EX-99.1 2 f8k0316ex99i_elbit.htm AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015 AND 2014 AND FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2015

Exhibit 99.1

 

 

 

 

 

  

ELBIT IMAGING LTD.

 

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2015

 

 

 

 

 

 

 

 

 1 
 

 

ELBIT IMAGING LTD.

 

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2015

 

Contents

 

  Page
   
Report of independent registered public accounting firm 3
   
Consolidated Financial Statements:  
   
Balance sheets 4
   
Statements of income 5-6
   
Statements of comprehensive income 7
   
Statements of changes in shareholders' equity 8-11
   
Statements of cash flows 12-15
   
Notes to the consolidated financial statements 16-121

 

 2 
 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Elbit Imaging Ltd.

 

We have audited the accompanying consolidated balance sheets of Elbit Imaging Ltd. and its subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, shareholders' equity (deficiency) and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the company and its subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations, and their cash flows for each of the three years in the period ended December 31, 2015, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Without qualifying our opinion, we draw attention to:

 

1.Note 1 C to the consolidated financial statements, which describes the company's financial position. The Company has prepared a projected cash flow based on its plans for the repayment of the liabilities as described in note 1C. Based on the projected cash flow and the related assumptions, the Company's board of directors is of the opinion that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future.

 

2.Notes 8 B (1) in the consolidated financial statements which disclose, among other matters, information regarding the cash flow projections of the significant subsidiary for 18 months from the end of the reporting period.

 

3.Note 5 C Casa radio (5-6) and note 14 C (13) in the consolidated financial statements which disclose, among other things, potential irregularities concerning the Casaradio Project in Romania and their potential consequences, including Foreign Corrupt Practices Act potential implications.

 

4.Note 14, with respect to claims that have been filed against Group companies, one of which was certifies as a class action.

 

Brightman Almagor Zohar & Co.

Certified Public Accountants

A member firm of Deloitte Touche Tohmatsu

Tel-Aviv, Israel March 31, 2016

 

 

 

 3 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED BALANCE SHEETS

 

      December 31 
      2 0 1 5   2 0 1 4   2 0 1 5 
              Convenience 
              translation 
              (note 2D) 
   Note  (in thousand NIS)   U.S.$'000 
Current Assets               
Cash and cash equivalents      157,851    323,182    40,454 
Short-term deposits and investments      30,075    47,967    7,708 
Trade accounts receivables      13,638    24,067    3,495 
Other receivables  (4)   13,909    27,217    3,564 
Inventories      2,071    2,803    531 
       217,544    425,236    55,752 
Assets related to discontinued operation      -    63,466    - 
       217,544    488,702    55,752 
                   
Non-Current Assets                  
Trading property  (5)   1,467,760    1,875,937    376,156 
Deposits, loans and other long-term balances      21,899    27,226    5,612 
Investments in associates and joint venture  (6,7)   292,183    349,537    74,880 
Property, plant and equipment  (9)   704,166    919,911    180,463 
       2,486,008    3,172,611    637,111 
                   
       2,703,552    3,661,313    692,863 
                   
Current Liabilities                  
Short-term credits  (10)   726,763    207,193    186,254 
Suppliers and service providers      15,708    22,288    4,026 
Payables and other credit balances  (11)   63,780    99,162    16,345 
       806,251    328,643    206,625 
Liabilities related to discontinued operation      -    30,342    - 
       806,251    358,985    206,625 
Non-Current Liabilities                  
Borrowings  (12)   1,443,920    2,425,503    370,046 
Other liabilities      66,530    92,377    17,051 
Deferred taxes  (13)   82,787    71,211    21,216 
       1,593,237    2,589,091    408,313 
Commitments, Contingencies, Liens and Collaterals  (14)               
                   
Shareholders' Equity  (3A),(15)               
Share capital and share premium      1,105,973    1,055,056    283,437 
Reserves      (862,054)   (755,948)   (220,926)
Retained losses      (224,632)   (67,129)   (57,568)
Attributable to equity holders of the Company      19,287    231,979    4,943 
Non-controlling interest      284,777    481,258    72,982 
       304,064    713,237    77,925 
                   
       2,703,552    3,661,313    692,863 

 

         

Doron Moshe

Chief Financial Officer and
Acting Chief Executive Officer

 

Zvi Tropp

Chairman of the
Audit Committee

 

Ron Hadassi

Chairman of the Board
of Directors

 

Approved by the Board of Directors on: March 31, 2016 

 

The accompanying notes form an integral part of the financial statements.

 

 4 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED STATEMENTS OF INCOME

 

      Year ended December 31 
      2 0 1 5   2 0 1 4   2 0 1 3   2 0 1 5 
          Convenience translation (Note 2D) 
   Note  (in thousand NIS)   U.S.$'000 
      (Except for per-share data)     
                    
Revenues and gains                       
                        
Revenues                       
Revenues from sale of commercial centers  (17A)   200,078    201,571    8,614    51,276 
Revenues from Hotels operations and management  (17B)   147,886    197,007    202,791    37,900 
Total revenues      347,964    398,578    211,405    89,176 
                        
Gains and other                       
Rental income from Commercial centers  (17A)   83,849    113,661    129,748    21,489 
Gain from sale of investees      6,712    11,301    -    1,720 
Total gains      90,561    124,962    129,748    23,209 
                        
Total revenues and gains      438,525    523,540    341,153    112,385 
                        
Expenses and losses                       
Commercial centers  (17C)   290,360    291,864    124,737    74,413 
Hotels operations and management  (17D)   126,849    173,918    179,137    32,509 
General and administrative expenses  (17E)   16,678    39,785    60,643    4,274 
Share in losses of associates, net  (7,8)   42,925    17,298    339,030    11,001 
Financial expenses  (17F)   236,288    237,601    334,101    60,558 
Financial income  (17G)   (2,154)   (6,317)   (3,930)   (552)
Change in fair value of financial instruments measured at fair value through profit and loss  (17H)   5,446    71,432    68,407    1,396 
Financial gain from debt restructuring  (3)   -    (1,616,628)   -    - 
Write-down, charges and other expenses, net  (17I)   38,298    531,042    840,034    9,815 
       754,690    (260,005)   1,942,159    193,414 
                        
Profit (loss) before income taxes      (316,165)   783,545    (1,601,006)   (81,029)
                        
Income taxes expenses (tax benefits)  (13)   5,631    (2,287)   (30,937)   1,443 
                        
Profit (loss) from continuing operations      (321,796)   785,832    (1,570,069)   (82,472)
                        
Profit (loss) from discontinued operations, net  (20)   6,874    (1,475)   5,059    1,762 
                        
Profit (loss) for the year      (314,922)   784,357    (1,565,010)   (80,710)

 

The accompanying notes form an integral part of the financial statements.

 

 5 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED STATEMENTS OF INCOME (CONT.)

 

      Year ended December 31 
      2 0 1 5   2 0 1 4   2 0 1 3   2 0 1 5 
          Convenience translation (Note 2D) 
   Note  (in thousand NIS)   U.S.$'000 
      (Except for per-share data)     
Attributable to:                        
Equity holders of the Company       (186,150)   1,008,999    (1,155,645)   (47,709)
Non-controlling interest       (128,772)   (224,642)   (409,365)   (33,001)
        (314,922)   784,357    (1,565,010)   (80,710)
                         
Profit (loss) from continuing operations                        
Equity holders of the Company       (193,024)   1,010,619    (1,160,429)   (49,468)
Non-controlling interest       (128,772)   (224,787)   (409,640)   (33,004)
        (321,796)   785,832    (1,570,069)   (82,472)
                         
Profit (loss) from discontinued operation, net                        
Equity holders of the Company       6,874    (1,620)   4,785    1,762 
Non-controlling interest       -    145    274    - 
        6,874    (1,475)   5,059    1,762 
                         
Earnings (loss) per share - (in NIS)   (17J)                    
Basic earnings (loss) per share:                        
From continuing operation       (7.00)   42.55    (932.15)   (2.00)
From discontinued operations       0.25    (0.06)   3.84    - 
        (6.75)   42.49    (928.31)   (2.00)
Diluted earnings (loss) per share:                        
From continuing operation       (7.00)   42.55    (932.15)   (2.00)
From discontinued operations       0.25    (0.06)   3.84    - 
        (6.75)   42.49    (928.31)   (2.00)

 

The accompanying notes form an integral part of the financial statements.

 

 6 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

   Year ended December 31 
   2 0 1 5   2 0 1 4   2 0 1 3   2 0 1 5 
       Convenience translation (Note 2D) 
   (in thousand NIS)   U.S.$'000 
   (Except for per-share data)     
                     
Profit (loss) for the year   (314,922)   784,357    (1,565,010)   (80,710)
                     
Other comprehensive income to be reclassified to profit or loss in subsequent periods:                    
                     
Exchange differences arising from translation of foreign operations   (91,319)   24,262    (267,861)   (23,400)
Gain from cash flow hedge   2,081    702    4,439    533 
Gain (loss) from available for sale investments net of reclassification reserve to profit and lost   -    (11,329)   3,545    - 
Reclassification adjustments relating to foreign operations disposed of in the year   (32,454)   -    -    (8,317)
    (121,692)   13,635    (259,877)   (31,184)
                     
Items not to be reclassified to profit or loss in subsequent periods(*):                    
Additions during the year   83,582    (79,393)   27,700    21,420 
    83,582    (79,393)   27,700    21,420 
                     
Other comprehensive loss   (38,110)   (65,758)   (232,177)   (9,764)
                     
Comprehensive income (loss)   (353,032)   718,599    (1,797,187)   (90,474)
                     
Attributable to:                    
Equity holders of the Company   (206,504)   958,878    (1,328,500)   (52,922)
Non-controlling interest   (146,528)   (240,279)   (468,687)   (37,552)
    (353,032)   718,599    (1,797,187)   (90,474)

 

(*)      All amounts are presented net of related tax.

 

The accompanying notes form an integral part of the financial statements.

 

 7 
 

 

ELBIT IMAGING LTD.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

 

   Share capital   Share premium   Other reserves(*)   Revaluation of property, plant and equipment   Stock-based compensation reserve   Foreign currency translation reserve   Retained earnings   Gross amount   Treasury stock   Attributable to shareholders of the company   Non- Controlling interest   Total shareholders' equity 
   (in thousand NIS) 
                                                 
Balance -
January 1, 2013
   38,059    864,811    (191,700)   190,690    49,835    (553,629)   59,085    457,151    (168,521)   288,630    1,100,478    1,389,108 
Loss  for the year   -    -    -    -    -    -    (1,155,645)   (1,155,645)   -    (1,155,645)   (409,365)   (1,565,010)
Other comprehensive income (loss)   -    -    7,985    11,593    -    (202,257)   9,740    (172,939)   -    (172,939)   (59,323)   (232,262)
Transaction with non-controlling interest   -    -    1,853    -    -    -    -    1,853    -    1,853    1,106    2,959 
Reclassification of a derivative (option) following change in terms   -    -    -    -    -    -    -    -    -    -    (11,819)   (11,819)
Exercise of options by employees   10    1,673    -    -    (1,683)   -    -    -    -    -    -    - 
Expiration of options held by minority   -    4,804    -    -    -    -    -    4,804    -    4,804    (4,804)   - 
Stock-based compensation expenses   -    -    -    -    660    -    -    660    -    660    7,734    8,394 
                                                             
Balance -
December 31, 2013
   38,069    871,288    (181,862)   202,283    48,812    (755,886)   (1,086,820)   (864,116)   (168,521)   (1,032,637)   624,007    (408,630)

 

(*)      Includes transactions with non-controlling interest reserve and hedging reserve.

 

The accompanying notes form an integral part of the financial statements.

 

 8 
 

 

ELBIT IMAGING LTD.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONT.)

 

   Share capital   Share premium   Other reserves(*)   Revaluation of property, plant and equipment   Stock-based compensation reserve   Foreign currency translation reserve   Retained earnings   Gross amount   Treasury stock   Attributable to shareholders of the company   Non- Controlling interest   Total shareholders' equity 
   (in thousand NIS) 
                                                 
Balance -
January 1, 2014
   38,069    871,288    (181,862)   202,283    48,812    (755,886)   (1,086,820)   (864,116)   (168,521)   (1,032,637)   624,007    (408,630)
Profit (loss) for the year   -    -    -    -    -    -    1,008,999    1,008,999    -    1,008,999    (224,642)   784,357 
Other comprehensive income (loss)   -    -    (10,789)   (71,734)   -    21,710    10,692    (50,121)   -    (50,121)   (15,637)   (65,758)
Issuance of shares   -    314,220    -    -    -    -    -    314,220    -    314,220    -    314,220 
Stock based compensation expenses   -    -    -    -    715    -    -    715    -    715    4,321    5,036 
Treasury stock and old stock cancellation   (38,069)   (130,452)   -    -    -    -    -    (168,521)   168,521    -    -    - 
Transaction with non-controlling interest   -    -    (47,431)   -    -    -    -    (47,431)   -    (47,431)   131,443    84,012 
Expiration and exercise of option   -    -    38,234    -    -    -    -    38,234    -    38,234    (38,234)   - 
                                                             
Balance -
December 31, 2014
   -    1,055,056    (201,848)   130,549    49,527    (734,176)   (67,129)   231,979    -    231,979    481,258    713,237 

 

(*)      Includes transactions with non-controlling interest reserve and hedging reserve.

 

The accompanying notes form an integral part of the financial statements.

 

 9 
 

 

ELBIT IMAGING LTD.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONT.)

 

   Share capital   Share premium   Other reserves(*)   Revaluation of property, plant and equipment   Stock-based compensation reserve   Foreign currency translation reserve   Retained earnings   Gross amount   Treasury stock   Attributable to shareholders of the company   Non- Controlling interest   Total shareholders' equity 
   (in thousand NIS) 
                                                 
Balance -
January 1, 2015
   -    1,055,056    (201,848)   130,549    49,527    (734,176)   (67,129)   231,979    -    231,979    481,258    713,237 
Loss  for the year   -    -    -    -    -    -    (186,150)   (186,150)   -    (186,150)   (128,772)   (314,922)
Other comprehensive income (loss)   -    -    8,007    60,783    -    (109,649)   20,504    (20,355)   -    (20,355)   (17,756)   (38,111)
Stock based compensation expenses   -    -    -    -    845    -    -    845    -    845    (175)   670 
Transaction with non-controlling interest   -    -    (148,066)   37,413    -    94,933    8,142    (7,578)   -    (7,578)   (50,565)   (58,143)
Expiration of options held by minority   -    -    -    -    546              546         546    787    1,333 
Cancelation of treasury stock and old stock   -    50,918    -    -    (50,918)   -    -    -    -    -    -    - 
                                                             
Balance -
December 31, 2015
   -    1,105,974    (341,907)   228,745    -    (748,892)   (224,633)   19,287     -    19,287    284,777    304,064 

 

(*)      Includes transactions with non-controlling interest reserve and hedging reserve.

 

The accompanying notes form an integral part of the financial statements.

 

 10 
 

 

ELBIT IMAGING LTD.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONT.)

 

   Share capital   Share premium   Other reserves(*)   Revaluation of property, plant and equipment   Stock-based compensation reserve   Foreign currency translation reserve   Retained earnings   Gross amount   Treasury stock   Attributable to shareholders of the company   Non- Controlling interest   Total shareholders' equity 
   (in thousand US$) 
                                                 
Balance -
January 1, 2015
   -    270,388    (51,729)   33,457    12,693    (188,154)   (17,204)   59,451    -    59,451    123,336    182,787 
Loss  for the year   -    -    -    -    -    -    (47,706)   (47,706)   -    (47,706)   (33,004)   (80,710)
Other comprehensive income (loss)   -    -    2,052    15,577    -    (28,100)   5,255    (5,216)   -    (5,216)   (4,550)   (9,766)
Stock based compensation expenses   -    -    -    -    217    -    -    217    -    217    (45)   172 
Transaction with non-controlling interest   -    -    (37,947)   9,588    -    24,329    2,087    (1,943)   -    (1,943)   (12,957)   (14,900)
Expiration of options held by minority   -    -    -    -    140              140    -    140    202    342 
Cancelation of treasury stock and old stock   -    13,050    -    -    (13,050)   -    -    -    -    -    -    - 
                                                             
Balance -
December 31, 2015
   -    283,438    (87,624)   58,622    -    (191,925)   (57,568)   4,943    -    4,943    72,982    77,925 

 

(*)      Includes transactions with non-controlling interest reserve and hedging reserve.

 

The accompanying notes form an integral part of the financial statements.

 

 11 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS

 

   Year ended December 31 
   2 0 1 5   2 0 1 4   2 0 1 3   2 0 1 5 
       Convenience translation (Note 2D) 
   (in thousand NIS)   U.S.$'000 
   (Except for per-share data)     
                 
CASH FLOWS FROM OPERATING ACTIVITIES                
                 
Profit (loss) for the year from continued operations   (321,796)   785,832    (1,570,069)   (82,472)
                     
Adjustments to profit (loss):                    
Tax expenses (benefits) recognized in profit and loss   5,631    (2,287)   (30,937)   1,443 
Finance expenses recognized in profit and loss   239,598    302,716    401,889    61,404 
Financial gain from debt restructuring   -    (1,616,628)   -    - 
Income tax paid in cash   (509)   (85)   (9,418)   (130)
Depreciation and amortization (including impairment)   123,145    582,745    828,297    31,559 
 Gain from fair value adjustment of investment property   -    -    20,282    - 
Realization of foreign currency translation reserve in connection with sale operations   (56,063)   -    -    (14,368)
Profit from realization of subsidiary (Appendix A)   (4,147)   -    -    (1,063)
Loss (Profit) from realization of investments in associates and joint venture   (6,713)   (11,301)   17,863    (1,720)
Share in losses of associates, net   42,925    17,298    339,030    11,001 
Loss (profit) from realization of assets and liabilities   (4,872)   1,328    (74)   (1,249)
Stock based compensation expenses   1,047    5,036    9,742    268 
Other   (488)   (20,679)   (10,811)   (125)
Trade accounts receivables   3,415    5,538    (357)   875 
Receivables and other debit balances   10,968    22,739    43,311    2,811 
Inventories   (118)   198    (36)   (30)
Trading property and payment on account of trading property   181,680    214,171    (11,050)   46,561 
Suppliers and service providers   (7,095)   (970)   (22,284)   (1,818)
Payables and other credit balances   (13,241)   (6,022)   (17,405)   (3,393)
Net cash provided by (used in) operating activities of continuing operations   193,367    279,629    (12,027)   49,554 
Net cash provided by (used in) discontinued operating activities   (2,014)   1,506    (4,846)   (516)
                     
Net cash provided by (used in) operating activities   191,353    281,135    (16,873)   49,038 

 

The accompanying notes form an integral part of the financial statements.

 

 12 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)

 

   Year ended December 31 
   2 0 1 5   2 0 1 4   2 0 1 3   2 0 1 5 
       Convenience translation (Note 2D) 
   (in thousand NIS)   U.S.$'000 
   (Except for per-share data)     
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
                 
Proceeds from realization of investments in subsidiaries  (Appendix A)   192,026    -    -    49,212 
Purchase of property plant and equipment, investment property and other assets   (23,630)   (4,525)   (15,026)   (6,056)
Proceeds from realization of property plant and equipment   12,916    7,230    -    3,310 
Proceeds from realization of investment property   -    -    37,600    - 
Proceeds from realization of investments in associates and joint venture   76    -    96,052    19 
Investments in associates and other companies   -    (3,193)   (359)   - 
Proceed from realization of long-term deposits and long-term loans   10,197    -    45,039    2,613 
Investment in long-term deposits and long-term loans   -    (3,365)   -    - 
Interest received in cash   1,404    3,730    7,550    360 
Proceed from sale of available for sale marketable securities   -    -    57,625    - 
Purchase of available for sale marketable securities   -    -    (6,831)   - 
Short-term deposits and marketable securities, net and changes in restricted cash   5,070    47,186    140,204    1,299 
Net cash provided by continued investing activities   198,059    47,063    361,854    50,757 
Net cash provided by (used in) discontinued investing activities   37,737    (7,913)   (7,337)   9,671 
                     
Net cash provided by investing activities   235,796    39,150    354,517    60,428 

 

The accompanying notes form an integral part of the financial statements.

 

 13 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)

 

   Year ended December 31 
   2 0 1 5   2 0 1 4   2 0 1 3   2 0 1 5 
       Convenience translation (Note 2D) 
   (in thousand NIS)   U.S.$'000 
   (Except for per-share data)     
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
                 
Proceeds from re-issuance of notes   -    -    75,772    - 
Interest paid in cash   (129,350)   (153,561)   (97,994)   (33,150)
Purchase of non-controlling interest   (62,059)             (15,904)
Proceeds from long-term borrowings   -    42,715    3,412    - 
Repayment of long-term borrowings   (377,406)   (247,709)   (423,861)   (96,721)
Proceeds from selling (purchasing) of derivatives   (1,610)   -    (8,136)   (413)
Proceeds from transactions with non-controlling interests, net   -    54,885    101    - 
Proceed from short-term credit   -    7,152    -    - 
Repayment of short-term credit   (6,997)   -    (85,962)   (1,793)
Net cash used in continued financing activities   (577,422)   (296,518)   (536,668)   (147,981)
Net cash provided by (used in) discontinued financing activities   (2,135)   2,000    (8,006)   (547)
                     
Net cash used in financing activities   (579,557)   (294,518)   (544,674)   (148,528)
                     
                     
Increase (decrease) in cash and cash equivalents   (152,408)   25,767    (207,030)   (39,062)
                     
Cash and cash equivalents at the beginning of the year   323,182    311,181    528,251    82,825 
                     
Cash and cash equivalents related to discontinued operations at the end of the year   -    (6,290)   -    - 
                     
Net effect on cash due to currency exchange rate changes   (12,923)   (7,476)   (10,040)   (3,312)
                     
Cash and cash equivalents at the end of the year   157,851    323,182    311,181    40,451 

 

The accompanying notes form an integral part of the financial statements.

 

 14 
 

 

ELBIT IMAGING LTD.

CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)

 

   Year ended December 31 
   2 0 1 5   2 0 1 4   2 0 1 3   2 0 1 5 
       Convenience translation (Note 2D) 
   (in thousand NIS)   U.S.$'000 
                 
APPENDIX A -
Proceeds from realization of investments in subsidiaries
                
                 
Working capital (excluding cash), net   (15,591)   -    -   (3,996)
Property, plant equipment and other assets   203,470    -    -    52,145 
Profit from realization of subsidiaries   4,147    -    -    1,063 
                     
    192,026    -    -    49,212 

 

The accompanying notes form an integral part of the financial statements.

 

 15 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - GENERAL

 

A.Elbit Imaging Ltd. ("the Company") was incorporated in Israel. The Company's registered office is at 7 Mota Gur Street Petach-Tikva, Israel. The Company's shares are registered for trade on the Tel Aviv Stock Exchange and in the United States on the NASDAQ Global Select Market.

 

B.The Group engages, directly and through its investee companies, in Israel and abroad, mainly in the following areas:
Commercial centers - initiation, construction, and sale of commercial centers and other mixed-use property projects, predominantly in the retail sector, located in Central and Eastern Europe. In certain circumstances and depending on market conditions, the Group operates and manages commercial centers prior to their sale.
Hotel - hotel operation and management of the Radisson hotel Complex in Bucharest Romania. For the selling of the Belgium hotels in June 2015 see note 9 G
Medical industries and devices - (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.
Plots in India - plots designated for sale which were initially designated to residential projects.
With regards to the sale of the operation and business of "Mango" retail stores in Israel to Fox-Wisel Ltd. ("Fox") on January, 5 2015, see note 20. Accordingly, this operation is presented in these financial statements as discontinued operation.

 

C.Financial position:

 

The Company's separate financial statements include liabilities to bank Hapoalim and towards Series H and Series I notes, in the aggregate principal amount of approximately NIS 792 million. NIS 214 million (principal plus interest) will become due till the end of 2017 and NIS 403 (principal and interest) will become due in May 2018. In addition, the Company has certain operational expenses for its ongoing operations.

 

The Company has prepared a projected cash flow until June 2018, which includes the anticipated sources that to the Company's estimation, are expected to serve the repayment of its financial liabilities mentioned above. The main anticipated sources included in the Company's projected cash flow are (i) cash and cash equivalents (on its separate financial statements) of approximately NIS 72 million (ii) net cash expected to be generated from the refinance and the sale of the Company's hotel in Bucharest, in the amount of approximately NIS 467 million; (iii) net cash from the sale of our share in the Bangalore project in India in the amount of NIS 82 million as per the Agreement signed on December 2, 2015 and (iii) other sources including the partial sale of shares in our held companies in the medical field in the amount approximately NIS 50 million. It should be noted, that the projected cash flow is based on the Company's forward-looking plans, assumptions, estimations, predictions and evaluations which rely on the information known to the Company at the time of the approval of these financial statements (collectively, the "Assumptions"). The materialization, occurrence consummation and execution of the events and transactions and of the Assumptions on which the projected cash flow is based, including with respect to the proceeds and timing thereof, are not certain and are subject to factors beyond the Company's control as well as to the consents and approvals of third parties and certain risks factors. Therefore, delays in the realization of our assets and investments or realization at lower price than expected by us, as well as any other deviation from our Assumptions, could have an adverse effect on our cash flow and our ability to serve our indebtedness on a timely manner.

 

 16 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - GENERAL (Cont.)

 

C.Financial position: (Cont.)

 

The Company's Board of directors is of the opinion, based on the projected cash flow and the Assumptions described, that the Company can execute its plans and that it would be able to serve its indebtedness in the foreseeable future.

 

In light of the foregoing, the Company's board of directors is of the opinion that, the Company is a going concern and hence, the consolidated financial statements of the Company as of December 31, 2015 were prepared based on going concern assumption.

 

D.Definitions:

 

  The Company - Elbit Imaging
  Group - The Company and its Investees
  Investees - Subsidiaries, joint ventures and associates
  PC - Plaza Centers N.V. Group, a subsidiary of the Company, operating mainly in the field of commercial centers and is traded in the Main Board of the London Stock Exchange, the Warsaw stock Exchange (“WSE”) and Tel Aviv Stock Exchange. As of December 31, 2015 the Company holds 44.9% in PC.
  Elbit Medical - Elbit Medical Technologies Ltd., a public Israeli company traded on the Tel Aviv Stock Exchange. As for December 31, 2015, the Company holds 89.9% of Elbit Medical share capital (86.2% on a fully diluted basis.)
  Related parties - As defined in International Accounting Standard ("IAS") no. 24 see note 18.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

A.Statement of compliance:

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board ("IASB").

 

B.Basis for preparation:

 

The consolidated financial statements have been prepared on the historical cost basis except for (i) financial instruments measured at fair value; (ii) certain trading property measured at net realizable value (see note 2W.(1)a.); and (iii) certain property, plant and equipment (hotels) presented at the revaluation model (based on fair value) (see note 2W.(1) e). The principal accounting policies are set out below.

 

C.Presentation of the income statements:

 

The Group operations are characterized by diverse activities. Accordingly, management believes that its income statements should be presented in the “Single - step form”. According to this form, all costs and expenses (including general and administrative and financial expenses) should be considered as continuously contributing to the generation of the overall revenues and gains. Management also believes that its operating expenses should be classified by function to: (i) those directly related to each revenue (including general and administrative expenses and selling and marketing expenses relating directly to each operation); and (ii) overhead expenses which serve the business as a whole and are to be determined as general and administrative expenses.

 

 17 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

D.Convenience translation:

 

The balance sheet as of December 31, 2015 and statement of income, statement of other comprehensive income, statement of changes in shareholders' equity and statement of cash flows for the year then ended have been translated into U.S. Dollar using the representative exchange rate as of that date ($1= NIS 3.9). Such translation was made solely for the convenience of the U.S. readers. The dollar amounts so presented in these financial statements should not be construed as representing amounts receivable or payable in dollars or convertible into dollars but only a convenience translation of reported NIS amounts into U.S. Dollar, unless otherwise indicated. The convenience translation supplementary financial data is unaudited and is not presented in accordance with IFRSs.

 

E.Operating cycle:

 

Due to the lingering real estate and financing crisis in CEE, in which the Group's majority of commercial centers are located, the Group is lacking sufficient historical experience of realizing its commercial centers into cash or cash equivalents. Accordingly, the Group is unable to clearly identify its actual operating cycle with respect to trading property. As such, the Group's operating cycle relating to trading property and corresponding borrowings is 12 months. As a result, trading property and borrowings associated therewith arepresented as non–current assets and non-current liabilities, respectively.

 

  F. Basis for consolidation:

 

  (i) Assessment of control

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company ("Subsidiaries"). Control is achieved where the Company:

Has the power over the investee;
Is exposed, or has rights, to variable returns from its involvement with the investee;
Has the ability to use its power to affect its returns.

 

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

 

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

 

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.

 

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

 

As for de facto control of the Company in PC see W(2)c below.

 

 18 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  F. Basis for consolidation: (Cont.)

 

(ii)Changes in the Group's ownership interests in existing subsidiaries

 

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

 

When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the cost on initial recognition of an investment in an associate.

 

  G. Investments in associates and joint ventures:

 

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

 

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

 

The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate or a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or a joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

 

An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the carrying amount of the investment.

 

 19 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  G. Investments in associates and joint ventures (Cont.):

 

In circumstances where the Group's interest in an investee company is in the form of mixed securities (such as ordinary shares, preferred shares or other senior securities, or loans), the Group records equity losses in excess of the Group's investment in the ordinary shares of the investee based on the priority liquidation mechanism, that is, allocating the loss to the other components in reverse order to the their seniority in liquidation.

 

Where necessary, adjustments are made to the financial statements of associates to adjust their accounting policies with those of the Company.

 

The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

 

  H. Foreign currency:

 

(i)Foreign currency transactions:

 

The financial statements of each individual entity of the Group are presented based on its functional currency. Transactions in currencies other than each individual entity's functional currency (foreign currency) are translated into that entity's functional currency based on the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the foreign exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the historical exchange rate prevailing at the date of the transaction. Non-monetary assets and liabilities carried at fair value that are denominated at foreign currency are translated at the exchange rates prevailing at the date when the fair value was determined.

 

Exchange rate differences as a result of the above are recognized in statement of income, except for: (i) exchange rate differences capitalized to qualified assets (see note 2S); (ii) exchange rate differences charged to foreign currency translation reserve (see (ii) below); and (iii) exchange rate differences charge to revaluation of property plant and equipment carried at fair value (see note 2L) 

 

(ii)Financial statements of foreign operations:

 

For the purpose of the consolidated financial statements, the assets and liabilities of foreign operations (the functional currency of each is the currency of the primary economic environment in which it operates) are translated to New Israeli Shekels ("NIS") which is the functional currency and the presentation currency of the Company, based on the foreign exchange rates prevailing at the balance sheet date. The revenues and expenses of foreign operations are translated to the functional currency of the Company based on exchange rates as at the date of each transaction or for sake of practicality using average exchange rates for the period.

 

 20 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  H. Foreign currency (Cont.):

 

(ii)Financial statements of foreign operations: (Cont.)

 

Foreign exchange rate differences arising from translation of foreign operations are recognized directly to foreign currency translation reserve within other comprehensive income.

 

Exchange rate differences attributable to monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation are also included in the foreign currency translation reserve.

 

On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in the equity reserve in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

 

In the case of a partial disposal that does not result in loss of control by the Group over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to or from non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. reductions in the Group's ownership interest in associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

 

(iii)Rates of exchange of NIS, in effect, in relation to foreign currency (in NIS) are as follows:

 

     December 31 
     2 0 1 5   2 0 1 4 
           
  U.S. Dollar ($)   3.902    3.889 
  EURO (€)   4.247    4.725 
  Romanian New Lei (RON)   0.938    1.0541 
  Indian Rupee (INR)   0.058    0.0614 

 

Scope of change in the exchange rate, in effect, of the NIS in relation to the foreign currencies (%):

 

     December 31 
     2 0 1 5   2 0 1 4   2 0 1 3 
               
  U.S. Dollar ($)   -    12    (7)
  EURO (€)   (10)   (1)   (3)
  Romanian New Lei (RON)   (11)   (1)   (4)
  Indian Rupee (INR)   (5)   10    (18)

 

 21 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

I.Cash and cash equivalents:

 

Cash equivalents include unrestricted readily convertible to a known amount of cash, maturity period of which, as at the date of investments therein, does not exceed three months.

 

J.Financial assets:

 

Financial assets of the Group are classified mainly as loans and receivables. Financial assets are initially measured at fair value

 

Loans and receivable consist of trade receivables, deposits in banks, and financial institutions, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables where the recognition of interest is considered immaterial.

 

K.Trading property and prepayment:

 

Real estate properties for future sale (inventory) are classified as trading properties and are stated at the lower of cost and net realizable value. The Group's trading properties are divided to three different classes (operational, under development and undeveloped) and the following present the different methods to determine the net realizable value:

 

(1)Net realizable value for operating trading property is the estimated selling price in the ordinary course of business less estimated costs necessary to execute the sale.

 

(2)Net realizable value of trading property, which as per management judgment, will not be developed in the foreseeable future, is determined based on the fair value of each asset as-is, using either the comparable method or based on the residual value whereby all the items used in such valuation as mentioned below (i.e.: selling price and estimated cost for completion and executing the sale) are discounted in the applicable discount rate without taking into account the developer's profit.

 

(3)Net realizable value for trading property under construction or development or that is intended by management for development was determined using the fair value based on the residual method. See also note 2W(1)a.

 

Costs of trading properties include costs directly associated with their purchase (including payments for the acquisitions of leasehold rights, borrowing cost, wages and stock-based compensation expenses) and all subsequent direct expenditures for the development and construction of such properties. Advance payments on account of trading property are recorded at their cost price and classified as trading property only after the purchase.

 

Cost of trading property is determined mainly on the basis of specific identification of their individual costs (other than non-specific borrowing costs capitalized to the cost of trading property).

 

As for borrowing costs capitalized to trading property - see note 2S.

 

As for write down of trading property - see note 2W(1) a.

 

As for the operating cycle of trading property - see note 2E.

 

 22 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

L.Property plant and equipment:

 

(i)The Group's hotel are presented in the consolidated balance sheets according to the revaluation model.

 

Revaluations are carried out on a regular basis (generally each half year). A change in the value of the hotels resulting from revaluation or from exchange rate differences is attributable to other comprehensive income (any revaluation reserve is net of applicable deferred taxes).

 

The reserve derived from the revaluation of the hotels is transferred to retained earnings over the period for which the hotels are used by the Group. The transferred amounts equal the difference between the depreciation charge based on the revalued carrying amounts of the hotels and the depreciation charge based on the hotels' original cost. When a revaluated hotel is sold, the remaining amount in the revaluation reserve with respect to the same hotel (including any tax expenses) is directly transferred to retained earnings.

 

Other property plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Improvements and renovations are charged to cost of assets. Maintenance and repair costs are charged to the statement of income as incurred.

 

(ii)Depreciation is calculated by the straight-line method over the assets estimated useful lives. Leasehold improvements are amortized over the estimated useful period of use not exceeding the lease period (including the period of renewal options that the Group intends to exercise).

 

Annual depreciation rates are as follows:

 

     %
      
  Hotel  1-4
  Other buildings  2.0 - 2.5
  Building operating systems  7.0 (average)
  Others (*)  6.0 - 33.0

 

(*)Consists mainly: office furniture and equipment, machinery and equipment, electronic equipment, computers and peripheral equipment.

 

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ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

M.Income taxes:

 

Income tax expense represents the sum of the tax currently payable and deferred tax.

 

Current taxes

 

Tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are non-taxable or deductible for tax purposes. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted as of the balance sheet date.

 

Deferred taxes

 

Deferred taxes are calculated in respect of all temporary differences, including (i) differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit; and (ii) tax losses and deductions that may be carried forward for future years or carried backwards for previous years.

 

Deferred taxes are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

The calculation of deferred tax liabilities does not include taxes that would have arisen in the event of a realization of investments in certain investee companies or upon receiving their retained earnings as dividends, since it is management's policy not to realize these investees nor to declare dividend out of their retained earnings, or other form of profit distributions, in the foreseeable future, in a manner which entails additional substantial tax burden on the Group. For certain other Group's investee companies, which management’s intention is to realize or to distribute their retained earnings as taxable dividend, tax liabilities (current and deferred) are recorded.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is to be settled or the asset is to be realized, based on tax rates and laws that have been enacted or substantively enacted as of the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax asset is recorded to the extent that it is probable that it would be realized against future taxable profits. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered in the future.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

 

Current and deferred taxes are recognized as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity or in other comprehensive income, in which case the tax effect is also recognized directly in equity or in other comprehensive income;

 

 24 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

N.Financial liabilities and equity instruments issued by the Group:

 

Equity instruments

 

An equity instrument is any contract that represents a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issuance costs.

 

Financial liabilities

 

Financial liabilities at amortized cost of the Group consist of short-term credits, current maturities of long-term borrowing suppliers and service providers, borrowings and other payables, which are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, unless recognition of interest is immaterial.

 

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or, when appropriate, a shorter period to the net carrying amount of the financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial liability (for example, prepayment, call and similar options). The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.

 

When the Group revises its estimates of payments, it adjusts the carrying amount of the financial liability  to reflect actual and revised estimated cash flows. The Group recalculates the carrying amount by computing the present value of estimated future cash flows at the financial liability’s original effective interest rate. The adjustment is recognised in profit or loss as  a financial expense.

 

The Company has Consumer Price Index ("CPI")-linked financial liabilities that are not measured at fair value through profit or loss. For these liabilities, the Company determines the effective interest rate as a real rate plus linkage differences according to the actual changes in the CPI through each balance sheet date. Rate of decrease in the Israeli CPI in 2015 was -0.9% (2014- increase of -0.1%; 2013 - increase of 1.9%).

 

Buyback of notes and loans

 

The Group derecognizes a financial liability from its statement of financial position when repurchasing its notes or its loans. The difference between the carrying amount of the notes or the loans repurchased at the repurchase date and the consideration paid is recognized in profit or loss.

 

For the accounting treatment of modification of debt see note 3A and B.

 

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ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

O.Derivative financial instruments and hedge accounting:

 

The Group enters into a variety of derivative financial instruments, some of which are intended to mitigate its exposure to interest rate and foreign exchange rate risks, including interest rate swaps and cross currency swaps. Further details of derivative financial instruments are disclosed in note 21.

 

Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently re-measured at their fair value each balance sheet date. The resulting gain or loss from a derivative is immediately recognized in profit and loss unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as cash flow hedges. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the derivative is more than 12 months and as a current asset or a current liability if the remaining maturity of the derivative is less than 12 months.

 

Hedge accounting

 

The Group designates certain hedging instruments, which include derivatives in respect of exposure to interest, at cash flow hedges. At the inception of the hedge relationship the Group documents the relationships between the hedging instrument and the hedged item, along with its risk-management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument used in a hedging relationship is highly effective in offsetting changes in cash flows of the hedged item. Movements in the hedging reserve in equity are detailed in the statement of other comprehensive income ("OCI").

 

Cash flow hedge

 

The effective portion of changes in the fair value of derivatives is deferred in OCI. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss. Amounts deferred in OCI are recycled in profit or loss in the periods when the hedged item is recognized in profit or loss. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in OCI at that time remains in OCI and is recognized in profit or loss when the forecasted transaction is ultimately recognized in profit or loss. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was deferred in OCI is recognized immediately in profit or loss.

 

P.Provisions and Contingent Assets:

 

Provisions - Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is more likely than not (probable) that the Group will be required to settle the obligation, and a reliable estimate can be measured with respect to the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation as of the balance sheet date, taking into account the risks and uncertainties associated with the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the result of the discounted expected cash flows, as long as the effect of discounting is material.

 

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ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

Q. Share-based payments:

 

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. The Fair value is measured using the Black and Scholes ("B&S") model except for capped-Stock Appreciation Rights ("SAR") for which the Group is using the binomial model. The expected life used in the B&S model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis for each award over the vesting period, based on the Group’s estimate of shares that will eventually vest.

 

R.Revenue recognition:

 

General - The Group recognizes revenue and gains when the amount of revenue, or gain, can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and specifics of each arrangement.

 

(i)Rental income from commercial centers - Revenues from leasing of property and management fees, as well as rental income relating to the operations of commercial centers are measured at the fair value of the consideration received or receivable. The lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease.

 

The leases generally provide for rent escalations throughout the lease term. For these leases, the rental income is recognized on a straight line basis so as to produce a constant periodic rent over the term of the lease. Accordingly, accrued rental income recognized on a straight line basis, represents unbilled rent receivables that the Group will receive only if the tenant makes all rent payments required through the expiration of the initial term of the lease. The leases may also provide for contingent rent based on a percentage of the lessee’s gross sales or contingent rent indexed to further increases in the Consumer Price Index (CPI). For contingent rentals that are based on a percentage of the lessee’s gross sales, the Group recognizes contingent rental income when the change in the factor on which the contingent lease payment is based, actually occurs. Rental income for lease escalations that are indexed to future increases in the CPI, are recognized once the changes in the index have occurred.

 

(ii)Revenues from hotel operations are recognized upon performance of service.

 

 27 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

R.Revenue recognition (Cont.):

 

(iii)Revenues and Gains from sales of real estate assets (including hotels), property, plant and equipment and trading properties are recognized when all the following conditions are satisfied:

 

a.the Group has transferred to the buyer the significant risks and rewards of ownership of the asset sold;
b.the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the asset sold;
c.the amount of income can be measured reliably;
d.it is probable that the economic benefits associated with the transaction will flow to the Group (including the fact that the buyer's initial and continuing investment is adequate to demonstrate commitment to pay);
ethe costs incurred or to be incurred in respect of the transaction can be measured reliably; and
f.there are no significant acts that the Group is obliged to complete according to the sale agreement.

 

For the Group, these conditions are usually fulfilled upon the closing of a binding sale contract.

 

S.Capitalization of borrowing costs:

 

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized to the cost of those assets. A qualifying asset is an asset that necessarily takes a substantial period of time to get it ready for its intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

 

Borrowing costs qualified for capitalization include mainly: Interest expenses, amortization of cost of raising debt and foreign exchange on borrowing to the extent that they are considered as an adjustment to interest costs.

 

Capitalization of borrowing costs to qualifying assets commences when the Group starts the activities for the preparation of the asset for its intended use or sale and continues, generally, until the completion of substantially all the activities necessary to prepare the asset for its designated use or sale (i.e. when the commercial center is ready for lease).

 

In certain cases, the Group ceases to capitalize borrowing cost if management decides that the asset can no longer be defined as a "qualifying asset". In other circumstances, capitalization is suspended for certain time periods, generally where the efforts to develop a project are significantly diminished due to inter-alia lack of external finance, or ongoing difficulties in obtaining permits. The conclusions whether an asset is qualified for capitalization or not, or whether capitalization is to be suspended, are also dependent on management plans with regard to the specific asset, such as the ability to raise bank loans, find anchors and local market conditions that support or postpone the construction of the project.

 

 28 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

T.Earning (loss) per share:

 

The Company presents basic and diluted earnings (loss) per share with respect to continued and discontinued operation. Basic earnings per share is computed by dividing income (loss) attributable to holders of ordinary shares of the Company, by the weighted average number of the outstanding ordinary shares during the period. In the computation of diluted earnings per share, the Company adjusts its income (loss) attributable to its ordinary shareholders for its share in income (loss) of investees by multiplying their diluted earnings per share by the Company's interest in the investees including its holding in dilutive potential ordinary shares of the investees. In addition, the Company adjusts the weighted average outstanding ordinary shares for the effects of all the dilutive potential ordinary shares of the Company. On August, 2014 the company executed reverse stock split of its ordinary shares, therefore the earnings (loss) per share for previous periods was retrospectively adjusted. See also note 15.

 

U.Statement of cash flows:

 

Investments in, and payments on account of, trading property are included as cash flow from operating activities. Interest and dividend received from deposits and investments are included as cash flow from investing activities. Interest paid on the Group's borrowings (including interest capitalized to qualifying assets) and cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control are included as cash flow from financing activities.

 

V.Discontinued operation

 

A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

 

(1)Represents a separate major line of business or geographical area of operations;
(2)Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
(3)Is a subsidiary acquired exclusively with a view to re-sale.

 

Classification as a discontinued operation occurs on disposal or when the operation meets the criteria to be classified as held-for-sale, if earlier.

 

When an operation is classified as a discontinued operation, the comparative statement of comprehensive income and cash flow is re-presented as if the operation had been discontinued from the start of the comparative year.

 

W.Critical judgment in applying accounting policies and use of estimates:

 

In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In addition, in the process of applying the Group's accounting policies, management makes various judgments, apart from those involving estimations, that can significantly affect the amounts recognized in the financial statements.

 

 29 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

W.Critical judgment in applying accounting policies and use of estimates (Cont.):

 

The followings are the critical judgments and key sources of estimation that management has made while applying the Group’s accounting policies and that have the most significant effect on the amounts recognized in these financial statements.

 

  (1) Use of estimates

 

  (a) Write down of trading properties

 

The recognition of a write down to the Group's trading properties is subject to a considerable degree of judgment and estimates, the results of which, when applied under different principles, conditions and assumptions, are likely to result in materially different results and could have a material adverse effect on the Group's 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.

 

Management is responsible for determining the net realizable value of the Group’s trading properties. In determining net realizable value of the vast majority of trading properties, management utilizes the services of an independent third party recognized as a specialist in valuation of properties. Independent valuation reports for the Group's trading properties as of December 31 2015 and 2014 were prepared by Cushman & Wakefield.

 

The Group reviews 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 centres 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. The Group uses assumptions that are mainly based on market conditions existing at the reporting date.

 

The principal assumptions underlying management’s estimation of net realizable values for operating commercial centres 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 the Group 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.

 

 30 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
   
W.Critical judgment in applying accounting policies and use of estimates (Cont.):
 

  (1) Use of estimates (Cont.)

 

  (a) Write down of trading properties (Cont.)

 

  2. Undeveloped trading properties

 

The vast majority of the Group's undeveloped real estate assets are lands which are designated for development of commercial centers.

 

The net realizable value for an undeveloped project is determined based on the Group business plans for the specific project as of the balance sheet date.

 

Some of the Group's lands are designated for future development in the foreseeable future. Other undeveloped lands 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 condition in the surrounding area of the project, availability of bank financing for the development, competition in the area, zoning and building permits to the Project, the liquidity of the Group and its ability to invest equity into the project, the ability of the Group to enforce the joint development agreement on its partners in our Joint venture project (mainly plots designated for residential project in India), the scale of the project and the ability of the Group to execute it and others. As explained below, the status of the project, as determined by management 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 these financial statement;

 

As for accounting policies in respect of the measurement of net realizable value for undeveloped trading property – see note K above.

 

 31 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

W.Critical judgment in applying accounting policies and use of estimates (Cont.):

 

  (1) Use of estimates (Cont.)

 

  (a) Write down of trading properties (Cont.)

 

  2. Undeveloped trading properties (Cont.)

 

  2.1 Critical assumptions under the residual method

 

The Group's trading properties which are designated by management for development in the foreseeable future are usually measured using the residual method. Estimations of fair value under the residual method involve in general, critical estimations and takes into account special assumptions in the valuations, many of which are difficult to predict, in respect of the future operational cash flows expected to be generated from the real-estate asset, yield rate which will be applied for each real estate asset, estimate of developer's profit and time line to commencement of the construction of the project. Actual results could be significantly different than the estimates and could have a material effect on the financial results.

 

Determination of the operational cash flow expected to be generated from the real estate asset is based on reasonable and supportable assumptions as well as on historical results adjusted to reflect the Group's best estimate of future market and economic conditions that management believes will exist during the remaining useful life of the assets. Such determination is subject to significant uncertainties. In preparing these projections, the Group takes assumptions the major of which relate to market share of the real estate asset, benchmark operating figures such as occupancy rates, rental and management fees rates (in respect of commercial centers), selling price of apartments (in respect of residential units), the expected schedule 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 the Group additional preparations and costs, and can 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 the Group expects 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.

 

 32 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  W. Critical judgment in applying accounting policies and use of estimates (Cont.):

 

  (1) Use of estimates (Cont.)

 

  (a) Write down of trading properties (Cont.)

 

  2. Undeveloped trading properties (Cont.)

 

  2.2 Critical assumptions under the comparable method

 

The Group's trading property which is not designated by management for development in the foreseeable future are usually measured using the comparable method or the residual method (for details regarding the residual method see 2.1 above). 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 analysed 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 out for suitable comparable 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 not limited to:

 

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.
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. 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.
Adjustment in respect of size, shape complexity of development phase and securing buildable rights 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.

 

 33 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  W. Critical judgment in applying accounting policies and use of estimates (Cont.):

 

  (1) Use of estimates (Cont.)

 

  (a) Write down of trading properties (Cont.)

 

  2. Undeveloped trading properties (Cont.)

 

  2.2 Critical assumptions under the comparable method (Cont.)

 

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 location a property is located in the more it is worth per square meter; and conversely the worse location a property is in the less it is worth per square meter. 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 disqualified.

 

  (b) Litigation and other contingent liabilities:

 

The Group is involved in litigation, tax assessments and other contingent liabilities in substantial amounts including class actions (see note 14B and note 14C). The Group recognizes a provision for such litigation when it is probable that the Group will be required to settle the obligation, and the amount of the obligation can be reliably estimated. The Group evaluates the probability and outcome of these litigations based on, among other factors, legal opinion and consultation and past experience. The outcome of such contingent liabilities may differ materially from management's estimation. The Group periodically evaluates these estimations and makes appropriate adjustments to the provisions recorded in the consolidated financial statements. In addition, as facts concerning contingencies become known, the Group reassesses its position and makes appropriate adjustments to the consolidated financial statements. In rare circumstances, mainly with respect to class actions, when the case is unique, complicated and involves prolong and uncommon proceedings, the Group cannot reliably estimate the outcome of said case

 

  (c) Accounting for income taxes:

 

The calculation of the Group's tax liabilities involves uncertainties in the application and/or interpretation of complex tax laws, tax regulations and tax treaties, in respect of various jurisdictions in which the Group operates and which vary from time to time. In addition, tax authorities may interpret certain tax issues in a manner other than that which the Group has adopted. Should such contrary interpretive principles be adopted upon adjudication of such cases, the tax burden of the Group may be significantly increased. In calculating its deferred taxes, the Group is required to evaluate (i) the probability of the realization of its deferred income tax assets against future taxable income and (ii) the anticipated tax rates in which its deferred taxes would be utilized.

 

 34 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  W. Critical judgment in applying accounting policies and use of estimates (Cont.):

 

  (1) Use of estimates (Cont.)

 

  (d) Potential penalties, guarantees issued and expired building permits:

 

Penalties and guaranties are part of the on-going construction activities of the Group, and result from obligations the Group has towards third parties, such as banks and municipalities. The Group’s management is required to provide estimations regarding risks evolving from penalties that the Group may have to settle. In addition, the Group's operations in the construction area are subject to valid authorizations and building permits from local authorities. Under certain circumstances the Group is required to determine whether the building permits it obtains have not yet expired. It may occur that building permits have expired which might impose on the Group additional costs and expenses, or delays and even abandon project under construction.

 

  (e) Fair value of hotel:

 

The fair value of the Radisson Complex is determined based upon the discounted cash flows ("DCF") approach, The assumptions underlying the model, as well as the ability to support them by means of objective and reasonable market benchmarks, so they can be viewed as assumptions that market participants may have used, are significant in determining the fair value of the hotels. The predominant assumptions that may cause substantial changes in the fair value are: the capitalization rate, exit yield rate, the expected net operating income of the hotel (which is mainly affected by the expected average room rate and the occupancy rate as well as the level of operational expenses of the hotels) the level of refurbishments reserve and the capital expenditures that need to be invested in the hotel. The fair value of the Radisson Complex is performed by and independent appraisals with a local knowledgeable in the hotels business.

 

(2)Critical judgment in applying accounting policies

 

(a)Classification of trading property as current/non-current asset:

 

The Company classifies its assets and liabilities as current or non-current based on the operating cycle of each of its operations (generally 12 months). Careful consideration is required with respect to assets and liabilities associated with the Group's operations of commercial centers and trading property, where by their nature the operating cycle is more than 12 months. These assets and liabilities are classified as current only if their operating cycle is clearly identifiable. In accordance with guidance set out in IAS 1 if the Company cannot clearly identify the actual operating cycle of a specific operation, then the assets and liabilities of that operation are classified as non-current. The Company's determination of its inability to clearly identify the actual operating cycle is a matter of judgment. A different conclusion can materially affect the classification of current assets and current liabilities. See also note 2E.

 

 35 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

  W. Critical judgment in applying accounting policies and use of estimates (Cont.):

 

(2)Critical judgment in applying accounting policies (Cont.):

 

(b)Classification of operating commercial centers as trading property rather than investment property:

 

Management classified operating commercial centers as trading property rather than investment property even though the Group currently earning rental income from these properties. PC's business model is to sale the shopping centers in the ordinary course of its business.

 

During 2015 PC sold one operating centers and has conducted several negotiations in respects of its other operating commercial centers. PC will continue during 2016 to negotiate with third parties in order to sell additional commercial centers. See also note 22(3).

 

(c)De facto Control:

 

As for December 31, 2015 and 2014, the Company holds approximately 44.9% of PC share capital; DK holds approx. 26.3% of PC share capital and the rest is widely spread by the public. The Company's management is of the opinion that based on the absolute size of its holdings, the relative size of the other shareholdings and due to the fact that PC's directors are appointed by normal majority of PC's General Meeting, it has a sufficiently dominant voting interest to meet the power criterion, therefore the Company has de facto control over PC.

 

X.New accounting standards and interpretation issued that are not yet effective:

 

The following are new accounting standards, amendments to standards and clarifications which are applicable, -+or are expected to be applicable, to the Group, and which have not yet become effective:

 

Amendment to IAS 7 – effective after January 2017
   
Amendmend to IAS 12 – effective after January 2017

 

IFRS 9, Financial Instruments - effective after January 2018

 

IFRS 16, Leases – effective after January 2019

 

IFRS 15, Revenue from Contracts with Customers- effective after January 2018

 

In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.

 

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

 

 36 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

 

X.New accounting standards and interpretation issued that are not yet effective: (Cont.)

 

IFRS 15, Revenue from Contracts with Customers (Cont.)

 

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

 

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

 

Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

 

The directors of the Company anticipate that the application of IFRS 15 in the future may have a material impact on the amounts reported and disclosures made in the Group's consolidated financial statements. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review.

 

NOTE 3 - PLANS OF ARRANGEMENT

 

  A. The Company's plan of arrangement

 

During 2013, the Company's Board of Directors resolved to suspend all payments to its unsecured creditors and to negotiate with its unsecured creditors on a restructuring plan for the unsecured financial debts. On October 17, 2013 the Company's unsecured financial creditors approved a Plan of Arrangement (the “Arrangement”) (as adjusted from time to time) and on January 1, 2014, the Israeli District Court approved the Arrangement. The closing of the Arrangement took place on February 20, 2014. Below are the general terms of the Arrangement:

 

  (a) Extinguishment of the Company unsecured financial debts:

 

In consideration of the extinguishment of the Company's unsecured financial debts (i.e.: Series A-G notes, series 1 note and the Company's debts to Bank Leumi), the Company issued at the closing of the Arrangement the following instruments:

 

*New ordinary shares, representing immediately following such exchange 95% of its outstanding share capital on a fully diluted basis.
*Two series of new notes in the aggregate principal amount of NIS 666 million. For more details regarding the terms of these notes see note 12D.

 

The new Shares and the new notes were allocated among the various unsecured financial creditors in proportion to the outstanding balance (principal, interest and CPI linkage) under each obligation as of the closing of the Arrangement. The new Shares are listed for trading on both the Tel Aviv Stock Exchange and the NASDAQ Stock Market, and the new notes are listed for trading on the Tel Aviv Stock Exchange.

 

 37 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - PLANS OF ARRANGEMENT (Cont.)

 

  A. The Company's plan of arrangement (Cont.)

 

  (b) Amendments to the Company's Articles of Association:

 

Pursuant to the terms of the Arrangement, the Company amended its Articles of Association such that it includes the following Articles:

 

Special tender offer

In the event a person is required to conduct a "Special Tender Offer" pursuant to the provisions of the Companies Law as a result of an acquisition of Ordinary Shares that will cause that person to become a holder of 25% or more of the voting rights at a general meeting of shareholders (a "baal dvukat shlita"), that person shall offer to acquire Ordinary Shares representing at least 10% of the voting rights in the Company in such Special Tender Offer, provided, however, that the minimum required to be acquired pursuant to the Companies Law (currently 5%) shall remain unchanged. To remove doubt, if offerees holding more than 5% of the voting rights in the Company accepted the Special Tender Offer, the Offeror shall be obligated to purchase from such offerees the lower of (i) the number of Ordinary Shares representing the amount of the voting rights in the Company for which the Offeror tendered, or (ii) the number of Ordinary Shares with respect to which offerees have accepted the Special Tender Offer.

 

Special approval for new fields of business

A decision by the Company to engage in a new field of business which is material to the Company, in which neither the Company nor any of its subsidiaries is engaged and which new field of business is not complementary to the business of the Company or its subsidiaries, shall require the unanimous approval of all of the members of the Company's board of directors present and lawfully entitled to vote at the relevant meeting.

 

  (c) Additional provisions:

 

The Company, its office holders, the Noteholders and the other unsecured financial creditors, the trustees for the Noteholders and shareholders and their respective affiliates and representatives are being released from any and all claims the grounds of which preceded the effectiveness of the Arrangement, including all claims related to the Notes and the management of the Company and all companies under its control, other than claims related to acts or omissions that were criminal, willful or fraudulent (the "Waiver"). Accordingly, the applicable pending legal proceedings against the Company, its office holders or its controlling shareholder are being dismissed. Mr. Zisser who serves as the Company's CEO and Executive President and member of the Board, is not included in the Waiver provided to the Company's other officers and directors (with respect to any and all of its capacities and positions in the Company), without derogating from any right, including his existing rights of indemnification and insurance coverage, except that all legal proceedings pending against him and/or his affiliates will be dismissed. Notwithstanding the aforementioned, in the event a claim will be made against one of the released parties by any person (a "Plaintiff") for any cause of action, including a cause of action included under the Waiver, the defendant ("Defendant") will not be precluded by virtue of the Waiver from filing a counter-claim against the Plaintiff and/or a third-party claim against any other person (including the released parties) (the "Third Party"), without prejudicing the Third Party's right under the Waiver against the Plaintiff. Notwithstanding the aforementioned, the Company will not be allowed to file third-party claims against any of the released parties.

 

 38 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - PLANS OF ARRANGEMENT (Cont.)

 

  A. The Company's plan of arrangement (Cont.)

 

  (d) Tax ruling:

 

On July 11, 2013, the Company received a tax ruling from the Israeli Tax Authority ("ITA") as to the tax, if any, that would be applicable to the Company and the unsecured financial creditors as a result of the Arrangement. The ruling generally provides that, upon the closing of the Arrangement, the Company's unsecured financial creditors will be deemed to have sold their debt (first accrued interest and then outstanding principal) in consideration for the new notes and Shares issued in the Arrangement, which shall be valued at the respective closing prices thereof on the TASE on the first trading day following the closing. The Arrangement will be treated as a tax event for the Company, as well, namely, as financial income or forgiveness of debt in the amount of the difference between the amount of the Unsecured Financial Debt and the value of the new notes and Shares as aforesaid. The resulting gain may be offset against net operating losses, capital losses and impaired investments in subsidiaries. As a result of the closing of the Arrangement the Company recorded a gain for tax purposes in its financial statements. The Company does not expect any material tax liability as a result of such profit as it was offset against carried forward losses and impaired investments in subsidiaries.

 

  (e) Purported restructuring accounting:

 

The accounting consequences as a result of the consummation of the restructuring on the Company's debt and equity are as follows:

 

(1)In accordance with IAS 39, the exchange of existing debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
(2)For each existing notes series, the terms had been examined and found to be substantially different and accordingly are to be extinguished with new debt and equity instruments issued.
(3)As described in (a) above as part of the Arrangement, the Company issued new ordinary shares and two series of new notes to its unsecured financial creditors. These new ordinary shares and new notes were recognized using their fair value at the date of issuance.
(4)The difference between the sum of the fair value of the new ordinary shares and the fair value of the new notes to the carrying amount of the all the Company's unsecured financial debts (as determined in the Plan of Arrangement ) was recognized in profit and loss for year ending December 31, 2014. Below is calculation of the profit which was recognized:

 

     NIS
in thousand
 
       
  Fair value of new ordinary shares   304,816 
  Fair value of new notes   549,866 
  Total fair Value of new securities   854,682 
  Carrying amount of unsecured financial creditors extinguished net of expenses   2,465,111 
  Profit from debt restructuring   1,610,429 

 

Accordingly, the increase in the company's shareholding equity amounted to NIS 1.9 billion. Regarding collateral see note 14D (2)

 

 39 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - PLANS OF ARRANGEMENT (Cont.)

 

  B. PC's plan of arrangement ("PC's Arrangement"):

 

On November 14, 2013, PC announced that its board of directors has concluded that PC will withhold payment on the upcoming maturities of its bonds and approach its creditors with a restructuring plan. PC's restructuring plan deals with PC's unsecured debt (i.e., outstanding debt under the Israeli Series A and B Notes and the Polish Notes) (“Unsecured Debt”) The restructuring plan was approved on June 26, 2014 by the vast majority of the creditors, and subsequently approved by the Court on July 9, 2014. PC has submitted a right issuance prospectus on October 16, 2014. The right issuance process was completed with effect of November 30, 2014, after all conditions precedent were fulfilled, and the first payment to Notes holders was performed on January 7, 2015. Below is a summary of the significant items in PC debt restructuring:

 

  PC, its directors and officers and its controlling shareholder are fully released from claims.
     
An injection of EUR 20 million into PC at a price per-share of EUR 0.0675, (“Equity Contribution) was executed by PC in the form of Rights Offering to its shareholders. As part of PC's injection, The Company's subsidiary, Elbit Ultrasound (Luxembourg) BV/ S. a' r. l ("EUL") entered into a Back Stop Agreement (the “Back Stop Agreement”) with various affiliates of Davidson Kempner Capital Management LP (“DK” ”),( a related party of the Company), pursuant to which DK undertook to purchase under the Rights Offering, in lieu of EUL, a portion to be determined by EUL subject to the terms and conditions therein. Consequently EUL has purchased 122,847,376 new ordinary shares of PC for the total amount of approximately Euro 8.3 million (NIS 39 million) and DK purchased 163,803,197 new ordinary shares of PC for an additional amount of Euro 11.05 million (NIS 52 million).
   
PC issued to the holders of Unsecured Debt 13.21% of PC's shares (post Equity Contribution) for payment of par value of shares. Such issuances of shares were distributed among the holders of Unsecured Debt pro rata to the relative share of each relevant creditor in the Deferred Debt ("Deferred Debt Ratio").
   
Following the Rights Offering and associated placing of shares and the issuance of new ordinary shares to PC's bondholders under the restructuring plan, EUL holds 44.9% and DK holds approximately 26.3% of the outstanding shares of PC.

 

 40 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - PLANS OF ARRANGEMENT (Cont.)

 

  B. PC's plan of arrangement ("PC's Arrangement") (Cont.)

 

Purported restructuring accounting

 

The accounting consequences as a result of the consummation of the restructuring on PC's debt and equity are as follows:

 

(1)In accordance with IAS 39, the exchange of existing debt instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
(2)For each existing notes series, the terms had been examined and found to be substantially different and accordingly are to be extinguished with new debt and equity instruments issued.
(3)The difference between the sum of the fair value of the new ordinary shares issued to PC's unsecured creditors and the fair value of the notes as for December 10, 2014 to the carrying amount of PC's notes as for December 9, 2014 was recognized in profit and loss for the year ending December 31, 2014. Below a calculation of the profit which was recognized:

 

    

Carrying amount recognized
(de - recognized)

 
  Items de-recognized    
  Total Israeli notes at fair value through profit or loss   (551,224)
  Total Israeli notes at amortized costs   (260,680)
  Total Polish notes   (68,152)
  Old accrued interest due notes at amortized cost as of December 9, 2014   (28,805)
  Total amounts de-recognized   (908,861)
        
  Items added     
  Fair value of new bonds (*) (**)   803,924 
  New accrued interest due notes at amortized cost as of December 9, 2014   59,596 
  Value of new shares issued to bondholders   29,075 
  Total amounts recognized   892,595 
        
        
  Gain recorded at December 10, 2014   16,266 

 

(*)In respect of Israeli bonds, market quote of December 10, 2014 was inclusive of accrued interest due to the year 2014, therefore, and in order to reach a quote of the principal only, accrued interest in the amount of NIS 16.5 million and NIS 37 million was deducted from the fair value derived by the quote of notes A, and B, respectively.
(**)Fair value of Polish notes (untraded) was determined using the known effective interest rates determined for Israeli notes, and the value of the Polish notes was derived from it.

 

 41 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - PLANS OF ARRANGEMENT (Cont.)

 

  B. PC's plan of arrangement ("PC's Arrangement") (Cont.)

 

Purported restructuring accounting (cont.)

 

Following the conclusion of the restructuring plan, all PC's non-current maturities of interest bearing loans were reclassified to long term, unless covenant breach is still valid, and no waiver obtained.

 

As for additional details of PC's new notes, see note 12 E.

As for main collaterals and commitments, see note 14 D (3).

As for financial covenants of PC's new notes, see note 14 E (3)

 

NOTE 4 - OTHER RECEIVABLES

 

Composition:

 

     December 31 
     2 0 1 5   2 0 1 4 
     (In thousand NIS) 
           
  Income taxes   853    5,537 
  Governmental institutions   4,261    7,785 
  Loans to partner in project   1,111    2,641 
  Advance to suppliers   633    2,029 
  Receivable due to sale of investment   3,280    1,162 
  Prepaid expenses   1,310    3,205 
  Other   2,461    4,858 
      13,909    27,217 

 

 42 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY

 

  A. Composition:

 

     December 31 
     2 0 1 5   2 0 1 4 
     (In thousand NIS) 
           
  Balance as of January 1   1,875,937    2,572,906 
  Acquisition and construction costs (1)   28,562    54,205 
  Disposal during the year (2)   (200,078)   (224,412)
  Write-down to net realizable value (see B below and Note 17 I)   (86,988)   (527,552)
  Foreign currency translation adjustments   (149,673)   790 
  Balance as of December 31   1,467,760    1,875,937 

 

(1)2015 - Including NIS 25 million due to construction activities in Serbia and Romania (see B below for more details).
(2)As for disposition of trading properties in 2015 see B below.

 

  B. Additional information:

 

     December 31 
     2 0 1 5   2 0 1 4 
     (In thousand NIS) 
             
  Accumulated write-down to net realizable value   2,159,413    2,072,425 
             

Composition of trading property per stages of development:

 

     December 31 
     2 0 1 5   2 0 1 4 
     (In thousand NIS) 
           
  Operating trading properties (*)   555,042    809,228 
  Projects designated for development   684,512    897,715 
  Projects not designated for development   228,206    168,994 
  Total   1,467,760    1,875,937 

 

  (*) As for the classification of operational commercial centers as trading property- see note 2W(2)b.

 

Composition of trading property distinguished between freehold and leasehold rights:

 

     December 31 
     2 0 1 5   2 0 1 4 
     (In thousand NIS) 
           
  Freehold   946,228    1,232,706 
  Leasehold   521,532    643,231 
      1,467,760    1,875,937 

 

 43 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

  B. Additional information (Cont.):

 

Write down trading properties per project:

 

     For the year ended December 31 
     2 0 1 5   2 0 1 4 
     (In thousand NIS) 
  Project name (City, Country)        
           
  Operational:        
  Kragujevac (Kragujevac, Serbia)   -    16,040 
  Koregaon Park (Pune, India)  (See also B below)   6,547    47,525 
  Zgorzelec (Zgorzelec, Poland)   6,233    18,275 
  Liberec (Liberec, Czech Republic)   26,466    9,827 
      39,246    91,667 
  Non-Operational:          
  Iasi (Iasi, Romania)   -    20,221 
  Chennai (Kadavantara, India)   -    28,988 
  Belgrade Plaza (Belgrade, Serbia)   -    11,812 
  Helios Plaza (Athens, Greece)   1,913    51,168 
  Sportstar Plaza Visnjicka (Belgrade, Serbia)   (23,814)   827 
  Lodz Plaza (Lodz, Poland)   9,460    5,134 
  Krusevac (Krusevac, Serbia)   3,401    - 
  Casa radio (Bucharest, Romania) (See 5 below)   36,139    217,265 
  Constanta (Constanta, Romania)   1,701    17,898 
  Ciuc (Ciuc, Romania)   -    17,147 
  Timisoara (Timisoara, Romania)   1,110    9,577 
  Lodz residential (Lodz, Poland)   9,070    3,137 
  Kielce (Kielce, Poland)   723    (1,526)
  BAS (S Romania)   -    27,269 
  Arena Plaza extention (Budapest, Hungary)   5,323    - 
  Others   2,716    26,968 
      47,742    435,885 
      86,988    527,552 

 

 44 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

B.Additional information (Cont.):

 

The 2015 write downs were caused mainly by the following factors:

 

There were significant decreases in Net Realizable Values of certain projects below the carrying amount due to deteriorating market condition in certain countries in which the Group operates.

 

Moreover, affecting the valuations (in respect of plots under planning stage) are delays in the execution and commencement of construction of projects by the Company, increase in the risks inherent in the Company's developments projects which cause an increase in the discounts rate and the exit yields of the undeveloped projects. In certain cases, changes were performed according to schemes of projects (e.g Casa radio, please see B below) which triggered additional significant impairments.

 

Koregaon Park write down (see B below)) was performed due to delays in executing a sale transaction of the shopping center.

 

In case of Liberec Plaza in Czech Republic, write down was recorded as a result of a decrease in the NOI of the shopping center (mainly due to an increase of the non-recoverable expenses) and an increase of 0.5% in the exit yield compared to last year.

 

In the case of Belgrade Plaza (Visnjicka) project an appreciation was performed as the development of the project has already started, and the project is expected to start generating income within 15 months following the year-end.

 

In the case of Casa radio project in Romania write down was performed due to a significant change in the estimated date of construction commencement of the project, (construction commencement is now scheduled to mid-2018) triggered mainly by permitting issues as described in the note below.
   
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ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

C.Additional information in respect of PC's trading property:

  

 Casa radio:
   
(1)General:

 

One of PC's most significant projects under development is the Casa radio project in Bucharest, Romania. The Casa radio Project cost in the Group's financial statements as of December 31, 2015 amount to NIS 460 million (2014 - NIS 548 million).

 

In 2006 PC entered into an agreement according to which it acquired 75% interest in a company ("Project SPV") which under a Public-Private Partnership agreement (“PPP”) with the Government of Romania is to develop the Casa radio site in central Bucharest (“Project”). After signing the PPP agreement, PC holds indirectly 75% of the shares in the Project SPV, the remaining 25% are held by the Romanian authorities (15%) and another third party (10%).

 

As part of the PPP, the Project SPV was granted with development and exploitation rights in relation to the site for a period of 49 years, starting December 2006. As part of its obligations under the PPP, the Project SPV has committed to construct a Public Authority Building (“PAB”) measuring approximately 11.000 square meters for the Romanian Government at its own cost.

 

Large scale demolition, design and foundation works were performed on the construction site which amounted to circa EUR 85 million (NIS 361 million) until 2010, when current construction and development were put on hold due to lack of progress in the renegotiation of the PPP Contract with the Authorities (refer to point c below) and the Global financial crisis.. These circumstances (and mainly the avoidance of the Romanian Authorities to deal with the issues specified below) caused the Project SPV to not meet the development timeline of the Project, as specified in the PPP. This might lead to future claims, sanctions and/or delay penalties from the side of the Romanian Authorities. However, PC is in the opinion that it has sufficient justifications for the delays in this timeline, as generally described below.

 

(2)Obtaining of the Detailed Urban Plan (“PUD“) permit:

 

The project SPV obtained the PUD related to this project in September 2012. Furthermore, on December 13, 2012, the Court took note of the waiver of the claim submitted by certain plaintiffs and rejected the litigation aiming to cancel the approval of the Zonal Urban Plan (“PUZ”) related to the Project. The court decision is irrevocable.

 

As the PUD is based on the PUZ, the risk that the PUD would be cancelled as a result of the cancellation of the PUZ was removed following the date when the PUZ was cleared in court on December 13, 2012.

 

 46 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

C.Additional information in respect of PC's trading property (Cont.):

  

 Casa radio (Cont.):
   
(3)Discussions with Authorities on construction time table deferral:

 

As a result of point 2 above, following the Court decision, the Project SPV was required to submit a request for building permits within 60 days from the approval date of the PUZ/PUD and commence development of its project within 60 days after obtaining the building permit.

 

However, due to substantial differences between the approved PUD and stipulations in the PPP Contract as well as changes in the EU directives concerning buildings used by Public Authorities, and in order to ensure a construction process that will be adjusted to current market conditions, the Project SPV started preliminary discussions with the Romanian Authorities (which are both shareholders of the Project SPV and a party to the PPP) regarding the future development of the project.

 

The Project SPV also officially notified the Romanian Authorities its wish to renegotiate the existing PPP contract on items such as time table, structure and milestones (e.g., the construction of the Public Authority Building (“PAB”), whose’ estimated costs are provisioned for in these financial statement – refer to point 5 below).

 

PC estimates that although there is no formal obligation from the Romanian Authorities to renegotiate the PPP agreement, such obligation is expressly provided for the situation when extraordinary economic circumstances arise.

 

(4)Provision in respect of PAB:

 

As mentioned in (1) above, when PC entered into an agreement to acquire 75% interest in the Project SPV it assumed a commitment to construct the PAB at its own costs for the benefit of the Romanian Government. Consequently, PC had recorded a provision in the amount of EUR 17.1 million (NIS 73 million) in respect of the construction of the PAB.

 

PC utilized the amount of EUR 1.5 million (NIS 6 million) out of this provision, and in 2015 a reduction in the provision in the amount of EUR 0.6 million (NIS 2.5 million) (recorded as other income) was performed in order to reflect updated budget changes in respect of the PAB. PC's Management believes that the current level of provision is an appropriate estimation in the current circumstances. Upon reaching concrete agreements with Authorities, PC will be able to further update the provision.

 

(5)Co-operation with the Romanian Authorities re potential irregularities

 

PC’s Board and Management have become aware of certain issues with respect to certain agreements that were executed in the past in connection with the Project. In order to address this matter, PC’s Board has appointed their chairman of the Audit Committee to investigate the matters internally and have also appointed independent law firms to perform an independent review of the matters raised.

 

PC’s has approached and is co-operating fully with the relevant Romanian Authorities regarding the matters that have come to its attention and it has submitted its findings to the Romanian Authorities.

 

Regarding additional potential implications see note 14 C (13).

 

 47 
 

 

ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

C.Additional information in respect of PC's trading property (Cont.):

 

 Casa radio (Cont.):

 

(5)Co-operation with the Romanian Authorities re potential irregularities

 

As this process is still on-going, PC in unable to comment on any details related to this matter.

 

Following PC's report to the Company, the Company's audit committee has decided to appoint a special committee to examine the matters raised in PC's announcement, including any internal control and reporting issues.

 

At the current stage PC, based on a legal advice received, cannot determined the consequences of such matter. As for the fair value of the Project as of December 31, 2015 see F and G below.

 

(6)The circumstances described in subsection 1-5 above might lead to future claims, penalties, sanctions and/or, in extreme circumstances, termination of the PPP and annulment of PC's rights in the Project by the Authorities.

 

 Selling of the Koregaon park shopping center in Pune, India

 

On May 13, 2015, PC signed an agreement to sell Koregaon Park Plaza, the retail, entertainment and office scheme located in Pune, India for approximately EUR 35 million (NIS 148 million). The net cash proceeds received (after repayment of the related bank loan, other liabilities and transaction costs) from the sale totaled EUR 7.4 million (NIS 31 million). In line with PC's stated restructuring plan, all the net cash proceeds from the transaction were retained with PC.

 

PC recorded a total loss of EUR 8.8 million (NIS 38 million) from this transaction due to exercise of foreign currency translation reserve accumulated relating to the subsidiary and impairment of related various receivables.

 

Selling of undeveloped plots in Romania

 

In June, 2015, PC sold its 46,500 sqm development site in Iasi, Romania for a gross consideration of EUR 7.3 million (NIS 31 million). There was no bank debt secured against the property. No profit or loss was recorded as a result of the transaction.

 

In addition PC sold in two separate transaction two additional plots in Romania for a gross consideration of approximately Euro 570 thousands (NIS 2.4 million)

 

In line with PC restructuring plan, 75% of the net cash proceeds from the abovementioned transactions (where applicable) were distributed to the PC's bondholders as an early repayment in late September 2015.

 

 Building permits obtained:

 

In July 2015 PC received the building permit to develop Timisoara Plaza commercial center in Timisoara, Romania which will contain approximately 37,000 sqm GLA. Currently negotiations are undergoing with a commercial bank for the financing of the project.

 

In addition, in July 2015, PC received the building permit to develop the Sport Star Plaza commercial center in Belgrade, Serbia, which will contain approximately 32,000 sqm GLA.

 

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ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

C.Additional information in respect of PC's trading property (Cont.):

 

Additional information in respect of trading property:

 

The following table summarizes general information regarding the Group's significant trading property projects.

 

           As of December 31, 2015  As of December 31, 
        Purchase/   Rate of ownership      2015   2014 
  Project  Location  transaction date  by
PC (%)
   Nature of rights  Carrying amount (MNIS) 
  Operational                        
  Suwalki Plaza  Poland  Jun-06   100   Ownership   170.6    187.3 
  Zgorzelec Plaza  Poland  Dec-06   100   Ownership   51.4    63.8 
  Torun Plaza  Poland  Feb-07   100   Ownership   292.2    324.4 
  Koregaon Park  India  Oct-06   100   Ownership   sold    159.7 
  Liberec Plaza  Czech Republic  Jun-06   100   Ownership   40.8    74.2 
  Undeveloped lands designated for development                        
  Casa Radio  Romania  Feb-07   75   Leasing for 49 years   461.2    548.5 
  Timisoara Plaza  Romania  Mar-07   100   Ownership   40.0    42.1 
  Belgrade Plaza  Serbia  Aug-07   100   Ownership   57.3    64.7 
  Sport-Star Plaza  Serbia  Dec-07   100   Ownership   125.7    89.3 
  Undeveloped lands not designated for development                        
  Lodz residential  Poland  Sep-01   100   Ownership/ Perpetual usufruct   8.9    22.7 
  Lodz – plaza  Poland  Sep-09   100   Perpetual usufruct   23.3    35 
  Kielce Plaza  Poland  Jan-08   100   Perpetual usufruct   14.0    16.5 
  Lesnzo Plaza  Poland  Jun-08   100   Perpetual usufruct   3.4    3.8 
  Miercurea Csiki Plaza  Romania  Jul-07   100   Ownership   8.5    9.5 
  Iasi Plaza  Romania  Jul-07   100   Ownership   sold    34.5 
  Slatina Plaza  Romania  Aug-07   100   Ownership   2.5    5.2 
  Constanta Plaza  Romania  July-09   100   Ownership   9.3    11.8 
  Shumen Plaza  Bulgaria  Nov-07   100   Ownership   3.4    4.7 
  Arena Plaza Extension  Hungary  Nov-05   100   Land use rights   10.6    16.7 
  Helios Plaza  Greece  May-02   100   Ownership   17.0    20.8 
  Chennai (see D below)  India  Dec-07   80   Ownership   113.1    118.5 
  Other small plots, grouped                  14.6    22.2 
                    1,467.8    1,875.9 
                           
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ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

D.Additional information in respect of trading property in India:

 

The following information relates to trading property held by Elbit-Plaza India Real Estate Holding Limited ("EPI"), the total amount of which as of December 31, 2015 amounts to NIS 113 million. EPI is jointly controlled by the Company and PC (see note 8D). As for additional information in respect of the Bangalore Project- see note 7A.

 

Chennai, India:

 

In December 2007, EPI executed agreements for the establishment of a special purpose vehicle (“Chennai Project SPV”) together with a local developer in Chennai (“Local Partner”). The Chennai Project SPV acquired 74.3 acres of land situated in the Sipcot Hi-Tech Park in Siruseri District in Chennai, India in consideration of a total of INR 2,367 million (NIS 138 million) (EPI share). In addition, as of December 31, 2015, EPI paid advances in the amount of INR 564 million (NIS 33 million) in order to secure acquisition of an additional 8.4 acres.

 

EPI holds 80% of the equity and voting rights in the Chennai Project SPV, while the Local Partner holds the remaining 20%.

 

The Chennai Project was designated at the end of 2014 as project for development. During 2015, due to changes in the Group's activities and objectives, Management has decided not to develop the Chennai project but rather to dispose it in its current situation. In this respect, on September 16, 2015, EPI has obtained a backstop commitment for the purchase of Chennai, India Scheme. EPI which has been in discussions regarding the sale of Chennai Project SPV, has obtained a commitment that, subject to the fulfilment of certain conditions precedent, the sale transaction will be completed by 15th of January 2016 (the “Long Stop Date”) for the consideration of approximately INR 161.7 Crores (NIS 91 million), net of all transaction related costs. If completion does not take place by the Long Stop Date, then EPI’s stake in the Chennai Project SPV will be increased to 100%. In line with the Sale Transaction agreement, since the local Indian partner (the “Partner”) failed to complete the transaction by the Long Stop Date, EPI’s shall exercise its right to get the Partner’s 20% holdings in the Chennai Project SPV.

 

E.As of December 31, 2015 the Group pledged trading property in the amount of NIS 527 million in order to secure borrowings provided to the Group by financial institutions in the total amount of NIS 437 million. See also note 14 D.

 

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ELBIT IMAGING LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - TRADING PROPERTY (Cont.)

 

F.Significant estimates:</