The transaction reflected a post-money valuation of InSightec of approximately $105.9 million (or pre-money valuation of $75 million and following the conversion of the loans as described above). As part of such transaction, and a series of agreements between Insightec and GE (more fully discussed in this Item 5 “Operating and Financial Review and Prospects- “Overview”)”) GE and InSightec signed the Cooperation Agreement that regulates the commercial
relationship between the parties, including, among other things, with respect to product exclusivity, cooperation with respect to the development and sale of the parties' complementary products, distribution, marketing and sales, intellectual property rights and licenses, sale terms and conditions, and similar items. Under the Cooperation Agreement, InSightec is prohibited from developing systems that would be compatible with MRI systems manufactured by companies other than GE for a defined time period.
|
|
|
·
|
In August 2012 we entered into a NIS 75 million note structured transaction with a certain financial institution pursuant to which we purchased a NIS denominated zero-coupon credit linked note due to mature on October 2, 2013 (the "CLN") from the other party. The CLN referenced a portfolio of our notes (having a market value of NIS 75 million). The note portfolio was purchased by us under our note repurchase program that was announced on May 23, 2011 and in the framework of the transaction we sold the note portfolio to other party. In consideration, the other party paid us the market value of the note portfolio and arranged for the issuance of the CLN at an issue price of NIS 37.5 million.
|
In addition, in November 2012 we entered into a NIS 150 million note structured transaction with another financial institution pursuant to which we received a NIS 75 million credit line for the purchase of a portfolio of our notes having an aggregate market value of up to NIS 150 million. We were allowed to purchase the note portfolio within a 10-week utilization period commencing at the effective date of the transaction. In the framework of the transaction, we had the right to sell to the other party notes that were acquired by us and which comprised the note portfolio in consideration for a payment by the other party of the agreed-upon financing amount not to exceed 50% of the aggregate market value of the note portfolio and that would be determined by the parties.
During the terms of the respective transactions, all the proceeds derived from the note portfolio (principal and interest) were to be retained by the other parties. Immediately following the scheduled respective termination date of each of the transactions, subject to no early termination event having occurred the other party to each transaction, respectively, was to deliver to us the remaining, unamortized portion of the respective note portfolio. Under the terms of the respective transactions, an early termination of the transaction could occur upon a trigger event linked to a decrease in the market value of the respective note portfolio below a pre-defined threshold.
In furtherance of the transaction as well as any other note repurchases, our board of directors approved the increase of the note repurchase program to allow repurchase of up to an additional NIS 125 million of our Series A through G and Series 1 notes.
|
|
·
|
On February 20, 2013, the other parties notified us of the early termination of the transactions as a result of the decline in the market price of our outstanding Notes and consequent failure to meet the loan-to-value covenants under the agreements governing the transactions. Under the terms of the transactions, upon the early termination of the transactions as a result of a decline in the market price of the notes the financial institutions are permitted to sell the notes held by each of them as of the date of termination, and use the proceeds of the sales to redeem the respective credit-linked notes, either execute a cash settlement or physical settlement thereof and deliver to us the proceeds of the sale of the notes or the remainder of the notes not sold, in excess of the early termination amounts, which shall be retained by the financial institutions. The early termination amounts
consist of the principal and interest (at the agreed-upon internal rate of return) under the respective credit-linked notes and unwind costs which are due to the financial institutions under the transactions. The sale of notes held by the financial institutions covered the termination amounts. The amounts of cash or notes to be returned to us will depend on the prices at which the notes are sold by the financial institutions. As discussed above in Item 5 “Operating and Financial Review and Prospects", in June 2012 the EPN Group sold 47 of the shopping centers it held to BRE DDR Retail Holdings LLC for a purchase price of $1.43 billion. The total proceeds from the transaction, including cash and other net working capital items less property level financing which was repaid by the EPN Group or assumed by the buyer at closing (in the amount of approximately $928 million), amounted to approximately $530 million. The remaining two shopping centers were sold in July
2012 for $41.0 million.
|
|
|
·
|
On February 23, 2012, InSightec and InSightec’s wholly owned subsidiary concluded a series of agreements with GEHC pursuant to which GEHC will provide financing to InSightec in the form of convertible notes up to a total of $13,750,000, bearing interest at a rate of 6% per annum or a rate equivalent to the interest applicable to the financing provided by us and Elbit Medical. The convertible notes will be due and payable by October 1, 2016, and will be convertible into Series B-1 Preferred Shares of InSightec, In addition, we and Elbit Medical entered into a series of agreements with InSightec and GEHC pursuant to which, among other things, upon Elbit Medical obtaining the approval of its shareholders the financing granted to InSightec by us and Elbit Medical during 2010 and 2011 will be amended to provide similar loan terms and security
mechanisms as set forth in this funding agreement, so that Elbit Medical and us will receive convertible notes convertible on the same terms and up to the same amounts as the GEHC notes. The convertible notes issued to GEHC and Elbit Medical and the note that will be issued to us will be secured, pari passu, by floating charges over the assets of InSightec and its wholly owned subsidiary. As for the conversion of such loans to Series B1 shares of InSightec – see Item 4. “Information on the Company” above.
|
|
|
·
|
In April 2012, we completed the sale of all our shares in Elbit Trade & Retail Ltd. and all the interests in G.B. Brands, Limited Partnership, which was the franchisee of the GapTM and Banana RepublicTM brands, to Gottex for a purchase price of approximately NIS 54.3 million (including the payment for the inventory purchased by Gottex and certain working capital items included in the closing initial balance sheet), which amount is subject to adjustment based upon Elbit Trade & Retail Ltd.'s financial statements as of the closing date.
|
|
|
·
|
In March 2012, we entered into a share purchase agreement with PPHE for the sale of our holdings in certain subsidiaries which own a 50% interest in the following hotels in the Netherlands: the Park Plaza Victoria Amsterdam Hotel, the Park Plaza Utrecht Hotel, the Arthotel Amsterdam and the Park Plaza Airport Hotel. These hotels were jointly owned by us and PPHE and were managed by PPHE. The transaction reflected an asset value of ˆ169 million (for all four hotels. The total net consideration payable to us was ˆ26.5 million. In addition, approximately ˆ58 million (approximately $75 million) of our subsidiaries’ share (50%) of banks loans was assumed by PPHE by virtue of the purchase of those subsidiaries
and were eliminated from our consolidated balance sheet. The consideration was paid to us in May 2012 as follows: (i) ˆ23 million in cash; (ii) 700,000 ordinary shares of PPHE, with a market price of approximately ˆ2.0 million, based on the quotation of such shares’ price on the London Stock Exchange as of March 30, 2012; and (iii) an additional payment in the aggregate amount of up ˆ1.5 million that shall be made on the fourth anniversary of the date of transfer and shall be subject to certain adjustments, based on the PPHE shares’ market price, as set forth in the agreement.
|
2011
|
|
·
|
On October 3, 2011, BUTU completed a refinancing of its five star Radisson Blu Hotel located in Bucharest, Romania. According to the facilities agreement, a leading international European bank granted BUTU a loan of up to ˆ71.5 million. The loan may be drawn down in two tranches, with Tranche A in the amount of approximately ˆ62.5 million having been drawn down on September 29, 2011, and Tranche B in the amount of approximately ˆ9.0 million to be drawn down between December 31, 2012 and March 31, 2013, subject to the satisfaction of certain conditions as stipulated in the facilities agreement. The proceeds of the loan was used, inter alia, to repay BUTU's current outstanding bank facility and to repay to us our shareholder loans in the
amount of approximately ˆ25 million.
|
|
|
·
|
On September 23, 2011, PC paid an interim cash dividend payment of ˆ30 million to its shareholders, of which we received ˆ18.7 million, out of which ˆ8.7 million was used to serve our debt to an Israeli bank under a loan agreement dated March 2011 pursuant to which we pledged 29% of PC's outstanding shares.
|
|
|
·
|
On September 21, 2011, our wholly owned indirect subsidiary, Elbit USA, LLC ("EUS") entered into the Term Loan Agreement with Eastgate, for the Term Loan in the amount of $30 million. The loan was repaid in full in July 2012. For a discussion of the warrant granted in the framework of the loan agreement see "Closing of the Debt Restructuring and Issuance of New Shares and Notes" above.
|
|
|
·
|
On September 19, 2011, EDT distributed an interim dividend payment of $26 million. Elbit Plaza USA received a total distribution amount of $11.8 million. Each of ours and PC’s share in such distribution is approximately $5.9 million.
|
|
|
·
|
During July 2011, our indirectly held joint entity EPN Group finalized the binding takeover bid offer in EDT following which EPN Group's holdings in EDT increased to 97.5%. Thereafter, EPN Holdings completed the acquisition of the remaining units of EDT in accordance with the takeover offer. The total amount of the investments of the EPN Group in the framework of the binding takeover offer amounted to $242 million. The total amount of investment by us and PC in the framework of the binding takeover offer amounted to $57 million each.
|
|
|
·
|
In March 2011, we entered into a new financing agreement (subsequently amended) with an Israeli bank in the amount of $70 million, replacing the previous financing agreement. The new agreement is for a 6-year term and bears interest at a rate of LIBOR + 3.8% per annum. As security for this facility, we have pledged to the Israeli bank (i) an amount of 86 million shares of PC, representing approximately 29% of PC's outstanding shares, which will be subject to a 70% loan to value mechanism on PC's shares; (ii) all of our holdings (100%) in Elbit Trade & Retail Ltd. which, following the sale thereof to Gottex, was replaced with a pledge over all of our holdings in Elbit Fashion; and (iii) a deposit that equals next year’s principal and interest amount. In addition, we elected to exercise the option of pledging our holdings in some of our hotels in the Netherlands in order to credit the value of those holdings towards the satisfaction
of the loan to collateral value ratio which, following the sale of those hotels to PPHE, was replaced with a pledge over certain receivables. The said agreement was replaced by a new facility agreement on December 29, 2013.
|
|
|
·
|
In March 2011, we issued additional unsecured non-convertible Series D Notes to investors in Israel, by expanding the existing series, in an aggregate principal amount of approximately NIS 96 million for gross proceeds of approximately NIS 108 million. For interest rates our notes, see “ - Other Loans” below.
|
|
|
·
|
In January 2011, PC issued additional Series A and B Notes for an aggregate consideration of approximately NIS 300 million.
|
The following table sets forth the components of our cash flows statements for the periods indicated:
| |
|
|
|
| |
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
| |
|
Convenience
translation in $ thousands
|
|
|
NIS
Thousands
|
|
|
NIS
Thousands
|
|
|
NIS
Thousands
|
|
|
Net cash used in operating activities
|
|
|
(4,861 |
) |
|
|
(16,873 |
) |
|
|
(315,789 |
) |
|
|
(240,889 |
) |
|
Net cash provided by (used in) investing activities
|
|
|
102,136 |
|
|
|
354,517 |
|
|
|
1,455,511 |
|
|
|
325,352 |
|
|
Net cash (used in) provided by financing activities
|
|
|
(156,921 |
) |
|
|
(544,674 |
) |
|
|
(1,152,882 |
) |
|
|
(580,640 |
) |
|
Decrease in cash and cash equivalents
|
|
|
(59,646 |
) |
|
|
(207,030 |
) |
|
|
(13,160 |
) |
|
|
(496,177 |
) |
Cash flow in or from operating activities
Our cash flow from operating activities is affected by our policy in respect of PC's commercial and entertainment centers which are classified as trading property since it is PC's management goal to sell these commercial and entertainment centers following their development. Accordingly, our cash flow from operating activities includes all the costs of acquisition and construction of a trading property and also the proceeds from sale of trading properties after their disposition. Therefore, in periods in which our investments in construction and/or acquisition of trading properties are higher than the proceeds from the sale of trading properties, we will have a negative cash flow from operating activities.
Net cash used in operating activities was NIS 17 million (approximately $5 million) in 2013 compared to NIS 316 million in 2012 and NIS 241 million in 2011.
Our cash flow from operating activities in 2013, 2012 and 2011 was influenced by the following significant factors:
|
|
(i)
|
Cash flow from operating activities in 2013 included negative cash flow resulting from the cost of purchase of trading properties in an amount of NIS 11 million ($3 million) mostly regarding the development of the Koregaon park in India.
|
|
|
(ii)
|
Cash flow from operating activities in 2012 included negative cash flow resulting from the cost of purchase of trading properties and payments on the account of trading properties of NIS 80 million. Most of the acquisitions and investments in trading properties in 2012 were: India (Koregaon Park project) and Serbia (Krugajevac project).
|
|
|
(iii)
|
Cash flow from operating activities in 2011 included negative cash flow resulting from the cost of purchase of trading properties and payments on the account of trading properties of NIS 404 million. Most of the acquisitions and investments in trading properties in 2011 were: Poland (Torun project); India (Koregaon Park); Serbia (Krugajevac project); and Romania (the Casa Radio project).
|
|
|
(iv)
|
Cash flows from operating activities in 2013, 2012 and 2011 also included the proceeds from operations of our commercial centers, hotels, retail and U.S. retail properties, image guided segments (which are included as cash flow from discontinued operations) less operating expenses of those segments (including research and development expenses, sales and marketing and general and administrative expenses attributable directly to those segments) as well as general and administrative expenses of our headquarters.
|
Cash used in or from investing activities
Cash flow provided by investing activities in 2013, 2012 and 2011 amounted to NIS 355 million ($102 million), NIS 1,456 million and NIS 325 million, respectively.
Our cash flow provided by investing activities in 2013 was influenced by the following factors:
|
|
(i)
|
Proceeds from sale of investment property in the Czech Republic in an amount of NIS 37.6 million ($11 million).
|
|
|
(ii)
|
Proceeds from realization of joint ventures entities (Kharadi in India, Dream island and Uj Udvar in Hungary) in an amount of NIS 96 million ($28 million).
|
|
|
(iii)
|
Proceeds from realization of long term deposits and loans in an amount of NIS 45 million ($13 million), mainly attributable to PC's operations.
|
|
|
(iv)
|
Proceeds from sale of available for sale marketable securities net of purchase of available for sale marketable securities amounted to NIS 51 million ($15 million).
|
|
|
(v)
|
Purchase of property, plant and equipment, investment property and other assets in the amount of NIS 22 million ($6 million) mainly attributable to our hotel segment.
|
|
|
(vi)
|
Disposition of short-term deposits and marketable securities, net, in the amount of NIS 140 million (approximately $40 million).
|
Our cash flow provided by investing activities in 2012 was influenced by the following factors:
|
|
(i)
|
Proceeds from sale of a Joint venture holding U.S. real estate properties (which are classified as discontinued operations) in an amount of NIS 874 million.
|
|
|
(ii)
|
Proceeds from realization of our Joint venture holding hotels in the Netherlands and from the sale of GAP in the total amount of NIS 147 million.
|
|
|
(iii)
|
Proceeds from realization of long term deposits and loans in an amount of NIS 276 million, mainly attributable to the sale of the long term structures by PC.
|
|
|
(iv)
|
Purchase of property, plant and equipment, investment property and other assets in the amount of NIS 16 million.
|
|
|
(v)
|
Investments in associates and other companies in an amount of NIS 27, mainly attributable to investment of the Group in InSightec.
|
|
|
(vi)
|
Proceeds from interest received from deposits in the amount of NIS 38 million.
|
|
|
(vii)
|
Proceeds from sale of available for sale marketable securities net of purchase of available for sale marketable securities amounted to NIS 73 million.
|
|
|
(viii)
|
Disposition of short-term deposits and marketable securities, net, in the amount of NIS 89 million.
|
Our cash flow provided by investing activities in 2011 was influenced by the following factors:
|
|
(i)
|
Purchase of property, plant and equipment, investment property and other assets in the amount of NIS 34 million mainly attributable to the renovation of the Victoria hotel in Amsterdam and Radisson Blu Bucharest Hotel in Romania and leasehold improvements of Elbit Fashion’s new stores.
|
|
|
(ii)
|
Proceeds from long-term deposits and long-term loans in the amount of NIS 33 million mainly attributable to proceeds from long-term loans provided to PPHE’s subsidiary in respect of a loan provided to it in the framework of the sale of our hotels in London.
|
|
|
(iii)
|
Investments in long-term deposits and long term loans in the amount of NIS 46 million.
|
|
|
(iv)
|
Proceeds from interest received from deposits in the amount of NIS 65 million.
|
|
|
(v)
|
Disposition of short-term deposits and marketable securities, net, in the amount of NIS 333 million.
|
|
|
(vi)
|
Our cash flow from discontinued investing activities in 2011 amounted to NIS 61 million which is mainly attributable to (i) purchase of investment property in the U.S. in an amount of NIS 37 million; and (ii) investments in associates and other companies in the amount of NIS 20 million mainly attributable to the increase in our shareholding in the EPN Group in 2011 from 43.3%, to 45.38%.
|
Cash flow from financing activities
Cash flow used in financing activities in 2013, 2012 and 2011 amounted to NIS 545 million ($157 million), NIS 1,153 million and NIS 581 million, respectively.
Our cash flow used in financing activities in 2013 was influenced by the following factors:
|
|
(i)
|
Proceeds from re-issuance of our notes in an amount of NIS 76 million ($22 million).
|
|
|
(ii)
|
Interest paid in cash by us in the amount of NIS 98 million ($28 million) on our borrowings (mainly notes issued by PC and loans provided to our hotels and commercial centers).
|
|
|
(iii)
|
Repayment of borrowings, net, of proceeds from loans in the amount of NIS 420 million ($120 million), mainly attributable repayment of PC notes and repayments of loans provided to our operating commercial centers and our hotels.
|
|
|
(iv)
|
Proceeds from selling a derivative in the amount of NIS 8 million ($2 million).
|
|
|
(v)
|
Repayment of short-term credit in the amount of NIS 94 million ($27 million).
|
Our cash flow used in financing activities in 2012 was influenced by the following factors:
|
|
(i)
|
Proceeds from re-issuance of our notes to financial institutions in an amount of NIS 58 million.
|
|
|
(ii)
|
Repurchase of notes by us and PC in the amount of NIS 184 million.
|
|
|
(iii)
|
Interest paid in cash by us in the amount of NIS 347 million on our borrowings (mainly notes issued by us and PC and loans provided to our hotels and commercial centers).
|
|
|
(iv)
|
Repayment of borrowings, net of proceeds from loans in the amount of NIS 642 million, mainly attributable to the repayment of notes by us and by PC and and repayments of loans provided to our operating commercial centers and our hotels.
|
|
|
(v)
|
Proceeds from selling derivatives in the amount of NIS 62 million.
|
|
|
(vi)
|
Proceeds from short-term credit in the amount of NIS 202 million, mainly attributable to new loans raised by PC during 2012 in order to finance the construction of its trading property.
|
|
|
(vii)
|
Repayment of short-term credit in the amount of NIS 247 million.
|
|
|
(viii)
|
Net cash flow used in discounted financing activities amounted to NIS 55 million mainly attributable to repayment of loans attributable to our U.S. real estate properties.
|
Our cash flow used in financing activities in 2011 was influenced by the following factors:
|
|
(i)
|
Dividend paid to non-controlling interest by PC in the amount of NIS 57 million.
|
|
|
(ii)
|
Repurchase of notes by us and PC in the amount of NIS 202 million.
|
|
|
(iii)
|
Interest paid in cash by us in the amount of NIS 390 million on our borrowings (mainly notes issued by us and PC and loans provided to our hotels).
|
|
|
(iv)
|
Repayment of borrowings, net, of proceeds from loans in the amount of NIS 110 million), mainly attributable to the funds paid and funds raised by PC and us from unsecured non-convertible notes issued during 2011, and loans provided to us and to our hotels.
|
|
|
(v)
|
Proceeds from selling derivatives in the amount of NIS 223 million (approximately $58 million).
|
|
|
(vi)
|
Proceeds from short-term credit in the amount of NIS 411 million, mainly attributable to new loans raised by PC during 2011 in order to finance the construction of its trading property.
|
|
|
(vii)
|
Repayment of short-term credit in the amount of NIS 158.
|
|
|
(viii)
|
Net cash flow used in discontinued financing activities amounted to NIS 297 million mainly attributed to (i) payment in respect of transactions with non-controlling interests, net in the amount of NIS 382 million mainly from the purchase of the remaining 52.2% units of EDT by EPN Group; offset by (ii) loans received in the net amount of NIS 109 million which is attributable to our U.S. real estate properties.
|
Major balance sheet changes
The following table discloses the balance sheet balances in NIS million and major balance sheet items as a percentage of total assets as of December 31, 2013, 2012 and 2011:
| |
|
2013
|
|
|
2012
|
|
|
2011
|
|
| |
|
NIS million
|
|
|
%
|
|
|
NIS million
|
|
|
%
|
|
|
NIS million
|
|
|
%
|
|
|
Current assets
|
|
|
694 |
|
|
|
15 |
% |
|
|
1,042 |
|
|
|
15 |
% |
|
|
1,258 |
|
|
|
12 |
% |
|
Current liabilities
|
|
|
4,794 |
|
|
|
105 |
% |
|
|
1,722 |
|
|
|
26 |
% |
|
|
2,227 |
|
|
|
21 |
% |
|
Non-current assets
|
|
|
3,870 |
|
|
|
85 |
% |
|
|
5,700 |
|
|
|
85 |
% |
|
|
9,113 |
|
|
|
88 |
% |
|
Non-current liabilities
|
|
|
179 |
|
|
|
4 |
% |
|
|
3,632 |
|
|
|
54 |
% |
|
|
6,605 |
|
|
|
64 |
% |
|
Shareholders’ equity (Deficiency):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to our equity holders
|
|
|
(1,033 |
) |
|
|
(23 |
)% |
|
|
289 |
|
|
|
4 |
% |
|
|
360 |
|
|
|
3.5 |
% |
|
Non-controlling interest
|
|
|
624 |
|
|
|
14 |
% |
|
|
1,100 |
|
|
|
16 |
% |
|
|
1,179 |
|
|
|
11.5 |
% |
2013 compared to 2012
The decrease in current assets in the amount of NIS 348 million ($100 million) in 2013 was mainly attributable to a decrease in each of: (i) short-term deposits and investment in the amount of NIS 240 million ($69 million), mainly in PC Euro-deposits and available for-sale financial assets; and (ii) cash and cash equivalents in the amount of NIS 217 million ($63 million) discussed above;
This decrease was offset by: (i) proceeds from insurance company as indemnification of the fire in the Koregaon park in an amount of NIS 32 million ($9 million); (ii) proceeds from a repayment from park plaza in an amount of NIS 44 million ($13 million); and (iii) classification of Koregaon park trading property to current assets due to agreement we reached for its sale, which as of the balance sheet date has yet to occur.
The increase in current liabilities in the amount of NIS 3,072 million ($885 million) in 2013 was mainly attributable to: (i) an increase due to the classification of our and PCs notes and loans to current liabilities in an amount of NIS 2,964 million ($854 million) due to the default to repay the notes and part of the loans and cross default with regard to the rest of the loans; (ii) an increase in interest payable (mainly interest accrued on our notes which was not paid during 2013 ).
The decrease in non-current assets in the total amount of NIS 1,830 million ($527 million) in 2013 was mainly attributable to (i) write-down of PC trading properties in an amount of NIS 677 million ($195 million); (ii) a classification of the trading property (Koregaon park project) in the amount of NIS 193 million ($56 million), due to agreement we reached for its sale which as of the date of this Annual Report has yet to occur; (iii) a decrease in long term deposits in an amount of NIS 73 million ($21 million); (iv) impairment of investments in joint ventures in an amount of NIS 336 million ($97 million); and (v) a decrease in investment property in an amount of NIS71 million ($20 million) due to the sale of the Prague 3 project.
The decrease in non-current liabilities of NIS 3,453 million ($995 million) in 2013 was mainly attributable to a decrease in (i) classification of our’s and PCs notes and loans to current liabilities in an amount of NIS 2,964 million ($854 million) due to the default to repay the notes and part of the loans and cross default with regard to the rest of the loans; (ii) repayment of PCs notes and loans and the hotels loans in an amount of NIS 424 million ($122 million).
2012 compared to 2011
The decrease in current assets in the amount of NIS 216 million in 2012 was mainly attributable to a decrease in each of: (i) short-term deposits and investment in the amount of NIS 86 million, mainly in PC Euro-deposits and available for-sale financial assets; and (ii) cash and cash equivalents in the amount of NIS 64 million as discussed above.
The decrease in current liabilities in the amount of NIS 505 million in 2012 was mainly attributable to: (i) a decrease in suppliers and service provider in the amount of NIS 150 million, mainly due to the completion of construction of PC commercial centers in Poland during 2012; (ii) a decrease in payable and other credit balance in the amount of NIS 111 million, mainly due to the classification of InSightec to discontinued operation; (iii) a decrease in a loan granted to PC by certain financial institution to finance financial instruments attributed to the selling of those financial instruments by PC.
The decrease in non-current assets in the total amount of NIS 3,413 million in 2012 was mainly attributable to (i) trading property in the amount of NIS 260 million, mainly due to the write-down of PC trading properties in Romania, Serbia, India, Hungary, Poland, Czech and Bulgaria; (ii) investment property in the amount of NIS 2,548 million due to the sale of our U.S. operation that occurred during 2012; and (iii) other changes attributable mainly to first adoption of IFRS 11 on trading properties and investments in joint ventures.
The decrease in non-current liabilities of NIS 2,973 million in 2012 was mainly attributable to a decrease in (i) loans in the amount of NIS 1,880 million attributable to the U.S operation and to the Dutch hotel operation that were sold during 2012 and (ii) notes issued by us and PC as a result of the repayment of the principal outstanding under such loans and our buyback plan.
Concentration of Credit Risk
We hold cash and cash equivalents, short term investments and long-term deposits at banks and financial institutions in various reputable banks and financial institutions. Our maximum credit risk exposure is equal to the financial assets presented in the balance sheet.
Due to the nature of their activity, our subsidiaries operating in the hotel, medical and fashion merchandise segments, are not materially exposed to credit risks stemming from dependence on a given customer. Our subsidiaries examine the credit amounts extended to their customers on an ongoing basis and, accordingly, record a provision for doubtful debts based on factors they believe to have an effect on specific customers. As of December 31, 2013 and 2012 our trade receivables do not include any significant amounts due from buyers of trading property.
Derivative Instruments
For information on financial instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative and Qualitative Disclosure about Market Risks” below.
Other Loans
We have entered into or assumed liability for various financing agreements, either directly or indirectly through our subsidiaries, to provide capital for the purchase, construction, and renovation and operation of commercial and entertainment centers and hotels as well as for various investments in our other operations. Set forth below is certain material information with respect to material loans extended to us, our subsidiaries and our jointly controlled companies as of December 31, 2013. In May 2011 we announced a repurchase program of up to NIS 150 million of our Series A-G notes, and in November 2012 we announced an increase of the repurchase program in an additional amount of up to NIS
125 million of our Series A-G and Series 1 notes. All of the notes repurchased by us directly (as opposed to those repurchased by our subsidiary Elbit Financial Services, Limited Partnership ("Elbit Financial")) were delisted from the TASE and the Notes purchased by Elbit Financial were cancelled at the closing of the Debt Restructuring (without being allotted with New Notes and shares).
The loans granted to our jointly controlled companies are presented in the following table at their 100% amount, unless otherwise specified.
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series A Notes issued to the public
|
NIS 594.2 million (approximately $171 million)
|
NIS 201.4million (approximately $58 million) (following repurchases of the notes by us and our subsidiary Elbit Financial)
|
6% per annum, linked to the Israeli CPI.
|
10 semi-annual installments commencing August 2009 through 2014.
Interest payable by semi-annual installments commencing 2006 through 2014.
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The notes are registered for trade on the TASE.
The notes are not registered under the Securities Act.
Events of default include, among others, the cross default with other series of notes and delisting from both the TASE and NASDAQ Global Select Market.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series B Notes issued to the public
|
$14.8 million
|
$ 4.1 million (following repurchases of the notes by us and our subsidiary Elbit Financial)
|
Libor + 2.65%
|
10 semi-annual installments commencing August 2009 through 2014.
Interest payable by semi-annual installments commencing 2006 through 2014.
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The notes are registered for trade on the TASE.
The notes are not registered under the Securities Act.
Events of default include, among others, the cross default with other series of notes and delisting from both the TASE and NASDAQ Global Select Market.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series C Notes issued to the public
|
NIS 455 million (approximately $122 million)
|
NIS 265.7 million (approximately $76.5 million) (following repurchases of the notes by us and our subsidiary Elbit Financial)
|
5.3% per annum, linked to the Israeli CPI.
|
10 annual installments commencing September 2009 through 2018.
Interest payable by semi-annual installments commencing 2007 through 2018.
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The notes are registered for trade on the TASE.
The notes are not registered under the Securities Act.
Events of default include, among others, the cross default with other series of notes and delisting from both the TASE and NASDAQ Global Select Market.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series D Notes issued to the public
|
NIS 746 million (approximately $200 million)
|
NIS 797.1 million (approximately $229.6 million) (following repurchases of the notes by us and our subsidiary Elbit Financial)
|
5% per annum, linked to the Israeli CPI.
|
8 annual installments commencing April 2013 through 2020.
Interest payable by semi-annual installments commencing 2007 through 2020.
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The notes are registered for trade on the TASE.
The notes are not registered under the Securities Act.
Events of default include, among others, the cross default with other series of notes and delisting from both the TASE and NASDAQ Global Select Market.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series E Notes issued to the public
|
NIS 64.5 million (approximately $17 million) (less amount of notes repurchased by us, as described below)
|
NIS 60.7 million (approximately $17.5 million)
|
6.3% per annum, linked to the Israeli CPI.
|
10 annual installments commencing July 2012 through 2021.
Interest payable by semi-annual installments commencing 2007 through 2021.
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The notes are registered for trade on the TASE.
The notes are not registered under the Securities Act.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series F Notes issued to the public
|
NIS 502.8 million (approximately $135 million)
|
NIS 277.6 million (approximately $80 million) (following repurchases of the notes by us and our subsidiary Elbit Financial)
|
5.7% per annum, linked to the Israeli CPI.
|
6 annual installments commencing October 2010 through 2015.
Interest payable by semi-annual installments commencing 2008 through 2015.
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The notes are registered for trade on the TASE.
The notes are not registered under the Securities Act.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series G Notes issued to the public
|
NIS 466.5 million (approximately $125 million)
|
NIS 477.8 million (approximately $137.7 million) (following repurchases of the notes by us and our subsidiary Elbit Financial)
|
5.08% per annum, linked to the Israeli CPI.
|
5 annual installments commencing December 2014 through 2018 (10% of the principal will be payable on December 31, 2014, 20% of the principal will be payable on December 31 on each of 2015 and 2016, and 25% of the principal will be payable on December 31 on each of 2017 and 2018).
Interest payable by semi-annual installments commencing 2010 through 2018.
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The notes are registered for trade on the TASE.
The notes are not registered under the Securities Act.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Series 1 Convertible Notes issued to the public
|
NIS 112 million (approximately $30 million)
|
NIS 106.3 million (approximately $30.6 million) (following repurchases of the notes by us and our subsidiary Elbit Financial)
|
6.25% per annum.
|
Interest payable by semi-annual installments commencing 2009 through 2014.
|
|
Principal Security and Covenants
|
Unsecured.
|
|
Other Information
|
The notes were convertible into our ordinary shares at the price of NIS 128 per share until July 31, 2013 and at the price of NIS 200 per share thereafter.
Upon consummation of the Debt Restructuring, such notes were cancelled.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Bank Hapoalim B.M.
|
$70.0 million
|
$48.7 million
|
LIBOR + 3.8%; if LTV (Loan to Value) greater than 0.7; Increase of interest by 2.5%
|
6 annual installments commencing March 2011 through 2017.
Interest payable by quarterly installments commencing March 2011 through 2017.
|
|
Principal Security and Covenants
|
Pursuant to the applicable loan agreement, we are required to maintain compliance with certain financial covenants and other covenants relating to us and/or our subsidiaries, including:
· Total shareholders' equity higher than NIS 1,500 million;
· Loan To Value Ratio less than 0.75 (according to certain adjustments specified in the loan agreement);
· Total financial assets (solo) greater than $50 million;
· Ratio Net Debt / Cap less than 85%;
· PC's total financial assets greater than $80 million;
· Ratio Equity/Total Assets of PC greater than 25%; and
· other customary obligations and undertakings.
As to the pledge of 29% of Plaza Center's outstanding shares (depositary interests) discussed above in "Item 5. Operating and Financial Review and Prospects", we are required to maintain a ratio between the net debt amount and the market value of the pledged shares (the "Collateral LTV Ratio"). If the Collateral LTV Ratio exceeds a certain rate, we may, at our sole discretion, do one or more of the following: (i) reduce the debt and (ii) provide a cash deposit pledged in favor of Bank Hapoalim. In the event that we fail to comply with any of the covenants, or upon the occurrence of an event of default (including the failure to provide additional securities), Bank Hapoalim shall be entitled to demand the immediate repayment of the loan and the interest rate will be increased. As of today we are in breach of that covenant and certain other covenants.
In the framework of the sale of our Dutch hotels to PPHE in March 2012, Bank Hapoalim has agreed to release the pledges over our (indirect) holdings in the Dutch hotels, which were replaced with an assignment by way of pledge over certain receivables due to us from PPHE's subsidiary. Please see "Item 4.B - Business Overview – Hotels".
|
|
Other Information
|
On December 29, 2013 we entered into the Refinancing Agreement with Bank Hapoalim that cancelled and replaced the aforementioned loan agreement, pursuant to which, , the payment of the outstanding loan amount (approximately $48 million) was extended by a period of three years from the consummation of the Refinancing Agreement (i.e, February 20, 2017) and such amount will bear interest of LIBOR +3.8%, which will be payable quarterly, and an additional 1.3% which will be payable on the final maturity date. In addition, pursuant to the Refinancing Agreement (i) first-ranking fixed charges will be placed on our holdings and other rights in certain of our subsidiaries holding our hotels in Romania and Belgium as collateral securing our debt
to Bank Hapoalim under the Refinancing Agreement. Such charges shall be placed in addition to the existing securities that Bank Hapoalim held under the loan previously received from Bank Hapoalim, i.e., a first ranking pledge over an amount of 86 million shares of PC, representing approximately 29% of PC's outstanding shares and on our holdings (100%) in Elbit Fashion Ltd. (ii) in the event that the Loan is paid before May 31, 2014 Bank Hapoalim shall return to us, without consideration, 8,423,368 Ordinary Shares and (iii) we are subject to certain prepayment obligations in the event of prepayment of the aforementioned new notes or distribution. For further details regarding the Refinancing Agreement, please see the Form 6-K we filed on November 14, 2013.
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|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
EI
|
Bank Leumi Le-Israel B.M.
|
$24.2 million
|
$13.1 million
|
LIBOR + 3.5%
|
5 annual installments commencing June 2011 through March 2016.
Interest payable by quarterly installments commencing June 2011 through March 2016.
|
|
Principal Security and Covenants
|
Pursuant to the applicable loan agreement, we are obligated to maintain certain financial and other covenants, including:
· Total shareholders' equity higher than NIS 1,500 million;
· Loan To Value Ratio less than 0.75 (according to certain adjustments specified in the loan agreement);
· Total financial assets (solo) greater than $50 million;
· Ratio Net Debt / Cap less than 85%; and
· other customary obligations and undertakings.
In the event that we fail to comply with any of the covenants, or upon the occurrence of an event of default, the bank shall be entitled to demand the immediate repayment of the loan. As of the date of this annual report we are in breach of some of the aforementioned covenants.
|
|
Other Information
|
In March 2013 we informed Bank Leumi that we would not be making the upcoming payment to it on March 29, 2013 of principal and interest due under the loans made by Bank Leumi to us. For more information regarding the letter we received from Bank Leumi demanding repayment of the outstanding balance of approximately $14.1 million (approximately NIS 52 million) due as well as the inclusion of Bank Leumi in the Debt Restructuring, please see "Item 4.A – History and Development of the Company – Recent Events" and "Item 10.C – Material Contracts – The Debt Restructuring". A disagreement has arisen with respect to the effectiveness of certain pledges over our bank account in Bank Leumi, which in
our opinion should have been erased and have no binding effect. In connection with the Debt Restructuring we issued to an escrow agent for the benefit of Bank Leumi approximately NIS 8.0 million (approximately $2.3 million) in principal amount of our Series H Notes, approximately NIS 3.9 million (approximately $1.1 million) in principal amount of our Series I Notes, and 9,090,122 ordinary shares. We have outstanding disputes with Bank Leumi with respect to whether the debt we owe to Bank Leumi is unsecured or secured. Upon the resolution of such disputes, these securities will be transferred to Bank Leumi or to us (or one of our subsidiaries).
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|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
PC
|
Series A Notes issued to the public
|
NIS 245 million (approximately $70.6 million)
|
NIS 296 million* (approximately $85.3million)
|
4.5% per annum, linked to the Israeli CPI.
|
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The Notes have been registered for trade on the TASE.
Due to the initiation of suspension of payment proceedings by PC, there was no repayment of the bonds A principal and interest at December 31, 2013 (See "PC debt restructuring").
The Notes are not registered under the Securities Act.
* NIS 230 million are presented at fair value through profit and loss (the fair value as of December 31, 2013 was NIS 168.3 million) NIS 66 million are presented at amortized cost.
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|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
PC
|
Series B Notes issued to the public
|
NIS 508 million (approximately $146 million)
|
NIS 576 million* (approximately 166million)
|
5.4% per annum, linked to the Israeli CPI
|
Principal payable in 5 equal annual installments commencing July 2011 through July 2015.
Interest payable by semi-annual installments commencing July 2008 through July 2015
|
|
Principal Security and Covenants
|
Unsecured
|
|
Other Information
|
The Notes have been registered for trade on the TASE.
Due to the initiation of suspension of payment proceedings by PC, there was no repayment of the bonds interest at December 31, 2013 (See "PC debt restructuring").
The Notes are not registered under the Securities Act.
* NIS 373 million are presented at fair value through profit and loss (the fair value as of December 31, 2013 was NIS 284.8 million) and NIS 203 million are presented at amortized cost.
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|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
PC
|
Private note issuance to Polish institutional investors
|
PLN 60 million
|
PLN 60 million
|
6 Month Wibor+4.5%
|
Three years maturity, with balloon payment at the end of the maturity period.
Interest payable by semi-annual installments commencing May 2011 through November 2013.
|
|
Principal Security and
Covenants
|
Due to the initiation of suspension of payment proceedings by PC, there was no repayment of the Polish bonds principal and interest in November 2013 (See "PC debt restructuring").
Certain circumstances shall be deemed events of default giving the bondholders the right to demand early redemption, which include, inter alia, the following covenants:
· Breach of the Cash Position as a result of the payment of dividends or the buy-back program falling below ˆ50 million. “Cash Position” means the sum of cash and cash equivalent of: cash, short and long interest bearing deposits with banks or other financial institutions, available for the sale of marketable securities, and restricted cash, calculated based on the consolidated financial statements.
· Breach of financial ratios – the Net Capitalization Ratio exceeds 70%; "Net Capitalization Ratio" is the Net Debt divided by the Equity plus the Net Debt, as calculated by PC's auditor; “Net Debt” mean PC's total debt under: loans and borrowings, lease agreements, notes, other debt securities and other interest bearing or discounted financial instruments in issue, less related hedge derivatives, cash and cash equivalents, short and long-term interest bearing deposits with banks or other financial institutions, available for sale marketable securities and restricted cash, calculated based on the consolidated financial statements.
· Failure to repay material debt – PC fails to repay any matured and undisputable debt in the amount of at least ˆ100 million within 30 days of its maturity.
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| |
|
|
|
|
|
|
Borrower
|
Lender
|
Facility Amount
|
|
Interest
|
Payment Terms
|
|
SIA DIKSNA ("Riga Plaza“)
|
AS SEB Banka, Swedbank AS
|
ˆ29.7 million *
|
ˆ29.5 million *
|
3 months Euribor + 2.9%
|
Expires on 2017 October 31. Quarterly annuity payments calculated according to 20 years amortization, with balloon payment.
|
|
Principal Security and Covenants
|
Registered first ranking mortgage on Riga Plaza commercial center;
Assignment of all rights under relevant valid insurance policies;
Charges over each quota owned by PC in the borrower or share pledge agreement;
First ranking pledges on the borrowers’ accounts;
Prompt collection right to debit any of the bank accounts of the borrower;
Maintain a Debt Service Cover Ratio of 1.2;
Loan to Value ratio of 70%;
|
|
Other Information
|
* Represents 50% of the loan, which is PC's shareholding in Riga Plaza.
* SIA Diksna is an equity accounted investee of PC.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
PC
|
GEFA Germany
|
US$ 4.56 million
|
ˆ2.5 million
|
USD Libor + 4% per annum
|
The loan matured on March 5, 2014, with a 75% balloon payment. Quarterly principal payments are $60,500.
|
|
Principal Security and Covenants
|
First priority aircraft mortgage registered with the Hungarian Aircraft Register at the CAA, Budapest.
Assignment of insurance proceeds.
|
|
Other Information
|
The loan served to finance the purchase of a company airplane. In February 2014 we sold the airplane. The proceeds from the disposal were used to repay the bank facility taken for the purchase of the airplane, and we are currently negotiating with the financing bank the conditions to be set for the repayment of the remaining outstanding bank loan (approximately EUR 1 million).
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Koregaon Park
|
AXIS, SBH (India)
|
INR 2,040 million - credit facility
|
INR 1,874 million
|
Base rate+3.25%
|
Maturity of the loan is in the first quarter of 2021.
|
|
Principal Security and Covenants
|
Assignment of all rights under insurance proceeds.
|
|
Other Information
|
Corporate guarantee of PC on part of loan, totaling EUR 14.2 million..
Pledge on assets of the project company.
|
|
Borrower
|
Lender
|
Facility amount
|
|
Interest
|
Payment Terms
|
|
Liberec Plaza
|
MKB BANK Zrt., ERSTE Bank AG
|
ˆ25 million
|
ˆ20.7 million
|
3 months Euribor+ 2.7% per annum
|
Repayment schedule:
June 2014- bullet payment of more than 90% of the principal.
|
|
Principal Security and Covenants
|
Registered first ranking mortgage and purchase option right on the real estate;
Assignment of all rights under relevant valid insurance policies;
Share pledge agreement;
First ranking pledges on the borrowers’ accounts;
Prompt collection right to debit any of the bank accounts of the borrower;
Maintain Debt Service Cover Ratio of 1.15;
Loan to Value ratio of 85%; and
Corporate guarantee of PC for Debt Service.
|
|
Other Information
|
|
|
Borrower
|
Lender
|
Original Amount *
|
|
Interest
|
Payment Terms
|
|
A: Valley View
B: Acacia Park
C: Acacia Park
D: Fountain Park
E: Primavera Tower
|
A: OTP Bank Nyrt.
B: Bank Leumi Romania
C: Bank Leumi Romania
D: Bank Leumi
E: MKB Bank Zrt
|
A: ˆ8.2 million
B: ˆ1.4 million
C: ˆ1.3 million
D: ˆ1.42 million
E: ˆ1.5 million
|
A: ˆ8.2 million
B: ˆ0.762 million
C: ˆ1.0 million
D: ˆ1.42 million
E: ˆ1.5 million
|
A:Euribor + 6% p.a.
B: Euribor + 6% p.a.,
C: Euribor + 5% p.a.
D: Euribor + 6% p.a.
E: Euribor + 4.5% p.a.
|
A: Expired. Only interest payments. Negotiations ongoing.
B: Expired in July 2012. Negotiations ongoing
C: Expired in July 2012. Negotiations ongoing.
D: Expired in September 2012. Only interest payments.
E: Expired March 31, 2012. Only interest payments. Negotiations ongoing.
|
|
Principal Security and Covenants
|
First ranking mortgage on the properties.
Corporate guarantee of owners in case of Fountain Park and Acacia Park in respect of the interest only.
|
|
Other Information
|
* All borrowings are presented as part of the equity accounted investees in PC’s report, and therefore are not shown separately. PC holds 50% of the abovementioned projects, with the exception of D, of which 25% is held by PC.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Suwalki Plaza
|
ING Bank Slaski S.A
|
ˆ33.5 million
|
ˆ31.6 million
|
3 months Euribor + 1.65% per annum
|
Expires December 29, 2020. Quarterly payments with fixed principal amounts and balloon payment at the end.
|
|
Principal Security and Covenants
|
First ranking mortgage on the property.
Pledge on shares of borrower and pledge on bank accounts.
Assignment of rights from insurance, guaranties and agreements.
Maintain a debt service cover ratio of 1.2.
Loan to value ratio of 0.7.
|
|
Other Information
|
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Zgorzelec Plaza
|
Bank Zachodni WBK S.A.
|
ˆ22.3 million
|
ˆ22.0 million
|
3 months Euribor + 2.75% per annum for
|
|
|
Principal Security and Covenants
|
A first ranking mortgage on the property.
Pledge on shares of borrower and pledge on bank accounts.
Assignment of rights from insurances, guaranties and agreements.
Maintain a debt service cover ratio of 1.15.
Loan to value ratio of 0.75.
|
|
Other Information
|
PC is not in compliance with certain covenants included in the loan agreement and has a waiver in place until expiration of the loan.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Torun Plaza
|
Bank PEKAO S.A
|
ˆ50.1 million
|
ˆ47.9 million
|
3 months Euribor + 3% per annum
|
Expires December 31, 2017. Quarterly payments with fixed principal amounts and balloon payment at the end.
|
|
Principal Security and Covenants
|
First ranking mortgage on the property.
Pledge on shares of borrower and pledge on bank accounts.
Assignment of rights from insurances, guaranties and agreements.
Maintain a debt service cover ratio of 1.25.
Loan to value ratio of 0.7.
|
|
Other Information
|
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Kragujevac Plaza (Serbia)
|
OTP Bank Nyrt.
|
ˆ30.4 million
|
ˆ29.1
|
3 months Euribor + 5.0%
|
Maturity of the loan - 2027. Quarterly annuity payments (interest and principal).
|
|
Principal Security and Covenants
|
First and second ranking mortgage over the property.
Pledge on shares of borrower, on accounts, on receivables from the lease agreements.
Assignment of all rights from insurance.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Bucuresti Turism SA
|
Raiffeisen Bank International (“RBI”)
|
ˆ62.5 million
|
ˆ56 million
|
Euribor + 4.6%
|
The principal is repayable in 20 quarterly installments of ˆ0.65 million each, commencing September 2011, with a balloon payment of ˆ58.5 million to be repaid on June 30, 2016.
|
|
Principal Security and Covenants
|
First rank mortgage on the Radisson Blu Bucharest Hotel and the Centerville Hotel.
Future and existing cash flow through the bank accounts opened at Raiffeisen Bank.
Pledge over the shares of Bucuresti Turism SA and its subsidiary held by the majority share holder (BEA Hotels Eastern Europe BV).
Pledge of receivables arising from lease agreements and insurance policies concluded by the borrower.
Guarantee of the yearly debt service from us.
Title insurance over the mortgage asset.
|
|
Other Information
|
On April 3, 2012, we concluded an agreement with RBI fixing the Euribor at 1.40% from January 1, 2013, until the end of the loan. On March 31, 2013 our option to apply for additional facility at the amount of ˆ 9 million had expired. Following the closing of the Debt Restructuring we have commenced discussions regarding possible extension of the said facility period.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Astrid Plaza Hotel NV
|
Bank Hapoalim
|
ˆ24.4 million
|
ˆ16.25 million
|
Euribor + 1.75%
|
ˆ12,500,000 to be paid at the end of the term.
Interest is payable on a semi-annual basis.
|
|
Principal Security and Covenants
|
First ranking pledge on Astrid Plaza shares.
First ranking mortgage over Astrid Plaza's real estate.
A mortgage mandate over Astrid Plaza's real estate which was converted into a mortgage.
First ranking pledge on a reserve fund of ˆ1 million, which is blocked on a deposit account.
Required to maintain a debt service cover ratio.
|
|
Other Information
|
We guaranty Astrid Plaza's undertakings under the loan agreement. The guaranty is unlimited in amount.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Astrid Plaza Hotel NV, for the Park Inn Hotel
|
Fortis Bank
|
A: ˆ4 million
B: ˆ3.5 million
|
A: ˆ3.0 million
B: ˆ2.7 million
|
A: 2.436%
B: 2.963%
|
Repayment over a 15 year period.
|
|
Principal Security and Covenants
|
A first ranking mortgage on the Park Inn hotel and its assets.
A mortgage mandate over the Park Inn hotel and its assets which was converted into a mortgage.
Subordination of loan granted by us to the borrower and undertaking not to reduce such loan below a given amount.
Compliance with certain financial and operational covenants.
Undertaking to maintain an equity/asset ratio.
We have furnished the bank with a guarantee up to the amount of ˆ1.37 million.
|
|
Borrower
|
Lender
|
Original Amount
|
|
Interest
|
Payment Terms
|
|
Elbit Fashion
|
Bank Hapoalim
|
Up to NIS 8.5 million (approximately $2.4 million)
|
|
Prime + 2 %
|
Revolving short-term credit facility
|
|
Principal Security and Covenants
|
Fixed mortgage on all Elbit Fashion assets and a guarantee for the full amount provided to Elbit Fashion.
|
|
Other Information
|
Following the Debt Restructuring and closing of the Refinancing Agreement with us, the Stand-By Letter of Credit that was provided by Bank Hapoalim to Elbit Fashion in the amount of approximately ˆ4 million in order to secure payment to third party suppliers was extended until December 31, 2014.
|
Financial Instruments
For information on financial instruments used, profile of debt, currencies and interest rate structure, see “Item 11. Quantitative and Qualitative Disclosure about Market Risks” below.
Material Commitments for Capital Expenditure
See “ - Tabular Disclosure of Contractual Obligations” below.
|
C.
|
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
|
The Israeli government encourages industrial companies by funding their research and development activities through grants by the Office of the Chief Scientist (the "OCS").
Each of InSightec’s and Gamida's research and development efforts has been financed, in part, through OCS grants. InSightec and Gamida have received or were entitled to receive grants totaling $25.7 million and $30.9 million, respectively, from the OCS since their respective inception and each of them is required to repay such grants through payment of royalties to the OCS from its respective revenues until the entire amount is repaid.
Each of InSightec’s and Gamida's technology developed with OCS funding is subject to transfer restrictions, which may impair its ability to sell its technology assets or to outsource manufacturing. The restrictions continue to apply even after InSightec or Gamida has paid the full amount of royalties’ payable for the grants. In addition, the restriction may impair InSightec’s or Gamida's ability to consummate a merger or similar transactions in which the surviving entity is not an Israeli company.
The total OCS grants received by InSightec during 2012, 2011 and 2010 were $0.7 million, $1.1 million and $2.4 million, respectively, and the total OCS grants received by Gamida during 2012, 2011 and 2010 were $3.8 million, $4.2 million and $4.8 million, respectively.
Research and development expenses were classified as discontinued operations.
Commercial and Entertainment Centers
Our commercial and entertainment business is affected by trends in each of the geographic areas in which we operate.
In the past two decades the retail market in CEE has experienced extraordinary growth. However, the recent decline in the global economy, which also influenced the European Union, as well as the recent concerns regarding the possibility of sovereign debt defaults by European Union member countries, affected the growth in most countries during 2008 through 2012.
In 2013 the investment volume in Central & Eastern Europe was around 39% higher than in 2012 and reached EUR 11.4 billion, triggered by solid year-end economic results in Poland and Russia. Notably, these two markets are increasingly driving CEE commercial real estate investment, with a combined share of ca. 75% in the transaction volume. Total investment activity in Poland amounted to EUR 3.3 billion in 2013, that is some 21% more in comparison to 2012.
Aside from Poland, almost all CEE countries are expected to post strong GDP growth over the next three years, and have posted outstanding results in 2013.. The 2013 Q4 year-on-year GDP growth data was as follows: Poland 2.2%; Czech Republic 0.8%; Romania 5.1%; Serbia 2.6%; Latvia 3.6%.
Poland - Poland is continuing to establish its position as a strong and stable economy, offering attractive market conditions for both investors and developers. Economic drivers for further retail market development are easing, placing Poland among the top destinations for investment. Total investment activity in Poland amounted to EUR 3.3 billion in 2013, out of which 42% was attributable to the retail sector. Due to the considerable number of on-going transactions, the 2014 investment volume might exceed EUR 3.5 billion.
After weak results in 2012, developers delivered 600,000 square meters of modern retail space (GLA) to the market in 2013, representing a 23% increase compared to the previous year. In terms of number of developments (39), these were once again dominated by small and medium-sized schemes as well as a considerable number of new additions to the existing schemes. However, the three largest developments (in Krakow, Poznan and Gliwice respectively) accounted for approximately one third of the total new modern retail space. 2014 is expected to see shopping centre stock completion levels comparable with 2013. Over 70% of the newly constructed schemes will fall into the category of small retail (under 20,000 sq/m of GLA). These are constructed to serve as the first retail scheme in small cities or to fill the niches in the less provisioned parts of the agglomerations.
Poland remains popular with retailers as well and continues to attract newcomers, with 2013 marking the entry of brands such as Armani Jeans, Boomerang, Karl Lagerfeld, Manila Grace and Sports Direct. Retailers are also diversifying the ways they reach consumers, e.g. by online sales. They are also looking for opportunities to strengthen their offer by introducing new concepts. The vacancy rate in Polish shopping centres remains low with an average for the 15 largest cities of 3.55%. Prime rents are expected to be stable in 2014, However, despite stabilising prime rental levels there is strong pressure on incentives, such as capital contributions towards shop fitting and rent-free periods, as well as turnover rents instead of set (or combined with lower) monthly payments. Also, tenants that are increasingly price-sensitive insist on better cost control in particular with regards to service and marketing charges.
Czech Republic - After a weak year in 2012, with a total of EUR 610 million of investment transactions recorded in the Czech Republic, 2013 saw the volume increase to EUR 1,036 which represented an increase of 70% in investment volumes from 2012. However, this volume remains below the 10 year average for the Czech Republic. The breakdown of the annual investment volume shows that offices continue to dominate, accounting for 57.3%. while the retail sector reflects only 6.3% of transactions.. Investment demand should increase as a result of the expectation that the economic recovery will gain momentum both locally and in Europe, suggesting that the total investment volumes in 2014 will exceed 2013.
The Czech retail development has gone through a recovery period and is now stable. During 2013 seven new shopping centres and two expansions of existing centres with a total area of 162,000 sq m were completed representing a 62% increase from 2012.
Retail rents are subject to regional differences and depend on the performance and location of each project. In 2013 prime rents in shopping centres remained stable and this is expected to continue in 2014. However, due to the strong competitive environment, the diversification on the market is gradually increasing in terms of the schemes and tenants as well, so we can expect higher pressure on rents in weaker projects.
Romania - The real estate commercial investment volume for the entire year was EUR 343 million, up 100% versus 2012. Of this figure about EUR 215m represented retail assets. A total of 15 transactions comprising 30 properties were recorded in the period with an average volume size of EUR 23 million. The company NEPI is responsible for 40% of the investment volumes recorded in 2010 – 2013 in the country.
In 2013 approximately 106,000 sq m of shopping center space was delivered to the market, with a small increase expected in 2014.
Expansions by international food chains is expected to be maintained over the course of 2014. The most notable retail expansions recorded last year included expansions by Mega Image and Profi which opened 104 and 64 units respectively. However, other similar retailers also expanded, albeit at a more modest pace, with Lidl, Penny Market, Billa and Kaufland adding stores to their portfolio. In the fashion segment, retailers such as Zara and H&M continue to enlarge their presence, however expansion is limited. No significant change in the retail environment is expected in 2014.
Serbia – Being a small country outside the European Union, Serbia currently lacks the traits of an institutional investment destination. The country was granted an EU candidate status as of March 2012, which should improve the investment climate.
The only retail project delivered in 2013 worth mentioning is the Stadion Shopping Centre in Belgrade with 30,000 sq.m GLA. The capital and the country as a whole suffer from a lack of modern retail space. Although Serbia is still underdeveloped when compared to the rest of the region, the retail market continues to pick up after the economic downturn. The current period is considered attractive for international retailers as they have the opportunity to position themselves in a market which is expected to grow following Serbia’s anticipated EU accession.
The most significant new entrant in the Serbian retail market in 2013 is H&M. Other retailers looking to enter the market in 2014 are LIDL and Carrefour, while Koton, MAC Cosmetics and Apple (via a premium reseller) are all set for further expansion. Also, for several years now, IKEA plans to enter Serbian market by opening a few facilities across the country. Due to limited offer, prime shopping centers rarely see any vacant space.
Latvia – 2013 was the most active of the last six years with respect to the real estate investment market in Latvia. Total investment volumes in 2013 exceeded EUR 330 million. Of this amount, retail investment deals accounted for EUR 77 million.
Total retail stock in the country’s capital Riga totaled 660,000 sqm GLA while, due to the global economic crisis, almost all planned and ongoing construction has been frozen and suspended for an indefinite period of time.
The retail market continues to show positive development figures, continuing a trend of almost three years. Vacancy rates are close to zero percent in the context of the leading prime shopping centres and as such rental rates have witnessed a marginal increase and/or an improvement of their tenant mix. Following the overall economic recovery and retail trade improvement, the market faced new brand entrants in 2012 and 2013. Among them were H&M, Massimo Dutti, Aldo, Desigual, Next, Stefanel and Cortefiel Group.
India -
Despite the global economic slowdown, the Indian economy remained relatively strong and was among the fastest growing economies of the world with an average GDP growth rate of 4.5% in 2013. The services sector grew by 7%, and its share in the Indian GDP was 57%. As a control measure the Reserve Bank of India ("RBI") has not relaxed the base rates in 2013 to bring inflation down from 2012. As a result, 2014 is expected to have inflation projected at approximately 6.0% compared to 7.4% in 2013. The recent wave of reforms by the Government of India to incentivize foreign direct investment (FDI) in various sectors is bringing a new energy to the investment climate in India. One of the most debated reforms is the policy for allowing 51% FDI in multi-brand retail and 100% FDI in single brand. This policy has been approved by the Indian government during 2013. Organized retail, which constitutes 8% of the total retail market,
is expected to grow faster than traditional retail and gain a higher share in the growing retail market in India. The Indian retail industry has experienced growth of 10.6% between 2010 and 2012, and is expected to continue to experience continued growth in the near future. The outlook of the Indian market looks very positive as further liberalizations and relaxations are expected post the union election in May, 2014.
Hotel Business
Our hotel business is affected by trends in each of the geographic areas in which we operate.
The hotel industry was deeply affected by the recession and global financial crisis in 2008 and 2009. During the years of 2010, 2011 and 2012 the market slowly recovered from this crisis but the demand still has not recovered and Europe’s revenue per available room (or "revpar") has not achieved the same levels as prior to 2008.
The year 2013 presented primarily stagnation in Europe’s hotel industry in comparison with 2012. Some major cities such as Paris, London & Amsterdam noted a slight increase in the industry, indicating recovery to a certain extent. In various markets an additional recovery was noted while in others there was additional decline. The hospitality industry was very unstable, with several last minute decisions and bookings.
For 2014 we generally expect to follow the European trend showing an expected revpar increase from 2 to 4%. Investments and renovations of furniture, fixtures and equipment are scheduled again after being suspended for the last two years.
Fashion Apparel
The fashion apparel and accessories business in Israel is a highly competitive industry. Since we operate our business under a franchise agreement of an international brand, merchandising and inventory effectiveness are very challenging and require computerized supply chain management systems in order to succeed.
The rising cost of raw materials (cotton, labor, oil, and other commodities) influences consumer retail pricing which challenges our ability to keep revenues and profit margins at the same levels as previous years.
The ongoing trend of new international players entering into the Israeli markets and expansion of local players to become multi-branded players effects and challenges our goal to gain and preserve our market share.
One of the trends characterizing the Israeli market during the recent years in increasing consumers’ protests and public pressure for the price reductions.
Another of the trends that broadly affect the apparel retail market is the rising success of e-commerce, and it is expected that in future years revenues will increasingly be generated from internet sales.
Ongoing rising occupancy costs in most of the attractive shopping malls in Israel, pose challenges to our profit margins and development plans.
|
E.
|
OFF-BALANCE SHEET ARRANGEMENTS
|
The following are our off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors:
|
|
·
|
As part of the franchise and support agreements executed by our subsidiary, Elbit Trade & Retail Ltd. with third parties, which in turn were transferred to Elbit Fashion, and following such transfer Elbit Fashion has furnished Punto Fa with a stand-by letter of credit in the amount of approximately ˆ4.1 million (approximately $5.7 million) in order to secure payments under the agreements.
|
|
|
·
|
As part of transactions for the realization and/or sale of our holdings in certain subsidiaries or projects, or the realization and sale of certain business activities, we have undertaken to indemnify the respective purchasers for certain losses and costs incurred in connection with the sale transaction, and in particular, with respect to a breach of representations and warranties by seller. The indemnification provisions are usually capped at the purchase price and are limited in time, as set forth in each of the relevant sale agreements. Our management estimates that no significant costs will be borne in respect of these indemnification provisions.
|
|
|
·
|
As part of a lease agreement executed in July 2007 between us and the Israel Land Administration for a long-term lease of land in Tiberius, Israel, we had undertaken to finalize the construction in July 2010. During 2010 we received an extension for an additional three years until July 2013. As of the date of this Annual Report, we believe that further extension will be obtained. We have provided the Israel Land Administration with two bank guarantees in the aggregate amount of NIS 13 million linked to the increase in the Israeli consumer price index in order to secure our undertakings included in the lease agreement. As a security for the guarantees, we pledged deposits in the same amount. In accordance with the terms of the lease agreement, in the event either of the parties does not comply with the terms of the agreement, the agreement can be terminated by the other party.
|
|
|
·
|
As part of the transactions for the sale of our real estate assets, we have undertaken to indemnify the respective purchasers for any losses and costs incurred in connection with the sale transactions. The indemnification provisions usually include: (i) indemnifications in respect of integrity of title on the assets and/or the shares sold (i.e.: that the assets and/or the shares are wholly owned and are free and clear from any encumbrances and/or mortgage and the like). Such indemnification generally survives indefinitely and is capped at the purchase price in each respective transaction; and (ii) indemnifications in respect of other representations and warranties included in such sale agreements (e.g.: development of the project, responsibility for defects in the development project, tax matters and others). Such indemnifications are limited in time (generally three years from closing)
and are generally capped at 25% to 50% of the purchase price. Our management estimates (based (inter alia) on a professional opinion and past experience) that no significant costs will be borne in respect of these indemnification provisions.
|
|
|
·
|
A former subsidiary of PC incorporated in Prague ("Bestes"), which was sold in June 2006 is a party to an agreement with a third party ("Lessee"), for the lease of commercial areas in a center constructed on property owned by it, for a period of 30 years, with an option to extend the lease period by an additional 30 years, in consideration for ˆ6.9 million (approximately $9.1 million), which has been fully paid. According to the lease agreement, the Lessee has the right to terminate the lease, subject to fulfillment of certain conditions set forth in the agreement. As part of the agreement for the sale of Bestes to Klepierre in June 2006, it was agreed that PC will remain liable to Klepierre in case the Lessee terminates its contract. PC’s management believes that this commitment will not result in any material amount due to be
paid by it.
|
|
|
·
|
On November 21, 2010, Elbit Medical's shareholders approved the assignment of our indemnification obligations in favor of Gamida and its affiliated parties to Elbit Medical, without a right of reimbursement from us. Elbit Medical also undertook to indemnify Gamida and Teva Pharmaceutical Industries Ltd., as the shareholders of the joint venture Gamida Cell - Teva Joint Venture Ltd. for damages on certain matters. These indemnification undertakings of Elbit Medical replaced similar undertaking formerly made by us to these parties.
|
|
|
·
|
As required under the lease agreement for our new executive offices, in 2013 we provided bank guarantees to secure our compliance with the terms of the agreement in the total amount of approximately NIS 1.0 million.
|
|
|
·
|
We have guaranteed certain of PC's obligations to repay principal under its loan agreements with third parties up to an aggregate amount of NIS 368 million. For some such loans we have also guaranteed the payment of interest by PC. In addition, PC is a guarantor to obligations under loan agreements of its project companies with third parties up to an aggregate amount of NIS 177 million. PC also guaranteed the fulfillment of transactions entered into by three of its subsidiaries for a total aggregate amount of NIS 46 million.
|
|
|
·
|
We are a guarantor for Elbit Fashion's obligations under its lease agreements with respect to the Mango stores at all shopping malls (for a total of 28 stores) and with respect to its offices, and have undertaken to provide to secure its compliance with its agreements.
|
|
|
·
|
We have undertaken to provide guarantees for the benefit of the Israeli tax authority to secure Elbit Fashion's payment of customs duties and VAT, which are paid by way of direct debit authorization by Elbit Fashion, in the event that a debit authorization is rejected.
|
|
|
·
|
We have undertaken to provide bank guarantees and corporate guarantees for the benefit of the Israeli Customs Authority in the framework of a dispute between Elbit Trade and Retail Ltd. (which was sold to Gottex) and Elbit Fashion and the Customs Authority regarding customs duties charged with respect to the importation of the Mango and GAP brands to Israel. The Customs Authority had agreed that the collection of the disputed Customs charges will be put on hold until the resolution of the Company's motion, subject to the deposition of the aforementioned guarantees.
|
|
F.
|
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|
Our contractual obligations consist mainly of: (i) long-term borrowings (mainly loans from banks and financial institutions and non convertible and convertible notes); (ii) long-term operational leases; (iii) commitments towards suppliers, subcontractors and other third parties in respect of land acquisitions; and (iv) other long term liabilities reflected in the balance sheet. Our contractual obligations are generally linked to foreign currencies (mainly Euro and U.S. dollar) and/or other indexes (such as the Israeli consumer price index). Below is a summary of our significant contractual obligations as of December 31, 2013 in NIS, based upon the representative exchange rate of the NIS as of the balance sheet date, against the currency in which the obligation is originally denominated or based on the respective index of the Israeli consumer price index as of December
31, 2013. Actual payments of these amounts (as are presented in our financial statements) are significantly dependent upon such exchange rates or indexes prevailing as at the date of execution of such obligation, and therefore may significantly differ from the amounts presented herein below.
| |
|
Payments due by Period
(in NIS thousands)
|
|
|
|
|
Total
|
|
|
Less than 1 Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Long-Term Debt (1)
|
|
|
4,889,610 |
|
|
|
4,505,729 |
|
|
|
299,879 |
|
|
|
84,002 |
|
|
|
- |
|
|
Operating Leases (2)
|
|
|
305,439 |
|
|
|
30,513 |
|
|
|
58,863 |
|
|
|
53,287 |
|
|
|
162,776 |
|
|
Total
|
|
|
5,195,049 |
|
|
|
4,536,242 |
|
|
|
358,742 |
|
|
|
137,289 |
|
|
|
162,776 |
|
___________________
|
(1)
|
Long term debt includes interest that we will pay from January 1, 2014 through the loan maturity dates. Part of our loans bear variable interest rates and the interest presented in this table is based on the LIBOR rates known as of December 31, 2013. Actual payments of such interest (as presented in our financial statements) are significantly dependent upon the LIBOR rate prevailing as of the date of payment of such interest. For additional information in respect of the long term debt, see “Item 5.B. Liquidity and Capital Resources - Other Loans."
|
|
(2)
|
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 obligation based on the most recent available information. For additional information in respect of our operating lease obligations see note 18A(2) to our annual consolidated financial statements.
|
|
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
DIRECTORS AND SENIOR MANAGEMENT
|
As detailed in Item 5 “Operating and Financial Review and Prospects”, following the Debt Restructuring, all non-external members of our Board were replaced, and the position of our Chief Executive Officer was terminated. The following table sets forth information regarding our directors, executive officers and other key employees as of the date of this annual report except as otherwise noted below:
|
NAME
|
AGE
|
POSITION
|
|
|
49
|
Chairman of the Board of Directors and Director
|
|
Alon Bachar
|
44
|
Director
|
|
Zvi Tropp (1) (2)
|
74
|
External Director
|
|
Eliezer Avraham Brender (1)
|
36
|
Director
|
|
Shlomi Kelsi (1) (2)
|
42
|
Director
|
|
Elina Frenkel Ronen (1) (2)
|
40
|
External Director
|
|
Yoav Kfir (1)
|
41
|
Director
|
|
Boaz Lifschitz
|
45
|
Director
|
|
Nadav Livni
|
40
|
Director
|
|
Ran Shtarkman
|
46
|
CEO of PC and former Co-Chief Executive Officer of the Company until 2012
|
|
Doron Moshe
|
43
|
Chief Financial Officer
|
|
Zvi Maayan
|
47
|
General Counsel
|
______________________________________
|
(1)
|
Member of the audit committee
|
|
(2)
|
Member of the compensation committee
|
ALON BACHAR. Mr. Bachar, 44, serves as the Chief Financial Officer of the Bronfman-Fisher Group since 2006, and as the Chief Executive Officer of Isralom Properties Ltd. since 2012, and serves as a director of Palace Industries (P.I.) Ltd. and Shufersal Ltd. From 2003 until 2006, Mr. Bachar served as the Deputy Chief of the corporate division of Bank of Jerusalem Ltd. From 1999 until 2003, Mr. Bachar served as Credit Officer of the corporate division in the Industrial Development Bank of Israel Ltd. From 1996 until 1999, Mr. Bachar served as an Analyst and Credit Officer in the corporate division of Bank Leumi L’Israel B.M. Mr. Bachar holds a B.A in Economics from Tel Aviv University, as well as an MBA from Ben-Gurion University.
ELIEZER AVRAHAM BRENDER. Mr. Brender, 36, has served as Founder, General Partner and Chief Investment Officer of Exigent Capital Management, a hedge fund manager, since 2008, as well as Founder, General Partner, directors of Liberty SBF, a commercial real-estate lender since 2011. From 2004 until 2008, Mr. Brender served as Managing Director of Poal Capital Partners, a commercial real-estate investor and operator. From 2000 until 2001, Mr. Brender served as a Foreign Exchange Analyst at JP Morgan Chase. Mr. Brender serves as a member of the Investment Committee of Shalem College, Jerusalem, and as a member of the board of directors of Ha’Am Ha’Yehudi (AISH Tel Aviv), a non-profit organization. Mr. Brender holds several professional licenses.
RON HADASSI. Mr. Hadassi, 49, serves as Senior Manager of the Bronfman-Fisher Group, as well as the Vice Chairman of Super-Sol Ltd., Isralom Properties Ltd. and Palace Industries Ltd. Mr. Hadassi also serves as Executive Chairman and served as acting Chief Executive Officer of Nanette Real Estate Group N.V. until March 2014. From 2005 until 2012, Mr. Hadassi served as Chairman of the board of directors of Northern Birch Ltd. (IKEA Israel), where he continues to serve on the board and as Chairman of a subsidiary. Mr. Hadassi has served on the boards of public companies including Blue Square Israel Ltd., Blue Square Real Estate Ltd., Bet Shemesh Engines Holdings Ltd., Naaman Group (N.V(. Ltd. and Olimpia Real Estate Holdings as well as its subsidiaries.
Mr. Hadassi is a banking and finance professor at Hebrew University, Jerusalem, the Interdisciplinary Centre, Herzeliya, and the College of Management, Rishon LeZiyon, holds a B.A in Economics and Political Science, an LL.B and an MBA, all from Tel Aviv University, and is a member of the Israeli Bar.
SHLOMI KELSI. Mr. Kelsi, 42, has served as the Managing Director and General Manager of all holding subsidiaries of Ampal-American Israel Corporation since 2013. From 2009 until 2012, Mr. Kelsi served as the Deputy Chief Executive Officer and director of Industrial Development Bank of Israel Ltd., up to its acquisition by the Israeli government. From 2002 until 2009, Mr. Kelsi served as co-CEO of Risk Modules, a consulting firm. From 1997 until 2002, Mr. Kelsi served as a Senior Manager at KPMG Somekh Chaikin. Mr. Kelsi holds a B.A in Accounting and Economics as well as an M.Sc. in Finance, both from Tel-Aviv University, and is a Certified Public Accountant.
YOAV KFIR. Mr. Kfir, 41, serves as the Founder and Managing Director of the VAR Group. Mr. Kfir has served as interim Chief Executive Officer, Chief Financial Officer, advisor or court appointed officer with respect to various companies. Among his roles, Mr. Kfir served as a creditors’ committee member in the restructuring process of the Company, receiver and trustee to Alvarion Ltd., financial advisor in the IDB Group take-over and restructuring process, trustee to Eshbal Technologies Ltd. and a court appointed expert to Sunny Electronics Ltd. Prior to founding VAR Group, Mr. Kfir managed audit cases as well as business development at Kesselman & Kesselman, a member of PwC International. Mr. Kfir is the sole non-government member of the Friends’ Society of Jerusalem Mental Hospitals and serves as chairman of
several audit committees of non-profit organizations. Mr. Kfir holds a B.A in Business Administration from the College of Management, Rishon LeZiyon, and is a Certified Public Accountant.
BOAZ LIFSCHITZ. Mr. Lifschitz, 45, is a co-founder and General Partner of Peregrine Ventures, a venture capital fund. Mr. Lifschitz previously served as Chief Operating Officer and Chief Financial Officer of VisionCare Opthalmic Technologies. Mr. Lifschitz served on the board of Neovasc Inc. (NVC.V), serves as Chairman of Cartiheal Ltd. and board member of other privately held companies. Mr. Lifschitz holds a B.Sc. from Bar-Ilan University as well as a M.Sc. from Boston University jointly with Ben Gurion University.
NADAV LIVNI. Mr. Livni, 40, is the founder and Managing Director of The Hillview Group, a privately-owned Merchant Bank based in London. Since 2006, The Hillview Group has expertly managed over $3 billion of strategic capital market transactions across Central and Eastern Europe, Russia, Africa and USA. During his 20 year career, Nadav has advised governments, controlling shareholders and senior management on all aspects of capital markets transactions. In his previous roles at Deutsche Bank, Goldman Sachs and KPMG, Nadav participated in over $100 billion of transactions in the real estate, financial services, healthcare and consumer sectors, specialising in mergers and acquisitions, structuring innovative funds and all aspects of capital raising in the public and private markets. Nadav is a qualified Chartered Accountant, holds a Bachelor of Commerce from the University of the Witwatersrand, an MSc.
in Finance from City University Business School and is a guest speaker at London Business School on the topics of Private Equity and Real Estate Investment.
ELINA FRENKEL RONEN. Ms. Frenkel Ronen has served as one of Elbit Imagining Ltd external directors since December 2008. Ms. Frenkel Ronen currently serves as board member of the Institute of CPAs in Israel and Chair of the "CEOs, CFOs and Controllers Committee” of the Institute of CPAs in Israel, external director of Tempo Beverages Ltd, and of Micromedic Technologies Ltd. In the past Ms. Frenkel Ronen served as: the Chairperson of the Board of Directors of Haifa Port Ltd., an External Director of Tao Tsuot Ltd., Ms. Frenkel Ronen served as the Public Representative for the Public Utility Authority – Electricity. Ms. Frenkel Ronen served as Chief Financial Officer of: Orek Paper Ltd. Ms. Frenkel Ronen served as Chief Financial Officer of Sherutey Hashomrim Group. Ms. Frenkel Ronen served as the Chief Controller and Financial Reports Supervisor of the Tnuva Industries Group,
including its 96 subsidiaries. Since 2005, Ms. Frenkel Ronen has managed her family’s real estate. Ms. Frenkel Ronen holds a B.A. in accounting and economics and an Executive M.B.A., both from Tel-Aviv University. Ms. Frenkel Ronen is a Certified Public Accountant (CPA).
ZVI TROPP. Mr. Tropp has served as one of our external directors since September 2004. Since 2003, Mr. Tropp has been a senior consultant at Zenovar Consultant Ltd. From February 2006 until June 2007, Mr. Tropp served as the chairman of the board of Rafael Advanced Defense Systems Ltd. From 2000 until 2003, Mr. Tropp served as the Chief Financial Officer of Enavis Networks Ltd. Mr. Tropp has served as a board member of various companies, including Rafael (Armament Development Authority) Ltd., Beit Shemesh Engines Ltd., Rada - Electronic Industries Ltd. and has also served as the Chairman of the investment committee of Bank Leumi Le’Israel Trust Company Ltd. Mr. Tropp holds a B.Sc. in agriculture and an M.Sc. in agricultural economics and business administration from the Hebrew University in Jerusalem.
DUDI MACHLUF. Mr. Machluf has served as the CEO of Elbit Plaza USA since August 1, 2012, and prior thereto served as our Co-CEO from January 1, 2010. From August 2006 until 2009, Mr. Machluf served as our Chief Financial Officer. From 2003 until 2005, Mr. Machluf was the head of our accounting department and managed the transaction department. Mr. Machluf also serves as Chief Executive Officer of Elbit Medical and has served as a director of InSightec. From June 2010 until June 2011, Mr. Machluf served as a director of EDT. Mr. Machluf is a member of the investment committee of EPN. Prior to joining us, Mr. Machluf was a manager at Deloitte, Certified Public Accountants. Mr. Machluf holds a B.A. in Economics and an L.L.M., both from Bar Ilan University and is a Certified Public Accountant.
RAN SHTARKMAN. Mr. Shtarkman served as our Co-CEO from January 1, 2010 until August 1, 2012. Mr. Shtarkman has served as CEO of PC since September 2006, as Executive Director of PC since October 2006 and as President of PC since 2007. From 2004 until 2006 Mr. Shtarkman served as Chief Financial Officer of PC. Prior to that he served as Chief Financial Officer of SPL Software Ltd., Finance and Administration Manager for Continental Airlines’ Israeli operations and Controller of Natour Ltd. Mr. Shtarkman holds an MBA from Ben Gurion University and is a Certified Public Accountant.
DORON MOSHE. On January 1, 2010, Mr. Moshe was appointed as our CFO. From January 2006 until January 2010, Mr. Moshe served as our Chief Controller. From 2001 until 2005, Mr. Moshe served as the Controller of our subsidiaries. Mr. Moshe also serves as Chief Finance Officer of Elbit Medical. From 2000 until 2001, he served as the Controller for a group of public companies in the fields of contracting, real estate, and technology, and from 1999 until 2000, he was a senior accountant at KPMG Israel. Mr. Moshe holds a B.A. in Accounting and Economics from the University of Haifa and is a Certified Public Accountant.
ZVI MAAYAN. Mr. Maayan has served as our General Counsel since October 2008. From 2007 until October 2008, Mr. Maayan served as our Assistant General Counsel. From 2000 until 2007 Mr. Maayan served as Assistant General Counsel for Israel Aerospace Industries Ltd. From 1996 until 2000, Mr. Maayan was a senior associate in the law firm Shugol, Ketzef, Ehrlich, Kerner & Co., specializing in commercial and civil law, international commerce, banking and financing, bankruptcy, biopharmaceutical industry, real estate and litigation. From June 2010 until June 2011, Mr. Maayan served as a director of EDT. Since January 2011, Mr. Maayan is a member of the Executive Committee of the Real Estate Division of the Israel-America Chamber of Commerce. Mr. Maayan holds an LL.B. and an LL.M., cum laude, both from Bar-Ilan University, and is a member of the Israeli Bar
Association.
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B.
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COMPENSATION OF DIRECTORS AND OFFICERS
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Aggregate 2013 Compensation of Directors and Officers
The aggregate compensation paid to or accrued on behalf of all persons as a group (10 persons – who served in the capacity of director or executive officer in the year ended December 31, 2013 (including compensation paid to our former Co-CEOs and our former chairman during 2013) was approximately NIS 11.1 million (approximately $3.2 million). Such aggregate amount includes management fees, salaries and bonuses including certain fringe benefits and accrued amounts in respect of pensions and retirement benefits, but does not include stock-based compensation expenses relating to options granted to our directors and officers.
In addition, our directors and officers participate in share or option allocations pursuant to various plans adopted by us, our subsidiaries and our associates.
For information regarding the terms of grant and exercise under all plans, see “Item 6.E. Share Ownership - 2006 Employees, Directors and Officers Incentive Plan.”
Independent Director Compensation
Compensation and reimbursement for external directors is governed by regulations promulgated under the Companies Law, which provide for semi-annual adjustments pursuant to the Israeli consumer price index. As of March 31, 2014, the amounts payable to our two external directors are NIS 111,345 (approximately $31,931) per year and NIS 5,715 (approximately $1,639) per meeting. Pursuant to a resolution of our shareholders at our 2008 annual general meeting, as of March 31, 2014, the amounts payable to our other independent directors are NIS 89,920 (approximately $25,787) per year and NIS 3,350 (approximately $961) per meeting, payable in accordance with the regulations.
Services of our former chief executive officer and executive president, Mr. Mordechay Zisser
On March 31, 2014 we formally notified Mr. Mordechay Zisser that he will not continue as our chief executive officer and executive president, effective as of even date. Prior to such termination, and pursuant to a management agreement approved by our shareholders on May 31, 2006, Mr. Zisser, at that time our Executive Chairman, and in his roles as of January 1, 2010, as Executive President and as of August 1, 2012 as Chief Executive Officer, provided us with services via a management company controlled by him. In September, 2010 our shareholders' approved an extension of the agreement for an additional five-year term commencing August 2010. However, pursuant to the Israeli Companies Law, this agreement
ceased effect as of August 2013. The agreement provided that Mr. Zisser will devote at least 80% of his time, skills and efforts to his position as our Executive President. In consideration for these services, we paid the management company a monthly fee of $50,000, plus applicable value added tax, as well as reimbursement of expenses. In addition, the management company was entitled to other benefits, such as an appropriate vehicle, telephone, facsimile, mobile phone, computer, printer and modem, including installation costs and all reasonable expenses related thereto.
We are negotiating a potential services relationship with Mr. Zisser, and in event such negotiations result in the parties’ agreeing upon such new relationship, we shall enter into an agreement with him with regard to such service.
In November 2007, our shareholders approved an annual bonus for Mr. Zisser, not to exceed NIS 18 million, calculated as follows: (i) 0% of the first NIS 100 million of profits (as defined below); (ii) 2.5% of profits between NIS 100 million and NIS 125 million; (iii) 3% of profits between NIS 125 million and NIS 150 million; and (iv) 3.5% of profits exceeding NIS 150 million. The annual bonus is payable with respect to the fiscal year ended December 31, 2006 and for each fiscal year thereafter for so long as Mr. Zisser serves as a director or officer of us or any of our subsidiaries. For the purpose of determining the annual bonus, in accordance with resolutions of our audit committee and board of directors of May 29, 2008 and also based
on legal advice received, "profits" for any year shall mean our profit before taxes, as disclosed in our annual audited consolidated financial statements for that year minus profit (loss) before tax attributable to the minority shareholders and minus such loss (before taxes and after deduction of profit (loss) attributable to the minority shareholders) as disclosed in our annual consolidated audited financial statements for all years commencing 2007, that had not already been deducted for the purpose of calculating such annual bonus for any previous year. Such resolution shall be applied, retroactively, to bonuses payable in respect of the year 2007 and thereafter.
In November 2007, our shareholders approved a service agreement between PC and Mr. Zisser for his services as the Executive Chairman of PC. In consideration for such services, Mr. Zisser received a monthly fee of $25,000, as well as reimbursement of his reasonable expenses incurred in the performance of his duties. Under the services agreement, the service fee is to be reviewed by the board of directors of PC each year and may be increased, subject to applicable law. Mr. Zisser has waived his right to receive from PC any severance pay under the Israeli Severance Pay Law and social benefits.
Under Israeli law, however, a waiver of certain social benefits, including severance pay, has no effect, and therefore we may be exposed to potential additional payments to Mr. Zisser in an aggregate amount which we believe to be not material to us, should the agreement be regarded as an employment agreement and should Israeli law and jurisdiction be applied thereupon. Each party may terminate the service agreement upon 12 months’ prior notice.
Agreements with our Former Executive Vice Chairman
Pursuant to an employment agreement approved by our shareholders on January 17, 2008, Mr. Abraham (Rami) Goren served as our Executive Vice Chairman of the board of directors through December 31, 2009.
Under an agreement between Mr. Goren and PC, dated October 26, 2006, which was approved by our shareholders meeting on January 17, 2008, Mr. Goren received options to acquire 5% of the holding company through which PC conducts its operations in India. The options were subject to vesting over a three-year period and became fully vested on March 31, 2009. The options may be exercised at any time, for cash or on a cashless basis, at a price based on PC's net equity investment made in the projects plus interest accrued at the rate of LIBOR plus 2% per annum from the date of investment until the date of exercise.
Mr. Goren has a put right to require PC to purchase shares held by him following exercise of the options, at a price to be determined by an independent appraiser. If PC sells its shares in the Indian holding company to a third party, Mr. Goren’s options will not be affected. However, if a new investor is allotted shares in the holding company, Mr. Goren’s options will be diluted pro-rata. The agreement includes tag-along rights and rights of first refusal.
Under an agreement between Mr. Goren and us, dated January 17, 2008, in consideration for services performed by Mr. Goren pertaining to the sourcing, initiation, operation or management of any business activities in India and other countries in Asia in which Mr. Goren renders such services for our benefit and for the benefit of our affiliates (excluding PC and its subsidiaries), as well as for the performance of other activities assigned to Mr. Goren by us, Mr. Goren is entitled to receive 5% of the outstanding share capital owned by us in each entity through which we conduct business activities initiated in such territory.
Mr. Goren's right to receive shares in each investment vehicle is subject to vesting over a three-year period and became fully vested on March 31, 2009. The right to receive shares in any investment vehicle in which we obtain equity rights after March 31, 2009 will vest immediately. The shares issued to Mr. Goren under the agreement are not entitled to any type of distributions from the investment vehicle until our investments in such investment vehicle have been returned in full, with interest. The agreement includes tag-along rights, pre-emptive rights and registration rights in favor of Mr. Goren and transfer restrictions, rights of first refusal and drag-along rights in our favor. Accordingly, EPI has allotted Mr. Goren Series B shares of EPI constituting 5% of the current issued and outstanding share capital of EPI.
Effective as of August 2010, Mr. Goren resigned from his position as a director in us and in other companies in our group, and effective as of December 31, 2010, he resigned from his employment with us, and accordingly the sourcing period will end in June 2013. Mr. Goren filed a claim against us in March 2013 for NIS 5 million in damages regarding termination of his employment and amounts he claims are still owed to him by the company. The Company and Mr. Goren are currently undergoing a mediation process to resolve such dispute.
Employment Agreement with our former Executive Chairman
Following the election of the new members to our Board of Directors on March 13, 2014, Mr. Shimon Yitzhaki (whose membership on the Board had ceased following the election) ceased to serve as the Executive Chairman of our Board, a position he had served as of January 1, 2010. Prior to such date, in December 2002, our shareholders approved an employment agreement with Mr. Yitzhaki, who then served as our President, Chief Executive Officer and a director, which provided for an aggregate monthly cost to us of NIS 164,734, linked to the Israeli consumer price index. Such cost includes customary social benefits and the use of a car fully maintained by us. In addition, Mr. Yitzhaki was entitled to reimbursement of expenses incurred in connection with his services
in the foregoing capacities. The agreement required Mr. Yitzhaki to devote at least 90% of his working time to us.
In addition, Mr. Yitzhaki was entitled to an annual bonus, calculated as follows: (i) 0.75% of the first NIS 125 million of profits; (ii) 0.875% of profits between NIS 125 million and NIS 150 million; and (iii) 1% of profits exceeding NIS 150 million. For the purpose of determining the annual bonus, in accordance with the resolutions of our audit committee and board of directors of May 29, 2008 and based on legal advice received, "profits" for any year shall mean our profit before taxes, as disclosed in our annual audited consolidated financial statements for that year minus profits (losses) before tax attributable to the minority shareholders.
Mr. Yitzhaki was surrendered with an employment termination notice on or about April 10, 2014.
Corporate Governance Practices
We are incorporated in Israel and therefore are subject to various corporate governance practices under the Companies Law, relating to such matters as external directors, the audit committee, the internal auditor and approvals of interested-party transactions. These matters are in addition to the ongoing listing conditions of the Nasdaq Global Select Market and other relevant provisions of U.S. securities laws. Under the Nasdaq rules, a foreign private issuer may generally follow its home country rules of corporate governance in lieu of the comparable Nasdaq requirements, except for certain matters such as composition and responsibilities of the audit committee and the independence of its members. For further information, see “Item 16G. Corporate Governance.”
Under the Companies Law, our board of directors must determine the minimum number of directors having financial and accounting expertise, as defined in the regulations promulgated under the Companies Law that our board of directors should have. In determining the number of directors required to have such expertise, the board of directors must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board of directors has determined that we require at least two directors with the requisite financial and accounting expertise and that two of our directors fulfill the requirements promulgated under the Companies Law.
Election of Directors
Our directors are generally elected by our shareholders at the annual meeting of the shareholders by a simple majority. Generally, the nominees for a director’s office are recommended by our audit committee which also acts as our nominating committee. The directors hold office until the next annual meeting of our shareholders. Our board of directors may appoint additional directors to our board of directors in the event of a vacancy on or an enlargement of the board of directors. Any director so appointed will hold office until the next annual meeting of the shareholders. Our board of directors currently consists of nine members.
Alternate Directors
Our Amended and Restated Articles of Association provide that any director may, by written notice to us, appoint another person who is not a director to serve as an alternate director, subject to the approval of the chairman of the board. In the case of an appointment made by the chairman, such appointment shall be valid unless objected to by the majority of other directors. The term of appointment of an alternate director is unlimited in time and scope unless otherwise specified in the appointment notice, or until notice is given of the termination of the appointment. No director currently has appointed any other person as an alternate director. The Companies Law stipulates that a person who serves as a director may not serve as an alternate director except under very limited circumstances. An alternate director has the same responsibility
as a director.
External Directors; Independent Directors
The Companies Law requires Israeli public companies (such as us) to appoint at least two external directors. The Companies Law provides for certain qualifications that a candidate for external directorship must comply with. Among such requirements, a person may not be appointed as an external director if: (i) such person or person’s relative or affiliate has, at the date of appointment, or had at any time during the two years preceding such date, any affiliation with the company, a controlling shareholder thereof or their respective affiliates; or (ii) in a company that does not have a 25% shareholder, if such person has an affiliation with any person who, at the time of appointment, is the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the
company. The term “affiliation” is broadly defined in the Companies Law, including an employment relationship, a business or professional relationship, control or service as a director or officer.
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 an external director, or if such position or other business may impair such person’s ability to serve as an external director. Until the lapse of two years from termination of office, a company or its controlling shareholder may not give any direct or indirect benefit to the former external director.
External directors are to be elected by a majority vote at a general meeting of shareholders, provided that (i) such majority vote at the general meeting includes at least a majority of the total votes of non-controlling shareholders voted at such general meeting or (ii) the total number of votes of non-controlling shareholders that voted against such election does not exceed 2% 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 up to two additional three-year terms. In addition, the service of an external director may be extended for additional terms of up to three years each, if both the audit committee and the board of directors confirm that, in light of the expertise and contribution of the external director, the extension of such external director's term would be in the interest of the company. Reelection of an external director may be effected through one of the following mechanisms: (1) the board of directors proposed the reelection of the nominee and the election was approved by the shareholders by the majority required to appoint external directors for their initial term; or (2) a shareholder holding 1% or more of the voting rights proposed the reelection of the nominee,
and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders, provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute more than 2% of the voting rights in the company. External directors may be removed only in a general meeting, by the same percentage of shareholders as is required for their election, or by a court, and in both cases only if the external directors cease to meet the statutory qualifications for their appointment or if they violate their duty of loyalty to us. 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 and compensation 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, for his serving as a director of the company.
Mr. Zvi Tropp’s fourth three-year term as an external director commenced on September 30, 2013, and Ms. Elina Frenkel Ronen’s second three-year term as an external director commenced on December 25, 2011.
Under the Nasdaq rules, a majority of our directors are required to be “independent directors” as defined in Nasdaq’s rules. The current composition of our board of directors consists of a majority of independent directors. Two of our independent directors also qualify as external directors as defined by the Companies Law.
Board Committees
Our board of directors has established an audit committee and a compensation committee, as described below.
Audit committee. The Companies Law requires public companies to appoint an audit committee. An audit committee must consist of at least three members, and include all of the company’s external directors. The members of the audit committee must satisfy certain independence qualifications under the Companies Law, and the chairman of the audit committee is required to be an external director.
The responsibilities of the audit committee include identifying and examining flaws in the business management of the company and suggesting appropriate course of actions, recommending approval of interested party transactions, assessing the company's internal audit system and the performance of its internal auditor.
Our audit committee is comprised of three members, all of whom meet all requisite independence and other professional requirements. Our audit committee operates in accordance with a charter and written procedures governing approval of any proposed transactions with our external auditors. Within the framework of such governing documents, the audit committee oversees the appointment, compensation, and oversight of the public accounting firm engaged to prepare or issue an audit report on our financial statements. The audit committee's specific responsibilities in carrying out its oversight role include the approval of all audit and permitted non-audit services to be provided by the external auditor.
Our audit committee is also authorized to act as our “qualified legal compliance committee”. As such, our audit committee will be responsible for investigating reports, made by attorneys appearing and practicing before the SEC in representing us, of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar material violations of U.S. law by us or any of our agents. Under Nasdaq rules, the approval of the audit committee is also required to effect related-party transactions that would be required to be disclosed in our annual report.
Nasdaq rules require that director nominees be selected or recommended for the board’s selection either by a committee composed solely of independent directors or by a majority of independent directors. The compensation of a company’s chief executive officer and other executive officers is required to be approved either by a majority of the independent directors on the board or a committee comprised solely of independent directors. Our audit committee also currently acts as our nominating committee and compensation committee.
Our audit committee has the authority to retain independent legal, accounting or other consultants as advisors, for which we will provide funding, and handle complaints relating to accounting, internal accounting controls or auditing matters.
Compensation Committee
Under the Companies Law, the board of directors of a public company must establish a compensation committee. The compensation committee must consist of at least three directors who satisfy certain independence qualifications, include all of the outside directors who must maintain a majority of the committee members, and the chairman of which is required to be an outside director. Under the Companies Law, the role of the compensation committee is to recommend to the board of directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders based on specified criteria, to review modifications to the compensation policy from time to time, to review its implementation and to approve the actual compensation terms of office holders prior to approval by the board of directors, and to resolve whether to exempt the compensation terms of a candidate for chief executive officer
from shareholder approval. The members of our compensation committee are Shlomi Kelsi, Zvi Tropp and Elina Frenkel Ronen.
Internal Auditor
Under the Companies Law, our board of directors is required to appoint an internal auditor proposed by the audit committee. The role of the internal auditor is to examine, among other things, whether our actions comply with the law and proper business procedure. The internal auditor may not be an interested party, an office holder, or a relative of any of the foregoing, nor may the internal auditor be our independent accountant or its representative. The Companies Law defines the term “interested party” to include a person who holds 5% or more of our outstanding share capital or voting rights, has the right to appoint one or more directors or the general manager or who serves as a director or as the general manager. Our internal auditor is Mr. Daniel Spira, a Certified Public Accountant in Israel.
For information on the duties of directors, officers and shareholders and requirements for the approval of related-party transactions, please see Item 10.B - “Memorandum and Articles of Association and General Provisions of Israeli Law.”
As of March 31, 2014, we employed or contracted 41 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2014, PC had 116 employees, consultants and part time employee in the Netherlands, CEE, Greece and India. As of March 31, 2014, our Hotel division had 509 employees. As of March 31, 2014, Elbit Fashion employed 548 employees.
As of March 31, 2013, we employed or contracted 49 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2013, PC had 160 employees, consultants and part time employee in CEE, Greece and India. As of March 31, 2013, our Hotel division had 522 employees. As of March 31, 2013, Elbit Fashion employed 488 employees.
As of March 31, 2013, we employed six employees in the United States, in investment, administration and managerial services for our U.S. investment platform.
As of March 31, 2012, we employed or contracted 55 persons as employees or consultants in investment, administration and managerial services, all of whom work out of our headquarters in Israel. As of March 31, 2012, PC had 161 employees, 23 consultants and 1 part time employee in CEE, Russia, Greece and India. As of March 31, 2012, our Hotel division had 692 employees (including employees in proportionally consolidated companies in which we hold 50%, and including 231 employees of our hotels in the Netherlands which are being sold to PPHE pursuant to an agreement entered into in March 2012. See "Item 4.B. Business Overview – Hotels – Recent Acquisitions and Dispositions of Hotels"). As of March 31, 2012, Elbit Fashion employed
441 employees and G.B. Brands Limited Partnership employed 273 employees (of which 5 employees of G.B. Brands Limited Partnership were transferred to Gottex as part of the sale of the GAP brand in April 2012. See "Item 4.B. Business Overview – Fashion Apparel").
As of March 31, 2012, we employed 7 employees in the United States, in investment, administration and managerial services for our U.S. investment platform.
We are not party to any collective bargaining agreement with our employees or with any labor organization.
As of April 1, 2014, our directors and executive officers hold 124,000 options exercisable up to 117,642 our ordinary shares, representing approximately 0.02% of our share capital. This figure includes options to purchase ordinary shares that were vested on such date or that were scheduled to vest within the following 60 days.
For information regarding the terms of grant and exercise under all plans, see “ - 2006 Employees, Directors and Officers Incentive Plan” below.
The following is a description of each of our option plans, including the amount of options currently outstanding and the exercise prices of such options.
2006 Employees, Directors and Officers Incentive Plan, As Amended
Our 2006 Employees, Directors and Officers Incentive Plan, as amended (the “2006 Plan”), provides for the grant of up to 2,300,000 options to employees, directors and officers of us and of companies controlled directly or indirectly by us. The original exercise price per option is the average closing price of our ordinary shares on the TASE during the 30-trading day period preceding the date of grant of such options or as otherwise determined by the board of directors.
The options are exercisable pursuant to a “cashless” exercise mechanism whereby, in lieu of paying the exercise price of the option in exchange for all the ordinary shares subject to the option, the holder is issued such number of ordinary shares whose market value equals the excess of (i) the market value of all the ordinary shares subject to the option over (ii) the aggregate exercise price. In order to limit the potential dilution to shareholders that may be caused by the exercise of options under the 2006 Plan, on October 6, 2008, the audit committee and board of directors amended the 2006 Plan to limit the market price employed in such formula to a maximum price of NIS 200 per ordinary share or as otherwise determined by the board of directors.
Under the terms of the 2006 Plan, options vest over a period of three years, such that 33.33% of the options granted become exercisable on each of the first, second and third anniversaries of the date of grant. The options expire five years from the date of grant.
Pursuant to an amendment of the 2006 Plan in May 2009 regarding options granted in 2006 to offerees still employed by us (including directors and officers who still hold office), offerees were granted the option to choose that the exercise price per option be NIS 60, to limit the “cashless” exercise price to a maximum price of NIS 120 per ordinary share and to extend the expiration date of such options from five years to seven years or the option to only extend the expiration date of such options.
In September, 2011, our board of directors, following the recommendation of our audit committee, decided to amend the exercise price per share of all outstanding options granted by us in accordance with the 2006 Plan to offerees still employed by us (including directors and officers who still hold office), to NIS 10.25, and to extend the expiration date of such options to December 31, 2015. As of March 31, 2014, options to purchase 1,189, 251 ordinary shares were outstanding under the 2006 Plan, all of which options were fully vested.
InSightec Incentive Plans
On February 24, 2013 options to purchase 2,336,250 ordinary shares, representing substantially all the outstanding options granted under the 2003 Option Plans, 2006 Option Plan and 2007 Option Plan, were cancelled and replaced with the same number of options to under the amended 2006 Option Plan (the "Stock Option Plan"). In addition, options to purchase an additional 9,305,250 shares were granted on February 24, 2013, to the grantees. The exercise price of all of the options granted was $1.12.
The majority of the options granted vest in equal installments over a period of four years from the grant date. The options expire following seven years from their date of grant.
All options under the Insightec Incentive Plan automatically vest and become exercisable upon certain events that constitute a material change to InSightec as defined under the terms of the Insightec Incentive Plan, such as a change of control, IPO, a resolution of InSightec’s shareholders or its board of directors for its dissolution or a distribution in kind of most of its assets, and mergers.
As of March 31, 2014, options to purchase an aggregate of 11,998,500 ordinary shares were outstanding under the Insightec Incentive Plan of which 879,000 options were vested and exercisable.
2010 Elbit Incentive Plan and Conversion Plan for InSightec Shares
Our 2010 Incentive Plan (the “2010 Incentive Plan for InSightec Shares”) provides for the grant of options exercisable into up to 500,000 shares of InSightec to employees, directors and officers of us and of affiliate companies, at an exercise price per option to be determined by our board of directors.
Under the 2010 Incentive Plan for InSightec Shares, options vest gradually over a period of three years. The options expire seven years from the date of grant. Options are exercisable by payment of the exercise price in cash.
Prior to an IPO, the underlying shares are subject to certain "drag along" rights.
Prior to or after the consummation of a listing of securities of any parent company of InSightec, our board of directors may approve an exchange of options or underlying shares under the 2010 Incentive Plan for InSightec Shares with options or shares of such parent company, according to a formula set forth in the 2010 Incentive Plan for InSightec Shares.
As of March 31, 2014, options to purchase 430,000 shares were outstanding under the 2010 Incentive Plan for InSightec Shares all of which are fully vested.
2011 Elbit Employees and Officers Incentive Plan for Elbit Medical Technologies Ltd.’s Shares
In April 2011, our board of directors adopted the Elbit Employees and Officers Incentive Plan for Elbit Medical Technologies Ltd.’s shares (the "2011 Plan") for the grant of up to 158,637,000 options exercisable into 79,443,500 ordinary shares of Elbit Medical for an exercise price of NIS 0.40. The exercise price of each option will be reduced upon distribution of dividends, stock dividends etc. The exercise mechanism of the options into Elbit Medical's shares will be as follows: at the exercise date the Company shall transfer to each option holder shares equal to the difference between (A) the price of Elbit Medical's shares on the TASE on the exercise date, provided that if such price exceeds 100% of the exercise price, the opening price shall be set as 100% of the exercise price (the "Capped Exercise Price"); less (B) the
exercise price of the options; and the result (A minus B) will be divided by the Capped Exercise Price. In November 2012, our board of directors adopted an amendment to the 2011 Plan increasing the number of options issuable from 158,637,000 to 187,708,000 and resolved to amend the exercise price per share to NIS 0.133 and extend the expiration date of such options to November 29, 2017. As of March 31, 2014, 159,304,500 options were granted to our employees and officers and an additional 28,153,500 options, which were approved for grant by our Board and Audit Committee to our former chairman remain subject to approval of our shareholders, which has not been asked for till date.
As of March 31, 2014, 158,304,500 options were outstanding under the 2011 Plan of which 116,776,409 were vested.
PC Share Option Scheme, as amended
PC’s Option Plan, as amended in August 2007, November 2008 and November 2011 ( “PC's First Option Plan”) provides for the grant of up to 33,,834,586 options to employees, directors, officers and other persons who provide services to PC, including our employees. In November 2012 the number of options to be granted was increased by 14,000,000 additional options.("PC's Second Option Plan"). The exercise price per option is the average closing price of PC's shares traded on the London Stock Exchange during the fifteen-day period prior to the date of grant.
The options are exercisable pursuant to a “cashless” exercise mechanism whereby, in lieu of paying the exercise price of the option in exchange for all the ordinary shares subject to the option, the holder is issued such number of ordinary shares whose market value equals the difference between (i) the opening price of the ordinary shares on the London Stock Exchange on the exercise date (or Warsaw Stock Exchange in case no opening price on the London Stock Exchange is available on the relevant date of exercise), provided that if the opening price exceeds £3.24 the opening price is set at £3.24 (except for thePC Second Option Plan, for which the cap is set at £2.00) less (ii) the exercise price of the options, with the difference between (i) and (ii) divided by the opening price of the ordinary shares on the London Stock Exchange on the exercise date.
Under the terms of both of PC's Option Plans, options vest over a period of three years, such that 33.33% of the options granted become exercisable on each of the first, second and third anniversaries of the date of grant.
On November 25, 2008, PC’s shareholders and Board of Directors approved a re-pricing of all options granted more than one year prior to October 25, 2008 to £0.52, which was the average closing price of PC's shares traded on the London Stock Exchange during the 30-day period ending on November 25, 2008.
On November 22, 2011, PC’s shareholders and Board of Directors approved an amendment to the plan to extend the term during which options can be exercised from seven to ten years from the date of grant. On November 20, 2012, PC’s shareholders and Board of Directors approved an amendment to the first employee stock option plan to extend the term during which options can be exercised from ten to 15 years from the date of grant.
Upon the occurrence of an event of change of control in PC (as defined in PC's Option Plan), the vesting of all the outstanding options granted by PC that were not exercised or did not expire by such date, shall be fully accelerated. As of March 31, 2014, 24,891,138 options to purchase ordinary shares were outstanding under PC's Option Plan of which 21,463,138 option were vested.
PC India Holdings Public Company Limited (“PCI”) Share Plan
On September 7, 2010, PCI adopted an incentive plan for the grant of options to officers and employees of PCI, us and of affiliate companies (the “2010 PCI Plan”).
The 2010 PCI Plan provides for the grant of up to 14,697 options exercisable into Ordinary C Shares of PCI, to employees, directors and officers of PCI and/or affiliates of PCI including our employees. The exercise price per option shall be determined by the board or by the administrator of the plan. The options expire seven years from the date of grant and the exercise price of each option is 227.
The options are exercisable either by payment of the exercise price in cash or pursuant to a “cashless” exercise mechanism whereby in lieu of paying the exercise price of the option in exchange for all the Ordinary C Shares subject to the option, the holder is issued such number of Ordinary C Shares whose market value equals the excess of (i) the market value of all the underlying shares subject to the option, if the exercise occurs following the closing of an IPO or the fair value of such underlying share if the exercise occurs prior to the closing an IPO, over (ii) the aggregate exercise price.
Under the terms of the 2010 PCI Plan, options vest over a period of three years, so that 33.33% of the options granted become exercisable on each of the first, second and third anniversaries of the date of grant.
Immediately prior to the consummation of a listing of securities of the parent company of PCI, the Ordinary C Shares held by each participant shall automatically convert into the same type of shares being listed such that immediately following listing the proportion of shares in PCI held by each participant compared to the proportion of shares in PCI held by other shareholders shall be the same as immediately prior to Listing, and all options under the 2010 PCI Plan shall become exercisable into listed shares of the parent company, in lieu of Ordinary C Shares such that immediately following listing the proportion of the underlying shares issuable upon exercise of the option compared to the proportion of shares in PCI held by other shareholders shall be the same as immediately prior to listing.
In addition, subject to the receipt of appropriate approvals from the relevant tax authorities, if applicable and/or any other approval required as determined by the administrator of the 2010 PCI Plan prior to the consummation of a listing of securities of any subsidiary of the PCI, and subject further to any and appropriate adjustments which are necessary as determined by the administrator, each participant shall have the right to be issued: (i) options for securities in the listed subsidiary in lieu for his options under the 2010 PCI Plan; and/or (ii) securities in the listed subsidiary in lieu for the Ordinary C shares, reflecting his indirect percentage interest in the listed subsidiary and to have such shares registered for trading together with the other shares of the listing subsidiary.
As of March 31, 2014, options to purchase 14,212 Ordinary C Shares were outstanding under the 2010 PCI Plan all of which are fully vested.
Elbit Plaza India Real Estate Holding Limited Share Plan
On August 16, 2010, EPI adopted an incentive plan for the grant of options to officers and employees of EPI, us and of affiliate companies (the “2010 EPI Plan”).
The 2010 EPI Plan provides for the grant of up to 52,600 options exercisable into Ordinary C Shares of EPI, to employees, directors and officers of EPI and/or affiliates of EPI including our employees. The exercise price per option shall be determined by the board or by the administrator of the plan. The options expire seven years from the date of grant and the exercise price of each option is ˆ0.01.
The options are exercisable either by payment of the exercise price in cash or pursuant to a “cashless” exercise mechanism whereby in lieu of paying the exercise price of the Option in exchange for all the Ordinary C Shares subject to the option, the holder is issued such number of Ordinary C Shares whose market value equals the excess of (i) the market value of all the underlying shares subject to the option, if the exercise occurs following the closing of an IPO or the fair value of such underlying share if the exercise occurs prior to the closing an IPO, over (ii) the aggregate exercise price.
Under the terms of the 2010 EPI Plan, options vest over a period of three years, so that 33.33% of the options granted become exercisable on each of the first, second and third anniversaries of the date of grant.
Immediately prior to the consummation of a listing of securities of the parent company of EPI, the Ordinary C Shares held by each participant shall automatically convert into the same type of shares being listed such that immediately following listing the proportion of shares in the EPI held by each participant compared to the proportion of shares in EPI held by other shareholders shall be the same as immediately prior to Listing, and all options under the 2010 EPI Plan shall become exercisable into listed shares of the parent company, in lieu of Ordinary C Shares such that immediately following listing the proportion of the underlying shares issuable upon exercise of the option compared to the proportion of shares in EPI held by other shareholders shall be the same as immediately prior to listing.
In addition, subject to the receipt of appropriate approvals from the relevant tax authorities, if applicable and/or any other approval required as determined by the administrator of the 2010 EPI Plan prior to the consummation of a listing of securities of any subsidiary of the EPI, and subject further to any and appropriate adjustments which are necessary as determined by the administrator, each participant shall have the right to be issued: (i) options for securities in the listed subsidiary in lieu for his options under the 2010 EPI Plan; and/or (ii) securities in the listed subsidiary in lieu for the Ordinary C shares, reflecting his indirect percentage interest in the listed subsidiary and to have such shares registered for trading together with the other shares of the listing subsidiary.
Prior to an IPO, the underlying shares are subject to certain "No Sale" and other restrictions.
As of March 31, 2014, options to purchase 51,053 Ordinary C Shares were outstanding under the 2010 EPI Plan all of which are fully vested.
Elbit Plaza USA, L.P. 2011 Incentive Plan
In August 2011, Elbit Plaza USA adopted the 2011 Incentive Plan (the “2011 EPUS Incentive Plan”) that provided for the grant of options exercisable into up to 500,000 Participation Units of Elbit Plaza USA to employees, directors and officers of Elbit Plaza USA and of affiliate companies, at an exercise price per option of $17.
Under the 2011 EPUS Incentive Plan, options vested gradually over a period of three years, subject to the right of the plan administrator in its sole discretion to accelerate or otherwise modify the vesting period.
The vested options granted were exercisable into Participation Units only immediately prior to a date in which Elbit Plaza USA ceases to be a going concern and its activities are merely for the purpose of winding up its affairs.
Pursuant to the terms of the plan upon the winding up of Elbit Plaza USA the 500,000 Participation Units entitle their holders to receive their proportionate share of 5% of an amount which equals any and all amounts that Elbit Plaza USA has received from all sources of income less the costs and expenses pertaining to the applicable transaction and less any and all taxes paid or payable if any with respect to such transaction. Upon the sale of the 49 shopping centers located in the U.S. in 2012 discussed above in Item 5 "Operating and Financial Review and prospects – Overview", the 500,000 Participation Units were redeemed by us and PC in consideration for an amount that equaled the foregoing share and Elbit Plaza USA was wound up.
|
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
We had 553,134,519 ordinary shares outstanding as of March 31, 2014. The voting rights of all shareholders are the same. The following table sets forth certain information as of March 31, 2014, unless stated otherwise, concerning (i) persons or entities who, to our knowledge, beneficially own more than 5% of our outstanding ordinary shares and (ii) the number of our ordinary shares beneficially owned by all of our directors and officers as a group:
|
Name and Address
|
|
Number of Shares Beneficially Owned
|
|
|
Approximate Percentage of Shares
|
|
|
York Capital Management Global Advisers LLC and/or certain funds and/or accounts managed by it or its affiliates (1)
|
|
|
108,957,004 |
|
|
|
19.7 |
% |
|
Davidson Kempner Capital Management LP and/or certain funds and/or accounts managed by it or its affiliates (2)
|
|
|
78,871,727 |
|
|
|
14.3 |
% |
|
All officers and directors as a group
|
|
|
117,642 |
(3) |
|
|
0.02 |
% |
_________________
|
(1)
|
Based on a report on Schedule 13G filed with the SEC on March 10, 2014 by York Capital Management Global Advisers LLC.
|
|
(2)
|
Based on information received from the shareholders on March 12, 2014.
|
|
(3)
|
Includes options to purchase ordinary shares that were vested on March 10, 2014 or that were scheduled to vest within the following 60 days. .
|
York Capital Management Global Advisers LLC and Davidson Kempner Capital Management LLC, together with their respective affiliates, were significant note holders of ours and became significant shareholders as a result of the Debt Restructuring.
Prior to the consummation of the Debt Restructuring on February 20, 2014, Mr. Mordechay Zisser, through companies under his control, beneficially owned 12,545,527 ordinary shares, which then constituted approximately 50% of our outstanding ordinary shares. Immediately following the closing of the Debt Restructuring, these shares constituted approximately 2.26% of our outstanding shares. The companies that hold such shares are currently under receivership as a result of having defaulted on secured loans owing to Bank Hapoalim.
|
B.
|
RELATED PARTY TRANSACTIONS
|
As detailed in Item 5 “Operating and Financial Review and Prospects”, our Debt Restructuring was consummated on February 20, 2014, in the framework of which shares representing 95% of our issued and outstanding shares capital were issued to our unsecured financial creditors and additional shares were issued to Bank Hapoalim as part of the Refinancing Agreement. In addition, as detailed below, a receiver was appointed with regards to our ordinary shares held by Europe-Israel, a company controlled by Mr. Zisser who prior to the Debt Restructuring was our controlling shareholder. Consequentially, Europe-Israel ceased to be a controlling shareholder of the Company. The above notwithstanding, we have disclosed our agreements with Europe-Israel and Control Centers (its sole shareholder)
due to Europe-Israel being our controlling shareholder during the reported periods and prior to consummation of the Debt Restructuring and the appointment of the receiver.
Relationship Agreement with PC
On October 27, 2006, we entered into an agreement with PC pursuant to which we undertook, as long as we hold at least 30% of the issued share capital of PC, that neither we nor any person connected with us will compete with the business of PC related to the development of commercial and entertainment centers in Central and Eastern Europe or India or the development of the Dream Island or Casa Radio projects. The Relationship Agreement terminates in the event that PC’s issued share capital ceases to be admitted to the main market of the London Stock Exchange.
Guarantee Agreement with PC
On October 27, 2006, PC agreed, with effect from January 1, 2006, to pay a commission to us in respect of any and all outstanding corporate and first demand guarantees which have been issued by us in favor of PC and which remain valid and outstanding ("EI Guarantees"). The amount of the commissions to be paid will be agreed upon between us and PC at the beginning of each fiscal year, and will apply to all EI Guarantees which remain outstanding during the course of that relevant fiscal year, subject to a cap of 0.5% of the amount or value of the relevant EI Guarantee, per annum. During 2013 no guarantees were provided by us to PC.
Agreement for Services for Construction Projects
On May 31, 2006, our shareholders approved an agreement between us and Control Centers according to which we will receive from Control Centers (either directly or through its subsidiaries or affiliates, other than us) coordination, planning, execution and supervision services over our real estate projects and/or real estate projects of our subsidiaries and/or affiliates in consideration for a fee equal to 5% of the actual execution costs (excluding land acquisition costs, financing cost and the consideration for Control Centers under the agreement) of each such project. The agreement applies to real estate projects initiated following the approval of the agreement by our shareholders and to the
following projects: (i) a commercial and entertainment center in Liberec, Czech Republic; (ii) a commercial and entertainment center in Kerepesi, Hungary; and (iii) a complex of commercial and entertainment center, hotels, congressional centers and other facilities in Obuda, Hungary, which were at that time in early stage of development.
Such fee will be paid in installments upon the meeting of milestones as stipulated in the agreement. In addition, we will reimburse Control Centers for all reasonable costs incurred in connection with the services rendered thereby, not to exceed a total of ˆ75,000 (approximately $97,000) per real estate project.
If the purpose of a real estate project is changed for any reason prior to the completion of the project or if the development of the real estate project is terminated for any reason (including the sale of the real estate project), the payment to Control Centers will be calculated as a percentage of the budget for the project, provided that such percentage shall not exceed the percentage determined for the next milestone of the project had it continued as planned. The calculation of such payments to Control Centers will be subject to the approval of an external accountant and the approval of our audit committee and board of directors.
In addition, we and/or our subsidiaries and/or affiliates may also purchase from Control Centers, our indirect parent, through Jet Link Ltd., an aviation company and a wholly-owned subsidiary of Control Centers, up to 125 flight hours per calendar year in consideration for payments to Jet Link in accordance with its price list to unaffiliated companies, less a 5% discount. This agreement does not derogate from a previous agreement entered into between us and Jet Link for the purchase of aviation services which was approved by our shareholders on September 10, 2000, see “ - Agreement for Aviation Service” below.
The agreement with Control Centers expired on May 31, 2011, but it continues to apply to real estate projects that commenced prior to such date.
In July 2013, Europe-Israel and Mr. Mordechay Zisser notified us that the Court has appointed a receiver (the "Receiver"), inter alia, with regards to our ordinary shares held by Europe Israel securing Europe Israel's undertakings under its loan agreement with Bank Hapoalim. Europe Israel and Mr. Zisser notified us that they had filed an appeal of the Court's ruling and the Supreme Court had issued a stay order with respect to the foreclosure proceedings. In March 2014 the appeal and stay order were dismissed.
It should be noted that within the framework of the Debt Restructuring 528,231,710 new shares were issued (see Item 5 “Operating and Financial Review and Prospects”). As a consequence, following the closing of the Company's Plan of arrangement, Europe Israel holds approximately 2% of the issued and outstanding share capital of the Company.
As a result of the above, as of the date hereof we are not receiving the services under the aforementioned agreement or the agreement with Europe-Israel described under Item 6B “Compensation of Directors and Officers”.
PC Agreement for Aviation Services
On October 27, 2006, PC entered into an agreement with Jet Link Ltd., an aviation company and a wholly-owned subsidiary of Control Centers, pursuant to which PC and/or its affiliates may use Jet Link's airplane for their operational activities up to 275 flight hours per calendar year in consideration for payments to Jet Link in accordance with its price list to unaffiliated companies, less a 5% discount. The initial term of the agreement expired on October 27, 2011, and was extended for an additional four-year term. During 2013 Jet-Link did not provide any aviation services to PC.
Loan Agreement with Bank Hapoalim
Within the framework of our loan agreements with Bank Hapoalim, we undertook to maintain financial covenants. Europe Israel also undertook to maintain a 30% minimum holding in our ordinary shares. Such covenant was canceled upon the closing of the Refinancing Agreement.
Indemnification, Insurance and Exemption
For information regarding the grant of insurance, exemption and indemnification to our directors and officers, by us or our subsidiaries, see “Item 10.B. Memorandum and Articles of Association and General Provisions of Israeli Law - Insurance, Indemnification and Exemption” below.
Inter-company Loans and Guarantees
From time to time we invest in our subsidiaries and jointly controlled companies, by way of equity or capital investments, or otherwise provide loans or guarantees to such companies, in order to finance their operations and businesses. All such investments are eliminated in our consolidated financial statements. Details as to material guarantees are provided in “Item 5.B. Liquidity and Capital Resources - Loans” above.
|
A.
|
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
|
Legal Proceedings
For information regarding the legal proceeding we are involved in, see "Item 4.A History and Development of the Company – Recent Events" and note 18B to our annual consolidated financial statements.
Dividend Distribution Policy
In January 2007 our board of directors, adopted a dividend distribution policy pursuant to which we will distribute a cash dividend of at least 50% of the net profits accrued by us every year, provided that such dividend does not exceed 50% of the cash flow accrued by us from dividends and repayment of owners' loans received by us from subsidiaries in that year, all determined in accordance with our consolidated audited annual financial statements. Any distribution of dividends under this policy is subject to a specific resolution of our board of directors determining our compliance with the distribution criteria prescribed in the Companies Law, and in any other applicable law. In making such determination, our board of directors' takes into account, inter alia, our liabilities and undertakings towards third
parties, our cash flow needs and the financing resources available to us. Our board of directors is authorized in its sole discretion, to change or terminate our dividend policy at any time. The adoption of our dividend policy does not constitute any undertaking towards any third party.
In June 2011 our board of directors resolved not to distribute any dividends for a period of at least 12 months, after which the board of directors will evaluate whether to extend such policy. On June 20, 2012, our board resolved to extend the decision not to distribute dividends for an additional period of at least 12 months.
It should be noted that under the Refinancing Agreement and the terms of the Series H and Series I notes certain limitations were imposed on the distribution of dividends prior to the redemption of such debt.
There are no significant changes that have occurred since December 31, 2013, except as otherwise disclosed in this annual report and in our annual consolidated financial statements.
A. OFFER AND LISTING DETAILS
Our ordinary shares are listed on the NASDAQ Global Select Market under the symbol “EMITF” and on the TASE under the symbol "EMIT."
Information regarding the price history of the stock listed
The annual high and low sale prices for our ordinary shares for the five most recent full financial years are:
| |
|
NASDAQ
|
|
TASE
|
|
Year Ended December 31,
|
|
High ($)
|
|
Low ($)
|
|
High ($)
|
|
Low ($)
|
|
2013
|
|
3.50
|
|
0.69
|
|
3.41
|
|
0.73
|
|
2012
|
|
3.32
|
|
1.80
|
|
3.23
|
|
1.74
|
|
2011
|
|
13.97
|
|
1.98
|
|
12.74
|
|
1.93
|
|
2010
|
|
24.76
|
|
12.05
|
|
25.08
|
|
12.37
|
|
2009
|
|
28.09
|
|
9.30
|
|
28.75
|
|
10.03
|
|
2008
|
|
56.09
|
|
7.58
|
|
56.55
|
|
7.51
|
The quarterly high and low sale prices for our ordinary shares for the two most recent full financial years and any subsequent period are:
| |
|
NASDAQ
|
|
TASE
|
|
Financial Quarter
|
|
High ($)
|
|
Low ($)
|
|
High ($)
|
|
Low ($)
|
|
2014
|
|
|
|
|
|
|
|
|
|
Q1
|
|
1.32
|
|
0.16
|
|
1.32
|
|
0.17
|
|
|
|
0.244
|
|
0.202
|
|
0.234
|
|
0.211
|
| |
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
Q1
|
|
3.50
|
|
1.43
|
|
3.41
|
|
1.53
|
|
Q2
|
|
2.42
|
|
2.01
|
|
2.40
|
|
2.01
|
|
Q3
|
|
2.12
|
|
1.02
|
|
2.04
|
|
1.02
|
|
Q4
|
|
1.28
|
|
0.69
|
|
1.22
|
|
0.73
|
| |
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
Q1
|
|
3.32
|
|
2.25
|
|
3.23
|
|
2.43
|
|
Q2
|
|
3.19
|
|
2.12
|
|
3.14
|
|
2.08
|
|
Q3
|
|
2.89
|
|
2.04
|
|
2.90
|
|
2.02
|
|
Q4
|
|
2.55
|
|
1.80
|
|
2.59
|
|
1.74
|
The monthly high and low sale prices for our ordinary shares during the past six months were:
| |
|
NASDAQ
|
|
TASE
|
|
Month
|
|
High ($)
|
|
Low ($)
|
|
High ($)
|
|
Low ($)
|
|
April 2014 (through April 28)
|
|
0.244
|
|
0.202
|
|
0.234
|
|
0.211
|
|
March 2014
|
|
0.27
|
|
0.18
|
|
0.26
|
|
0.18
|
|
February 2014
|
|
0.84
|
|
0.16
|
|
0.89
|
|
0.17
|
|
January 2014
|
|
1.32
|
|
0.91
|
|
1.32
|
|
0.91
|
|
December 2014
|
|
1.21
|
|
0.69
|
|
1.16
|
|
0.73
|
|
November 2014
|
|
1.22
|
|
1.08
|
|
1.22
|
|
1.11
|
|
October 2014
|
|
1.28
|
|
1.10
|
|
1.22
|
|
1.13
|
The closing prices of our ordinary shares listed on the TASE for each of the periods referred to in the tables above were originally denominated in NIS and were converted to U.S. dollars using the representative exchange rate between the U.S. dollar and the NIS published by the Bank of Israel for each applicable day in the presented period.
Not applicable.
Since our initial public offering in November 1996, our ordinary shares have been listed on the NASDAQ Global Select Market (then known as the NASDAQ National Market) under the symbol “EMITF” and on the TASE under the symbol "EMIT."
Not applicable.
Not applicable.
Not applicable.
Not applicable.
We are a public company registered under the Companies Law as Elbit Imaging Ltd., registration number 52-004303-5.
Pursuant to Section 2 of our Amended and Restated Memorandum of Association, we are authorized to operate in any business or matter for profit purposes as shall be determined or defined by our board of directors from time to time. In addition, our Amended and Restated Articles of Association authorize us to donate reasonable amounts to any cause we deem worthy.
Approval of Certain Transactions
A recent amendment to the Companies Law imposes new approval requirements for the compensation of office holders. Every Israeli public company was required to adopt a compensation policy, recommended by the compensation committee, and approved by the board of directors and the shareholders, in that order, no later than January 12, 2014. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter (similar to the threshold described in the following paragraph regarding transactions with a controlling shareholder). In general, all office holders’ terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the
company's compensation policy. In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder must be approved separately by the compensation committee, the board of directors and the shareholders of the company (by the same majority noted above), in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors. In addition, under the Companies Law and our Amended and Restated Articles of Association, transactions with our officers or directors or a transaction with another person in which such officer or director has a personal interest must be approved by our audit committee, board of directors or authorized non-interested signatories,
and if such transaction is considered an extraordinary transaction (as defined below) or involves the engagement terms of officers, the transaction must be approved by the audit committee and board of directors. Due to the terms of our Debt Restructuring, pursuant to which elections were held as to the appointment of all of the members of our Board (excluding our external directors), we have yet to adopt such a compensation policy. Following the changes to our Board, as mentioned above in "Item 4.A. History and Development of the Company – Recent Events", our Board is expected to formulate our business strategy, including a compensation policy for our officers and directors which it will submit to our shareholders for their approval.
The Companies Law also requires that any extraordinary transaction with a controlling shareholder or an extraordinary transaction with another person in which a controlling shareholder has a personal interest must be approved by the audit committee, the board of directors and the shareholders of the company, in that order. The shareholder approval must be by a simple majority, provided that (i) such majority vote includes at least a simple majority of the total votes of shareholders having no personal interest in the transaction or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed 2% of the total voting rights in the company. In addition, any such extraordinary transaction whose
term is longer than three years requires further shareholder approval every three years, unless (with respect to transactions not involving management fees or employment terms) the audit committee approves that a longer term is reasonable under the circumstances.
The Companies Law prohibits any person who has a personal interest in a matter from participating in the discussion (and voting pertaining to such matter in the company’s board of directors or audit committee except for in circumstances where the majority of the board of directors has a personal interest in the matter, in which case such matter must be approved by the company’s shareholders.
An “extraordinary transaction” is defined in the Companies Law as any of the following: (i) a transaction not in the ordinary course of business; (ii) a transaction that is not on market terms; or (iii) a transaction that is likely to have a material impact on the company’s profitability, assets or liability.
Under the Companies Law, a private placement of securities requires approval by the board of directors and the shareholders of the company if it will cause a person to become a controlling shareholder or if:
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the securities issued amount to 20% or more of the company’s outstanding voting rights before the issuance;
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some or all of the consideration is other than cash or listed securities or the transaction is not on market terms; and
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the transaction will increase the relative holdings of a shareholder that holds 5% or more of the company’s outstanding share capital or voting rights or that will cause any person to become, as a result of the issuance, a holder of more than 5% of the company’s outstanding share capital or voting rights.
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Fiduciary Duties of Directors and Officers
The Companies Law imposes a duty of care and a duty of loyalty on the directors and officers of a company. The duty of care requires a director or officer holder to act with the level of care with which a reasonable director or officer in the same position would have acted under the same circumstances. It includes a duty to use reasonable means to obtain information on the advisability of a given action brought for his approval or performed by him by virtue of his position and all other important information pertaining to these actions.
The duty of loyalty of a director or officer includes a general duty to act in good faith for the benefit of the company, and particularly to:
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refrain from any conflict of interest between the performance of his duties for the company and the performance of his other duties or his personal affairs
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refrain from any activity that is competitive with the company;
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refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and
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disclose to the company any information or documents relating to a company’s affairs which the director or officer has received due to his position as such.
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The Companies Law requires that directors, officers or a controlling shareholder of a public company disclose to the company any personal interest that he or she may have, including all related material facts or documents in connection with any existing or proposed transaction by the company. The disclosure must be made without delay and no later than the first board of directors meeting at which the transaction is first discussed.
Duties of a Shareholder
Under the Companies Law, a shareholder, in exercising his rights and fulfilling his obligations to the company and the other shareholders, must act in good faith and in a customary manner and refrain from improperly exploiting his power in the company, including when voting at general or class meetings of shareholders on: (a) any amendment to the articles of association; (b) an increase of the company’s authorized share capital; (c) a merger; or (d) the approval of related party transactions. In addition, a shareholder must refrain from prejudicing the rights of other shareholders.
Furthermore, any controlling shareholder, any shareholder who knows that he possesses power to determine the outcome of the shareholders’ vote at a general or a class meeting, and any shareholder that, pursuant to the provisions of the articles of association, has the power to appoint or prevent the appointment of an officer in the company or possesses any other power towards the company, is subject to a duty to act in fairness towards the company. The Companies Law does not detail the substance of this duty.
Board of Directors
In accordance with our Amended and Restated Articles of Association, the board of directors may, from time to time, in its discretion, cause us to borrow or secure the payment of any sum or sums of money for the purposes of the Company and may cause us to secure or provide for the repayment of such sum or sums in such manner, at such times and upon such terms and conditions in all respects as it deems fit, and in particular by the issuance of notes, perpetual or redeemable notes, debenture stock, or any mortgages, charges, or other securities on the undertaking or the whole or any part of our property (both present and future), including its uncalled or called but unpaid share capital for the time being.
Neither our Amended and Restated Memorandum of Association nor our Amended and Restated Articles of Association, nor the laws of the State of Israel require retirement of directors at a certain age or share ownership for director qualification, nor do any of them contain any restriction on the board of directors’ borrowing powers.
Insurance, Indemnification and Exemption
General - our Amended and Restated Articles of Association set forth the following provisions regarding the grant of exemption, insurance and indemnification to any of our directors or officers, all subject to the provisions of the Companies Law. In accordance with such provisions and pursuant to the requisite approvals of our audit committee, board of directors and shareholders, we have obtained liability insurance covering our directors and officers, have granted indemnification undertakings to our directors and officers and have agreed to exempt our directors and officers (other than our Executive Chairman) from liability for breach of the duty of care. PC, InSightec and Gamida have also granted indemnification undertakings to their respective directors and officers.
Insurance - we may insure the liability of any director or officer to the fullest extent permitted by law. Without derogating from the aforesaid, we may enter into a contract to insure the liability of a director or officer for an obligation imposed on him in consequence of an act done in his capacity as such, in any of the following cases:
(i) A breach of the duty of care vis-a-vis us or vis-a-vis another person;
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(ii)
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A breach of the duty of loyalty vis-a-vis us, provided that the director or officer acted in good faith and had reasonable basis to believe that the act would not harm us;
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(iii) A monetary obligation imposed on him in favor of another person;
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(iv)
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Reasonable litigation expenses, including attorney fees, incurred by the director or officer as a result of an administrative enforcement proceeding instituted against him. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the director or officer in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Israeli Securities Law, 1968, as amended (the "Securities Law") and expenses that the director or officer incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees; or
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(v)
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Any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of our directors or officers.
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Indemnification
We may indemnify a director or officer to the fullest extent permitted by law, either retroactively or pursuant to an undertaking given in advance. Without derogating from the aforesaid, we may indemnify our directors or officers for liability or expense imposed on him in consequence of an action taken by him in his capacity as such, as follows:
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(i)
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Any financial liability he incurs or imposed on him in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment of an arbitrator, approved by a court, provided that any undertaking to indemnify be restricted to events that, in the opinion of the board of directors, are anticipated in light of our actual activity at the time of granting the undertaking to indemnify and be limited to a sum or measurement determined by the board of directors to be reasonable under the circumstances;
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(ii)
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Reasonable litigation expenses, including legal fees, incurred by the director or officer or which he was ordered to pay by a court, within the framework of proceedings filed against him by or on behalf of us, or by a third party, or in a criminal proceeding in which he was acquitted, or in a criminal proceeding in which he was convicted of a felony which does not require a criminal intent; and
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(iii)
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Reasonable litigation expenses, including legal fees he incurs due to an investigation or proceeding conducted against him by an authority authorized to conduct such an investigation or proceeding, and which was ended without filing an indictment against him and without being subject to a financial obligation as a substitute for a criminal proceeding, or that was ended without filing an indictment against him, but with the imposition of a financial obligation, as a substitute for a criminal proceeding relating to an offense which does not require criminal intent, within the meaning of the relevant terms in the Companies Law or in connection with an administrative enforcement proceeding or a financial sanction. Without derogating from the generality of the foregoing, such expenses will include a payment imposed on the director or officer in favor of an injured party as set forth in Section 52(54)(a)(1)(a) of the Securities Law, and
expenses that the director or officer incurred in connection with a proceeding under Chapters H'3, H'4 or I'1 of the Securities Law, including reasonable legal expenses, which term includes attorney fees.
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The aggregate indemnification amount payable by us pursuant to indemnification undertakings may not exceed the lower of (i) 25% of our shareholders’ equity as of the date of actual payment by us of the indemnification amount (as set forth in our most recent consolidated financial statements prior to such payment) and (ii) $40 million, in excess of any amounts paid (if paid) by insurance companies pursuant to insurance policies maintained by us, with respect to matters covered by such indemnification.
Exemption - we may exempt a director or officer in advance or retroactively for all or any of his liability for damage in consequence of a breach of the duty of care vis-a-vis us, to the fullest extent permitted by law.
Prohibition on the grant of exemption, insurance and indemnification - The Companies Law provides that a company may not give insurance, indemnification nor exempt its directors or officers from liability in the following events:
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(i)
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a breach of the duty of loyalty to the company, unless, with respect to insurance coverage or indemnification, the director or officer acted in good faith and had a reasonable basis to believe that the act would not harm us;
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(ii)
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an intentional or reckless breach of the duty of care;
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(iii)
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an act done with the intention of unduly deriving a personal profit; or
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(iv)
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a fine imposed on the officer or director.
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Rights Attached to Shares
Our registered share capital consists of a single class of 700,000,000 ordinary shares, of no par value, of which 553,134,519 ordinary shares were issued and outstanding as of April 1, 2014.
Dividend and Liquidation Rights
Our board of directors may declare a dividend to be paid to the holders of ordinary shares on a pro rata basis. Dividends may only be paid out of our profits and other surplus funds, as defined in the Companies Law, as of our most recent financial statement or as accrued over the past two years, whichever is higher, or, in the absence of such profits or surplus, with court approval. In any event, a dividend is permitted only if there is no reasonable concern that the payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares on a pro rata basis. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the
future, subject to applicable law. For information on our dividend policy, see “Item 8.A. Financial Information – Consolidated Statements and Other Financial Information - Dividend Distribution Policy.”
Voting Rights
Holders of ordinary shares have one vote for each ordinary share held by them on all matters submitted to a vote of the shareholders. Such voting rights may be affected by the creation of any special rights to the holders of a class of shares with preferential rights that may be authorized in the future in the manner provided for under the Companies Law and our Amended and Restated Articles of Association. The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least 33-1/3% of the issued voting share capital. In the event that a quorum is not present within half an hour of the scheduled time, the meeting shall be adjourned to the
same day of the following week, at the same time and place, or to such other day, time and place as the board of directors shall determine by notice to the shareholders. If at such adjourned meeting a quorum is not present within half an hour of the scheduled time, the two members present in person or by proxy will constitute a quorum.
Modification of Class Rights Attached to Shares
The rights attached to any class, such as voting, liquidation and dividend rights, may be amended by written consent of holders of a majority of the issued shares of that class, or by adoption of a resolution by a simple majority of the shares of that class represented at a separate class meeting.
Annual and Special Meetings
In accordance with the Companies Law, the board of directors must convene an annual meeting of shareholders at least once every calendar year and no later than within 15 months from the last annual meeting. Notice of at least 14 days prior to the date of the meeting is required, subject to applicable law, which often requires notice of at least 21 or 35 days. An extraordinary meeting may be convened by the board of directors, either at its discretion or upon a demand of (i) any two directors or 25% of the serving directors; or (ii) one shareholder or more holding in the aggregate at least 5% of our issued capital and at least 1% of the voting rights in the Company or one shareholder or more holding at least 5% of the voting rights in the Company.
Limitations on the Rights to own Securities
Our Amended and Restated Memorandum of Association and Amended and Restated Articles of Association do not restrict in any way the ownership of our shares by non-residents of Israel and neither the Amended and Restated Memorandum of Association, the Amended and Restated Articles of Association or Israeli law restricts the voting rights of non-residents of Israel except that under Israeli law any transfer or issue of our shares to a resident of an enemy state of Israel is prohibited and shall have no effect.
Changes to our Capital
Changes to our capital are subject to the approval of our shareholders by a simple majority.
Anti-Takeover Provisions
The Companies Law prohibits the purchase of our shares if the purchaser’s holding following such purchase increases above certain percentages without conducting a tender offer or obtaining shareholder approval. Our Amended and Restated Articles of Association increased the required amount of such tender offer to at least 10% of our outstanding ordinary shares See “Item 3.D. Risk Factors - Risks Relating to Israel - Provisions of Israeli law may delay, prevent or make more difficult a merger or other business combination, which may depress our share price.” above.
Transfer Agent
Our transfer agent in the United States is American Stock Transfer and Trust Company whose address is 6201 15th Avenue, Brooklyn, New York 11219.
The following is a list of material contracts entered into by us or any of our subsidiaries during the two years prior to the filing of this annual report.
The Debt Restructuring
For a discussion of the Debt Restructuring and the Letter of Undertakings we entered with trustees of certain series of our notes, see above Item 4A, under “Our Debt Restructuring”.
Commercial and Entertainment Centers
For information regarding the agreement for the provision of coordination, planning, execution and supervision services over construction projects to our affiliated companies see "Item 7.B. Related Party Transactions - Agreement for Services for Construction Projects."
United States Real Property
For information regarding the agreements to sell 49 U.S. shopping centers previously held by EDT, see “Item 5. Operating and Financial Review and Prospects – Overview - 2012.”
Hotel Business
For information regarding the sale of our hotels in the Netherlands to PPHE, see "Item 4.B. Business Overview - Hotels – Recent Acquisitions and Dispositions of Hotels."
Medical
For information regarding the investment in InSightec by GE Healthcare, see "Item 4.B. – Business Overview – Medical Companies - InSightec".
In 1998, the government of Israel promulgated a general permit under the Israeli Currency Control Law, 5738 - 1978. Pursuant to such permit, substantially all transactions in foreign currency are permitted.
Our Amended and Restated Memorandum of Association and Articles of Association do not restrict in any way the ownership of our shares by non-residents, and neither our Amended and Restated Memorandum of Association nor Israeli law restricts the voting rights of non-residents.
The following is a discussion of certain tax laws that may be material to our shareholders, all as in effect as of the date of this report and all of which are subject to changes, possibly on a retroactive basis, to the extent that such laws are still subject to judicial or administrative interpretation in the future. This discussion is not intended, and should not be construed, as legal or professional tax advice and does not cover all possible tax considerations. For further information as to taxes that apply to us and our subsidiaries, see note 22 to our annual consolidated financial statements.
WE ENCOURAGE EACH INVESTOR TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE ISRAELI, U.S. FEDERAL, STATE, AND LOCAL TAXES.
Taxation in Israel
The following is a summary of the material Israeli tax consequences to purchasers of our ordinary shares. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, we cannot assure you that the views expressed in the discussion will be accepted by the appropriate tax authorities or the courts. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
Capital Gains Tax on Sales of Our Ordinary Shares
Israeli law generally imposes a capital gains tax on the sale of capital assets by residents of Israel, and by non-residents of Israel if those assets either (i) are located in Israel; (ii) are shares or a right to a share in an Israeli resident company; or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a specific exemption is available or unless a double tax convention concluded between Israel and the shareholder's country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is equal to the increase in the purchase price of the relevant asset attributable solely to the increase in the Israeli CPI, or a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
As of January 1, 2012, capital gains derived by individuals from the sale of shares, whether listed on a stock market or not, purchased on or after January 1, 2003, will be taxed at the rate of 25%. However, if the individual shareholder is a "Significant Shareholder" (i.e., a person who holds, directly or indirectly, alone or jointly with others, 10% or more of one of the Israeli resident company's means of control) at the time of sale or at any time during the preceding 12 month period, such gains will be taxed at the rate of 30%. In addition, capital gains derived by an individual claiming a deduction of financing expenses in respect of such gains will be taxed at the rate of 30%. However, different tax rates may apply to dealers in securities and shareholders who acquired their shares prior
to an initial public offering. Israeli companies are subject to the corporate tax rate (25% for the tax years 2012 and 2013 and 26.5% for the 2014 tax year and for future tax years) on capital gains derived from the sale of shares.
The tax basis of our shares acquired prior to January 1, 2003, will generally be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003. However, a request may be made to the Israeli tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.
As of January 1, 2013, shareholders that are individuals who have taxable income that exceeds NIS 800,000 in a tax year (linked to the CPI each year) will be subject to an additional tax, referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year that is in excess of NIS 800,000. For this purpose taxable income will include taxable capital gains from the sale of our shares and taxable income from dividend distributions.
Capital gains derived from the sale of our shares by a non-Israeli shareholder may be exempt under the Israeli Income Tax Ordinance from Israeli taxation provided the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of our shares on the stock exchange, (ii) the seller doesn't have a permanent establishment in Israel to which the derived capital gains are attributed, and (iii) if the seller is a corporation, less than 25% of (a) its means of control or (b) the beneficial rights to the revenues or profits of such corporation, whether directly or indirectly, are held by Israeli resident shareholders. In addition, the sale of our shares by a non-Israeli shareholder may be exempt from Israeli capital gain tax under an applicable tax treaty.
Pursuant to the Convention between the Government of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended, or the U.S.- Israel Tax Treaty, the sale, exchange or disposition of ordinary shares by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty generally will not be subject to Israeli capital gains tax unless (i) either such resident holds, directly or indirectly, shares representing 10% or more of the voting power in the company during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions, or (ii) the capital gains from such sale,
exchange or disposition can be allocated to a permanent establishment of the shareholder in Israel. If the above conditions are not met, the sale, exchange or disposition of ordinary shares would be subject to such Israeli capital gains tax to the extent applicable; however, under the U.S.-Israel Tax Treaty, such residents should be permitted to claim a credit for such taxes against U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to state or local taxes.
In some instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source.
Taxation of Dividends Distribution
A distribution of dividends to an Israeli resident individual will generally be subject to income tax at a rate of 25%. However, a 30% tax rate will apply if the dividend recipient is a Significant Shareholder at the time of distribution or at any time during the preceding 12 month period. If the recipient of the dividend is an Israeli resident company, such dividend will be exempt from income tax provided that the income from which such dividend is distributed was derived or accrued within Israel. A distribution of dividends from income attributable to an "Approved Enterprise", or "Benefited Enterprise" under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 will generally be subject to tax in Israel at the rate of 15%, or 20% for distribution of such income from the 2014 tax year and onwards (for Israeli individuals or companies).
For information with respect to the applicability of High Income Tax on distribution of dividends, see " Capital Gains Tax on Sales of Our Ordinary Shares".
Under the Israeli Income Tax Ordinance, a non-Israeli resident (either individual or company) is generally subject to Israeli income tax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a Significant Shareholder), unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence. Under the U.S.- Israel Tax Treaty, the following rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the tax year which precedes the date of payment of the dividend and during the whole of its prior tax year (if any), at least 10% of the outstanding shares of the voting stock of the Israeli resident paying company, and not more than 25% of the gross income of the Israeli resident paying company for such prior taxable year (if any) consists of certain
type of interest or dividends - the tax rate is 12.5%, (ii) if both the conditions mentioned in section (i) above are met and the dividend is paid from an Israeli resident company's income generated by an "Approved Enterprise", "Benefited Enterprise" or "Preferred Enterprise" which was entitled to a reduced tax rate under the Israeli Law for the Encouragement of Capital Investments, 5719-1959 - the tax rate is 15%, and (iii) in all other cases, the tax rate is 25%. The aforementioned rates under the U.S. - Israel Tax Treaty will not apply if the dividend income was derived through a permanent establishment of the U.S. resident in Israel.
We are generally obligated to withhold Israeli tax at the source upon the distribution of a dividend, at the aforementioned rates.
A non-resident of Israel who has dividend income derived from or accrued in Israel, from which tax was withheld at source, is generally exempt from the duty to file tax returns in Israel in respect of such income, provided such income was not derived from a business conducted in Israel by the shareholder.
U.S. Federal Income Tax Considerations
Subject to the limitations described herein, this discussion summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinary shares to a U.S. holder. A U.S. holder is a holder of our ordinary shares who is:
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an individual citizen or resident of the United States for U.S. federal income tax purposes;
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a corporation (or another entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any political subdivision thereof or the District of Columbia;
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an estate, the income of which may be included in the gross income for U.S. federal income tax purposes regardless of its source; or
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a trust if, in general, (i) a U.S. court is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (ii) that has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person.
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Unless otherwise specifically indicated, this discussion does not consider the U.S. tax consequences to a person that is not a U.S. holder (a “non-U.S. holder”) and considers only U.S. holders that will own the ordinary shares as capital assets (generally, for investment).
This discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed Treasury Regulations promulgated under the Code and administrative and judicial interpretations of the Code, all as currently in effect and all of which are subject to change, possibly with retroactive effect. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular U.S. holder based on the U.S. holder’s particular circumstances. In particular, this discussion does not address the U.S. federal income tax consequences to U.S. holders who are broker-dealers; who have elected mark-to-market accounting; who own, directly, indirectly or constructively, 10% or more of our outstanding voting shares; U.S. holders that received ordinary shares as a result of exercising employee stock options or otherwise as compensation; U.S. holders holding
our ordinary shares as part of a hedging, straddle or conversion transaction; U.S. holders whose functional currency is not the U.S. dollar, real estate investments trusts, regulated investment companies, insurance companies, tax-exempt organizations, financial institutions, grantor trusts, S corporations; certain former citizens or long term residents of the United States; and persons subject to the alternative minimum tax, who may be subject to special rules not discussed below. Additionally, the possible application of U.S. federal estate, or gift taxes or any aspect of state, local or non-U.S. tax laws is not discussed.
If a partnership (or other entity treated as a partnership for U.S. Federal income tax purposes) holds our ordinary shares, the tax treatment of the partnership and a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor as to its consequences.
Each holder of our ordinary shares is advised to consult his or her tax advisor with respect to the specific U.S. federal, state, local and foreign tax consequences to him or her of purchasing, holding or disposing of our ordinary shares.
Distributions
Subject to the discussion below under “Tax Consequences if We are a Passive Foreign Investment Company,” a distribution paid by us with respect to our ordinary shares to a U.S. holder will be treated as dividend income to the extent that the distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution with respect to our ordinary shares will equal the amount of cash and the fair market value of any property distributed and will also include the amount of any non-U.S. taxes withheld from such distribution. Dividends that are received by U.S. holders that are individuals, estates or trusts will be taxed at the rate applicable to long-term capital gains (a maximum rate of 20% for taxable years beginning after December 31, 2012), provided that such dividends meet the requirements
of “qualified dividend income.” For this purpose, qualified dividend income generally includes dividends paid by a non-U.S. corporation if certain holding period and other requirements are met and either (a) the stock of the non-U.S. corporation with respect to which the dividends are paid is “readily tradable” on an established securities market in the U.S. (e.g., the NASDAQ Global Select Market) or (b) the non-U.S. corporation is eligible for benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The United States Internal Revenue Service (“IRS”) has determined that the U.S.-Israel income tax treaty is satisfactory for this purpose. Dividends that fail to meet such requirements, and dividends received by corporate U.S. holders are taxed at ordinary income rates. No dividend received by a U.S. holder will be a qualified
dividend if (1) the U.S. holder held the ordinary share with respect to which the dividend was paid for less than 61 days during the 121-day period beginning on the date that is 60 days before the ex-dividend date with respect to such dividend, excluding for this purpose, under the rules of Code Section 246(c), any period during which the U.S. holder has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such ordinary share (or substantially identical securities); or (2) to the extent that the U.S. holder is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in property substantially similar or related to the ordinary share with respect to which the dividend is paid. If we were to be a “passive
foreign investment company” (as such term is defined in the Code) for any taxable year, dividends paid on our ordinary shares in such year and in the following taxable year would not be qualified dividends. See discussion below regarding our PFIC status at “Tax Consequences If We Are a Passive Foreign Income Company.” In addition, a non-corporate U.S. holder will be able to take a qualified dividend into account in determining its deductible investment interest (which is generally limited to its net investment income) only if it elects to do so; in such case, the dividend will be taxed at ordinary income rates.
The amount of any distribution which exceeds the amount treated as a dividend will be treated first as a non-taxable return of capital, reducing the U.S. holder’s tax basis in its ordinary shares to the extent thereof, and then as capital gain from the deemed disposition of the ordinary shares. Corporate holders will not be allowed a deduction for dividends received in respect of the ordinary shares.
Dividends paid by us in NIS will be generally included in the income of U.S. holders at the dollar amount of the dividend (including any non-U.S. taxes withheld therefrom), based upon the exchange rate in effect on the date the distribution is included in income. U.S. holders will have a tax basis in the NIS for U.S. federal income tax purposes equal to that dollar value. Any subsequent gain or loss in respect of the NIS arising from exchange rate fluctuations will generally be taxable as U.S. source ordinary income or loss.
Subject to certain conditions and limitations set forth in the Code and the Treasury Regulations thereunder, including certain holding period requirements, U.S. holders may elect to claim as a foreign tax credit against their U.S. federal income tax liability the non-U.S. income taxes withheld from dividends received in respect of our ordinary shares. The limitations on claiming a foreign tax credit include, among others, computation rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. In this regard, dividends paid by us generally will be foreign source “passive income” for U.S. foreign tax credit purposes. U.S. holders that do not elect to claim a foreign tax credit may instead claim a deduction for the non-U.S. income taxes withheld if they itemize deductions for U.S. federal
income tax purposes. The rules relating to foreign tax credits are complex, and U.S. holders should consult their tax advisors to determine whether and to what extent they would be entitled to this credit.
Disposition of Ordinary Shares
Subject to the discussion below under “Tax Consequences If We Are a Passive Foreign Investment Company,” upon the sale, exchange or other disposition of our ordinary shares, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on the disposition and the U.S. holder’s tax basis in our ordinary shares. The gain or loss recognized on the disposition of the ordinary shares will be long-term capital gain or loss if the U.S. holder held our ordinary shares for more than one year at the time of the disposition. Under current law, long-term capital gains are subject to a maximum rate of 20% for taxable years beginning after December 31, 2012. Capital gain from the sale, exchange or other disposition of our ordinary shares held for one year or less is short-term capital gain and taxed at ordinary income tax rates.
Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of our ordinary shares generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. A U.S. holder that receives foreign currency upon the disposition of our ordinary shares and converts the foreign currency into dollars after the settlement date (in the case of a cash method taxpayer or an accrual method taxpayer that elects to use the settlement date) or trade date (in the case of an accrual method taxpayer) may have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the dollar, which will generally be U.S. source ordinary income or loss.
Medicare Tax
With respect to taxable years beginning after December 31, 2012, certain non-corporate U.S. holders will be subject to an additional 3.8% Medicare tax on all or a portion of their “net investment income,” which may include dividends on, or capital gains recognized from the disposition of, our ordinary shares. U.S. holders are urged to consult their own tax advisors regarding the implications of the additional Medicare tax on their investment in our ordinary shares.
Tax Consequences if we are a Passive Foreign Investment Company
We will be a passive foreign investment company, or PFIC, if either (1) 75% or more of our gross income in a taxable year is passive income or (2) 50% or more of the value, determined on the basis of a quarterly average, of our assets in a taxable year produce or are held for the production of passive income. If we own (directly or indirectly) at least 25% by value of the stock of another corporation, we will be treated for purposes of the foregoing tests as owning our proportionate share of that other corporation’s assets and as directly earning our proportionate share of that other corporation’s income. If we are a PFIC, a U.S. holder must determine under which of three alternative taxing regimes it wishes to be taxed.
The “QEF” regime applies if the U.S. holder elects to treat us as a “qualified electing fund” (“QEF”) for the first taxable year in which the U.S. holder owns our ordinary shares or in which we are a PFIC, whichever is later, and if we comply with certain reporting requirements. If a QEF election is made after the first taxable year in which a U.S. holder holds our ordinary shares and we are a PFIC, then special rules would apply. If the QEF regime applies, then for each taxable year that we are a PFIC, such U.S. holder will include in its gross income a proportionate share of our ordinary earnings (which is taxed as ordinary income) and net capital gain (which is taxed as long-term capital gain), subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. These amounts would be included in income by an electing U.S. holder for its taxable year in which our
taxable year ends, whether or not such amounts are actually distributed to the U.S. holder. A U.S. holder’s basis in our ordinary shares for which a QEF election has been made would be increased to reflect the amount of any taxed but undistributed income. Generally, a QEF election allows an electing U.S. holder to treat any gain realized on the disposition of its ordinary shares as capital gain. Once made, the QEF election applies to all subsequent taxable years of the U.S. holder in which it holds our ordinary shares and for which we are a PFIC, and the QEF election can be revoked only with the consent of the IRS.
A second regime, the “mark-to-market” regime, may be elected so long as our ordinary shares are "marketable stock" (e.g., “regularly traded” on the NASDAQ Global Select Market). If the mark-to-market election is made after the first taxable year in which a U.S. holder holds our ordinary shares and we are a PFIC, then special rules would apply. Pursuant to this regime, an electing U.S. holder’s ordinary shares are marked-to-market each taxable year that we are a PFIC, and the U.S. holder recognizes as ordinary income or loss an amount equal to the difference as of the close of the taxable year between the fair market value of our ordinary shares and the U.S. holder’s adjusted tax basis in our ordinary shares. Losses are allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election for prior taxable years. An electing U.S. holder’s
adjusted basis in our ordinary shares is increased by income recognized under the mark-to-market election and decreased by the deductions allowed under the election. Under the mark-to-market election, in a taxable year that we are a PFIC, gain on the sale of our ordinary shares is treated as ordinary income, and loss on the sale of our ordinary shares, to the extent the amount of loss does not exceed the net mark-to-market gain previously included, is treated as ordinary loss. Any loss on the sale of our ordinary shares in excess of net mark-to-market gain previously included is generally treated as a capital loss. The mark-to-market election applies to the taxable year for which the election is made and all later taxable years, unless the ordinary shares cease to be marketable stock or the IRS consents to the revocation of the election.
A U.S. holder making neither the QEF election nor the mark-to-market election is subject to the “excess distribution” regime. Under this regime, “excess distributions” are subject to special tax rules. An excess distribution is either (1) a distribution with respect to our ordinary shares that is greater than 125% of the average distributions received by the U.S. holder from us over the shorter of either the preceding three taxable years or such U.S. holder’s holding period for our ordinary shares prior to the distribution year, or (2) gain from the disposition of our ordinary shares (including gain deemed recognized if the ordinary shares are used as security for a loan).
Excess distributions must be allocated ratably to each day that a U.S. holder has held our ordinary shares. A U.S. holder must include amounts allocated to the current taxable year, as well as amounts allocated to taxable years prior to the first taxable year in which we were a PFIC, in its gross income as ordinary income for that year. All amounts allocated to other taxable years would be taxed at the highest tax rate for each such prior taxable year applicable to ordinary income and the U.S. holder also would be liable for interest on the deferred tax liability for each such taxable year calculated as if such liability had been due with respect to each such taxable year. A U.S. holder who inherits shares in a non-U.S. corporation that was a PFIC in the hands of the decedent generally is denied the otherwise available step-up in the tax basis of such shares to fair market value at the date of death. Instead, such us holder
would generally have a tax basis equal to the lesser of the decedent's basis or the fair market value of the ordinary shares on the date of the decedent's death.
We believe that we were not a PFIC in 2013. However, since the determination of whether we are a PFIC is based upon such factual matters as our market capitalization, the valuation of our assets, the assets of companies held by us in certain cases and certain assumptions and methodologies in which we have based our analysis, there can be no assurance that the IRS will agree with our position. In addition, there can be no assurance that we will not become a PFIC for the current taxable year ending December 31, 2014 or in any future taxable year. We will notify U.S. holders in the event we conclude that we will be treated as a PFIC for any taxable year to enable U.S. holders to consider whether or not to elect to treat us as a QEF for U.S. federal income tax purposes, or to “mark-to-market” the ordinary shares or to become subject to the “excess distribution” regime. If
we are a PFIC, U.S. holders will generally be required to file an annual report with the IRS.
U.S. holders are urged to consult their tax advisors regarding the application of the PFIC rules, including eligibility for and the manner and advisability of making, the QEF election or the mark-to-market election.
Non-U.S. Holders
Subject to the discussion below under “Information Reporting and Back-up Withholding,” a non-U.S. holder of our ordinary shares generally will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our ordinary shares, unless, in the case of U.S. federal income taxes (i) the item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and in the case of a resident of a country which has a treaty with the United States, the item is attributable to a permanent establishment, or in the case of an individual, the item is attributable to a fixed place of business in the United States, or (ii) the non-U.S. holder is an individual who holds the ordinary shares as a capital asset, is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions
are met.
Information Reporting and Backup Withholding
U.S. holders (other than certain exempt recipients such as corporations) generally are subject to information reporting requirements with respect to dividends paid on our ordinary shares in the United States or by a U.S. payor or U.S. middleman or the gross proceeds from disposing of our ordinary shares. U.S. holders generally are also subject to backup withholding (currently 28%) on dividends paid in the United States or by a U.S. payor or U.S. middleman on our ordinary shares and on the gross proceeds from disposing of our ordinary shares, unless the U.S. holder provides an IRS Form W-9 or is otherwise exempt from backup withholding.
Certain individuals who are U.S. holders may be required to file a Form 8938 to report their ownership of specified foreign financial assets, which may include our ordinary shares, if the total value of those assets exceeds certain thresholds. U.S. holders are urged to consult their tax advisors regarding their tax reporting obligations, including the requirement to file a Form 8938.
Non-U.S. holders generally are not subject to information reporting or backup withholding with respect to dividends paid on our ordinary shares in the United States or by a U.S. payor or U.S. middleman or the gross proceeds from the disposition of our ordinary shares, provided that such non-U.S. holder certifies to its foreign status, or is otherwise exempt from backup withholding or information reporting.
The amount of any backup withholding may be allowed as a credit against a holder’s U.S. federal income tax liability and may entitle such holder to a refund provided that certain required information is timely furnished to the IRS.
|
F.
|
DIVIDENDS AND PAYING AGENTS
|
Not applicable.
We are subject to the informational requirements of the Exchange Act that are applicable to a foreign private issuer. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.
However, we file annual reports with, and furnish other information to, the SEC. These materials, including this annual report and the exhibits hereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. Additionally, copies of the materials may be obtained from the SEC’s website at http://www.sec.gov.
|
I.
|
SUBSIDIARY INFORMATION
|
Not applicable.
|
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Management of financial risks
Our operations expose us to risks that relate to various financial instruments, such as market risks (including currency risk, fair value risk with respect to interest rates, cash flow risk with respect to interest rates and other price risk), credit risk and liquidity risk.
Market risk is the risk that the fair value of future cash flow of financial instruments will fluctuate because of changes in market prices.
Credit risk is the risk of financial loss to us if a counterparty to a financial instrument fails to meet its contractual obligations.
Liquidity risk is the risk that we will not be able to meet our financial obligations as they become due.
Our comprehensive risk management program focuses on actions to minimize the possible negative effects on our financial performance. In certain cases we use derivatives and non-derivative financial instruments in order to mitigate certain risk exposures.
Our board of directors has overall responsibility for the establishment and oversight of our risk management framework. Our board of directors has established a continuous process for identifying and managing the risks faced by us, and confirms that all appropriate actions have been or are being taken to address any weaknesses.
As of December 31, 2013, we had exposure to the following risks that are related to financial instruments:
Foreign currency risk
We have international activities in many countries and, therefore, we are exposed to foreign currency risks as a result of fluctuations in the different exchange rates. Foreign currency risks are derived from transactions executed and/or financial assets and liabilities held in a currency which is different than the functional currency of our entity which executed the transaction or holds these financial assets and liabilities. In order to minimize such exposure, our policy is to hold financial assets and liabilities in a currency which is the functional currency of that entity. Our functional currency is the NIS and our investees use different functional currencies (mainly the Euro , Indian Rupee, U.S. dollar and the Romanian RON). As for foreign currency risk in respect of PC’s notes, for which PC executed swap transaction in order to mitigate such risk, see “ - Interest Rate Risk” below.
The following table details sensitivity analysis to a change of 10% in our main foreign currencies, as of December 31, 2013, against the relevant functional currency and their effect on the statements of income and the shareholder’s equity (before tax and before capitalizing any exchange results to qualified assets):
| |
Functional currency
|
|
Linkage currency
|
|
Change in the exchange rate (%)
|
|
|
Profit (loss)
|
|
| |
(in NIS thousands)
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
Cash and deposits
|
NIS
|
|
U.S. dollar
|
|
|
+10 |
% |
|
|
1,570 |
|
|
Cash and deposits
|
Euro
|
|
PLN
|
|
|
+10 |
% |
|
|
1,622 |
|
|
Cash and deposits
|
Euro
|
|
NIS
|
|
|
+10 |
% |
|
|
1,614 |
|
|
Cash and deposits
|
Euro
|
|
U.S. dollar
|
|
|
+10 |
% |
|
|
1,574 |
|
|
Cash and deposits
|
U.S. dollar
|
|
NIS
|
|
|
+10 |
% |
|
|
402 |
|
|
Total
|
|
|
|
|
|
|
|
|
|
6,782 |
|
|
Financial Liablities
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at amortized cost
|
NIS
|
|
U.S. dollar
|
|
|
+10 |
% |
|
|
(21,694 |
) |
|
Loans at amortized cost
|
Euro
|
|
PLN
|
|
|
+10 |
% |
|
|
(6,918 |
) |
|
Debentures at amortized cost
|
NIS
|
|
U.S. dollar
|
|
|
+10 |
% |
|
|
(1,429 |
) |
|
Debentures at amortized cost(i)
|
Euro
|
|
NIS
|
|
|
+10 |
% |
|
|
(26,859 |
) |
|
Loans at amortized cost
|
Euro
|
|
U.S. dollar
|
|
|
+10 |
% |
|
|
(1,209 |
) |
|
Loans at amortized cost
|
RON
|
|
Euro
|
|
|
+10 |
% |
|
|
(26,808 |
) |
|
Total
|
|
|
|
|
|
|
|
|
|
(84,917 |
) |
_____________________
|
|
(i)
|
In respect of PC’s Debentures which are presented at amortized cost. Regarding the foreign currency risk of PC's notes at FVTPL see "Interest Rate Risk" below.
|
Foreign Currency Mitigate using selling options
During 2011, PC decided to use selling options strategy (through Israeli and foreign banks) in order to mitigate its foreign currency risk (EURO-NIS) inherent in its long term Series A and Series B notes issued in NIS which are not mitigated by other derivative instruments (e.g. cross currency interest rate swaps or forward transactions).
During 2011, PC wrote call and put options with an expiration date of December 28, 2011. The options activity generated a net cash gain of NIS 25.9 million (approximately $15 million).
During 2012, PC wrote call and put options with an expiration date of December 31, 2012. The options activity generated a net cash gain of NIS 57.8 million.
During 2013, PC wrote call and put options with an expiration date of December 31, 2013. The options activity generated a net cash loss of NIS 11.3 million.
Price risk
Marketable securities and available for sale
We invest in marketable securities based on the investment policy adopted by our investment committee.
An increase of 10% in the prices of our marketable securities as of December 31, 2013, will increase our finance income by NIS 1.4 million.
We are exposed to equity price risks arising from equity investments classified as available for sale assets. Such assets are held for strategic rather than trading purposes and we do not actively trade these investments.
If such assets' price had been 10% higher/lower, our profit and loss for the year ended December 31, 2013 would have been unaffected, as the change in value of such assets affects only our comprehensive income, which would increase/decrease by NIS 2.4 million as a result of such changes in fair value.
Derivative measured at FVTPL
The balance as of December 31, 2013 and 2012 includes an amount of GBP 1.9 and 2.5 million (NIS 11 and 15 million) with regard to the sale of our hotels in the United Kingdom. As of December 31, 2013 and 2012, the balance also includes the amount of GBP 0.8 and 1.2 million (NIS 7 and 8 million) with regards to the sale of our hotels in the Netherlands. Said amounts were determined by a third party expert and represent the fair value of a derivative contemplated in the sale agreements. An increase of 10% in the price of the shares of PPHE will cause a decrease of NIS 2.4 million (approximately $691,000) in the fair value of the derivative.
Credit risk
We hold cash and cash equivalents, short-term investments and other long-term investments in financial instruments in various reputable banks and financial institutions. These banks and financial institutions are located in different geographical regions, and it is our policy to disperse our investments among different banks and financial institutions. Our maximum credit risk exposure is approximately the financial assets presented in the balance sheet in our annual consolidated financial statements.
Due to the nature of their activity, our companies which operate in the hotel, the investment property, the image guided and the fashion merchandise business, are not materially exposed to credit risks stemming from dependence on a given customer. Our companies examine on an ongoing basis the credit amounts extended to their customers and, accordingly, record a provision for doubtful debts based on those factors they consider having an effect on specific customers.
Fair value risk
A significant portion of our long-term loans and notes bear a fixed interest rate and are therefore, exposed to change in their fair value as a result of changes in the market interest rate. The vast majority of these loans and notes are measured at amortized cost and therefore changes in the fair value will not have any effect on the statement of income. With respect of three projects loans, PC mitigates its exposure to cash flow due to floating interest (IRS). The aggregate fair value of these three IRS, based on a valuation technique, was a negative value in an amount of NIS 4.3 million, a change of 1% in the market interest, is expected to have immaterial effect on the statement of income. In respect of a loan agreement drawn down by SC Bucuresti Turism Sa, our subsidiary that owns the Radisson Blu Bucharest hotel ("BUTU"), in October 2011 BUTU entered into an IRS transaction in which it will pay fixed interest
rate of 1.4% and receive from the bank an amount equal to interest at a rate of 3 months Euribor on the loan balance on a quarterly basis starting January 1, 2013 and ending on June 30, 2016.
As of December 31, 2013, PC has issued two series of notes which are presented at FVTPL: Series A in a total aggregate amount of NIS 305 million (approximately $88 million), and Series B in a total aggregate amount of NIS 799 million (approximately $230 million). PC's Series A and B notes are linked to the Israeli consumer price index and bear a fixed interest rate of 4.5% to 5.4% per annum. Close to the date of their issuance, PC entered into cross currency Euro-NIS interest rate swap transactions in respect of the entire amount of Series A notes. Such swap transaction was settled in January 2009. In February 2011, PC entered into a new cross currency interest rate swap transaction in respect of a principal amount of NIS 127 million of Series A notes. According to the swap transaction, PC will pay a fixed interest of 6.82% and will receive the same interest as the notes linked
to the Israeli CPI, with the same amortization schedule as the notes. The new Series A swap was settled in January 2012. In addition, PC entered into several swap transactions for its Series B notes, NIS 799 million par value ("Series B at FVTPL"). PC did not execute swap transaction for the additional amount of Series B notes. According to the swap transactions, PC will pay an interest equal to the Euribor plus a margin of 3.52% to 3.66% and will receive the same interest as the notes linked to the Israeli consumer price index with the same amortization schedule as the notes. Series B notes swap transactions were settled in September 2011 for total proceeds of NIS 153 million. The swap derivatives were measured at fair value with changes in the fair value charged to the statements of income. The notes (other than those for which a swap transaction were not executed) are designated at fair value through profit and loss since it significantly reduces a measurement
inconsistency with the said derivative. The notes are presented at FVTPL although the swap was settled. The notes and the derivative swap transactions associated with them (i.e. the swap transactions) are mainly exposed to changes in the Euro / NIS exchange rate, the Israeli consumer price index and the market interest rates. In respect of EURO-PLN cross currency interest rate swap related to PC PLN notes at amortized cost (see cash flow risk), this swap transaction was settled during March 2013 for a cash consideration of NIS 3.8 million.
The following table analyses the change in the fair value of the notes and the derivatives as of December 31, 2013. This analysis assumes that in each case all other parameters affecting the derivatives and the notes fair value remain constant:
|
|
Scope of
Price change
|
|
|
Profit (loss)
|
|
| |
%
|
|
|
NIS thousands
|
|
|
Exchange rate of the Euro against the NIS
|
|
|
+10 |
% |
|
|
45,317 |
|
|
Change in the Israeli CPI
|
|
|
+2.2 |
% |
|
|
(9,970 |
) |
Change in the market interest rate
|
|
|
+1 |
% |
|
|
5,432 |
|
Cash flow risk
Part of our long-term borrowings, as well as long-term loans receivable, bear variable interest rates. Cash and cash equivalents, short-term deposits and short-term bank credits are mainly deposited in or obtained at variable interest rates. Changes in the market interest rate will affect our finance income and expenses and our cash flow.
In certain cases we use interest rate swap transaction in order to swap loans with a variable interest rate to fixed interest rate or alternatively entering into loans with a fixed interest rate.
The following table presents the effect of an increase of 2% in the LIBOR rate with respect to financial assets and liabilities as of December 31, 2013, which are exposed to cash flow risk (before tax and before capitalization to qualifying assets):
| |
|
Profit (loss)
|
|
| |
|
NIS thousands
|
|
|
Loans, notes and convertible notes linked to the U.S. dollar
|
|
|
(4,681 |
) |
|
Loans and notes linked to the Euro
|
|
|
(21,259 |
) |
|
Loans linked to the INR
|
|
|
(2,076 |
) |
|
Debentures linked to the PLN (*)
|
|
|
(1,384 |
) |
| |
|
|
(29,400 |
) |
______________________________
| |
(*)
|
PC raised a total of PLN 60 million (approximately NIS 71 million) from Polish institutional investors. The unsecured bearer notes governed by Polish law have a three year maturity and will bear interest at a rate of six months Polish WIBOR plus a margin of 4.5%. PC entered into a EUR-PLN cross-currency interest rate swap in order to hedge the expected payments in PLN (principal and interest) and to correlate them with the Euro. The derivative is measured at fair value and the notes are measured at amortized cost.
|
PC will pay a fixed interest of 6.98% and will receive an interest of six month WIBOR + 4.5% with the same amortization schedule as the Polish notes. The swap transaction was settled on March 2013.
The following table presents our long-term financial liabilities classified according to their interest rate and their contractual maturity date: (*)
|
Functional Currency
|
|
|
Linkage Currency
|
|
|
Interest Rate %
|
|
|
Average Interest Rate %
|
|
|
Repayment Years
|
|
| |
|
|
|
|
|
|
|
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
5 |
|
|
6 and thereafter
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
NIS million
|
|
| ˆ |
|
|
PLN |
|
|
6.98
|
|
|
|
6.98 |
|
|
|
69.2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
69.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ˆ |
|
|
|
U.S. dollar
|
|
|
Libor+4
|
|
|
|
4.3 |
|
|
|
12.3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
12.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ˆ |
|
|
|
ˆ |
|
|
|
Euribor + 1.65-6
|
|
|
|
4 |
|
|
|
722.3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
722.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ˆ |
|
|
|
ˆ |
|
|
|
Euribor + 1.75
|
|
|
|
2.1 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
59.8 |
|
|
|
- |
|
|
|
- |
|
|
|
77.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ˆ |
|
|
|
NIS (linked to CPI)
|
|
|
4.5-5.4
|
|
|
|
4.5-5.4 |
|
|
|
887.5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
887.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ˆ |
|
|
|
ˆ |
|
|
|
2.436-2.963 |
|
|
|
2.436-2.963 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
19.9 |
|
|
|
- |
|
|
|
27.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
|
|
|
U.S. dollar
|
|
|
12
|
|
|
|
12 |
|
|
|
169.2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
169.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
|
|
|
U.S. dollar
|
|
|
10.2
|
|
|
|
10.2 |
|
|
|
47.5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
47.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
|
|
|
NIS (linked to CPI)
|
|
|
5-9
|
|
|
|
7.5 |
|
|
|
2,285.9 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,285.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RON
|
|
|
ˆ |
|
|
|
Euribor + 4.6
|
|
|
|
4.87 |
|
|
|
12.6 |
|
|
|
12.6 |
|
|
|
243 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
268.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
|
|
|
NIS
|
|
|
6.25
|
|
|
|
6.25 |
|
|
|
108.4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
108.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
U.S. dollar
|
|
|
Libor+4.65
|
|
|
|
5.37 |
|
|
|
14.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INR
|
|
|
INR
|
|
|
Base rate+3.25
|
|
|
|
13.25 |
|
|
|
103.8 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
103.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,441 |
|
|
|
20.6 |
|
|
|
251 |
|
|
|
61.8 |
|
|
|
19.8 |
|
|
|
- |
|
|
|
4,794.3 |
|
(*) The table above does not include the effect of our Debt Restructuring as described in note 3 to our consolidated financial statements.
Israeli consumer price index risk
A significant portion of our borrowings consists of notes raised by us on the TASE and which are linked to the increase in the Israeli consumer price index above the base index at the date of the notes issuance. An increase of 3% in the Israeli consumer price index will cause an increase in our finance expenses for the year ended December 31, 2013 (before tax and capitalizations of finance expenses to qualified assets) in the amount of NIS 70.9 million (approximately $20 million).
Fair value of financial instruments
Our financial instruments primarily include cash and cash equivalents, short and long-term deposits, marketable securities, trade receivables, short and long-term other receivables, short- term banks credit, other current liabilities and long-term monetary liabilities.
The fair value of traded financial instruments (such as marketable securities and notes) is generally calculated according to quoted closing prices as of the balance sheet date, multiplied by the issued quantity of the traded financial instrument as of that date. The fair value of financial instruments that are not traded is estimated by means of accepted pricing models, such as present value of future cash flows discounted at a rate that, in our assessment, reflects the level of risk that is incorporated in the financial instrument. We rely, in part, on market interest which is quoted in an active market, as well as on various techniques of approximation. Therefore, for most of the financial instruments, the estimation of fair value presented below is not necessarily an indication of the realization value of the financial instrument as of December 31, 2013. The estimation
of fair value is carried out, as mentioned above, according to the discount rates in proximity to such date and does not take into account the variability of the interest rates from the date of the computation through the date of issuance of the financial statements. Under an assumption of other discount rates, different fair value assessments would be received which could be materially different from those estimated by us, mainly with respect to financial instruments at a fixed interest rate. Moreover, in determining the assessments of fair value, the commissions that could be payable at the time of repayment of the instrument have not been taken into account and they also do not include any tax effect. The difference between the balances of the financial instruments as of the balance sheet date and their fair value as estimated by us may not necessarily be realizable, in particular in respect of a financial instrument which will be held until redemption date.
Following are the principal methods and assumptions which served to compute the estimated fair value of the financial instruments:
|
|
a)
|
Financial instruments included in current assets - (cash and cash equivalents, deposits and marketable securities, trade receivables, other current assets and assets related to discontinued operations) - due to their nature, their fair values approximate to those presented in the balance sheet.
|
|
|
b)
|
Financial instruments included in non-current assets - the fair value of loans and deposits which bear variable interest rate is an approximation to those presented in the balance sheet.
|
|
|
c)
|
Financial instruments included in current liabilities - (short-term credit, suppliers, other current liabilities and liabilities related to discontinued operations) - due to their nature, their fair values approximate to those presented in the balance sheet. The fair value of derivatives (mainly swap transactions) is calculated by relying on valuations performed by third party experts, which take into account the expected future cash flow based on the terms and maturity of each contract using market interest rates for a similar instrument prevailing at the measurement date.
|
|
|
d)
|
Financial instruments included in long-term liabilities - The fair value of the traded liabilities (notes) is determined according to closing prices as of December 31, 2013 quoted on the Tel Aviv and Warsaw Stock Exchanges, multiplied by the quantity of the marketable financial instrument issued as of that date. The fair value of non-traded liabilities at a fixed interest rate is determined according to the present value of future cash flows, discounted at a rate which reflects, in our estimation, the level of risk embedded in the financial instrument. The fair value of liabilities which carried variable interest rate is approximately the amounts presented in the balance sheet.
|
The following table presents the book value and fair value of our financial assets (liabilities), which are presented in the financial statements at other than their fair value:
| |
|
|
|
| |
|
Book Value
|
|
|
Fair Value
|
|
|
Long- term loans at fixed interest rate
|
|
|
(27,682 |
) |
|
|
(27,682 |
) |
|
Debentures
|
|
|
(2,363,215 |
) |
|
|
(721,431 |
) |
| |
|
|
(2,390,897 |
) |
|
|
(749,113 |
) |
|
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.
PART II
|
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
On November 14, 2013, PC announced that its board has concluded that it will withhold payment of ˆ15 million (approximately NIS 72 million) due from PC to its Polish bondholders on November 18, 2013 and approximately ˆ17 million (approximately NIS 81 million) due from PC to its Israeli bondholders on December 31, 2013.
In addition, PC stated that in the meantime, PC will refrain from incurring additional material financial liabilities.
As reported by PC, as of the date of this annual report PC holds approximately ˆ23 million (approximately NIS 110 million) of free cash balances while an additional approximately ˆ10 million (approximately NIS 48 million) of cash is held as restricted cash on a consolidated basis. PC’s financial statements for the period ending on December 31, 2013 include an emphasis of PC’s liquidity situation and potential impact on PC’s ability to continue operating as a going concern.
For more information regarding PC’s debt restructuring plan, see “Item 5 - Operating and Financial Review and Prospects”.
|
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
None.
Disclosure Controls and Procedures.
Our management, with the participation of our principal executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2013. Based on this evaluation, our principal executive officer and chief financial officer concluded that, as of December 31, 2013, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance to our management and the board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.
Our management evaluated the effectiveness of our internal control over financial reporting established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the above, our management has assessed and concluded that, as of December 31, 2013, our internal control over financial reporting is effective.
|
|
AUDIT COMMITTEE FINANCIAL EXPERT
|
In accordance with Nasdaq Corporate Governance Rules, our board of directors has determined that both Mr. Zvi Tropp and Ms. Elina Frenkel Ronen are “audit committee financial experts” as defined in the instructions to Item 16A. of Form 20-F and are independent in accordance with the Nasdaq listing standards for audit committees applicable to us.
Our principal executive officer, principal financial officer as well as all other directors, officers and employees are bound by a Code of Ethics and Business Conduct. Our Code of Ethics and Business Conduct is posted on and can be accessed via our web-site at www.elbitimaging.com. We will provide any person, without charge, upon request, a copy of our Code of Ethics. Such request should be submitted to our Corporate Secretary at5 Kinneret St., Bnei-Brak 5126237, Israel and should include a return mailing address.
|
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Fees billed by Brightman Almagor Zohar & Co., a firm of certified public accountants in Israel and a member firm of Deloitte Touche Tohmatsu, and other Deloitte member firms ("Deloitte") for professional services for each of the last two fiscal years were as follows:
|
Services Rendered
|
|
2012 Fees
|
|
|
2013 Fees
|
|
|
Audit (a)
|
|
$ |
736,618 |
|
|
$ |
586,901 |
|
|
Audit-related (b)
|
|
$ |
34,601 |
|
|
$ |
49,970 |
|
|
Tax (c)
|
|
$ |
295,438 |
|
|
$ |
58,957 |
|
|
All other fees (d)
|
|
|
- |
|
|
|
- |
|
|
Total
|
|
$ |
1,066,657 |
|
|
$ |
708,286 |
|
(a) Audit Fees
“Audit Fees” are the aggregate fees billed for the audit of our annual financial statements; audit in accordance with section 404 of the Sarbanes-Oxley Act of 2002, statutory audits and services that are normally provided in connection with statutory and regulatory filings or engagements.
(b) Audit-Related Fees
“Audit-Related Fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit Fees.
In 2013, Audit-Related Fees included mainly work related to restatement our annual report for the year ended in December 31, 2012 following the SEC review. In 2012, included mainly work related to contemplated public offerings in our medical division.
(c) Tax Fees
“Tax Fees” are the aggregate fees billed for professional services rendered for tax compliance, tax advice on actual or contemplated transactions and tax consultations regarding tax audits, tax opinions and tax pre-rulings.
(d) All Other Fees
“All Other Fees” are the aggregate fees billed for products and services provided by Deloitte other than as described above. There were no such fees in 2012 and 2013.
(e) Pre-Approval Policies and Procedures
Our audit committee oversees the appointment, compensation, and oversight of the registered public accounting firm engaged to prepare and issue an audit report on our financial statements. The audit committee's specific responsibilities in carrying out its oversight role include the approval of all audit and non-audit services to be provided by our registered public accounting firm and quarterly review of its non-audit services and related fees. These services may include audit services, audit-related services, permitted tax services and other services, as described above. The audit committee approves in advance the particular services or categories of services to be provided to us during the following yearly period and also sets forth a specific budget for such audit and non-audit services. Additional services may be pre-approved by the audit committee on an individual basis throughout the year.
None of the Audit-Related Fees, Tax Fees or Other Fees paid by us for services provided by Deloitte were approved by the audit committee pursuant to the de minimis exception to the pre-approval requirement provided by Section 10A of the Exchange Act.
|
|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
|
|
PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS
|
No purchases of any of our equity securities (either pursuant to or not pursuant to any publicly announced plans or programs) were made by or on behalf of us during 2013.
Repurchases of PC's notes by PC
In May 2011, PC’s Board of Directors approved a repurchase plan in the aggregate amount of up to NIS 150 million (approximately $39 million) of its Series A and B Notes. Following the expiration of the repurchase plan, on December 23, 2011, PC’s Board of Directors approved another repurchase plan of up to NIS 150 million (approximately $39 million) of its Series A and B Notes. In November 2012, PC’s Board approved the extension of the repurchase plan to be concluded by December 31, 2014 with a maximum amount to be purchased of up to NIS 600 million (approximately $158 million) instead of NIS 150 million.
The repurchases were and will be made either on the open market, privately negotiated transactions, or a combination of the two.
PC's subsidiary has secured a credit facility provided by a bank by granting first ranking charges on the repurchased notes.
As of December 31, 2012, PC, directly and indirectly through its subsidiary, has purchased a total of NIS 271 million par value of the notes for an amount of approximately NIS 247 million (approximately $65 millions). A total of NIS 38.6 million par value of the notes repurchased have been fully redeemed.
|
|
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
|
None.
We follow the Companies Law, the relevant provisions of which are summarized in this annual report, rather than comply with the NASDAQ requirements relating to: (i) the quorum for adjourned shareholder meetings, as described in “Item 10.B. Memorandum and Articles of Association - Voting Rights”; (ii) executive sessions of independent directors, which are not required under the Companies Law; and (iii) shareholder approval with respect to issuance of securities under equity based compensation plans. NASDAQ rules generally require shareholder approval when an equity based compensation plan is established or materially amended, but we follow the Companies Law, which requires approval of the board of directors or a duly authorized committee thereof, unless such arrangements are for the compensation of directors, in which case they
also require compensation committee and shareholder approval.
Not applicable.
In lieu of responding to this item, we have responded to Item 18 of this annual report.
The following financial statements and related auditors’ report are filed as Exhibit 15.2 to this annual report:
| |
Page
|
| |
|
|
Report of independent registered public accounting firm
|
2
|
| |
|
|
Condensed Financial Statements:
|
|
|
Balance sheets
|
3-4
|
|
Statements of income
|
5
|
|
Statements of cash flows
|
6-7
|
|
Notes to the condensed financial statements
|
8-10
|
PART III
|
1.1
|
|
|
1.2
|
|
|
2.1
|
|
|
4.1
|
|
|
4.2
|
English translation of Agreement for the Provision of Consultancy Services for the Development of Real Estate Projects dated May 31, 2006, between Elbit Imaging Ltd. and Control Centers Ltd. (incorporated by reference to Exhibit 4.13 of our Annual Report on Form 20-F filed on July 2, 2007).
|
|
4.3
|
|
|
4.4
|
English translation of Employees, Directors and Offices Incentive Plan of 2006, as amended (incorporated by reference to Exhibit 4.6 of our Annual Report on Form 20-F filed on June 26, 2009).
|
|
4.5
|
|
|
4.6
|
|
|
4.7
|
|
|
4.8
|
|
|
4.9
|
|
|
4.10
|
|
|
8.1
|
|
|
12.1
|
Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
12.2
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
13.1
|
Certification of the principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
13.2
|
Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
15.1
|
|
|
15.2
|
|
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to hereby sign this annual report on its behalf.
| |
Elbit Imaging Ltd.
|
|
| |
|
|
|
| |
By:
|
/s/ Ron Hadassi |
|
| |
Name:
|
|
|
| |
Title:
|
Chairman of the Board of Directors
|
|
137
