Cinema City International N.V.

Transcription

(a limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, with its corporate seat in
Amsterdam)
Offering of 15,664,352 Shares with a nominal value of i0.01 per Share
Based on this document (the “Prospectus”), 15,664,352 ordinary shares in Cinema City International N.V. (“Cinema City” or
the “Issuer”), a limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, with its
corporate seat in Amsterdam, are offered, of which 10,000,000 newly issued ordinary shares (the “New Shares”) are offered for
subscription by the Issuer and 5,664,352 existing ordinary shares (the “Sale Shares” and together with New Shares, the “Firm
Shares”) are offered for sale by (i) Israel Theatres Limited (the “Affiliated Shareholder”), the parent company of I.T. International
Theatres Limited, the Issuer’s majority shareholder (the “Principal Shareholder”), and (ii) a senior member of management and an
affiliated person (together with the Affiliated Shareholder, the “Selling Shareholders”). The Issuer will receive the net proceeds
from the sale of the New Shares. The Selling Shareholders will receive the net proceeds from the sale of the Sale Shares. The
Offer Shares (as defined below) offered in this offering (the “Offering”) constitute a minority interest in the Issuer. The Offering
consists of a public offering in Poland and an international offering by way of a private placement to certain institutional investors
outside of Poland. The Offer Shares have not been and will not be registered under the United States Securities Act of 1933, as
amended (the “US Securities Act”), or with any securities regulatory authority of any state or any jurisdiction in the United States.
The Offer Shares are being offered only outside the United States in accordance with Regulation S of the US Securities Act
(“Regulation S”) and may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as
defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of
the US Securities Act. See: “Selling Restrictions”.
A3.4.1
A3.5.1.2
A3.4.2
A1.5.1.1
A1.5.1.4
A3.6.3
A3.5.1.9
The Firm Shares are being offered, as specified in this Prospectus, subject to cancellation or modification of such Offering
and subject to certain other conditions.
The Prospectus constitutes a prospectus in the form of a single document within the meaning of Article 3 of the Directive
2003/71/EC of the European Parliament and of the Council of the European Union (the “Prospectus Directive”) and has been
prepared in accordance with Article 3 of the Dutch Securities Act 1995 (Wet toezicht effectenverkeer 1995, the “Dutch Securities
Act”). This Prospectus has been filed with, and was approved on 17 November 2006 by, the Netherlands Authority for the
Financial Markets (the “AFM”), which is the Dutch competent authority for the purpose of the relevant implementing measures of
the Prospectus Directive in the Netherlands. The Issuer will be authorised to carry out the Offering to the public in Poland once the
Polish Financial Supervisory Commission (the “FSC”), which is the Polish competent authority for the purposes of the relevant
implementing measures of the Prospectus Directive in Poland, has informed the Issuer that the AFM provided the FSC with a
certificate of approval of this Prospectus, which is equivalent with authorising the Offering to the public in Poland.
See: “Risk Factors” for a description of factors to be taken into account when considering whether to invest
in the Offer Shares.
Prior to the Offering there was no public market for the shares of the Issuer. Application will be made based on this
Prospectus to admit and list all of the Issuer’s shares (“Shares”) authorised and issued as at the Settlement Date (as defined
below), including the Firm Shares and the Overallotment Shares (as defined below), plus 930,000 Shares that have been
authorised and that may be issued from time to time under the Company’s employee stock incentive plan, to trading on the
Warsaw Stock Exchange (the “WSE”) (the “Admission”). The date on which trading of the Firm Shares on the WSE will
commence is expected to be on or about 8 December 2006 (the “Listing Date”). Delivery of the Firm Shares to investors’ securities
accounts is expected to be made on or about 7 December 2006 (the “Settlement Date”). Prospective retail investors in Poland
(other than “U.S. persons” as defined in Regulation S under the US Securities Act) may subscribe for the Firm Shares during a
period which is expected to commence on or about 24 November 2006 and is expected to end on or about 30 November 2006,
whereas selected prospective institutional investors in Poland (other than “U.S. persons” as defined in Regulation S under the US
Securities Act) may subscribe for the Firm Shares during a period that is expected to commence on or about 1 December 2006
and is expected to end on or about 4 December 2006. The Maximum Price per Offer Share will be determined by the Issuer and
the Affiliated Shareholder, with the agreement of the Lead Manager (as defined below) on or about 23 November 2006, based on
(i) an assessment of the current and anticipated situation of the Polish and international capital markets, and (ii) an assessment of
the growth prospects, risk factors and other information relating to the Company’s activities. The offer price per Offer Share (the
“Offer Price”) and the final number of the Offer Shares will be determined jointly by the Issuer and the Affiliated Shareholder, with
the agreement of Bank Austria Creditanstalt AG (“CA IB” or the “Lead Manager” and, together with ING Bank N.V., the
“Managers”) on or about 30 November 2006 (the “Pricing Date”) and will be announced in a press release soon thereafter and in
the same manner as this Prospectus. The Offer Price will be determined based on the following criteria and rules: (i) size and price
sensitivity of demand from the Institutional Investors as gauged during the book-building process, (ii) the current and anticipated
situation on the Polish and international capital markets and (iii) assessment of the growth prospects, risk factors and other
information relating to the Company’s activities contained in this Prospectus. If the Offering is cancelled or postponed prior to final
allotments of the Firm Shares to investors on or about 4 December 2006 (the “Allotment Date”), all subscriptions for the Firm
Shares will be disregarded and any subscription payments made will be returned without interest or other compensation. All
dealings in the Firm Shares prior to settlement and delivery are at the sole risk of the parties concerned.
A3.5.1.3
A3.5.3.1
A3.5.3.2
A3.6.1
A3.6.2
A3.4.7
A3.5.4.1
A3.5.4.2
A3.5.4.3
In addition, the Principal Shareholder has granted to the Managers an option exercisable for up to 30 days following the
Allotment Date to purchase up to an additional 2,349,652 Shares (the “Overallotment Shares” and together with the Firm Shares,
the “Offer Shares”), the maximum number of which is equal to 15% of the number of Firm Shares being offered in the Offering,
solely to cover overallotments, if any, made in connection with the Offering and short positions resulting from stabilisation
transactions. Such stabilisation shall be conducted in accordance with the rules set out in the European Commission Regulation
(EC) No. 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC of the European Parliament and of the Council of
the European Union as regards exemptions for buy-back programmes and stabilisation of financial instruments.
Offer Price: To be determined in PLN
Maximum Price: To be determined in PLN and announced on or about 23 November 2006
CA IB Securities S.A. will act as Offeror (the “Offeror”) for the offering and listing of the Shares on the WSE.
Global Coordinator, Bookrunner and Lead Manager
Co-Lead Manager
The date of this Prospectus is 17 November 2006.
A3.4.4
A3.5.3.1
TABLE OF CONTENTS
IMPORTANT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
SUMMARY FINANCIAL AND OPERATING DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
EXCHANGE RATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
PRINCIPAL AND SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
CAPITALISATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
OPERATING AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
DESCRIPTION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
INFORMATION ON THE INDUSTRY AND MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61
DIRECTORS AND EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
DESCRIPTION OF THE SHARES AND CORPORATE RIGHTS AND OBLIGATIONS . . . . . . . . . . . .
76
SELLING RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90
THE WARSAW STOCK EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
CERTAIN TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
PLACING AND UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
ANNEX I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
ANNEX II ARTICLES OF ASSOCIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
i
IMPORTANT INFORMATION
Capitalised terms used in this Prospectus and not otherwise defined herein have the meaning ascribed to such
terms in Annex I “Definitions”.
Prospective investors are expressly advised that an investment in the Offer Shares entails financial risk
and that they should therefore read this Prospectus entirely and, in particular “Risk Factors” when
considering an investment in the Offer Shares. The contents of this Prospectus are not to be construed
as legal, financial or tax advice. Each prospective investor should consult his, her or its own legal adviser,
independent financial adviser or tax adviser for legal, financial or tax advice.
No person is or has been authorised to give any information or to make any representation in connection with
the Offering, other than as contained in this Prospectus, and, if given, or made, any other information or
representation must not be relied upon as having been authorised by the Issuer, or by the Managers.
Responsibility
The Issuer accepts responsibility for the information contained in this Prospectus. To the best of the Issuer’s
knowledge and belief, having taken all reasonable care to ensure that such is the case, the information contained in
this Prospectus is in accordance with the facts and contains no omission likely to affect its import. The delivery of
this Prospectus at any time after the date hereof will not, under any circumstances, create any implication that there
has been no change in the Issuer’s affairs since the date hereof. Neither the Managers nor the legal advisors to the
Company accept responsibility whatsoever for the contents of this Prospectus, or for its transaction, or for any other
statement made or purported to be made by any of them or on their behalf in connection with the Issuer. The
Managers and the legal advisors to the Company accordingly disclaim all and any liability whether arising in tort or
contract which they might otherwise have in respect of this Prospectus or any such statement.
Notice to Prospective Investors
The distribution of this Prospectus and the Offering of the Offer Shares in certain jurisdictions may be
restricted by law. This Prospectus may not be used for, or in connection with, and does not constitute, any offer to
sell, or an invitation to purchase, any of the Offer Shares offered hereby in any jurisdiction in which such offer or
invitation would be unlawful. Persons in possession of this Prospectus are required to inform themselves about and
to observe any such restrictions, including those set out under “Selling Restrictions”. Any failure to comply with
these restrictions may constitute a violation of the securities laws of any such jurisdiction.
As a condition to the purchase of any Offer Shares in the Offering, each purchaser will be deemed to have
made, or in some cases be required to make, certain representations and warranties, which will be relied upon by the
Issuer, the Managers and others. The Issuer and the Affiliated Shareholder reserve the right, in their sole and
absolute discretion, to reject any purchase of Offer Shares that the Issuer, the Affiliated Shareholder, the Managers
or any agents believe may give rise to a breach or a violation of any law, rule or regulation. See: “Selling
Restrictions”.
The Offer Shares have not been approved or disapproved by the US Securities and Exchange Commission, any
State securities commission in the United States or any other US regulatory authority, nor have any of the foregoing
passed upon or endorsed the merits of the Offering or the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offence in the United States.
Presentation of Financial and Other Information
In this Prospectus, “Cinema City” or the “Issuer” refers to Cinema City International N.V. and the “Company”
refers to Cinema City and its subsidiaries, unless the context requires otherwise.
The Company maintains its financial statements (the “IFRS Financial Statements”) in accordance with
International Financial Reporting Standards, as adopted by the European Union (“IFRS”) and as applicable in the
respective years, as well as in accordance with article 362.9 of the Netherlands Civil Code. The IFRS Financial
Statements comprise (i) the audited consolidated financial statements as at and for the years ended 31 December
2005, 2004, and 2003 (the “Annual Audited Financial Statements”) and (ii) the unaudited consolidated financial
statements as at and for the six-month periods ended 30 June 2006 and 2005 (the “Interim Financial Statements”),
which are included elsewhere in this Prospectus.
Certain figures contained in this Prospectus, including financial information, have been subject to rounding
adjustments. Accordingly, in certain instances the sum of the numbers in a column or a row in tables contained in
this Prospectus may not conform exactly to the total figure given for that column or row.
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A3.1.1
A3.1.2
A1.1.1
A1.1.2
In this Prospectus, references to “Euros”, “EUR” or “A” are to the lawful currency of the European Economic
and Monetary Union, of which the Netherlands is a member. References to “US dollars”, “USDs”, “US$”, “$” or
“U.S. Dollars” are to the lawful currency of the United States. References to “Złoty” or “PLN” are to the lawful
currency of the Republic of Poland. References to “New Israeli Shekel” or “NIS” are to the lawful currency of the
State of Israel. References to “Koruna” or “CZK” are to the lawful currency of the Czech Republic. References to
“Lev” or “BGN” are to the lawful currency of the Republic of Bulgaria. References to “Forint” or “HUF” are to the
lawful currency of the Republic of Hungary.
Certain industry terms and other terms used in this Prospectus are explained in Annex I “Definitions”.
Market, Economic and Industry Data
All references to market, economic or industry data, statistics and forecasts in this Prospectus consist of
estimates compiled by professionals, organisations, analysts, publicly available information, or the Issuer’s
knowledge of its sales and markets.
Certain statistical data relating to the Hungarian and Czech cinema industries have been derived from
published reports produced by the Hungarian National Film Office and the Czech Film Commission, respectively.
Certain statistical data relating to the Israeli and Central European cinema industry has been extracted or
derived from Cinemagoing Central Europe 2006, a report published by Dodona Research (“Dodona”), a specialist
research organisation for the cinema industry; from periodic subscription-based electronic releases received by the
Company in the period from 2003 to the present from Screen Digest (“Screen Digest”), a specialist in business
intelligence, research and analysis on global audiovisual media; from periodic subscription-based electronic
releases received by the Company in the period from 2003 to the present from Media Salles, an initiative of the
European Union’s Media Programme with the support of the Italian Government (“Media Salles”); and from
periodic subscription-based electronic releases received by the Company in the period from 2003 to the present
from the Motion Picture Association of Israel (“MPA”).
A1.6.5
A3.10.4
A1.23.2
Certain statistical data relating to the Polish cinema industry have been extracted or derived from information
available in October 2006 on the website owned and operated by ES Media, www.boxoffice.pl (“ES Media”).
Certain statistical data relating to the United States and the global film industry have been extracted or derived
from International Theatrical Snapshot 2005, a report published by the Motion Picture Association of America
(“MPAA”).
Industry publications generally state that their information is obtained from sources they believe to be reliable
but that the accuracy and completeness of such information is not guaranteed and that the projections they contain
are based on a number of significant assumptions. The Issuer has relied on the accuracy of such data and statements
without carrying out an independent verification thereof and therefore cannot guarantee its accuracy and
completeness.
A1.23.2
A3.10.4
The information obtained from the sources cited in this Prospectus has been accurately reproduced and, as far
as the directors of the Issuer are aware and have been able to ascertain from information published by the cited
sources, no facts have been omitted which would render the information reproduced inaccurate or misleading.
Where third party information has been used in this Prospectus, the source of such information has been identified.
In this Prospectus, the Issuer makes certain statements regarding the Company’s competitive position and
market leadership. The Issuer believes these statements to be true, based on market data and industry statistics
regarding the competitive position of certain of the Company’s competitors.
Documents Incorporated by Reference
No documents or content of any website are incorporated by reference into this Prospectus or enumerate the
documents or information that is incorporated by reference into this Prospectus.
Forward-Looking Statements
Some of the statements in some of the sections in this Prospectus include forward-looking statements which
reflect the Issuer’s current views with respect to future events and financial performance. Statements which include
the words “intend”, “plan”, “project”, “expect”, “anticipate”, “will” and similar statements of a future or forwardlooking nature identify forward-looking statements.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or
will be important factors that could cause the Issuer’s actual results to differ materially from those indicated in these
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A1.6.5
statements. These factors include, but are not limited to, those set out under “Risk Factors”, which should be read in
conjunction with the other cautionary statements that are included elsewhere in this Prospectus. If one or more of
these or other risks or uncertainties materialise, or if the Issuer’s underlying assumptions prove to be incorrect,
actual results may vary materially from those projected in this Prospectus. Apart from any continuing obligations
under the Dutch Securities Act, the Polish Act on Offerings, or WSE Corporate Governance Rules to which the
Issuer is subject to, the Issuer undertakes no obligation to publicly update or review any forward-looking statement
contained in this Prospectus, whether as a result of new information, future developments or otherwise.
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SUMMARY
This summary should be read only as an introduction to this Prospectus and contains information included
elsewhere in this Prospectus and any decision to invest in the Offer Shares should be based on consideration of all
information contained in this Prospectus as a whole, including the IFRS Financial Statements. No civil liability will
attach to the Issuer in respect of this summary (including financial highlights) or any translation thereof, unless it is
misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. Where a claim
relating to the information contained in this Prospectus is brought before a court in a Member State, the plaintiff
may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of
translating this Prospectus before the legal proceedings are initiated.
Information on the Company
A3.4
A3.4.1
A3.4.2
A1.5.1
The Company is the largest operator of multiplex cinemas in Central and Eastern Europe based on number
screens, with 335 screens, in 35 multiplex cinemas and seven IMAX» theatres in Poland, Hungary, the Czech
Republic and Bulgaria. In addition to Central and Eastern Europe, the Company is one of two leading motion
picture exhibitors in Israel based on the number of screens, operating 131 screens in 23 multiplex cinemas. In total,
the Company operates 466 screens in 58 multiplex cinemas, including seven IMAX» theatres. In 2005, the
Company had total revenues of A108.2 million. In the first six months of 2006, the Company had total revenues of
A75.5 million.
The Company also distributes films in Israel, Poland and Hungary and has strong relationships with
international film companies, having acted as the exclusive motion picture distributor for The Walt Disney
Company (“Disney”) in Israel, through its subsidiary Buena Vista International Inc (“Buena Vista”), for almost
50 years, and more recently in Poland and Hungary. The Company has exclusive rights to develop IMAX» theatres
in Poland, the Czech Republic, Hungary, Bulgaria and Romania. In addition, in connection with its theatre
development, the Company is engaged in real estate activities in Central and Eastern Europe. In Israel, the Company
engages in video and DVD rental and sales and, since May 2006, this business has been operated through a joint
venture operating the Blockbuster» franchise in which the Company has a 50% participation.
The Company has continued to be engaged in significant expansion within Central and Eastern Europe. From
late 2004 to mid-2006, the Company opened 11 multiplex theatres, including three IMAX» facilities, primarily in
Poland. Over the next two years, the Company plans to open approximately 286 new multiplex screens (216 of
which the Company has contractual commitments in respect of), including two IMAX» theatres, at sites throughout
the territories in which it operates, including its first three projects in Romania.
The Company is the largest cinema operator in Poland based on the number of screens and in 2005 had a
multiplex box office market share of 38% according to ES Media and Company estimates. The Company has a
particularly strong presence in Warsaw, with a total cinema admissions market share of 65% in 2005, according to
ES Media and the Company’s estimates.
The Company has the largest cinema network in Hungary based on the number of screens with 12 theatres and
86 screens and had a market share of approximately 22% in 2005, based on admissions, according to the Hungarian
National Film Office and the Company’s estimate.
The Company is one of largest operators in the Czech cinema market based on the number of screens and has
four sites in Prague with 32 screens and an IMAX» theatre in Prague.
As of the end of September 2006, the Company is the largest cinema operator in Israel based on number of
screens with 23 theatres and 131 screens. In 2005, the Company had a 32% market share based on admissions,
according to MPA, and the Company’s estimates.
The Company recently commenced operations in Bulgaria with the July 2006 opening of 12 multiplex screens
and one IMAX» theatre in the “Mall of Sofia”, the first modern shopping mall in Bulgaria, with offices, shopping
areas, a supermarket, restaurants and cafes and an underground parking lot for 700 cars. The Company developed
this project as part of its real estate activities.
In addition to theatre ticket sales, the Company derives revenue from the following sources:
•
concession sales (12.3% of 2005 consolidated sales), which consist of the sale of products such as food and
beverages at the theatres;
•
advertising (9.7% of 2005 consolidated sales), which consists of the provision of full service on-screen and
off-screen marketing, delivering cinema-media planning services, organising promotional events and
developing posters, stickers and various other marketing materials;
1
•
film distribution (14% of 2005 consolidated sales), which consists of the provision of services connected
with the initial positioning and marketing of the film in a market, followed by distribution to the cinemas
that will show the film;
•
real estate activities (12.1% of 2005 consolidated sales), which consist primarily of the purchase and sale of
real estate properties;
•
video and DVD rentals and sales (4.5% of 2005 consolidated sales consisting primarily of activities
conducted by the Company’s 50/50 joint venture with the Israeli Blockbuster» franchisee); and
•
the operation of the Company’s two entertainment centres in Poland (less than 1% of 2005 consolidated
sales), which include bowling alleys, video game arcades, billiards, internet cafes and bars.
Information on the Industry
The motion picture industry continues to grow on a global basis. According to the MPAA, global box office
revenues have increased by 46% from $15.9 billion in 2000 to an estimated $23.2 billion in 2005.
The Company believes the following market trends will drive the continued growth and strength of its industry
and the markets in which it operates:
•
the development of modern multiplexes;
•
greater diversity in film genres, including the development of more “locally” produced films;
•
increased importance of drawing in wider audiences in international markets to ensure the commercial
success of film releases;
•
increased studio spending on the production and marketing of new film releases; and
•
growing cinema admissions in historically underserved markets.
Competitive Strengths
The Company believes that it benefits from the following competitive strengths:
•
Strong market positions. For many years the Company has been one of the two market leaders in Israel in
the movie exhibition business, based on revenue. It has already leveraged its operational capabilities and
standardised practices to become the leading theatre operator in Poland and one of the main theatre
operators in Hungary, the Czech Republic and Bulgaria, based on revenue, and can further leverage these to
develop new markets that the Company believes to be high growth, such as Romania.
•
Presence in high growth markets. The Company’s growth focus is in countries that it believes have high
growth potential. Penetration of movie screens per capita, admissions per capita, and the number of modern
multiplexes relative to single screen theatres in Central and Eastern Europe is substantially lower than in
the European Union and the US, which the Company believes is an indication of future growth potential.
The Company believes that the movie industry in this region will continue to develop rapidly as disposable
incomes increase and older, single screen theatres are replaced with modern multiplex facilities.
•
Experienced management team. The Company believes that it has benefited from the extensive experience of its management team. The Greidinger family has been in the cinema industry since 1929 and the
Company’s senior management team collectively has more than 100 years of experience in the movie
theatre industry and related real estate industry. This includes experience in all elements of the industry,
such as film distribution, real estate and project development, exhibition, advertising, as well as operating
experience in other movie distribution channels. The Company believes that as a result of this experience
its management has strong insight relating to planning and site development, marketing and advertising
and distribution activities.
•
Diversified revenue base within its industry. The Company generates revenues from a number of sources,
including ticket sales for movie exhibitions, concessions, advertising, movie distribution, video and DVD
rental and sales, and real estate development and trading. The Company also receives revenue from
sponsorship arrangements, including, for example, Orange plc sponsoring the Company’s IMAX» theatres
in Poland. The Company believes that these diverse operations maximise use of its infrastructure and help
reduce the inherent cyclicality and seasonality of the movie exhibition business.
2
•
Strong cash flow and liquidity. The Company’s main customers are cinema attendees who typically pay
in cash thereby eliminating significant accounts receivable in its core theatre operations business, reducing
the Company’s working capital requirements and minimising bad debt provisions.
•
Exclusivity with the Imax Corporation. The Company has an exclusive agreement with the Imax
Corporation to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania.
The Company currently operates five IMAX» theatres in Poland, one in the Czech Republic and one in
Sofia, Bulgaria. The Company has plans for the development of two further IMAX» theatres by the end of
2007. The Company believes that, in addition to the high-margin revenues generated by these IMAX»
theatres, its exclusive relationship with the Imax Corporation enables the Company to acquire better
theatre site locations by offering an exclusive and attractive product to property developers.
•
Distribution relationships with Disney (through Buena Vista). The Company distributes films in Israel,
Poland and Hungary. The Company has been an exclusive distributor for Disney for almost 50 years in
Israel and, since February 2003 and September 2005, in Poland and Hungary, respectively. In addition, it
distributes new releases from New Line, Weinstein Co., Revolution and Spyglass, as well as other
independent movie producers. The distribution operations represent a natural vertical add-on business,
providing natural synergies including the ability to actively advertise and promote movies in the
Company’s markets.
•
High-quality multiplex facilities. The Company believes that the development and maintenance of highquality theatre facilities is critical to its continued success. In constructing new theatres, the Company
applies a standardised interior design and technologies and these multiplex theatres include wide screens,
digital surround systems, high-quality projection equipment, comfortable seating, computerised reserved
seating ticketing systems, and full service concessions. The Company believes that its high-quality
facilities provide a preferred destination and entertainment experience for moviegoers. The Company aims
to enable moviegoers to complement their movie experience with other leisure and social activities by
building its movie theatres within other shopping, leisure and entertainment facilities.
•
Standardised, flexible and cost effective approach to developing multiplex theatre sites. The Company
has developed a standardised yet flexible cost effective approach to multiplex construction, which the
Company believes has contributed to its track record of on-time and on-budget construction. Whenever the
Company seeks to develop a new theatre, an experienced team applies a standardised design that is adapted
to the requirements of the particular site, which enables the Company to achieve cost savings. In addition,
as a result of its experience, the Company is able to respond quickly to developers of other commercial
properties that include a cinema. The Company believes that this has earned it a reputation as a reliable
multiplex operator which strengthens its ability to secure prime site locations and provides it with a
competitive advantage over other exhibitors submitting bids. Moreover, the Company is now in a position
where it is frequently approached by property developers who perceive it as a desirable cinema anchor for a
complex.
•
Customised information technology and reporting systems. Management closely monitors the Company’s operations and cash flows through daily reports generated from customised information technology
and reporting systems connected with each theatre. The Company believes that these systems help to
enhance its ability to maximise revenue, cost control and efficiently manage theatre circuits. The real-time
information available on these systems allows management to make immediate adjustments to movie
schedules, prolong runs or increase the number of screens on which successful movies are played and
substitute films when gross receipts cease to meet expected goals.
Business Strategy
Key elements of the Company’s strategy include:
•
Consolidate its position in its existing markets: The Company aims to consolidate its position as the
leading operator of multiplex cinemas in Poland by significantly expanding its operations and to enhance
its position as a leading operator in Hungary, the Czech Republic and Bulgaria. To that end, since the end of
2004, the Company has developed nine theatres, of which two are IMAX» theatres, in Poland. The
Company plans to add up to 21 new theatres in its existing markets in the next two years, of which ten are
expected to be in Poland, two in Israel, one in Hungary and four in each of Bulgaria and the Czech
Republic.
•
Expand into other Central and Eastern European Markets. The Company aims to expand its operations
in new markets in Central Eastern Europe, leveraging the business model that it has developed and
3
implemented in Poland, the Czech Republic Hungary and Bulgaria. To that end, the Company has
commenced activities in Romania, where the Company plans to build four new theatres and will consider
new opportunities in other Central and Eastern European countries as they arise.
•
Leverage leading market position to secure premium high traffic locations. As part of its development
strategy, the Company will continue to seek to locate its theatres within strategically desirable destinations,
such as shopping malls and entertainment complexes. Where the Company is unable to find suitable
opportunities within an existing or planned development, it will continue to selectively purchase property
to develop on its own.
•
Generate earnings through real estate development and trading. The Company intends to continue to
participate in real estate development in the future, primarily in connection with its theatre expansion
programme, and to identify and implement projects that provide it with a stable mix of leased and owned
properties. The aim of this strategy is to allow the Company to selectively leverage the success of
multiplexes into real estate and cinema-related entertainment centres.
•
Continue to grow, attract and retain customer base. As the Company is operating in markets with
relatively low admissions per capita, it aims to encourage the development of a vibrant movie going
culture. The Company intends to grow its customer base through loyalty programmes, such as loyalty cards
and bonus schemes, together with the effective use of online booking and other marketing and promotion
tools. The Company is constantly re-evaluating and analysing its customer viewing patterns through its
information systems in order to tailor its programming to satisfy customer requirements.
•
Further develop its film distribution channels in countries where it operates The Company aims to grow
its film distribution operations as its penetration of new markets through theatre operations develops. The
distribution operations represent a natural vertical add-on business, providing natural synergies including
the ability to actively advertise and promote movies in the Company’s markets.
•
Maximise revenue opportunities through cinema related operations. The Company will continue to
pursue additional revenue growth opportunities by developing and expanding ancillary revenue streams,
such as concession, sponsoring and advertising revenues. The Company believes that further opportunities
exist to expand its sponsorship arrangements across both multiplexes and IMAX» theatres. With these
ancillary revenue streams, the Company aims to improve margins and reduce its exposure to the cyclicality
of the theatre business.
Risk Factors
An investment in the Offer Shares involves risks that could affect the value of the Offer Shares negatively,
including risks relating to the Company’s business and industry, its corporate structure, and the trading market of the
Offer Shares. See “Risk Factors.”
Controlling Shareholder
Following completion of the Offering, the Greidinger family will maintain indirect control of the Principal
Shareholder, through its shareholding in Israel Theatres Limited. More than 75% of the shares in Israel Theatres
Limited are held primarily by Mr Moshe Greidinger and Mr Israel Greidinger and, to a lesser extent, their sisters,
Ms Rebecca Greidinger and Ms Merav Greidinger.
4
Summary of the Offering
The Issuer . . . . . . . . . . . . . . . . . . . . . .
The Offering. . . . . . . . . . . . . . . . . . . . .
The Offering comprises the offer of 15,664,352 Firm Shares, including the subscription offer by the Issuer of 10,000,000 New Shares, and
the sale offer by the Selling Shareholders of 5,664,352 Sale Shares,
together constituting a minority interest in the Issuer, by way of a
public offering to retail and institutional investors in Poland that are
not U.S. persons (as defined in Regulation S) and an international
private placement to institutional investors that are not U.S. persons
(as defined in Regulation S) in certain jurisdictions outside Poland and
the United States.
The Selling Shareholders . . . . . . . . . . .
The Selling Shareholders consist of (i) Israel Theatres Limited, which
is the parent company of the Principal Shareholder, selling Offer
Shares that ITIT originally acquired from certain former minority
shareholders of the Issuer (and that if subsequently transferred to
Israel Theatres Limited) to whom Israel Theatres Limited will distribute a portion of the net proceeds of the sale of the Sale Shares sold
by it, (ii) a senior member of management and (iii) a person affiliated
with the Company. Assuming all the Firm Shares are subscribed for
and sold in the Offering and full exercise of the Overallotment Option,
the Principal Shareholder will own 64.5% of the Issuer’s share capital
immediately after the Offering.
Offer Shares . . . . . . . . . . . . . . . . . . . . .
Shares of the Company of nominal value A0.01 each. The final number
of Offer Shares to be offered will be determined by the Issuer and the
Affiliated Shareholder, with the agreement of the Lead Manager, prior
to the opening of the subscription period for Institutional Investors on
or about 30 November 2006 based on interest from investors and will
be announced in a press release and in the same way as this Prospectus.
Maximum Price . . . . . . . . . . . . . . . . . .
The Maximum Price per Offer Share will be determined by the Issuer
and the Affiliated Shareholder, with the agreement of the Lead
Manager, on or about 23 November 2006, based on (i) an assessment
of the current and anticipated situation of the Polish and international
capital markets, and (ii) an assessment of the growth prospects, risk
factors and other information relating to the Company’s activities.
Offer Price . . . . . . . . . . . . . . . . . . . . . .
The Offer Price will be determined by the Issuer and the Affiliated
Shareholder, with the agreement of the Lead Manager, prior to the
opening of the subscription period for Institutional Investors (as
defined in Annex I hereto) on or about 30 November 2006 (the
“Pricing Date”) and will be announced in a press release and in the
same manner as this Prospectus. The Offer Price will be determined
based on the following criteria and rules: (i) size and price sensitivity
of demand from the Institutional Investors as gauged during the bookbuilding process, (ii) the current and anticipated situation on the Polish
and international capital markets and (iii) assessment of the growth
prospects, risk factors and other information relating to the Company’s
activities contained in this Prospectus. The Offer Price for Retail
Investors will not exceed the Maximum Price. The Offer Price for
Institutional Investors may exceed the Maximum Price.
Allotment Date . . . . . . . . . . . . . . . . . . .
Allotment will occur following the subscription period for Institutional Investors, and is expected to take place on or about 4 December
2006, subject to acceleration or extension of the timetable for the
Offering at the discretion of the Company and the Affiliated Shareholder, with the agreement of the Lead Manager.
Overallotment Option . . . . . . . . . . . . . .
The Principal Shareholder granted to the Managers an option (the
“Overallotment Option”), exercisable for up to 30 days following the
5
A3.5.2.1
A3.5.3.1
Allotment Date, to purchase up to an additional 2,349,652 Overallotment Shares, the maximum number of which is to 15% of the number
of Firm Shares, solely to cover overallotments, if any, made in
connection with the Offering and short positions resulting from
stabilisation transactions. See “The Offering.”
Listing and Trading . . . . . . . . . . . . . . .
Application will be made by the Issuer to list all of the Issuer’s
authorised and issued shares as at the Settlement Date on the WSE,
including the Firm Shares and the Overallotment Shares, if any, plus
930,000 Shares that have been authorised for issuance from time to
time under the Company’s Employee Stock Incentive Plan. Trading of
the Shares on the WSE is expected to commence on or about
8 December 2006. Prior to the Offering, there was no public market
for the Issuer’s Shares.
Dividends . . . . . . . . . . . . . . . . . . . . . . .
All Shares, including the Firm Shares and the Overallotment Shares,
carry full dividend rights if and when declared from the date the holder
acquires such shares.
Delivery, Settlement and Payment . . . . .
Delivery of the Shares is expected to be made on or about 7 December
2006 to Investors’ securities accounts upon payment of the total Offer
Price, through the book-entry facilities of the Polish National Depository of Securities (the “NDS”) in accordance with their normal
settlement procedures applicable to IPOs of equity securities.
Voting Rights . . . . . . . . . . . . . . . . . . . .
Each Share entitles its holder to one vote at the Issuer’s General
Meeting of Shareholders.
Use of Proceeds . . . . . . . . . . . . . . . . . .
The estimated net proceeds payable to the Company if it sells all of the
New Shares to be sold by it in the Offering will be announced in a press
release on the Pricing Date.
The Company intends to utilise the net proceeds from the New Shares
to finance the development of its business in Central and Eastern
Europe and Israel and, to the extent funds are not otherwise invested in
this manner, for other general corporate purposes, including the
redemption of debt.
The Selling Shareholders will receive the net proceeds from the sale of
the Sale Shares. The Affiliated Shareholder will distribute a portion of
the proceeds among certain former minority shareholders of the Issuer
in accordance with a prescribed formula.
Lock-up . . . . . . . . . . . . . . . . . . . . . . . .
Each of the Issuer, the Principal Shareholder and the Selling Shareholders have agreed that, without the prior written consent of the Lead
Manager, it or he will not, subject to certain exceptions, during the
180 days period after the Allotment Date (the “Lock-up Period”) issue,
offer, sell, contract to sell, pledge or otherwise transfer or dispose of,
or announce the proposed sale of, any Shares or other equity securities
or securities linked to the Issuer’s share capital, and the Issuer has
agreed with the Managers to reasonably procure that any beneficiary
of the Employee Stock Incentive Plan (as defined below) who receives
any options, shares or other securities of the Issuer in connection with
the Employee Stock Incentive Plan will not offer, sell, contract to sell,
pledge or otherwise transfer or dispose of any such options, shares or
other securities during the Lock-up Period, provided, however, that
(i) the Issuer may, in connection with its Employee Stock Incentive
Plan, issue options or other securities or contracts whose value is
linked to the value of the Issuer’s shares; and (ii) members of the
Company’s management may exercise any options granted to them
under the Employee Stock Incentive Plan but any shares of the Issuer
thus acquired may not be offered, sold, contracted to sell, pledged or
6
A3.7.3
otherwise transferred or disposed of during the Lock-up Period by
such persons or on their behalf.
Form of Shares. . . . . . . . . . . . . . . . . . .
The Issuer will apply for registration of all of the Issuer’s Shares,
including the Offer Shares, with the NDS. It is expected that on or soon
after the Settlement Date, all of the Issuer’s Shares, including the Firm
Shares, and any Overallotment Shares, issued in connection with full
or partial exercise of the Overallotment Option on the Allotment Date,
will exist in book-entry form.
ISIN Code . . . . . . . . . . . . . . . . . . . . . .
NL0000687309
Lead Manager . . . . . . . . . . . . . . . . . . .
Bank Austria Creditanstalt AG
Managers . . . . . . . . . . . . . . . . . . . . . . .
Bank Austria Creditanstalt AG and ING Bank N.V.
Polish Offeror . . . . . . . . . . . . . . . . . . . .
CA IB Securities S.A.
Selling Restrictions . . . . . . . . . . . . . . . .
The Offer Shares have not been and will not be registered under the US
Securities Act or with any securities regulatory authority of any state
or any jurisdiction in the United States and subject to certain exceptions, may not be offered or sold within the United States or to, or for
the account or benefit of, US persons (as defined in Regulation S)
except in certain transactions exempt from the registration requirements of the US Securities Act. See: “Selling Restrictions”.
7
A3.10.1
SUMMARY FINANCIAL AND OPERATING DATA
A1.20..1
The following tables set out summary consolidated financial and operating data for the Company as at and for
the three years ended 31 December 2005 (the “Summary Annual Financial Information”), and as at and for each of
the six-month periods ended 30 June 2005 and 2006, respectively (the “Summary Interim Financial Information”).
The Summary Annual Financial Information has been extracted from the Annual Audited Financial Statements,
without material adjustment, and should be read in conjunction with, and is qualified in its entirety by reference to,
the Annual Audited Financial Statements and the notes thereto included in this Prospectus. The Summary Interim
Financial Information has been extracted from the Interim Financial Statements, without material adjustment, and
should be read in conjunction with, and is qualified in its entirety by reference to, the Interim IFRS Financial
Statements and the notes thereto included in this Prospectus, and the information in the section titled “Operating
and Financial Review”. The IFRS Financial Statements have been prepared in accordance with IFRS adopted by the
European Union and as applicable in the respective years. The Annual Financial Statements have been audited by
KPMG Accountants N.V., the Netherlands. See “Important Information Presentation of Financial and Other
Information” and “Independent Auditors”.
A1.20.4.3
Six months ended
30 June
Year ended 31 December
2003
2004
2005
2005(1)
2006
(audited, except operating data)
(unaudited)
(B’000, except per share data and number of shares)
Income Statement Data:
Revenues . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . .
General and administrative expenses . .
Operating profit . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . .
Gain/(loss) on disposals and write-off
of other investments . . . . . . . . . . . .
Write-off of IPO costs(2) . . . . . . . . . . .
Net result from associates . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . .
Net income before minority interests . .
Minority interests in result of
consolidated subsidiaries . . . . . . . . .
Net income attributable to equity
holders of the parent company . . .
Weighted average number of
equivalent shares . . . . . . . . . . . . . . .
Net earnings per ordinary share (basic
and diluted) of A0.01 each . . . . . . . .
Balance Sheet Data:
Assets:
Current assets . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . .
Liabilities:
Current liabilities . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . .
Total liabilities. . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . .
95,783
(85,696)
10,087
(4,630)
5,457
3,476
(4,082)
98,938
(83,696)
15,242
(4,504)
10,738
4,454
(5,581)
108,181
(90,867)
17,314
(5,387)
11,927
2,198
(4,951)
51,058
(42,209)
8,849
(2,520)
6,329
1,423
(3,146)
75,501
(62,333)
13,168
(3,302)
9,866
251
(2,360)
(231)
—
—
(756)
3,864
(1,204)
(1,765)
—
(1,549)
5,093
(151)
—
(103)
(1,198)
7,722
4
—
—
(198)
4,412
(1)
—
—
(231)
7,525
(270)
247
188
33
273
3,594
5,340
7,910
4,445
7,798
35,059,648
38,539,535
40,724,000
40,724,000
40,724,000
0.10
0.14
0.19
0.11
0.19
37,118
141,005
178,123
38,000
151,479
189,479
31,873
170,148
202,021
32,859
158,797
191,656
27,100
165,798
192,898
29,488
96,713
126,201
51,869
53
34,214
95,365
129,579
60,074
(174)
42,872
86,443
129,315
73,117
(411)
35,975
89,902
125,877
66,018
(239)
41,852
76,197
118,049
75,520
(671)
8
Six months ended
30 June
2003
2004
2005
2005(1)
2006
(unaudited)
Cash Flow Data:
Cash flows from operating activities . .
Cash flows from investing activities. . .
Cash flows from financing activities . .
Effect of changes in consolidation . . . .
Operating Data:
Theatres . . . . . . . . . . . . . . . . . . . . . . .
Screens(3) . . . . . . . . . . . . . . . . . . . . . .
Seats . . . . . . . . . . . . . . . . . . . . . . . . .
10,866
(13,804)
6,110
—
11,051
(14,542)
2,653
—
14,616
(13,470)
(624)
(69)
49
352
70,845
53
379
76,062
55
422
86,685
2,383
(6,157)
4,306
(69)
19,304
(14,399)
(4,117)
—
58
466
94,306
(1)
Restated to reflect the change of functional currencies for operations in Central Europe in the year 2005.
(2)
Consists of fees and expenses incurred in connection with the IPO process that was postponed in 2004.
(3)
Includes four, four, and five IMAX» screens as at 31 December 2003, 2004, and 2005, respectively, and seven as at 30 June 2006.
9
RISK FACTORS
Prior to making an investment decision in respect of the Offer Shares, prospective purchasers should consider
carefully the following risks and other information in this Prospectus. If any of the following risks actually occurs,
the Company’s business, financial condition and operating results could be adversely affected. As a result, the
trading price of the Offer Shares could decline, perhaps significantly.
Risks Related to the Company’s Business and Industry
A lack of motion picture production and poor performance of motion pictures would have a negative effect
on film attendance
The Company’s ability to operate successfully depends upon the availability, diversity and appeal of motion
pictures, its ability to license motion pictures and the performance of these motion pictures in the Company’s
markets. The Company licenses first-run motion pictures, the success of which depends upon their quality, as well
as on the marketing efforts of the major film studios and distributors. Poor performance of these films or disruption
in the production of, or changes in, the licensing terms of the films, or a reduction in the marketing efforts of the
major film studios and distributors, would have a negative effect on film attendance and adversely affect the
Company’s business, financial condition and results of operations.
In addition, a significant change in the type and breadth of motion pictures offered by film studios may
adversely affect attendance levels of various demographic bases of moviegoers, which could adversely affect the
Company’s business, financial condition and results of operations.
Furthermore, local production of movie product plays an increasingly important role in each country’s box
office success. Lack of locally produced movies could have a material adverse effect on the Company’s business,
financial condition and results of operations individually in each country in which it operates.
The Company has made substantial investments in IMAX» screens in recent years. However, there are
uncertainties relating to the future commercial viability of the IMAX» format. The popularity of IMAX» has
historically been limited, as the expense and logistics of producing IMAX» films have dictated shorter running
times compared to conventional movies. Therefore, the majority of films produced in this format have been
documentaries, which tend to draw smaller audiences than feature films. Although in recent years there has been an
increasing number of feature films produced for or converted to the IMAX» format, there can be no assurance
studios will continue to be interested in producing an increasing number of films for the IMAX» format. There can
be no assurance that a reduction in the production of successful IMAX» format films would not have a negative
effect on film attendance and adversely affect the Company’s business, financial condition and results of operations.
The Company is subject to uncertainties relating to its future expansion plans, including its ability to identify
suitable site locations
The Company has significantly expanded its operations in recent years through new theatre construction. The
Company intends to continue to pursue a strategy of expansion that will involve the development of new theatres in
favourable locations. The Company may not be able to develop theatres with desirable demographic characteristics
or to either lease the space on favourable terms or construct new theatres in the desired locations. Therefore, there
can be no assurance that the Company’s expansion strategy will result in improvements to its business, financial
condition or profitability.
There is significant competition for potential site locations and development opportunities. As a result of such
competition, the Company may not be able to acquire attractive site locations or such development opportunities.
Even if the Company does identify and secure suitable sites, developing or constructing new theatres poses a
number of risks, including construction cost overruns and delays. Additionally, the market potential of new theatre
sites cannot be precisely determined and newly constructed theatres may not perform to the Company’s expectations. Theatres may face competition from unexpected sources, and the markets in which such theatres are located
may deteriorate over time.
Furthermore, the Company’s expansion programme may require financing in addition to the portion of the net
proceeds from its sale of shares and internally generated funds that the Company would use for such purpose. The
Company cannot assure investors that financing will be available to it on acceptable terms.
The Company is subject to risks related to the development of real estate
The success of the Company’s strategic expansion plan is dependent on its ability to develop theatres in
favourable locations with advantageous lease terms. There can be no assurance that the Company will be able to
10
A1.4
A3.2
locate or develop theatres in regions with desirable demographic characteristics or, at particular sites within these
regions, acquire all necessary permits to construct the projects or lease the space on favourable terms. The failure of
the Company to develop theatres in favourable locations, to secure all permits necessary to complete construction
works or to lease theatres on advantageous terms could result in an inability to fully implement its strategic
development plan.
It typically takes eight to 24 months to open a theatre on a site from the time construction commences. Until
such properties are developed and leased, they will not generate any cash flow to the Company. Moreover, the
availability of attractive site locations can be adversely affected by changes in national, regional and local economic
climate, local conditions such a scarcity of space or an increase in demand for real estate in the area, demographic
changes, changes in real estate, zoning or tax laws. As a result of the foregoing, there can be no assurance that the
Company will be able to obtain attractive site locations on terms it considers acceptable or that the Company’s site
selection will result in improvements to the business, financial condition or profitability of the Company.
The Company’s strategy focuses on the development of new theatres. In connection with such development, it
either enters into an agreement with a property owner/developer who oversees almost all of the construction and
completion of a theatre, or the Company oversees the construction and completion itself. Accordingly, the Company
may be dependent upon third party developers, including developers of shopping malls, for the development of
theatres, including completion of those theatres that are currently under construction. There can be no assurance that
such developers will successfully develop new properties in a timely manner or at the expected cost.
A prolonged economic downturn could have a material adverse effect on the Company’s business and
results of operations by reducing consumer spending in its industry
The Company depends on consumers to spend discretionary funds on leisure activities. Movie theatre
attendance, and spending at the Company’s entertainment centres, may be affected by prolonged, negative trends
in the general economy that adversely affect consumer spending. Any reduction in consumer confidence or
disposable income in general may affect the demand for motion pictures and leisure activities or severely impact the
motion picture production industry, which, in turn, could adversely affect the Company’s business, financial
condition and results of operations.
A deterioration in relationships with film distributors could adversely affect the Company’s ability to obtain
commercially successful films
The Company relies on other film distributors for a significant portion of the motion pictures shown in its
theatres. The film distribution business is highly concentrated, with a few major film distributors accounting for the
vast majority of the top grossing films. In general, distributors license films to exhibitors on a theatre-by-theatre and
film-by-film basis. Consequently, the Company is required to negotiate licences for each film and for each theatre.
The Company cannot assure investors that it will be able to negotiate favourable licensing terms for all first-run
films. A deterioration in the Company’s relationship with any of the major international film distributors could
adversely affect its ability to negotiate film licences and its ability to obtain commercially successful films and,
therefore could adversely affect the Company’s business, financial condition and results of operations.
An increase in the use of alternative film distribution channels, such as home theatre video and the
Internet, and other competing forms of entertainment may drive down movie theatre attendance and limit
ticket prices
The Company faces competition for patrons from a number of alternative motion picture distribution channels,
such as home theatre video, pay-per-view, cable television, DVD, syndicated and broadcast television and the
Internet. In addition, in recent years, commercial television has rapidly developed and has become very popular
both in Central and Eastern European countries and Israel. The Company also competes with other forms of
entertainment for its patrons’ leisure time and disposable income, such as concerts, amusement parks and sporting
events. The expansion of such alternative entertainment could have a material adverse effect on movie theatre
attendance in general and, therefore, upon the Company’s business, financial condition and results of operations.
The Company is subject to uncertainties related to new technologies, including the potentially high costs of
re-equipping theatres
To compete with other theatre operators, the Company must adopt technical advancements in sound and
projection technologies, and satisfy its audience’s changing demands regarding comfort and amenities. In addition,
changes in film production may require the Company to update its equipment. In particular, digital cinema is at an
early stage in the film industry. There are multiple parties seeking to replace traditional 35mm film with the
11
projection of digital images. Although the Company believes that there remain significant obstacles to the roll-out
of such technology, including the look and feel of digital images and industry opposition to the required investment,
it is likely that the industry will adopt digital cinema in the future. As a result of any such change, the Company may
incur substantial expenses, which could have an adverse effect on its business, financial condition and results of
operations.
Changes in laws could adversely affect the Company
The Company’s theatres are subject to various regulations in the countries in which they operate, such as fire
and safety requirements, environmental regulations, labour laws, land use restrictions and taxes. If the theatres do
not comply with these requirements, the Company may incur governmental fines or private damage awards. New, or
amendments to existing, laws, rules, regulations, or ordinances could require significant unanticipated expenditures
or impose restrictions on the use of the subject locations. Any such changes could have a negative effect on the
Company’s business, financial condition and results of operation.
The Company’s results of operations may fluctuate on a seasonal basis and may be unpredictable
The Company’s revenues have generally been seasonal because of the way major film distributors release
films. Historically, the most marketable films have been released during the summer and the late-November through
December holiday season. The Company believes that theatre attendance has become less affected by seasonal
fluctuations as films are more evenly distributed during the year. In addition, the motion picture exhibition industry
can also be impacted in the short term by weather factors: attendance tends to increase during those periods when
the weather is less conducive to outside activities. Poor performance of these films, or a disruption in the release of
films during these periods, could adversely affect the Company’s results for the entire fiscal year. An unexpected
blockbuster film during other periods can alter the traditional seasonal trend. The timing of movie releases can
therefore have a significant effect on the Company’s results of operations, and its results for one quarter are not
necessarily indicative of the results for any other quarter.
The loss of services of one or more members of the Company’s senior management team could adversely
affect the Company’s business, results of operations and its ability to effectively pursue its business strategy
The Company’s success depends upon the continued contributions of Mr Moshe Greidinger, its President and
Chief Executive Officer, Mr Amos Weltsch, its Executive Vice President and Chief Operating Officer, and Mr Israel
Greidinger, its Executive Vice President and Chief Financial Officer. The loss or unavailability to the Company of
such officers for an extended period of time could have a material adverse effect upon the Company’s business,
financial condition and results of operations, and may prevent it from effectively pursuing its business strategy. To
the extent that the services of such officers are unavailable to the Company for any reason, the Company will be
required to hire other personnel to manage and operate the Company. The Company cannot assure that it would be
able to identify qualified personnel to manage and operate the Company or to employ such persons on acceptable
terms.
Under the terms of the distribution agreements between the Company’s subsidiaries, Forum Film (Israel),
Forum Film (Poland), Forum Film (Hungary) and Buena Vista, a Disney company, Buena Vista has the right to
terminate any of these agreements in the event that Mr Moshe Greidinger ceases to be directly involved in the
business of Forum Film Israel, Forum Film Poland or Forum Film (Hungary), as the case may be.
The Company also relies, to a great extent, on the contribution of its local managers, especially in Poland. The
inability to attract and retain qualified local managers could have a material adverse effect on the Company’s
business, financial condition and results of operation.
The Company may not be able to sustain and grow ancillary revenue streams
The Company intends to continue to develop its ancillary revenue streams, such as advertising, sponsorship,
promotions, rental and DVD sales and real estate. The Company’s ability to achieve its business objectives may
depend in part on its success in increasing these revenue streams. In particular, video and DVD rental industries
have experienced declining sales over recent years, resulting from competition and the introduction of new
technologies into the market. Such trends have impacted the Company’s video and DVD rental businesses,
particularly in Israel, and the Company believes that this trend may continue to have a negative impact on the
Company. To address this issue in part, the Company recently entered into a joint venture in Israel with the local
Blockbuster» franchise owner to create the largest video and DVD rental operation in Israel. The Company cannot
assure that it will be able to effectively generate additional ancillary revenues and its inability to do so could have an
adverse effect on the Company’s business, financial condition and results of operations.
12
Covenants in debt agreements concluded by the Company may restrict its ability to borrow and invest, which
could affect flexibility to operate and ability to expand
To finance the development of its business in Central and Eastern Europe and Israel, the Company needed and
may need to incur debt. To obtain loans, the Company has been, and may be required to, secure such loans by
granting security over its significant assets such as shares held in its subsidiaries or real estate owned by the
Company. Such credit/loan facilities may provide restrictive covenants that may limit the Company’s flexibility to
operate. In addition, any onerous collateral requirements may limit the Company’s ability to raise additional funds.
Some of the current debt facilities of the Company contain covenants that impose operating and financial
restrictions, including restrictions on the Company’s ability to incur and extend loans, credit and other debt
financing; encumber any assets; distribute profits; acquire shares in other entities; change the character of business
activities; dispose of shares; change ownership and/or control of the Company; effect merger or any other
reorganisation; dispose, transfer and/or lease assets; distribute dividends or profits; receive credits from other banks,
among others. Events beyond the Company’s control could prevent it from complying with these covenants and
result in a breach of any such obligation, thus triggering an event of default.
The Company is subject to additional risks relating to its operations in Israel
Although the Company is focused on future growth in Central and Eastern Europe, the Company’s business
began in Israel, and Israel continues to be one of its key markets. For the first six months of 2006, 17.9% of the
Company’s revenues were attributable to its operations in Israel. These Israeli operations subject the Company to
additional risks relating to the political and military situation in that country. Since the establishment of Israel in
1948, a state of hostility has existed, varying in degree and intensity, between Israel and certain Arab countries and
Israel and the Palestinians. Although Israel has entered into agreements with some of these countries and with the
Palestinian Authority and various declarations have been signed in connection with efforts to resolve some of the
hostilities, it is not clear whether a full resolution of these problems will be achieved. To date, Israel has not entered
into a peace treaty with Lebanon or Syria, with whom Israel shares its northern borders, nor with certain Arab
countries with whom a state of hostility exists. The operations of the Company and the price of the Shares could be
materially adversely affected if major hostilities involving Israel or other countries in the Middle East should occur,
and such hostilities impacted movie admissions. Most recently, in July 2006, Israel and Hezbollah, which is based in
southern Lebanon, engaged in direct armed conflict. Hezbollah launched thousands of missiles on Israel’s northern
cities, which forced the Company to close some of its northern operations for a period of time. The Company
sustained no direct damage from the attacks, and its overall Israeli operations were not materially adversely affected
during the period of the conflict. Although there has been a United Nations backed ceasefire since 14 August 2006
and through to the end of October there has been no significant direct confrontation between Israel and Hezbollah,
there can be no assurance that hostilities will not resume and/or escalate, and that such violence could not have an
adverse effect on the Company’s business, financial condition and results of operations.
Political, economic and legal risks associated with countries in emerging markets, including Central and
Eastern Europe, could adversely affect the Company’s financial condition and results of operation
The majority of the Company’s revenues are attributable to operations in Central and Eastern Europe. Part of
the Company’s growth strategy envisages expanding its network into countries in South-Eastern Europe, particularly Bulgaria and Romania. Investors in these emerging markets should be aware that these markets are subject to
greater risk than more developed markets, including, in some cases significant political, economic and legal risks,
which could have a significant negative impact on, among other things, gross domestic product, foreign trade and
the economies of each of the emerging markets in general. Accordingly, investors should exercise particular care in
evaluating the risks involved and must decide for themselves whether, in the light of those risks, an investment in the
Shares is appropriate. Generally, investment in emerging markets is suitable only for sophisticated investors who
fully appreciate the significance of the risks involved and investors are urged to consult with their own legal and
financial advisors before making an investment in the Shares. Investors should also note that emerging economies
such as those in Central and Eastern Europe are subject to rapid change and that the information set out in this
Prospectus may become outdated relatively quickly.
Accession to the European Union in May 2004 by a number of Central European countries, including
Hungary, the Czech Republic and Poland, may lead to uncertainty in the regulatory environment in which the
Company operates
Many countries in Central Europe, including Hungary, the Czech Republic and Poland, are undergoing
changes in legislation due to their accession to membership of the European Union in May 2004. As a result of these
changes, there is a lack of an established practice under many tax and other regulatory regimes in these countries.
13
New regulations are subject to ambiguous and frequently changing interpretations by the regulatory authorities of
these countries. Consequently, companies operating in this region may face tax and other regulatory compliancerelated risks which may be less predictable than in countries with more mature regulatory systems.
The Company’s operations may be subject to limitations imposed by antimonopoly regulations
The Company has a substantial market share in a number of markets in which it operates. Although the
Company believes that all its operations are in compliance with applicable antimonopoly regulations in all of the
jurisdictions in which it operates, there can be no assurance that the Company’s market share in some jurisdictions
will not result in the initiation of proceedings or investigations by the relevant antimonopoly authorities. If any
proceedings or investigations were to be adversely determined against the Company, it could be prohibited from
engaging in certain activities that are regarded as restricting competition and/or financial penalties could be
imposed on the Company. Such prohibitions or financial penalties could have an adverse affect on the Company’s
business, financial condition or results of its operations. In addition, any potential acquisitions by the Company may
be subject to closer scrutiny of the antimonopoly authorities who may assess that such acquisition would restrict
competition on a given market and in turn they could prohibit such acquisition. Such decisions could adversely
affect the Company’s ability to expand through acquisitions.
The Company faces competition that may adversely affect its business
Within Central and Eastern Europe, the Company faces competition from a number of well-established theatre
operators and distributors. Although the Company believes that there is a general undersupply of screens both
within Poland, the Company’s largest market, and within the rest of Central and Eastern Europe, this undersupply is
expected to decrease in the future as the Company and its competitors open additional theatres, particularly multiscreen multiplexes. There are no significant barriers to entry into the film exhibition industry, and the expected
increase in the number of screens may result in excess capacity in those areas, which may harm attendance at the
Company’s theatres and adversely affect its ability to license films.
In Israel, the Company is one of two primary movie exhibitors. Together with its main competitor, the
Company operates 23 out of 54 multiplexes in Israel as at 30 June 2006. However, the Company continues to face
strong competition in Israel from new entrants to the market, particularly more modern megaplex theatres, in
addition to its primary competitor. Moreover, the expected increase in demand for megaplex theatres may require
the Company to upgrade or replace existing facilities, which would require additional capital investment, in order to
effectively compete. There can be no assurance that the Company will successfully maintain its market share in the
future.
The Company could be negatively affected if certain copyright claims against it are successful
Pursuant to Polish copyright law, screenplay authors, authors of other literary and musical works, film
directors, directors of photography, and artistic performers, have the right to the royalties for the use of their
material in films screened in cinemas in Poland. The obligation to pay these royalties rests with the cinema
operators, who must make payment to collecting societies. The Company does not have any agreements with
collecting societies regarding the payment of such royalties and does not pay royalties, on the basis that currently
the Polish collecting societies are not entitled to collect such royalties on behalf of non-Polish authors, in particular
authors based in the United States, which is the origin of most the films that the Company exhibits in its theatres in
Poland. Currently, the Company is subject to the court proceedings initiated by Zwiazek Autorów i Kompozytorów
(“ZAIKS”), a Polish collection society representing screenplay authors and authors of other literary and musical
works used in audiovisual works that are exhibited in Poland. No other collection society has brought any claim
against the Company. The Company cannot entirely exclude the possibility that other collection societies may bring
claims against it for authors’ rights to royalties and that courts will find their claims justified. In Poland, claims for
payment of royalties are subject to a ten-year statute of limitations. If courts find that present and/or future claims
are justified, the payment of past and future royalties in Poland could have an adverse affect on the Company’s
business, financial condition and results of operations.
Terms of leases and lease renewal
A substantial part of the Company’s theatres are on property that is leased. The majority of leases are longterm, with the average term being 10 years from the date of grant (assuming the exercise of all renewal options with
defined terms and excluding leases which renew periodically until terminated or which have no defined end date).
The leases often provide for automatic renewal for periods of five to fifteen years, provided that the Company
remains in compliance with the terms of the lease. Notwithstanding compliance, there is no guarantee that the
14
Company will be able to renew these leases on commercially acceptable terms. If the Company is unable to do so,
the potential loss of prime theatre locations could have an adverse effect on the Company’s business and results of
operations. In addition, in certain circumstances the Company may wish to close a theatre but will be unable to
terminate the associated lease cost-effectively, which could also have an adverse effect on the Company’s business
and the results of its operations.
The Company is subject to currency-related and interest rate risks
Fluctuations in the value of the Euro against other currencies have in the past had, and may have in the future,
an adverse effect on the Company’s results of operations. The Company’s operations are conducted in several
countries whose currency is not the Euro. The results of these operations are reported in the relevant foreign
currencies and then converted into euros at applicable exchange rates for inclusion in the Company’s consolidated
financial statements. A decline in the value of these currencies compared to the Euro would have a negative effect on
the Company’s results of the operations. The Company also encounters currency exchange risks to the extent that it
incurs operating expenses in a currency other than that in which it has obtained financing or those in which it
generates revenues. Substantially all of the Company’s indebtedness bears interest at variable rates, exposing the
Company’s financing costs to market-driven fluctuations on the Warsaw Interbank Offer Rate (“WIBOR”), the
Euro Interbank Offer Rate (“EURIBOR”) and the London Interbank Offer Rate (“LIBOR”).
The Company does not currently enter into hedging transactions in order to manage its exposure to foreign
exchange, currency and interest rate risks. The Company cannot assure prospective investors that any hedging
transaction that it may enter into in order to protect against such risks will be successful or that shifts in currency
exchange rates generally will not have a material adverse effect on the Company’s financial condition or results of
operations. See “Operating and Financial Review — Liquidity and Capital Resources — Quantitative and
Qualitative Disclosures about Market Risk”.
Uninsured and underinsured losses
The Company will use its discretion in determining amounts, coverage limits and deductibility provisions of
insurance, with a view to maintaining appropriate insurance coverage on its assets at market standard costs and on
customary terms. This may result in insurance coverage that, in the event of a substantial loss, would not be
sufficient to pay the full current market value or current replacement cost of its assets.
Risks Related to the Company’s Corporate Structure
The interests of the Company’s controlling shareholder may conflict with those of minority shareholders
ITIT, holds a majority of the Shares in the Company and will remain the majority shareholder following
completion of the Offering. A majority of the shares in ITIT are directly and indirectly held by members of the
Greidinger family. ITIT will be able to control the governing bodies and operations of the Company. In particular,
ITIT will influence the appointment of all members of the Issuer’s Supervisory Board and Management Board, as
well as have the ability to determine all matters submitted to a vote of the Issuer’s shareholders, including approval
of significant corporate transactions, such as amendments to the Company’s articles, mergers and the sale of all or
substantially all of its assets. Dutch law does not provide minority shareholders with any right to proportional
representation on the Supervisory Board (equivalent to the “group voting” procedure under Polish law), although in
accordance with the Dutch Corporate Governance Code the Supervisory Board members should be independent,
except for one. The Company currently has two non-independent members of the Supervisory Board, which is a
deviation from the Code. However the current composition in which four out of six Supervisory Board members are
independent complies with the WSE Corporate Governance Rules.
Such concentration of voting power could have the effect of deterring or preventing a change in control of the
Company that might otherwise be beneficial to its shareholders. In addition, the majority shareholder could take
other actions that might be desirable to it but not to other shareholders.
The Issuer is not in full compliance with the Dutch Corporate Governance Code and the WSE Corporate
Governance Rules and does not expect to be in full compliance in the near future
Whilst the Issuer’s corporate governance structure complies with the principles of Dutch law, the Issuer
deviates in several respects from the best practice provisions set forth in the Dutch Corporate Governance Code
(“Code”) and the WSE Corporate Governance Rules contained in the “Best Practices in Public Companies in 2005”.
However, the Issuer believes that in most important aspects the Issuer complies with such codes and the Issuer’s
deviations result from specifics of the Dutch law or the Polish market practice, or from the conflict between the
15
Dutch and Polish corporate governance regulations. The Issuer has adopted a policy that, whenever the Code and
the WSE Corporate Governance Rules contain conflicting provisions, the Issuer will, to the extent practicable,
comply with the regulations of the WSE, as this is the main market on which the Issuer’s Shares will be listed. See
“Description of the Shares and Corporate Rights and Obligations — Dutch Corporate Governance” and
“Description of the Shares and Corporate Rights and Obligations — Polish Corporate Governance”.
Exercise of certain shareholders’ rights and tax treatment for non-Dutch investors in a Dutch company may
be more complex and costly
The Issuer is a company organised and existing under the law of the Netherlands. Accordingly, the Issuer’s
corporate structure as well as rights and obligations of the Issuer’s shareholders may be different from the rights and
obligations of shareholders in Polish companies listed on the WSE.
The exercise of certain shareholders’ rights for non-Dutch investors in a Dutch company may be more difficult
and costly than the exercise of rights in a Polish company. Resolutions of the General Meeting of Shareholders may
be taken with majorities different from the majorities required for adoption of equivalent resolutions in Polish
companies. Action with view of declaring a resolution invalid must be filed with, and will be reviewed by a Dutch
court, in accordance with the law of the Netherlands.
Investors in the Issuer’s Shares may also be subject to Dutch taxation of dividends received from the Company.
Although Poland and the Netherlands have a tax treaty which provides protection against double taxation, there can
be no assurance that such treaty will continue to remain in force. See “Certain Tax Considerations”.
Risks Relating to Trading in the Shares
The Issuer may be unable to list its Shares on the WSE
The admission of the Issuer’s Shares to trading on the WSE requires that the Financial Supervisory
Commission (the “FSC”) receive a certificate from the AFM confirming that this Prospectus has been approved
in the Netherlands, that the Polish National Depository for Securities (the “NDS”) register the Issuer’s Shares and
that the management board of the WSE approves that the Issuer’s Shares are listed and traded on the WSE. The
Issuer intends to take all the necessary steps to ensure that the Issuer’s Shares are admitted to trading on the WSE as
soon as possible. However, there is no guarantee that all of the aforementioned conditions will be met and that the
Issuer’s Shares will be admitted to trading on the WSE on the date expected or at all.
Trading in the Issuer’s Shares on the WSE may be suspended
The WSE management board has the right to suspend trading in shares of a listed company if the company fails
to comply with the regulations of the WSE (such as specific disclosure requirements) or if such suspension is
necessary to protect the interests of market participants. Moreover, trading may be suspended upon the request of
the Company or of the FSC in the case of the latter if (i) investors’ interests, or (ii) the orderly stock exchange
trading, or (iii) the security of stock exchange trading are endangered. There can be no assurance that trading in the
Issuer’s Shares will not be suspended. However, currently the Issuer has no reasons to believe that such a suspension
may occur. Any suspension of trading would adversely affect the Issuer’s share price.
The Issuer’s Shares may be excluded from trading on the WSE
If a company listed on the WSE fails to fulfil certain requirements or obligations under the applicable laws and
regulations of the WSE and/or if the orderly stock exchange trading, the safety of trading thereon or the investors’
interests are endangered, the company’s securities can be excluded from trading on the WSE. This may be the case:
(i) if transferability of shares is restricted, (ii) if shares cease to exist in a book-entry form (iii) upon the FSC request
or (iv) if shares are excluded from trading on a regulated market by a relevant supervisory authority. There can be no
assurance that such a situation will not occur in relation to the Issuer’s Shares.
If a company listed on the WSE fails to fulfil certain requirements under applicable laws, in particular, the
requirements referred to in Art. 96 of the Act on Offerings, the FSC has the authority to impose a fine on the
company and/or to exclude the company’s securities from trading on a regulated market. There can be no assurance
that such a situation will not occur in relation to the Issuer’s Shares, however, currently there is no reason to believe
that such a situation will occur in the future.
16
The marketability of the Issuer’s Shares may decline and the market price of the Issuer’s Shares may fluctuate
and decline below the Offer Price
The Issuer cannot assure that the marketability of the Issuer’s Shares will improve or remain consistent. The
market price of the Issuer’s Shares at the time of the Offering may not be indicative of the market price for the
Issuer’s Shares after the Offering has been completed. The market price of the Issuer’s Shares may fluctuate widely,
depending on many factors beyond the Issuer’s control. These factors include, amongst other things, actual or
anticipated variations in operating results and earnings by the Company and/or its competitors, changes in financial
estimates by securities analysts, market conditions in the industry and in general the status of the securities market,
governmental legislation and regulations, as well as general economic and market conditions, such as recession.
The market price of the Issuer’s Shares is also subject to fluctuations in response to further issuance of shares by the
Issuer, sales of Shares by the Issuer’s major shareholders, the liquidity of trading in the Issuer’s Shares and capital
reduction or purchases of Shares by the Issuer as well as investor perception. As a result of these or other factors, the
Issuer cannot assure that the public trading market price of the Issuer’s Shares will not decline below the Offer Price.
The Issuer will have a limited free float, which may have a negative effect on the liquidity, marketability or
value of its Shares
Prior to the Offering, the Principal Shareholder owns more than 86.10% of the Issuer’s outstanding Shares and
immediately after the Offering the Principal Shareholder will own approximately 64.49%, provided that all Firm
Shares are placed with investors and that the Overallotment Option is exercised in full. Consequently, the free float
of Shares held by the public will be limited. Furthermore, the Issuer does not have any agreement with the Selling
Shareholders and the Principal Shareholder that restricts them from increasing their ownership percentage of the
Issuer’s Shares, although they are not planning to subscribe for the New Shares in the Offering.
There is no prior market for the Shares and therefore no assurance can be given regarding the future
development of such market
The lack of a prior public market for the Shares may have a negative effect on the ability of shareholders to sell
their Shares or the price at which the holders may be able to sell their Shares. If a market for the Shares were to
develop, the Shares could trade on prices that may be higher or lower than the Offer Price, depending on many
factors. Therefore, there can be no assurance as to the liquidity of any trading in the Shares or that an active market
for the Shares will develop.
Future sales of Shares may adversely affect the prevailing market price
After this Offering, the Company will have an aggregate of 124,276,000 Shares authorised but unissued (the
“Authorised Shares”). In general, the Company may issue all of these Shares without any action or approval by
shareholders. The Company, the Principal Shareholder and the Selling Shareholders have agreed with the Lead
Manager that neither the Company, the Principal Shareholder nor the Selling Shareholders will sell any of their
remaining shares (other than in the Overallotment Option, if any) for a period of 180 days following the Allotment
Date. After the end of this period, the Company, the Principal Shareholder and the Selling Shareholders may freely
sell shares (to the extent that they hold any Shares at the relevant time). Sales of substantial amounts of shares,
whether by the Company, the Selling Shareholders or any other Shareholders, or the perception that such sales could
occur, could adversely affect the market value of the Shares and could adversely affect the Company’s ability to
raise capital through future capital increases.
In addition, 930,000 shares of the Authorised Shares may be issued to members of the Company’s management
and its employees in connection with its Employee Stock Incentive Plan. The Company may also acquire Shares in
the open market to satisfy part or all of any requirements for Shares upon exercise of any options issued as part of the
Employee Stock Incentive Plan. Although the Issuer has agreed with the Managers to reasonably procure that any
beneficiary of the Employee Stock Incentive Plan (as defined below) who receives any options, shares or other
securities of the Issuer in connection with the Employee Stock Incentive Plan will not offer, sell, contract to sell,
pledge or otherwise transfer or dispose of any such options, shares or other securities during the Lock-up Period, the
issuance of stock options, or the announcement of the intention to do so in connection with the Employee Stock
Incentive Plan, or otherwise, could have an adverse effect on the trading price of the Shares. In addition, the issuance
of shares, options to acquire them, the exercise of any options, or the Company’s acquisition of Shares in the open
market in connection with the Employee Stock Incentive Plan after expiration of the Lock-up Period could also have
an adverse effect on the trading price of the Shares.
17
A1.21.1.5
A1.17.3
EXCHANGE RATE INFORMATION
The reporting currency of the Company is the Euro. However, with theatre operations and property holdings in
Poland, Bulgaria, the Czech Republic, Hungary, and Israel, a significant portion of its revenues are received in
Polish Zloty (“PLN”), Bulgarian Lev (“LEV”), Czech Koruna (“CZK”), Hungarian Forint (“HUF”) and the New
Israeli Shekel (“NIS”). Fluctuations in the value of PLN, LEV CZK, HUF and NIS have had a material impact on
the Company’s financial condition and results of operations.
Polish Zloty per Euro
The table below shows the low, high, average and period end exchange rates expressed in Polish Zloty per Euro
for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close of each
business day of each period indicated.
Low
High
Average
Period End
(PLN per B)
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 (through 31 October 2006) . . . . . . . . . . . . . . . . . . . . . .
.....
.....
.....
.....
3.98
4.05
3.82
3.73
4.72
4.91
4.28
4.14
4.40
4.53
4.03
3.92
4.72
4.09
3.86
3.89
Source: Bloomberg.
As at 10 November 2006, the exchange rate between the Polish Zloty and the Euro was PLN 3.84 = A1.00.
Czech Koruna per Euro
The table below shows the low, high, average and period end exchange rates expressed in Czech Koruna per
Euro for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close of
each business day of each period indicated.
Low
High
Average
Period End
(CZK per B)
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 (through 31 October 2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.17
30.40
28.86
27.94
35.15
33.51
30.55
29.08
34.08
31.95
29.80
28.45
32.41
30.51
29.00
28.35
Source: Bloomberg.
As at 10 November 2006, the exchange rate between the Czech Koruna and the Euro was CZK 28.06 = A1.00.
Hungarian Forint per Euro
The table below shows the low, high, average and period end exchange rates expressed in Hungarian Forint per
Euro for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close of
each business day of each period indicated.
2003
2004
2005
2006
Low
...............................................
...............................................
...............................................
(through 31 October 2006) . . . . . . . . . . . . . . . . . . . . . . . . . .
234.39
243.51
241.42
247.79
High
Average
(HUF per B)
272.75
269.30
255.93
284.93
253.18
252.11
248.54
266.39
Period End
246.33
246.19
252.62
262.20
Source: Bloomberg.
As at 10 November 2006, the exchange rate between the Hungarian Forint and the Euro was HUF 261.16 =
A1.00.
18
New Israeli Shekel per Euro
The table below shows the low, high, average and period end exchange rates expressed in New Israeli Shekel
per Euro for the periods stated. The average is computed using the exchange rate quoted by Bloomberg at the close
of each business day of each period indicated.
Low
High
Average
Period End
(NIS per B)
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 (through 31 October 2006) . . . . . . . . . . . . .
.................
.................
.................
.................
4.80
5.40
5.40
5.33
5.53
5.93
5.88
5.86
5.13
5.58
5.58
5.62
5.53
5.88
5.45
5.46
Source: Bloomberg.
As at 10 November 2006, the exchange rate between the New Israeli Shekel and the Euro was NIS 5.53 =
A1.00.
Bulgarian Lev per Euro
In Bulgaria the currency board system in place is with the Bulgarian Lev (“BGN”) pegged to A1 =
BGN 1.95583. Previously, the Bulgarian currency was pegged to the German Mark (“DEM”), which was changed
to Euro after the Euro’s introduction on 1 January 1999.
19
USE OF PROCEEDS
The estimated net proceeds payable to the Company if it sells all of the New Shares to be sold by it in the
Offering will be announced in a press release on the Pricing Date.
The Company intends to utilise the proceeds from the New Shares to finance the development of its business in
Central and Eastern Europe and Israel and, any funds which are not invested in this manner, for other general
corporate purposes. Pending application of the funds in this manner, the Company may apply the net proceeds of the
Offering to the reduction of its interest expense by the redemption of debt.
20
A3.8.1
A3.3.4
DIVIDEND POLICY
The Company’s current dividend policy is to use profits for the development of the Company, rather than for
the distribution of dividends and it has not paid a dividend in the last three years. However, the Company does not
rule out paying dividends in the future depending on its financial performance, cash flows and the results of the
investment projects currently underway.
The Management Board, with prior approval of the Supervisory Board, shall determine which portion of net
profits for the year shall be reserved. It is the General Shareholders Meeting that then decides how any remaining net
profit is to be allocated, including, whether to pay any dividends and the level of such dividends, if any.
21
A1.20.7
A1.20.7.1
A3.4.5
PRINCIPAL AND SELLING SHAREHOLDERS
A1.18.3
The following table sets out the interests of the Principal Shareholder and the Selling Shareholders in the
Company’s Shares immediately prior to and immediately following the Offering.
Shares owned prior to
the Offering
Number
%
Shareholder
I.T. International Theatres Limited(1) . . .
Israel Theatres Limited(1) . . . . . . . . . . . .
Amos Weltsch(2) . . . . . . . . . . . . . . . . . .
Mark Segall(3) . . . . . . . . . . . . . . . . . . . .
A3.3.3
Shares owned after
the Offering(4)
Number
%
. . . . . . . . . . . . . . . . 35,059,648
................
4,940,352
................
600,000
................
124,000
86.10
12.13
1.47
0.30
32,709,996
0
0
0
64.49
0
0
0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,724,000
100.00
32,709,996
64.49
(1)
A3.7.1
A3.7.2
Controlled indirectly by various members of the Greidinger family. See “Directors and Employees — Directors’ Interests”. For the
business address of this Selling Shareholder, see “The Offering — General”.
(2)
Chief Operating Officer of the Company. For the business address of this Selling Shareholder, see “The Offering — General”.
(3)
Financial advisor to the Company for the past four years. For the business address of this Selling Shareholder, see “The Offering —
General”.
(4)
Assuming full exercise of the Overallotment Option given to the Managers consisting of 2,349,652 Shares.
The 4,940,352 shares being sold by Israel Theatres Limited represent the shares purchased by ITIT in February
2006 (and subsequently transferred to Israel Theatres Limited, ITIT’s parent company) from certain minority
shareholders with an understanding that, market conditions permitting, upon an initial public offering of the Issuer’s
Shares, Israel Theatres Limited would sell such shares in such initial public offering and distribute a portion of the
proceeds among these persons in accordance with a prescribed formula.
A1.18.1
The Company’s shares are not listed on any market. ITIT, the parent company of the Company, listed its shares
on Nasdaq Europe Stock Exchange (formerly, EASDAQ) in March 1999. Upon the closing of EASDAQ in 2003,
ITIT became a private company.
As the Issuer has only one class of shares outstanding, all of which have equal voting rights, none of the Issuer’s
shareholders have different voting rights from any other shareholders, other than the greater or lesser voting power
inherent in their percentage ownership in the Issuer’s share capital.
22
A1.18.2
CAPITALISATION AND INDEBTEDNESS
A1.10.1
A3.3.2
The following table sets out the capitalisation and indebtedness of the Company on a consolidated basis as at
31 December 2005 and as at 30 September 2006. The information contained in this table has been extracted from
management accounts and is not audited. The information in this table should be read in conjunction with
“Operating and Financial Review” and the IFRS Financial Statements included in this Prospectus.
As at
31 December 2005
(B ’000)
(audited)
As at
30 September 2006
(B ’000)
(unaudited)
Liabilities:
Current debt:
Guaranteed and secured(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,299
24,573
24,843
19,388
Total current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,872
44,231
Long term debt, net of current portion:
Guaranteed(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,888
12,555
71,247
10,640
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,443
81,887
Shareholders’ equity:
Stated share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium on share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation gains . . . . . . . . . . . . . . . . . . . . . . . . .
407
43,553
24,999
4,158
407
43,553
35,286
753
Total shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,117
(411)
79,999
(844)
Total capitalisation and indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
202,021
A1.20.4.3
205,273
Relates to amounts borrowed under three loan agreements involving Cinema City Poland sp. z o.o. and other Polish subsidiaries of the
Issuer and certain Polish banks that are guaranteed by the Issuer and certain Polish subsidiaries and that are secured by mortgages on
certain of the Company’s real estate properties in Poland, pledges of assets and shares in certain Polish subsidiaries provided as security.
These loan agreements are described in “Operating and Financial Review — Liquidity and Capital Resources”.
As at
31 December 2005
As at
30 September 2006
(B ’000)
(audited)
(B ’000)
(unaudited)
Net Indebtedness:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,167
5,167
12,072
12,072
Current bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of non current debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,322
9,977
13,931
10,912
Current financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,299
24,843
Net current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,132
12,771
Non current bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non current financial indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,888
73,888
71,247
71,247
Net financial indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87,020
84,018
Other than as disclosed in the tables above in relation to data as at 30 September 2006, there has not been any
significant change in the Company’s financial or trading position since 30 June 2006.
23
A1.20.9
SELECTED FINANCIAL INFORMATION
The following tables set out selected consolidated financial and operating information for the Company as at
and for the three years ended 31 December 2005, 2004 and 2003 (the “Selected Annual Financial Information”),
and as at and for each of the six-month periods ended 30 June 2005 and 2006, respectively (the “Selected Interim
Financial Information”). The Selected Annual Financial Information has been extracted from the Annual Audited
IFRS Financial Statements, without material adjustment, and should be read in conjunction with, and is qualified in
its entirety by reference to, the Annual Audited IFRS Financial Statements and the notes thereto included in this
Prospectus. The Selected Interim Financial Information has been extracted from the Interim IFRS Financial
Statements and should be read in conjunction with, and is qualified in its entirety by reference to, the Interim IFRS
Financial Statements and the notes thereto included in this Prospectus, and the information in the section titled
“Operating and Financial Review”. The IFRS Financial Statements have been prepared in accordance with IFRS
adopted by the European Union and as applicable in the respective years. The Annual IFRS Financial Statements
have been audited by KPMG Accountants N.V., the Netherlands. See “Important Information — Presentation of
Financial and Other Information” and “Independent Auditors”.
Six months ended 30
June
2003
2004
2005
2005(1)
2006
(unaudited)
Income Statement Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,783
(85,696)
98,938
(83,696)
108,181
(90,867)
51,058
(42,209)
75,501
(62,333)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
10,087
(4,630)
15,242
(4,504)
17,314
(5,387)
8,849
(2,520)
13,168
(3,302)
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain/(loss) on disposals and write-off of other investments .
Write-off of IPO costs(2) . . . . . . . . . . . . . . . . . . . . . . .
Net result from associates . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
5,457
3,476
(4,082)
(231)
—
—
(756)
10,738
4,454
(5,581)
(1,204)
(1,765)
—
(1,549)
11,927
2,198
(4,951)
(151)
—
(103)
(1,198)
6,329
1,423
(3,146)
4
—
—
(198)
9,866
251
(2,360)
(1)
—
—
(231)
Net income before minority interests . . . . . . . . . . . . . . . . . . . . . .
Minority interests in result of consolidated subsidiaries . . . . . . . . . .
3,864
(270)
5,093
247
7,722
188
4,412
33
7,525
273
Net income attributable to equity holders of the parent
company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,594
5,340
7,910
4,445
7,798
Weighted average number of equivalent shares . . . . . . . . . . . . . . . 35,059,648
38,539,535
40,724,000
40,724,000
40,724,000
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net earnings per ordinary share (basic and diluted) of A 0.01 each . . .
0.10
0.14
0.19
0.11
0.19
Balance Sheet Data:
Assets:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37,118
38,000
31,873
32,859
27,100
Fixed assets: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
141,005
151,479
170,148
158,797
165,798
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178,123
189,479
202,021
191,656
192,898
Liabilities:
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,488
34,214
42,872
35,975
41,852
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,713
95,365
86,443
89,902
76,197
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,201
129,579
129,315
125,877
118,049
Shareholders’ Equity . . . . . . . . .
Minority interests. . . . . . . . . . . .
Cash Flow Data:
Cash flows from operating activities
Cash flows from investing activities.
Cash flows from financing activities
Effect of changes in consolidation . .
......................
......................
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
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.
.
.
.
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.
.
.
.
.
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.
.
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.
24
51,869
53
60,074
(174)
73,117
(411)
66,018
(239)
75,520
(671)
10,866
(13,804)
6,110
—
11,051
(14,542)
2,653
—
14,616
(13,470)
(624)
(69)
2,383
(6,157)
4,306
(69)
19,304
(14,399)
(4,117)
—
A1.3.2
A1.20.4.3
A1.3.1
2003
2004
2005
Six months ended 30
June
2005(1)
2006
(unaudited)
Operating
Theatres .
Screens(3) .
Seats . . . .
Data:
.......................................
.......................................
.......................................
49
352
70,845
53
379
76,062
55
422
86,685
—
—
—
(1)
Restated to reflect the change of functional currencies for operations in Central Europe in the year 2005.
(2)
Consists of fees and expenses incurred in connection with the initial public offering process that was postponed in 2004.
(3)
Includes 4, 4, and 5 IMAX» screens as at 31 December 2003, 2004, and 2005, respectively, and 7 as at 30 June 2006.
25
58
466
94,306
OPERATING AND FINANCIAL REVIEW
The following discussion and analysis generally relates to the Company’s historical financial condition and
results of operations and should be read in conjunction with its financial statements and related notes included
elsewhere in this document. This discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Actual results may differ materially from those anticipated in forward-looking
statements as a result of a number of factors, including, but not limited to those set forth under “Risk Factors” and
elsewhere in this document.
Overview
The Company is the largest operator of multiplex cinemas in Central and Eastern Europe based on number of
screens, with 335 screens in 35 multiplex cinemas and seven IMAX» theatres in Poland, Hungary, the Czech
Republic and Bulgaria. In addition to Central and Eastern Europe, the Company is one of the two leading motion
picture exhibitors in Israel, operating 131 screens in 23 multiplex cinemas. In total the Company operates 466
screens in 58 multiplex cinemas, including seven IMAX» theatres. In 2005, the Company had total revenues of
A108.2 million and in the first six months of 2006, the Company had total revenues of A75.5 million.
Other than as disclosed in “Capitalisation and Indebtedness”, there has been no significant change in the
financial or trading positions of the Company since 30 June 2006.
Factors Affecting Results of Operations
A1.12.1
Factors Affecting Operating Revenue
A1.12.2
A1.6.3
The Company generates operating revenue principally from its theatre operations (including box office
receipts and concessions, on-screen and off-screen advertising, and sponsorship sales), film distribution activities,
video and DVD sales and rentals and other sources, including real estate activities. The following table sets forth a
breakdown of the Company’s sales by category of activity for the periods indicated.
Six months ended
30 June
2003
(B’000)
Theatre operations . . . . . . . . . 72,252
Film distribution . . . . . . . . . . 13,427
Video & DVD sales and
rentals . . . . . . . . . . . . . . . . 7,771
Other . . . . . . . . . . . . . . . . . . . 2,333
95,783
2004
%
2005
(B’000)
%
(audited)
76.4 75,313 76.1
14.0 15,991 16.2
8.1
1.5
100
5,664
1,970
98,938
5.7
2.0
100
(B’000)
2005
%
(B’000)
2006
%
(B’000)
(unaudited)
%
73,641 68.1 32,726
15,138 14.0 5,439
64.1 47,452 62.8
10.7 11,668 15.5
4,877 4.5 2,452
14,525 13.4 10,441
108,181 100 51,058
4.8 2,056 2.7
20.4 14,325 19.0
100 75,501 100
The Company’s revenues from theatre operations are primarily affected by changes in film attendance and
average admissions and concession sales per patron. Attendance is primarily affected by the commercial appeal of
the films released during the period reported, and to a certain extent by seasonality fluctuations and the weather.
Advertising revenues are generated from on-screen advertising, off-screen advertising and sponsorship sales.
Screen advertising rates are primarily fixed at either the theatre or country levels and are typically charged either on
a per period or per patron basis. Off-screen advertising sales are generated by the provision of promotional facilities
and are negotiated on a case-by-case basis. Sponsorship sales are generated from agreements under which the
Company allows the sponsor to associate its name with a theatre, an element of a theatre or a product offered at the
theatre.
26
A1.9.2.1
The following table sets forth a breakdown of the Company’s revenues from theatre operations for the periods
indicated.
For the year ended December 31
For the six months ended June 30
2003
2004
2005
2005
2006
(B ’000)
(%)
(audited)
(B ’000)
(%)
(audited)
(B ’000)
(%)
(audited)
(B ’000)
(%)
(unaudited)
(B ’000)
(%)
(unaudited)
50,782
4,120
13,283
7,128
75,313
45,495
4,319
13,342
10,485
73,641
21,233
2,088
5,735
3,670
32,726
30,417
2,248
8,472
6,315
47,452
Admissions:
Multiplex . . . . . . . . . . . 48,114
IMAX». . . . . . . . . . . . . 5,265
Concessions . . . . . . . . . . . 12,371
Advertising . . . . . . . . . . . 6,502
Total . . . . . . . . . . . . . . . . 72,252
66.6
7.3
17.1
9.0
100
67.4
5.5
17.6
9.5
100
61.8
5.9
18.1
14.2
100
64.9
6.4
17.5
11.2
100
64.1
4.7
17.9
13.3
100
The Company also generates revenues from film distribution. The Company licenses films to cinemas and
typically receives revenue based upon a gross receipts formula, which is negotiated on a movie-by-movie basis in
advance of distribution. The fees are generally related to the anticipated performance of the movie based on the
Company’s experience and, when available, the film’s results in other markets. Under such a formula, the Company
receives a specified percentage of box office receipts, with the percentage declining over the term of the run. The
Company also receives revenue from distribution of some portion of its films on DVDs and video cassettes, from
which revenues are generated from the sale of the DVDs or videos to various distributors. The Company also
receives revenue from distribution of some portion of its films to television, the fees for which are negotiated on a
basis of the period for which the show is screened.
Real estate sales are generated mainly by lease of real estate held by the Company in conjunction with its
entertainment activities, or the sale of such real estate that in some cases is held as short-term investment.
Revenue from DVD sales and rentals consist mainly of historical revenue from the sale and rental of videos and
DVDs and since May 2006, the Company’s 50% interest in the joint venture operating the Blockbuster» franchise in
Israel.
Factors Affecting Operating Expenses
The Company’s principal operating expenses consist of operating costs and general and administrative
expenses. The Company’s operating costs consist of costs associated with theatre operations (mainly film rental,
concession supplies, salaries and wages, and leases), film distribution (mainly royalties), DVD sales and rentals
(mainly video and DVD purchases), and depreciation and amortisation expenses allocable to each business
segment.
The following table sets forth the Company’s principal operating costs and general and administrative
expenses for the periods indicated.
For the year ended December 31
2003
2004
2005
(B ’000)
Operating costs:
Theatre operations . . . . . . . . . . .
Film distribution . . . . . . . . . . . .
DVD sales and rentals . . . . . . . .
Depreciation and amortisation . .
Other(1) . . . . . . . . . . . . . . . . . . .
58,088
11,958
5,259
10,391
—
Total operating costs . . . . . . . . 85,696
General and administrative
expenses . . . . . . . . . . . . . . . . 4,630
(1)
(%)
(B ’000)
(%)
(B ’000)
For the six months ended June 30
2005
2006
(%)
(B ’000)
(%)
(B ’000)
(%)
67.7 55,627 66.5
13.9 12,959 15.5
6.1 3,548
4.2
12.3 10,659 12.7
—
903
1.1
58,077 63.9 26,301
12,349 13.6 4,682
3,454 3.8 1,768
12,096 13.3 5,515
4,891 5.4 3,943
62.3 35,080 56.3
11.1 11,062 17.7
4.2 1,579 2.5
13.1 6,430 10.3
9.3 8,182 13.2
100
90,867
100
83,696
4,504
100
5,387
100
42,209
2,520
62,333
100
3,302
Consists mainly of real estate development costs.
Operating costs related to theatre operations consist mostly of film rental costs, expenses relating to concession
supplies, salaries and wages, and facility lease expenses. Film rental costs and expenses relating to concession
supplies tend to vary with changes in associated revenues. The Company purchases concession supplies to replace
units sold. Although salaries and wages include a fixed component of cost (i.e. the minimum staffing cost to operate
a theatre facility during non-peak periods), salaries and wages move in some relation to revenues as theatre staffing
27
is adjusted to handle attendance volume. Conversely, theatre facility lease expense is primarily a fixed cost at the
theatre level as the Company’s facility leases generally require a fixed monthly minimum rent payment. Most of the
lease agreements contain extra payment provisions above basic annual rent if very high sales volume is achieved,
but this provision has rarely been activated. Facility lease expense as a percentage of revenues is also affected by the
number of leased versus owned facilities. Utilities and other costs include certain costs that are fixed, such as
property taxes, certain costs which are variable, such as liability insurance, and certain costs that possess both fixed
and variable components, such as utilities, repairs and maintenance and security services.
Operating costs related to film distribution consist principally of the licensing fee the Company pays to the film
studio/international distributor, which is based on either a long-term distribution agreement or a per movie
agreement. Both types of agreements are usually based on a percentage licence fee to be paid to the film studios.
Occasionally, a minimum payment can be applied. The Company also incurs costs related mainly to advertising,
while such expenses are normally covered by the fee collected from the movie theatre, prior to payment of the
license.
Operating costs related to DVD sales and rentals consist principally of the purchase of cassettes and DVDs.
Operating costs related to depreciation and amortisation expense consist principally of those allocable directly
to each of the Company’s principal operating activities of theatre operations, film distribution, video and DVD sales
and rentals, and real estate. They relate mostly to assets used in movie theatres and video shops and machines.
Depreciation and amortisation expense not allocable to specific operating activities are included under “general and
administrative expenses”.
General and administrative expenses is comprised of costs associated mainly to the Company’s headquarters in
each of the territories it operates (including Amsterdam), such as office rental, wages, salaries, computer systems
and other ordinary general and administrative expenses. They also include a performance bonus paid to management board members and other members of local management.
Current Trading and Prospects; Trends
The Company’s management expects that the third and fourth quarters of 2006 will continue to see growth in
operating profit, revenues and net income consistent with recent growth, barring exceptional, unanticipated
developments in the Company’s industry or in the countries in which it operates. In particular, preliminary results
indicate that operating profit, revenues, and net income have increased in line with the Company’s expectations in
the third quarter of 2006 relative to the same period in 2005, driven primarily by continued growth in admissions
and the growth in the number of screens operated by the Company.
Trends
For a description of Company-specific trends that may affect its results for at least the current financial year,
see “Description of the Company” and for a description of industry-related trends that may affect its results, see
“Information on the Industry and Markets”.
There has been no significant change in the Company’s financial or trading position since 30 June 2006 (the
date to which the last financial information has been published).
Restructuring of the Consolidated Financial Statements 31 December 2003
Cinema City is a direct 86.10% subsidiary of ITIT, an Israeli company. Historically, Cinema City’s film
exhibition, distribution and video rental operations in Israel, as well as the assets related to these operations, were
divided among ITIT and other subsidiaries of ITIT. However, during 2003, ITIT restructured its operations to
contribute its Israeli operations to Cinema City in exchange for additional shares in the Company. Upon completion
of the restructuring, Cinema City became the holder, through various subsidiaries, of all the business operations of
ITIT in Europe and Israel.
Prior to 2003, the Cinema City operated as a holding company of the European cinema activities of the group.
During the financial year 2003, the Company was involved in a restructuring (the “Restructuring” — for a more
detailed explanation reference is made to Note 1 to the IFRS Financial Statements). At the end of the financial year
2003, as part of the Restructuring, all activities, assets, (including those of the Company’s other subsidiaries) and
liabilities of the Company that were previously not performed and owned by the Company, were transferred to the
Company as a contribution in kind. Since completion of the restructuring, Cinema City has operated as the parent
company of the entire group, including the Israeli activities.
28
A1.12.1
A1.12.2
The restructuring formally ended in March 2004 when the legal proceedings were completed, which included a
change of the Company’s Articles of Association. The amendments to the Articles of Association included,
amongst others, a change of the Company’s legal structure from a private limited liability company (“B.V.”) to a
limited liability company (“N.V.”) under Dutch law, a name change from I.T. International Cinemas B.V. to Cinema
City International N.V. and an increase in the Company’s authorised share capital.
As a consequence of the restructuring, the annual audited consolidated financial statements of the Company
for the year ended 31 December 2003 present the ownership and operation of the business of ITIT and Cinema City
as a single consolidated entity. In addition, prior to 2003, the Company’s financial information was presented in
U.S. Dollars. Up to and including the financial year ended 31 December 2004, the functional currency of the
operations in Central Europe was the Euro. The Company’s management was of the opinion, at that time, that the
Euro better reflected the economic substance of the underlying event and circumstances and thus the Euro was
considered to be the relevant currency for the Central European subsidiaries.
Restatement of the Consolidated Financial Statements 30 June 2005
In 2005, the Company’s management considered that with the growth of the size of the operations and
activities of the Company in Central Europe, the local Central European currencies showed an increasingly more
significant impact on the Company in comparison to the Euro. In addition, a transition from local currencies into the
Euro by the relevant Central European countries is less likely to happen in the near future than was previously
expected. Therefore, starting the financial year ended 31 December 2005, the functional currencies of those Central
European countries became the respective local currencies rather than the Euro. Since this change of functional
currency was not reflected in the interim report for the half year ended 30 June 2005, the comparative figures
relating to the six months ended 30 June 2005 have been restated to reflect the aforementioned change of functional
currencies. Please see note 2B to the audited annual consolidated financial statements as of and for the year ended
31 December 2005 for more details on the currency.
Comparative Discussion of Historical Results
A1.9.2.2
A1.9.2.3
Six-month periods ended 30 June 2006 and 30 June 2005
Other than as described below and under “— Liquidity and Capital Resources”, there has been no significant
change in the financial or trading positions of the Company since 31 December 2005.
Revenue. Revenue increased by 47.8% from A51.1 million for the six months ended 30 June 2005 to
A75.5 million during the six months ended 30 June 2006.
Theatre revenue increased by 44.8% from A32.8 million for the six months ended 30 June 2005 to A47.5 million
for the six months ended 30 June 2006. The increase in theatre revenues was a result of an increase in overall
admissions because of the greater quality of films being available for showing, particularly in Poland, which saw the
success during the first six months of 2006 of two locally produced films, compared to a relatively weak supply of
movies in the same period in 2005, and was also due in part to the negative effect of the Pope’s death on movie
attendance in Poland in April 2005. The increase in theatre revenue is also partially attributable to the greater
capacity in terms of seats and screens in the first half of 2006 relative to the same period in 2005 resulting from the
new cinemas opened during the course in 2005 and in the first half of 2006.
Distribution revenue increased by 116.7% from A5.4 million for the six months ended 30 June 2005 to
A11.7 million for the six months ended 30 June 2006. The increase was mainly due to increase in the distribution
activity in Poland due to a strong supply of movies, and due to the first time contribution of Forum Film Hungary, a
new subsidiary of the Company that is distributing films in Hungary and commenced its operations only in the
middle of 2005.
Video and DVD revenue decreased by 16% from A2.5 million for the six months ended 30 June 2005 to
A2.1 million for the six months ended 30 June 2006. The decrease was primarily a result of decrease in DVD rentals
during the first part of the year. In May 2006, the Company merged its video and DVD retail operations in Israel with
Blockbuster, and it is now only including in its results 50% of the 50/50 joint venture revenue.
Other revenue increased by 37.5% from A10.4 million for the six months ended 30 June 2005 to A14.3 million
for the six months ended 30 June 2006. The increase in other revenue was primarily attributable to the increase in
revenue from real estate activities.
29
Operating costs. Operating costs increased by 47.6% from A42.2 million during the six months ended 30 June
2005 to A62.3 million during the six months ended 30 June 2006. This net increase resulted from the effects of:
•
an increase in theatre operating costs primarily due to the increase in revenue from theatre operations, as
described above, and the opening of new cinemas, mainly in Poland. Theatre operating costs as a
percentage of revenue from theatre operations decreased from 80.4% for the six months ended 30 June
2005 to 73.9% for the six months ended 30 June 2006;
•
an increase in film distribution operating costs as a result of the increase in film distribution revenue as
described above. Film distribution operating costs as a percentage of revenue from film distribution
increased from 86.1% for the six months ended 30 June 2005 to 94.8% for the six months ended 30 June
2006. This increase is mainly due to the relative proportion that the Central Europe distribution activity
contributes to the overall distribution activity of the Company;
•
a slight decrease in operating costs related to video and DVD sales and rentals as a result of the decrease in
revenue as described above. Operating costs related to video and DVD sales and rentals as a percentage of
revenue for the same segment, however, increased from 72.1% for the six months ended 30 June 2005 to
76.8% for the six months ended 30 June 2006; and
•
depreciation and amortisation expenses increased by 16.4% from A5.5 million for the six months ended
30 June 2005 to A6.4 million for the six months ended 30 June 2006. This is due to the operation of the
Company’s new multiplex screens opened during 2005 and 2006.
General and administrative expenses. General and administrative expenses increased by 32% from
A2.5 million during the six months ended 30 June 2005 to A3.3 million during the six months ended 30 June
2006. General and administrative expenses as a percentage of total revenue decreased to 4.4% for the six months
ended 30 June 2006, from 4.9% for the six months ended 30 June 2005.
Operating profit. As a result of the factors described above, operating profit increased by 57.1% from
A6.3 million during the six months ended 30 June 2005 to A9.9 million during the six months ended 30 June 2006.
Financial income/expenses. The balance of financial income and expenses resulted in a net expense of
A2.1 million during the six months ended 30 June 2006 compared to a net expense of A1.7 million during the six
months ended 30 June 2005. This net increase is mainly due to the net effect of: (i) an increase in average
borrowings in local currencies throughout 2005 due to the financing of the development plan in Poland and Israel
and (ii) a reduction in interest collected from non-consolidated subsidiaries explained by the sale of the Sadyba Best
Mall.
Gain/loss on disposals and write-off of other investments. Gain/loss on disposals and write-off of other
investments were insignificant in both the six months ended 30 June 2005 and the same period in 2006.
Income tax. Income tax was fairly stable at approximately A0.2 million for each of the two six-month
periods ended 30 June 2005 and 2006.
Minority interests in result of consolidated subsidiaries. For the six months ended 30 June 2005, the
Company had a net share in losses of its consolidated subsidiaries of A33,000, while for the six months ended 30 June
2006, it had a net share in losses of A273,000.
Net income. Principally as a result of the factors described above, the Company’s net income attributable to
equity holders increased by 77.3% from A4.4 million for the six months ended 30 June 2005 to A7.8 million for the
six months ended 30 June 2006.
Years ended 31 December 2005 and 31 December 2004
Revenues. Revenues increased by 9.4% from A98.9 million for the year ended 31 December 2004 to
A108.2 million for the year ended 31 December 2005.
Theatre revenue decreased by 2.3% from A75.3 million for the year ended 31 December 2004 to A73.6 million
for the year ended 31 December 2005. The decrease in theatre revenue was primarily a result of a decrease in
admissions because of a weak supply of movies in 2005 compared to 2004, a year that had movies with particularly
strong appeal to audiences such as Lord of the Rings, Harry Potter and Passion of the Christ, and also to the negative
effect of the Pope’s death in April 2005 on movie attendance in Poland. The effects of decreased admissions was
partly offset by the contribution of new cinema screens opened in 2004 and 2005.
Distribution revenue decreased by 5.6% from A16.0 million for the year ended 31 December 2004 to
A15.1 million for the year ended 31 December 2005, mainly due to the weak supply of movies in 2005 as
mentioned above.
30
Video and DVD sales and rentals revenue decreased by 14% from A5.7 million for the year ended 31 December
2004 to A4.9 million for the year ended 31 December 2005. This is primarily as a result of a weak supply of movies
in 2005 compared to 2004 and the effects of the growing popularity of the video-on-demand home film viewing.
Other revenues increased by 625% from A2.0 million for the year ended 31 December 2004 to A14.5 million for
the year ended 31 December 2005. The increase in other revenues was primarily attributable to an increase in
revenue from real estate activities. Both the sale of the second 50% of the Sadyba Best Mall in Poland and the sale of
50% of the Company’s interest in the Sofia mall in Bulgaria were the main reasons for this increase.
Operating costs. Operating costs increased by 8.6% from A83.7 million for the year ended 31 December
2004 to A90.9 million for the year ended 31 December 2005. Primarily this increase is the net effect of:
•
an increase in theatre operating costs primarily due to the opening of new cinemas mainly in Poland.
Theatre operating costs as a percentage of theatre revenue increased to 78.9% for the year ended
31 December 2005, from 73.9% for the year ended 31 December 2004;
•
a decrease in distribution operating costs as a result of the decrease in revenues as described above.
Distribution operating costs as a percentage of distribution revenue increased to 81.6% for the year ended
31 December 2005, from 81.0 % for the year ended 31 December 2004;
•
a decrease in video and DVD operating costs as a result of the decrease in video and DVD sales and rental
revenue as described above. Video operating costs as a percentage of total video and DVD sales and rental
revenue increased to 70.8% for the year ended 31 December 2005, from 62.6% for the year ended
31 December 2004; and
•
depreciation and amortisation expenses increased by 13.1% from A10.7 million for the year ended
31 December 2004 to A12.1 million for the year ended 31 December 2005. This is due to the operation of
the Company’s new multiplex screens opened during 2004 and 2005.
General and administrative expenses. General and administrative expenses increased by 20% from
A4.5 million for the year ended 31 December 2004 to A5.4 million for the year ended 31 December 2005. The
increase is primarily due to the opening of new cinemas mainly in Poland and the opening of new distribution
business in Hungary in 2005.
Operating profit. As a result of the factors described above, operating profit increased by 11.2% from
A10.7 million for the year ended 31 December 2004 to A11.9 million for the year ended 31 December 2005.
Financial income/expenses. The balance of financial income/expenses resulted in an increase of A1.7 million in net financial expense, from a net financial expense of A1.1 million for the year ended 31 December 2004 to a
net financial expense of A2.8 million for the year ended 31 December 2005. This net increase is mainly due to the
total effects of: (i) an increase in average borrowings in local currencies throughout 2005 due to the financing of real
estate development plans in Poland and in Israel; (ii) a reduction in interest collected from non-consolidated
subsidiaries explained by the sale of the Sadyba Best Mall; (iii) changes in currency results; and (iv) an increase in
the borrowing costs of the loans denominated in USD — such loans were fully repaid before the end of the six
months ended 30 June 2005.
investments changed from a loss of A1.2 million for the year ended 31 December 2004 to a loss of A0.2 million for
the year ended 31 December 2005. The loss in 2004 was primarily related to an impairment of video and DVD
movies for the 12 months ended 31 December 2004, explained by a shorter estimated life time of video and DVD
movies that are kept for rental purposes.
Write-off of IPO costs. There were no costs written off in this respect for the year ended 31 December 2005,
while for the year ended 31 December 2004, expenses in the amount of A1.8 million were written off relating to the
Company’s plans for an IPO, which was postponed.
Income tax. Income tax decreased by 20% from A1.5 million for the year ended 31 December 2004 to
A1.2 million for the year ended 31 December 2005. The income tax charge as a percentage of profit before income
tax was 18.4% in 2004 (excluding the costs associated with the IPO process that was postponed) and 13.4% in 2005.
Minority interest in result of consolidated subsidiaries. Minority interests for each of the years ended
31 December 2005 and 31 December 2004 comprised a share in loss of approximately A0.2 million.
Net income. As a result of the factors described above, net income attributable to equity holders increased by
49% from A5.3 million for the year ended 31 December 2004 to A7.9 million for the year ended 31 December 2005.
31
Excluding the effects of the costs associated with the IPO process that was postponed in 2004, net income increased
by 11.3% from A7.1 million for the year ended 31 December 2004.
Revenues. Revenues increased by 3.3% from A95.8 million for the year ended 31 December 2003 to
A98.9 million for the year ended 31 December 2004. This increase was primarily attributable to a A3.1 million
increase in theatre revenue and a A2.6 million increase in distribution revenue. These increases were partially offset
by a A2.1 million decrease in video and DVD sales and rental revenue.
The increase in theatre revenue reflects an 11% increase in admissions in Central and Eastern Europe, which
was driven by a strong supply of popular films in 2004. It was also driven by the first full year of results in 2004 of
new screens opened in 2003, as well as the addition of four additional screens in May 2004 and 23 new screens in
November and December of that year. Theatre revenues include A0.8 million of compensation received by the
Company in lieu of loss of revenues during the first Iraq war from the Israeli government. Increased theatre revenue
was partially offset by the weakening of the New Israeli Shekel by 8.8% against the Euro.
The increase in distribution revenues was mainly due to the first full year of operation of Forum Film Poland,
the Company’s new subsidiary engaged in the business of distributing movies in Poland. In addition, revenues from
the distribution of movies to theatres in Israel also increased, although the devaluation of the New Israeli Shekel
against the Euro limited this growth.
Video and DVD sales and rentals revenue decreased due to the Company’s discontinuation of its CD music
shop business in Israel in 2003, as 2004 was the first full year without this business. The decrease was also partially
attributable to the effect of the devaluation of the New Israeli Shekel against the Euro.
The period-to-period decrease in real estate and other revenue, which mainly includes the Company’s real
estate development revenue, was mainly attributable to higher revenue achieved in 2003 as a result of the
Company’s sale of part of its property in Sofia in July 2003.
Operating costs. Operating costs decreased by 2.3%, from A85.7 million for the year ended 31 December
2003 to A83.7 million for the year ended 31 December 2004. This decrease was primarily attributable to:
•
a A1.8 million decrease in theatre operating costs related to the restructuring, which began in 2003, as well
as a reduction in rent expenses partly denominated in U.S. Dollars. Theatre operating costs as a percentage
of theatre revenue decreased to 73.9% during the year ended 31 December 2004, from 80.4% during the
year ended 31 December 2003; and
•
a A1.7 million decrease in video and DVD operating costs due to the discontinuance of the CD music shops;
partially offset by:
•
a A1.0 million increase in distribution costs reflecting the full year results of Forum Film Poland, which was
not in operation during the first half of 2003; and
•
a A0.3 million increase in depreciation and amortisation expenses attributable to the operation of the
Company’s new multiplex screens opened during 2003 and 2004.
General and administrative expenses. General and administrative expenses remained stable at approximately A4.6 million for each of the years ended 31 December 2003 and 2004.
Operating profit. As a result of the foregoing, operating profit increased by 94.5%, from A5.5 million for the
year ended 31 December 2003 to A10.7 million for the year ended 31 December 2004.
Financial income/expenses. The balance of financial income/expenses resulted in a net increase of
A0.5 million in financial expense, resulting mainly from:
•
an increase in financial expenses of A1.5 million, or 36.7%, from A4.1 million for the year ended
31 December 2003 to A5.6 million for the year ended 31 December 2004. The increase was primarily
attributable to an increase in currency exchange losses caused primarily by fluctuations in the value of the
Euro relative to other currencies used in the Company’s operations;
offset by
•
an increase in financial income of A1.0 million, or 28.1%, from A3.5 million for the year ended
31 December 2003 to A4.5 million for the year ended 31 December 2004. This increase was due to an
32
increase in currency exchange gains arising from the appreciation of the Euro relative to other currencies
used in the Company’s operation.
investments changed from a loss of A0.2 million for the year ended 31 December 2003 to a loss of A1.2 million for
the year ended 31 December 2004. The loss in 2004 was primarily related to an impairment charge in respect of
video and DVD movies for the 12 months ended 31 December 2004, explained by a shorter estimated lifetime of
video and DVD movies that are kept for rental purposes. Previously, these items were depreciated in four years
whereas the Company has estimated their economic lifetime to be two years. The effect of the shortened lifetime
was presented as an impairment write-off. The loss in 2003 was primarily related to a capital loss on disposal of
property equipment and other assets.
Write-off of IPO costs. In 2004, expenses in the amount of A1.8 million were written off relating to the
Company’s plans for an IPO, which was postponed.
Income taxes. Income tax increased by 87.5% from A0.8 million for the year ended 31 December 2003 to
A1.5 million for the year ended 31 December 2004. The increase is primarily attributable to the increase in taxable
income in Israel, offset to some extent by a reduction, effective 1 January 2004, in the statutory income tax rate in
Hungary from 18% to 16%, in Poland from 27% to 19% and in Bulgaria from 23.5% to 19.5%.
Minority interests in result of consolidated subsidiaries. Minority interests for the year ended 31 December
2003 resulted in a share of profit of A0.3 million in comparison to a share in losses of A0.2 million in 2004. The
minority interest related to a subsidiary that realised a net loss in 2004 mainly as a result of a write-off of A0.9 million
in the video division of the group. Further explanation on this impairment is provided above under “Gain/loss on
disposals and write-off of other investments”.
Net income. As a result of the foregoing factors, net income attributable to equity holders of the parent
company increased by 47.2%, from A3.6 million for the year ended 31 December 2003 to A5.3 million for the year
ended 31 December 2004. Excluding the write-off of IPO costs, net income increased by 97.2% from A3.6 million
during the year ended 31 December 2003 to A7.1 million during the year ended 31 December 2004.
Liquidity and Capital Resources
A1.10.1
Historically, the Company’s primary sources of liquidity have been cash generated from operations and
borrowings under its loan facilities, while its principal funding requirements consist of cash necessary to fund its
operations, debt service, and maintenance and expansion capital expenditures.
In the opinion of the Company, its working capital (i.e. its ability to access cash and other available liquid
resources) is sufficient to meet its present requirements for at least 12 months from the date of this Prospectus. There
can be no assurance, however, that the Company’s business will generate sufficient cash from operations or that
future borrowing will be available under existing debt facilities or otherwise for these purposes. The Company’s
future operating performance will be subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company’s control. See “Risk Factors”.
A3.3.1
Cash Flow
A1.10.2
The Company funds its day-to-day operations principally from the cash flow provided by its operating
activities. The time between the Company’s receipt of cash, including the collection of VAT, from theatre operations
and the payment of related expenses and VAT (paid to the tax authorities between 15 and 45 days from the date of
collection), allows the Company to operate from a negative working capital position.
The following table sets forth the Company’s cash flows for the periods indicated.
2003
Year ended
31 December
2004
2005
(audited)
Six months ended
30 June
2005
2006
(unaudited)
(B’000)
Cash flow provided by operating activities . . . . . . . . . . . 10,866
Cash flow used in investing activities . . . . . . . . . . . . . . . (13,804)
Cash flow provided by/used in financing activities . . . . . .
6,110
Effects of changes in consolidation . . . . . . . . . . . . . . . . .
—
(1)
11,051
(14,542)
2,653
—
14,616
(13,470)
(624)
(69)
Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005.
33
2,383
(6,157)
4,306
(69)
19,304
(14,399)
(4,117)
—
A1.10.5
Six months ended 30 June 2006 and 30 June 2005
Cash flow provided by the Company’s operating activities totalled A19.3 million and A2.4 million during the
periods ended 30 June 2006 and 2005, respectively. The increase was primarily the consequence of improvement of
operational results in the first six months of 2006 relative to the same period in 2005, and the negative effect on
operating cash flow for the first six months of 2005 resulting from the creation of an account receivable in June
2005.
Cash flow used in investing activities totalled A14.4 million and A6.2 million for the periods ended 30 June
2006 and 2005, respectively. This increase was the result of greater capital expenditures on property and equipment
made in the six months ended 30 June 2006 than in the same period in 2005.
Cash flow used in financing activities totalled A4.1 million for the six months ended 30 June 2006 and cash
flow provided by financing activities for the six months ended 30 June 2005 was A4.3 million. This difference is
primarily attributable to the repayment of long-term bank loans in the first six months of 2006.
Cash flow provided by the Company’s operating activities totalled A14.6 million and A11.1 million during the
years ended 31 December 2005 and 2004, respectively. The increase in cash flow provided by operating activities
was primarily attributable to the improvement of operating results in 2005 relative to 2004.
Cash flow used in investing activities totalled A13.5 million and A14.5 million for the years ended 31 December
2005 and 2004, respectively. This change is primarily attributable to an increase of A14.6 million in loans
outstanding to unconsolidated subsidiaries in 2005 and an increase in investments made in the purchase of property
and equipment from A19 million in the year ended 31 December 2004 to A33.6 million in the year ended
31 December 2005.
Cash flow used in financing activities totalled A0.6 million for the year ended 31 December 2005 and cash flow
provided by financing activities was A2.6 million for the year 2004. This change from a positive to a negative cash
flow and the extent of it was primarily the result of a repayment of a long-term bank loan in 2005.
Cash flow provided by operating activities totalled A11.1 million and A10.9 million for the years ended
31 December 2004 and 2003, respectively. The increase in cash flow was primarily attributable to the improvement
of operating results in 2004 relative to 2003.
Cash flow used in investing activities totalled A14.5 million and A13.8 million for the years ended 31 December
2004 and 2003, respectively. The cash flow for investing activities primarily consisted of investments in property
and equipment which remained at similar level in 2004 in comparison to 2003.
Cash flow provided by financing activities totalled A2.6 million and A6.1 million for the years ended
31 December 2004 and 2003, respectively. This decrease was primarily attributable to a decrease in proceeds
from long-term loans required by the Company for its investments activities.
Commitments
As of 30 June 2006, the Company’s long-term debt obligations, capital lease obligations and future minimum
lease obligations under non-cancellable operating leases for each period indicated are summarised as follows:
1 year
Payments due within
2-3
4-5
5+
Years
Years
Years
Total
(B ’000)
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
Future minimum lease obligations . . . . . . . . . . . . . . . . . . .
Other long-term obligations . . . . . . . . . . . . . . . . . . . . . . . .
10,186
—
15,962
—
21,492
—
29,548
—
19,391
—
28,686
—
24,400
—
49,521
—
75,469
—
123,717
—
The Company has financed the majority of its development to date through loans from Bank Leumi in Israel.
The Company’s local subsidiaries in Central and Eastern Europe, mainly in Poland, have financed part of their
projects using financing provided by local banks, while giving securities such as mortgage of the assets of the
financed projects, mortgage of the shares and assignments of all revenues and insurance polices of the projects. The
share of financing provided by local Polish banks has grown substantially in the past two years.
34
The Company and its subsidiaries conduct most of their cinema, video library stores and corporate operations
in leased premises. These leases, which have non-cancellable clauses, expire at various dates after 30 June 2005.
Many leases have renewal options. Most of the leases provide for contingent rentals based on the revenues of the
underlying cinema or video library stores, while certain leases contain escalating minimum rental provisions.
Capital Expenditures
Cash used for capital expenditures consists primarily of (a) cash used for the maintenance, upkeep and
replacement of assets used in connection with the Company’s theatre operations (“maintenance capital expenditures”) and (b) cash used in the Company’s expansion of its theatres (“expansion capital expenditures”).
A1.5.2.1
In each of the years ended 31 December 2003, 2004, and 2005, the Company’s expansion capital expenditures
amounted to A15 million, A19 million, and A33.6 million. Expansion capital expenditures related principally to
expenditures on fixed tangible assets in connection with the construction of new theatres in Poland and, to a lesser
extent, also in Hungary and the Czech Republic. During 2006 to the date hereof, the Company has made expansion
capital expenditures of A14.4 million, mainly in connection with the construction of three new projects in Poland
(Lodz), Bulgaria (Sofia) and Israel (Ramat Gan). As stated above, the Company has historically funded its capital
expenditures principally from cash generated by operations and borrowings under its loan facilities.
The Company plans to add approximately 25 new theatres in the next two years: ten in Poland, two in Israel,
one in Hungary and four in each of Bulgaria, the Czech Republic and Romania. The Company has 17 contractual
commitments already in place in respect of this component of its strategy. For these purposes, the Company has
budgeted approximately A88 million of expansion capital expenditures through the end of 2008, of which
A61 million are under contractual commitments. The Company anticipates that most of this amount will be
financed with the proceeds from the Offering and cash generated by its operations. The Company expects that any
additional required funding for these projects will come from internally generated cash flows and additional bank
loans.
A1.5.2.2
A1.5.2.3
A1.10.1
A1.10.2
A1.10.3
Description of Existing Credit Facilities and Availability
As at 30 June 2006, the Company had approximately PLN 50 million and A20 million of funds available under
its existing credit facilities. The following is a description of the principal terms of the Company’s existing long
term facilities.
•
Cinema City International N.V. received a loan from Bank Leumi Israel in two tranches of A43.7 million
and US$11.7 million to be used for general corporate purposes. The loan does not have a repayment
schedule and interest under the loan is based on EURIBOR and LIBOR, in each case plus 1.5%. The loan
was transferred from ITIT as part of the group reorganisation in 2003. As of 30 June 2006, A33.3 million
was outstanding under the loan.
•
Cinema City Poland sp. z o.o. and I.T. Poland Development 2003 sp. z o.o. entered into a loan agreement in
November 2004, under which they received a PLN 77 million loan from Bank Zachodni WBK S.A., the
proceeds of which were used for refinancing and financing of the construction of eight cinemas in Poland.
The loan requires quarterly instalment payments until September 2014 and has a variable interest rate
based on the three-month Warsaw Interbank Offer Rate (“WIBOR”) plus a margin ranging from 1.75% up
to 3.5%. The loan is secured by, among other things, mortgages on real estate in Poland, pledges on assets
and shares and surety (corporate guarantees) from certain group companies. The loan agreement contains
the usual covenants and operating restrictions limiting the borrowers’ ability to borrow and invest; receive
and grant loans, credit and other debt financing; encumber any assets; distribute profits; and/or acquire
shares in other entities. As of 30 June 2006, A17.5 million remained outstanding under the loan.
•
Cinema City Poland sp. z o.o. received a US$11.0 million loan from Bank Pekao S.A. in 2002, the proceeds
of which were used for the construction of a cinema in Katowice. On 31 December 2004, Bank Pekao S.A.
assigned the loan to Bank Zachodni WBK S.A. The loan requires quarterly instalment payments of
A222,000 plus a bullet repayment at maturity in 2015. The interest rate of the loan is based on three-month
EURIBOR (U.S. dollars) plus a variable margin ranging from EURIBOR and down to 2.25%. The loan is
secured by, amongst other things, a mortgage and pledge on shares and assets. The loan was converted to
Euro in 2003. As of 30 June 2006, A7.3 million was outstanding under the loan.
•
Cinema City Poland sp. z o.o. I.T. Poland Development 2003 sp. z o.o. entered into a loan agreement in
May 2006, under which they received a A6.9 million (PLN 28,000,000) from Bank Zachodni WBK S.A., to
finance the construction of a cinemas in Lodz, Poland. The loan requires quarterly instalment payments of
A173,000 (PLN 700,000) until June 2016 and bears a variable interest rate based on three-month WIBOR
35
A1.10.4
plus a margin ranging from 1.75% up to 2.25%. The loan is secured by, among other things, mortgages on
real estate in Poland, pledges on assets and shares and surety (corporate guarantees) from certain group
companies. The loan agreement contains customary covenants and operating restrictions limiting the
borrowers’ ability to borrow and invest; receive and grant loans, credit and other debt financing; encumber
any assets; distribute profits; and/or acquire shares in other entities. As of 30 June 2006, A4.2 million
(PLN 17,000,000) remained outstanding under the loan.
•
Cinema City International N.V. has a A2,000,000 credit line from Bank Leumi UK to be used for general
corporate purposes. The loan does not have a repayment schedule and interest under the loan is based on
EURIBOR plus 2%. As at 30 June 2006, A666,000 was outstanding under the loan.
•
IT Poland DEV 2003 and Cinema City Poland entered into a loan agreement in May 2006, under which it
received a PLN 50,000,000 from Bank Zachodni WBK S.A., to finance six new projects in Poland over the
next two years. The loan requires quarterly instalment payments of PLN 1.4 million until May 2016 and
bears a variable interest rate based of WIBOR plus a margin ranging from 1.75% up to 2.25%. The loan is
secured by, among other things, mortgages on real estate in Poland, pledges on assets and shares and surety
(corporate guarantees) from certain group companies. The loan agreement contains customary covenants
and operating restrictions limiting the borrower’s ability to borrow and invest; receive and grant loans,
credit and other debt financing; encumber any assets; distribute profits; and/or acquire shares in other
entities. As of 30 June 2006, the Company had made no drawings under this facility had not drawn down
the loan.
Financing agreements provide customary restrictive covenants that, among other things, impose operating and
financial restrictions, including the restrictions on: receipt and grant loans, credit and other debt financing;
encumber any assets; distribute profits; acquire shares in other entities; change the character of business activities;
dispose of shares; change of ownership and/or control of the Company; effect merger or any other reorganisation;
dispose, transfer and/or lease assets; distribute dividends or profits; receive credits from other banks, etc. Events
beyond the Company’s control could prevent it from complying with these covenants and result in a breach of any
such obligation, thus triggering an event of default.
Critical Accounting Policies and Estimates
The Company prepares its IFRS Financial Statements in conformity with IFRS adopted by the European
Union and as applicable in the respective years. Under these standards, the Company’s management is required to
make certain estimates, judgments and assumptions that it believes are reasonable based upon the information
available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
The significant accounting policies which management believes are the most critical to aid in fully understanding
and evaluating the Company’s reported financial results include the following:
Revenue and Expense Recognition
Revenues from admission (ticket sales) and concession sales (snack bars operated by the Company) are
recognised when services are provided. Revenues from distribution of cinema films are recognised on an accrual
basis by a percentage of admissions from the related films. Revenues from distribution of films to cable television
companies and television stations are recognised over the agreed period for the screening of the film. Revenues from
sales of video cassettes and DVDs are recognised upon delivery to the customer. Revenues from video cassettes and
DVD rentals are recognised as the rental services are provided. Revenues from “on-screen” advertising contracts are
included in theatre revenues and are recognised when the related advertisement or commercial is screened, or, in
some cases, over the period of the contract. Revenues from rental contracts are included in other revenues and are
recognised on an accrual basis. Revenues from the sale of real estate are included in other revenues and are
recognised when the significant risks and benefits of the ownership have been transferred, when the buyer is
committed to the purchase, and when the sales price is considered collectable.
The cost of theatre sales includes direct film costs, concession product costs and joint theatre facility costs such
as employee costs, theatre rental and utilities, which are common to both ticket sales and concession operations. The
costs of films distributed are capitalised until the time the films are distributed for screening. Once the films have
been distributed and screening has begun, the costs are amortised at a rate equal to the ratio of revenues in the period
to total estimated revenues for the films. General advertising expenses are expensed as incurred. Film advertising
expenses are expensed when the film is distributed or is shown to the public.
36
A1.10.4
Currency Translation
Up to and including the financial year ended 31 December 2004, the functional currency of the operations in
Central Europe was the Euro. Management was of the opinion, at that time, that the Euro better reflected the
economic substance of the underlying events and circumstances and thus the Euro was considered to be the relevant
currency for the Central European subsidiaries.
In 2005, management determined that with the growth of the size of the operations and activities of the
Company in Central Europe, the local Central European currencies were increasingly showing a more significant
impact on the Company in comparison to the Euro. In addition, a transition from local currencies into the Euro by
the relevant Central European countries appears less likely to happen in the near future than was previously
expected. Therefore, starting the financial year ended 31 December 2005, the functional currencies of those Central
European countries were stated in the respective local currencies rather than the Euro.
Nonetheless, for the financial year ended 31 December 2004, the financial statements of the above mentioned
foreign operations were translated into euros as follows:
Monetary items were translated at the closing exchange rate and non-monetary items were translated at the
exchange rate on the date of transaction. Income statement items were translated at the average exchange rate for the
year. Foreign exchange differences arising on translation have been recognised in the income statement.
Starting the financial year ended 31 December 2005, the functional currencies of the operations in Central
Europe are the relevant local currencies: the Czech Crown, the Hungarian Forint and the Polish Zloty.
The financial statements of the above mentioned foreign operations were translated from the functional
currency into euros (presentation currency) as follows:
Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate. Income
statement items were translated at the average exchange rate for the year. Foreign exchange differences arising on
translation have been recognised directly in equity.
The functional currency of the operations in Israel remained unchanged (the New Israeli Shekel (NIS)).
Property and Equipment
A1.8.1
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditures
for maintenance and repairs are charged to expenses as incurred, while renewals and improvements of a permanent
nature are capitalised. Depreciation is calculated by means of the straight-line method over the estimated useful
lives of the assets. Annual rates of depreciation are as follows:
%
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movie cassettes and DVDs(*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*)
..............
..............
..............
..............
..............
..............
..............
2-3
Mainly 10
Mainly 5
6 - 33
15 - 20
50
20
In 2004, the estimated useful lives of video movie cassettes and DVDs were four years. Starting the financial year 2005, the useful live of
this category is estimated to be two years.
Leasehold improvements are depreciated over the estimated useful lives of the assets, or over the period of the
lease, including certain renewal periods, if shorter.
Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are
classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount equal to the
lower of its fair value and the present value of the minimum lease payments at inception of the lease, less
accumulated depreciation.
According to IAS 36, the carrying amount of assets mentioned above is reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is
estimated as the higher of net selling price and value in use.
37
Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing
or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of
property and equipment, are capitalised to property and equipment, in accordance with IAS 23.
Inventories
Inventories are valued at the lower of cost or net realisable value, and include concession products, spare parts,
music cassettes, CDs and video cassettes, and are stated at the lower of cost or net realisable value. Cost is
determined by means of the “first in, first out” method. Cost of music cassettes is determined on the basis of the
average purchase price. Net realisable value is the estimated selling price during the normal course of business, less
the estimated costs of completion and selling expenses.
Net Financing Costs
Net financing costs comprise interest payable on borrowings calculated using the effective interest rate
method, and interest receivable on funds invested. Foreign exchange gains and losses, and gains and losses that are
recognised on hedging instruments are recognised in the income statement. Interest income is recognised in the
income statement as it accrues, taking into account the effective yield on the asset.
Financing expenses relating to short-term and long-term loans, which were taken for the purpose of purchasing
or constructing property and equipment, as well as other costs which refer to the purchasing or constructing of
property and equipment, are capitalised to property and equipment, in accordance with IAS 23.
Derivative Financial Instruments
The Company uses derivative financial instruments to hedge its exposure to foreign exchange rate risks arising
from operational and financing activities. Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The fair value of foreign
contracts is based on the relevant current exchange rates at balance sheet date. Where a derivative financial
instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or liability,
no hedge accounting is applied and any gain or loss due to the change in the fair value of the hedging instrument is
recognised in the income statement.
Income Taxes
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the
income statement except to the extent that it relates to items recognised directly to equity, in which case it is
recognised in equity. Income tax is calculated at the applicable local tax rates.
Deferred income tax is provided using the balance sheet liability method on all temporary differences at the
balance sheet date between the carrying amounts of assets and liabilities for financial reporting purposes and the tax
bases of assets and liabilities. The amount of deferred tax provided is based on the expected timing of the reversal of
the temporary differences, using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise
from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
Provision Related to Onerous Lease Contracts
During July 2002, the Company acquired a cinema chain in Poland at a discount, which was allocated to the
lease agreements of the cinemas acquired. In the financial statements of the Company, the discount is presented as a
provision related to onerous lease contracts. It is released to the income statement over the term of the lease on a
straight-line basis.
Other provisions
The financial statements of the Company include different provisions related to the normal business activities
of the Company such as accrued expenses and accrued employee retirement rights.
38
Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the potential for loss due to adverse changes in the fair value of financial instruments.
The Company is exposed to market risks related to movements in foreign currency exchange rates and interest rates.
These exposures may change over time as business practices evolve and could have a material adverse impact on the
Company’s financial results. The Company has not entered into any transactions with derivative financial
instruments for the purpose of reducing its interest rate risk. However, as described below, from time to time,
the Company utilises hedging instruments with respect to its operations.
Foreign Currency Risk
Foreign currency risk is the risk that the Company will incur economic losses due to adverse changes in foreign
currency exchange rates. As currency exchange rates change, translation of the financial statements of the
Company’s operations reported in currencies other than the Euro into Euro affects the year-to-year comparability
of these results of operations.
The Company conducts transactions in the following currencies: Polish Zlotys, Hungarian Forint, Czech
Republic Koruna, New Israeli Shekel, Bulgarian Lev, Euro and U.S. Dollar. Appreciation of the Euro, the
Company’s reporting currency, against its other functional currencies decreases the Company’s revenues and
costs as reported in its financial statements for those operations that do not operate in Euro. Conversely, depreciation
of the Euro against these other currencies increases the Company’s revenues and costs as reported in its financial
statements. The appreciation of the Euro against these other currencies, therefore, impacts the Company’s reported
net income or loss.
Please see “— Critical Accounting Policies and Estimates — Currency Translation” for a description of the
translation of the foreign currencies in which the Company operates in Euro.
Currency Transaction Risk
The Company incurs currency transaction risk whenever it or one of its subsidiaries enters into either a
purchase or sales transaction using a currency other than its functional currency. This currency risk arises from
foreign currency receivables as well as from commitments to purchase services and supplies in the future in
currencies other than the functional currencies.
In an attempt to lessen its exposure to currency exchange risks, the Company converted a significant portion of
its long-term loans from U.S. Dollars into Euro during 2003. From time to time, the Company also utilises hedging
instruments with respect to its operations.
As at 30 June 2006, the Company has hedged some of its USD and EUR expenses through June 2006 in respect
of its Polish theatre operations, against the Polish Zloty. In connection with these obligations, the Company has
entered into forward foreign exchange contracts comprising a commitment to buy USD 400,000 at the beginning of
each month during the second quarter of 2006 and until December 2008 at fixed prices denominated in Polish Zloty.
The Company has also entered into forward foreign exchange contracts comprising a commitment to buy
A350,000 at the beginning of each month during the second quarter of 2006 and until December 2008 at fixed prices
denominated in Polish Zloty.
These forward foreign exchange contracts have been valued in the consolidated balance sheet as at 30 June
2006 at their fair value.
Interest Rate Risk
The Company’s debt is subject to floating interest rates, as indicated in the following table as of 30 June 2006.
Indebtedness
Amount
(E’000)
Weighted Avg.
Interest Rate
Percentage of
Total Debt
Fixed rate indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable rate indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
86,976
—
4.85%
—
100%
The variable rate indebtedness is generally a fixed percentage above WIBOR, EURIBOR and LIBOR.
Increases in interest rates will increase the Company’s interest expense under these loans.
39
DESCRIPTION OF THE COMPANY
A1.5.1
A1.6.1.1
Overview of the Company
The Company is the largest operator of multiplex cinemas in Central and Eastern Europe based on number of
screens, with 335 screens in 35 multiplex cinemas and seven IMAX» theatres in Poland, Hungary, the Czech
Republic and Bulgaria. In addition to Central and Eastern Europe, the Company is one of two leading motion
picture exhibitors in Israel, operating 131 screens in 23 multiplex cinemas. In total, the Company operates 466
screens in 58 multiplex cinemas, including seven IMAX» theatres. In 2005, the Company had total revenues of
A108.2 million. In the first six months of 2006, the Company had total revenues of A75.5 million.
The Company also distributes films in Israel, Poland and Hungary and has long-standing relationships with
international film companies, having acted as the exclusive motion picture distributor for Disney in Israel, through
its subsidiary Buena Vista, for almost 50 years, and more recently in Poland and Hungary. The Company has
exclusive rights to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania. In
addition, in connection with its theatre development, the Company is engaged in real estate activities in Central and
Eastern Europe. In Israel, the Company engages in video and DVD rental and sales, and since May 2006, this
business has been operated through a joint venture operating the Blockbuster» franchise in which the Company has
a 50% participation.
The Company’s operations by country are illustrated below:
Poland
Czech
Movie Exhibition
Motion Pictures Distribution
Entertainment Centres
Real Estate
Movie Exhibition
Real Estate
Hungary
Movie Exhibition
Motion Picture Distribution
Romania
Movie Exhibition coming
soon
Bulgaria
Real Estate
Movie Exhibition
Israel
Movie Exhibition
Video DVD Rental and Sales
40
41
6.8
0.5
11.9
6.5
0.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic
Theatre operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.1
10.9
8.1
—
43.1
23.1
10.4
7.8
—
41.3
95.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Includes revenues from entertainment centres.
Includes revenues from real estate and theatre in 2003.
(1)
(2)
....................
....................
....................
....................
Israel
Theatre operations . . . . . . . . .
Distribution . . . . . . . . . . . . . .
Video . . . . . . . . . . . . . . . . . .
Other(2) . . . . . . . . . . . . . . . . .
100%
1.0
0.9
7.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria
Other(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.0
12.4
11.9
—
....................
....................
12.4
—
30.8
3.0
0.9
34.7
32.2
3.1
0.9
36.2
(%)
....................
....................
....................
....................
Poland
Distribution . . . . . . . . . . . . . .
Other(1)(2) . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . .
Hungary
Distribution . . . . . . . . . . . . . .
(B in millions)
2003
98.9
36.5
20.6
10.1
5.7
0.1
0.2
8.2
7.6
0.6
13.2
13.2
—
33.9
5.9
1.0
40.8
(B in millions)
2004
100%
36.9
20.8
10.2
5.8
0.1
0.2
8.3
7.7
0.6
13.3
13.3
—
34.3
6.0
1.0
41.3
(%)
For the year ended 31 December
108.2
31.1
17.2
8.1
4.9
0.9
10.0
7.2
6.4
0.8
13.0
11.5
1.5
38.6
5.5
2.8
46.9
(B in millions)
2005
The following table provides information regarding the Company’s revenue by segment and geographic market.
100%
28.7
15.9
7.5
4.5
0.8
9.2
6.6
5.9
0.7
12.1
10.7
1.4
35.7
5.1
2.6
43.4
(%)
51.1
14.7
7.6
3.9
2.5
0.7
7.0
3.8
3.3
0.5
5.7
5.7
—
16.1
1.6
2.2
19.9
(B in millions)
100%
28.8
14.9
7.6
4.9
1.4
13.6
7.5
6.5
1.0
11.2
11.2
—
31.5
3.1
4.3
38.9
(%)
75.5
13.5
8.3
3.0
2.1
0.1
13.2
4.4
4.0
0.4
6.4
5.6
0.8
29.5
7.9
0.6
38.0
(B in millions)
2006
For the six months ended 30 June
2005
100%
17.9
11.0
4.0
2.8
0.1
17.5
5.8
5.3
0.5
8.5
7.4
1.1
39.1
10.4
0.8
50.3
(%)
Growth of the Company
The Company is continuing to expand within Central and Eastern Europe. In November and December 2004,
the Company opened two multiplexes in Poland, one with 15 screens in Warsaw and the other with eight screens in
the city of Czestochowa. In 2005 the Company opened multiplexes in Krakow (10 screens), Torun (12 screens),
Poznan (nine screens) and Katowice (13 screens), Poland, an IMAX» theatre in Poznan and a multiplex with seven
screens in Givataim, Israel. In the first seven months of 2006, the Company opened multiplexes in Lodz, Poland (14
screens), Sofia, Bulgaria (12 screens) and Ramat Gan, Israel (15 screens), and an IMAX» theatre in both Lodz and
Sofia. The Company plans to add approximately 21 new theatres in the next two years. The Company has
14 contractual commitments already in place in respect of this component of its strategy.
The Company’s Strengths
The Company believes that it benefits from the following competitive strengths:
•
Strong market positions. For many years the Company has been one of the two market leaders in Israel in
the movie exhibition business, based on revenue. It has already leveraged its operational capabilities and
standardised practices to become the leading theatre operator in Poland and one of the main theatre
operators in Hungary, the Czech Republic and Bulgaria, based on revenue, and can further leverage these
to develop new markets that the Company believes to be high growth, such as Romania.
•
Presence in high growth markets. The Company’s growth focus is in countries that it believes have high
growth potential. Penetration of movie screens per capita, admissions per capita, and the number of
modern multiplexes relative to single screen theatres in Central and Eastern Europe is substantially lower
than in the European Union and the US, which the Company believes is an indication of future growth
potential. The Company believes that the movie industry in this region will continue to develop rapidly as
disposable incomes increase and older, single screen theatres are replaced with modern multiplex
facilities.
•
Experienced management team. The Company believes that it has benefited from the extensive experience of its management team. The Greidinger family has been in the cinema industry since 1929 and the
Company’s senior management team collectively has more than 100 years of experience in the movie
theatre industry and related real estate industry. This includes experience in all elements of the industry,
such as film distribution, real estate and project development, exhibition, advertising, as well as operating
experience in other movie distribution channels. The Company believes that as a result of this experience
its management has strong insight relating to planning and site development, marketing and advertising
and distribution activities.
•
Diversified revenue base within its industry. The Company generates revenues from a number of sources,
including ticket sales for movie exhibitions, concessions, advertising, movie distribution, video and DVD
rental and sales, and real estate development and trading. The Company also receives revenue from
sponsorship arrangements, including, for example, Orange plc sponsoring the Company’s IMAX» theatres
in Poland. The Company believes that these diverse operations maximise use of its infrastructure and help
reduce the inherent cyclicality and seasonality of the movie exhibition business.
•
Strong cash flow and liquidity. The Company’s main customers are cinema attendees who typically pay
in cash thereby eliminating significant accounts receivable in its core theatre operations business, reducing
the Company’s working capital requirements and minimising bad debt provisions.
•
Exclusivity with the Imax Corporation. The Company has an exclusive agreement with the Imax
Corporation to develop IMAX» theatres in Poland, the Czech Republic, Hungary, Bulgaria and Romania.
The Company currently operates five IMAX» theatres in Poland, one in the Czech Republic and one in
Sofia, Bulgaria. The Company has plans for the development of two further IMAX» theatres by the end of
2007. The Company believes that, in addition to the high-margin revenues generated by these IMAX»
theatres, its exclusive relationship with the Imax Corporation enables the Company to acquire better
theatre site locations by offering an exclusive and attractive product to property developers.
•
Distribution relationships with Disney (through Buena Vista). The Company distributes films in Israel,
Poland and Hungary. The Company has been an exclusive distributor for Disney for almost 50 years in
Israel and, since February 2003 and September 2005, in Poland and Hungary, respectively. In addition, it
distributes new releases from New Line, Weinstein Co., Revolution and Spyglass, as well as other
independent movie producers. The distribution operations represent a natural vertical add-on business,
42
providing natural synergies including the ability to actively advertise and promote movies in the
Company’s markets.
•
High-quality multiplex facilities. The Company believes that the development and maintenance of highquality theatre facilities is critical to its continued success. In constructing new theatres, the Company
applies standardised interior design and technologies and these multiplex theatres include wide screens,
digital surround systems, high-quality projection equipment, comfortable seating, computerised reserved
seating ticketing systems, and full service concessions. The Company believes that its high-quality
facilities provide a preferred destination and entertainment experience for moviegoers. The Company aims
to enable moviegoers to complement their movie experience with other leisure and social activities by
building its movie theatres within other shopping, leisure and entertainment facilities.
•
Standardised, flexible and cost effective approach to developing multiplex theatre sites. The Company
has developed a standardised yet flexible cost effective approach to multiplex construction, which the
Company believes has contributed to its track record of on-time and on-budget construction. Whenever the
Company seeks to develop a new theatre, an experienced team applies a standardised design that is adapted
to the requirements of the particular site, which enables the Company to achieve cost savings. In addition,
as a result of its experience, the Company is able to respond quickly to developers of other commercial
properties that include a cinema. The Company believes that this has earned it a reputation as a reliable
multiplex operator which strengthens its ability to secure prime site locations and provides it with a
competitive advantage over other exhibitors submitting bids. Moreover, the Company is now in a position
where it is frequently approached by property developers who perceive it as a desirable cinema anchor for
a complex.
•
Customised information technology and reporting systems. Management closely monitors the Company’s operations and cash flows through daily reports generated from customised information technology
and reporting systems connected with each theatre. The Company believes that these systems help to
enhance its ability to maximise revenue, cost control and efficiently manage theatre circuits. The real-time
information available on these systems allows management to make immediate adjustments to movie
schedules, prolong runs or increase the number of screens on which successful movies are played and
substitute films when gross receipts cease to meet expected goals.
Business Strategy
Key elements of the Company’s strategy include:
•
Consolidate its position in its existing markets. The Company aims to consolidate its position as the
leading operator of multiplex cinemas in Poland by significantly expanding its operations and to enhance
its position as a leading operator in Hungary, the Czech Republic and Bulgaria. To that end, since the end of
2004, the Company has developed nine theatres, of which two are IMAX» theatres, in Poland. The
Company plans to add up to 21 new theatres in its existing markets in the next two years, of which ten are
expected to be in Poland, two in Israel, one in Hungary and four in each of Bulgaria and the Czech
Republic. The Company has 14 contractual commitments already in place in respect of this component of
its strategy.
•
Expand into other Central and Eastern European Markets. The Company aims to expand its operations
in new markets in Central-Eastern Europe, leveraging the business model that it has developed and
implemented in Poland, the Czech Republic, Hungary and Bulgaria. To that end, the Company has
commenced activities in Romania, where the Company plans to build four new theatres and will consider
new opportunities in other Central and Eastern European countries as they arise.
•
Leverage leading market position to secure premium high traffic locations. As part of its development
strategy, the Company will continue to seek to locate its theatres within strategically desirable destinations,
such as shopping malls and entertainment complexes. Where the Company is unable to find suitable
opportunities within an existing or planned development, it will continue to selectively purchase property
to develop on its own.
•
Generate earnings through real estate development and trading. The Company intends to continue to
participate in real estate development in the future, primarily in connection with its theatre expansion
programme, and to identify and implement projects that provide it with a stable mix of leased and owned
properties. The aim of this strategy is to allow the Company to selectively leverage the success of
multiplexes into real estate and cinema-related entertainment centres.
43
•
Continue to grow, attract and retain customer base. As the Company is operating in markets with
relatively low admissions per capita, it aims to encourage the development of a vibrant movie going
culture. The Company intends to grow its customer base through loyalty programmes, such as loyalty
cards and bonus schemes, together with the effective use of online booking and other marketing and
promotion tools. The Company is constantly re-evaluating and analysing its customer viewing patterns
through its information systems in order to tailor its programming to satisfy customer requirements.
•
Further develop its film distribution channels in countries where it operates. The Company aims to grow
its film distribution operations as its penetration of new markets through theatre operations develops. The
distribution operations represent a natural vertical add-on business, providing natural synergies including
the ability to actively advertise and promote movies in the Company’s markets.
•
Maximise revenue opportunities through cinema related operations. The Company will continue to
pursue additional revenue growth opportunities by developing and expanding ancillary revenue streams,
such as concession, sponsoring and advertising revenues. The Company believes that further opportunities
exist to expand its sponsorship arrangements across both multiplexes and IMAX» theatres. With these
ancillary revenue streams, the Company aims to improve margins and reduce its exposure to the cyclicality
of the theatre business.
History and Development
A1.5.1.5
The Greidinger family, which indirectly controls the Company, started the predecessor to the Company’s
movie exhibition business in 1929 in Israel. Israel was the sole country of operation for the Company until 1997,
when it looked beyond the mature Israeli market for growth opportunities. In December 1997, the Company opened
its first multiplex theatre in Budapest, Hungary and, in 1999, the Company entered the Polish and the Czech
markets. In July 2006, the Company commenced operations in its fifth territory, Bulgaria, with the opening of its
first multiplex and IMAX» theatre in Sofia. In 2005, revenues derived from Central and Eastern Europe had grown
to account for over 71% of the Company’s total revenues.
The Company was formed in 1994 as a wholly owned subsidiary of ITIT, an Israeli holding company for the
business. Historically, the Company’s film exhibition, distribution and video rental operations in Israel, as well as
the assets related to these operations, were divided between ITIT and other subsidiaries of ITIT. To reflect the shift
of emphasis in the business from Israel to Central and Eastern Europe, ITIT restructured its operations during 2003
by contributing its Israeli operations to the Company in exchange for additional shares in the Company through a
series of transactions described below.
In the “pre-reorganisation” structure, all the operations of the Cinema City group of companies were
conducted through subsidiaries of ITIT, being a 100% subsidiary of Israel Theatres Limited. The Israeli operations
were conducted through ITIT itself and through additional Israeli subsidiaries. The Central European operations
were all conducted through local subsidiaries of Cinema City. Pan Europe Finance B.V., a 100% subsidiary of ITIT,
was a Dutch company used as a tax efficient conduit for the bank loans provided to the then Cinema City group of
companies through ITIT.
In 2003, the Cinema City had five active companies in Poland: Cinema City Poland sp. z o.o., I.T. Poland
Development 2003 sp. z o.o., New Age Media sp. z o.o., Forum Film Poland sp. z o.o. and New Cinemas Poland sp.
z o.o.; one active company in Hungary, being I.T. Magyar; and two active Czech companies: I.T. Czech Cinemas
s.r.o. and KINO 2005 a.s.
The reorganisation of all of the businesses under Cinema City was specifically structured so as not to have any
impact on the financial position and economic operations of the ITIT group. Following the reorganisation, the
assets and liabilities as well as the economic operations and financial position of the then Cinema City group of
companies were identical to the assets and liabilities as well as the economic operations and financial position of the
ITIT capital group. The steps of the reorganisation were as follows:
In stage one, the operations, assets and liabilities of ITIT (excluding assets and liabilities indicated in stages
two and three) were transferred to I.T. Theatres 2004 Limited (“IT 2004”), a new wholly-owned subsidiary of ITIT.
In stage two, the equity of the Israeli subsidiaries was transferred to Cinema City in exchange for ITIT
receiving additional shares in Cinema City. As part of the transfer, ITIT agreed not to compete in the markets in
which Cinema City operates.
In stage three, all the remaining outstanding bank loans to ITIT from financial institutions and bank account
balances held by ITIT were assigned to Cinema City (the remaining liabilities of ITIT were already transferred to IT
44
2004). In addition, as part of the reorganisation, there was no further tax benefit to Pan Europe Finance B.V. serving
as a conduit for the Cinema City group’s bank loans, thus the company was liquidated.
Upon completion of the reorganisation, Cinema City became the owner and holder of all the operations of the
ITIT group in both Europe and Israel. The ITIT group received a special ruling from the Israeli tax authorities to
allow for the transfer of the Israeli activities to IT 2004, and to transfer the shares of all the operating Israeli
subsidiaries to Cinema City. Cinema City committed to pay tax in Israel on any future gains on the sale of any of its
Israeli subsidiaries.
Upon completion of the restructuring, the Company became owner and holder of all the business operations of
ITIT in both Central and Eastern Europe and Israel.
On 2 November 2006, ITIT transferred 4,940,352 Shares of the Company to ITIT’s parent company, Israel
Theatres Limited. Such Shares represent the shares purchased by ITIT in February 2006 from certain minority
shareholders. See “Principal and Selling Shareholders”.
45
46
Blockb
uster
(Israel)
50%
Video
Giant
(Israel)
60%
Forum
Film
(Israel)
100%
Norma
Film
(Israel)
50%
Yaaf
Video
Machi
nes
(Israel)
100%
Teleticket
Limited
(Israel)
100%
Mabat
Publishing
(Israel)
100%
IT
International
Theatres
2004
(Israel)
100%
Cinema
Plus
(Israel)
100%
IT
Magyar
Cinemas
(Hungary)
100%
Forum
Hungary
Film Distribution
(Hungary)
100%
IT
Poland
Development
2003
(Poland)
100%
Cinema
City
Poland
(Poland)
100%
Forum
Film
Poland
(Poland)
100%
Multiplex
Holding Company
Cinema Advertising
Theatre Operation
Distribution
Film Distribution
Video - Retail/Rental
Video - Automated Video Machines
Temporary Employment Agency
Inactive
Financing Vehicle
New Age
Media
(Poland)
100%
All Job
(Poland)
100%
Cinema
City
International
(Poland)
100%
Kino
2005
(Czech)
100%
IT
Czech
Cinemas
(Czech)
100%
Cinema
City
Bulgaria
(Bulgaria)
100%
Cinema
City
Finance
(Holland)
100%
*This group structure chart only includes principal subsidiaries of the Issuer. A further description of the activities of
these principal subsidiaries is contained in this Prospectus at page 113.
Key
Forum
Home
Entertainment
(Hungary)
100%
Cinema City
(Holland)
Group Structure Chart
IT
Sofia
(Holland)
100%
A1.7.1
Theatre Operations
A1.6.1.1
Overview
A1.12.1
A1.12.2
As at 30 September 2006, the Company operated 466 screens in 58 theatres located in five countries. Within
Central and Eastern Europe, the Company’s cinemas operate under the Cinema City brand name, and in Israel its
cinemas operate under the names “Planet” and “Rav-Chen”. All of the Company’s theatres are “first run” theatres,
which means that the theatres show only current movie releases.
The Company’s cinemas have between three and 15 screens per theatre (other than one single screen theatre in
Tel-Aviv). Multi-screen theatres enable the Company to offer a diversified selection of films. At the same time, it
allows the Company to exhibit films on a more cost efficient basis for longer periods by shifting films from larger to
smaller auditoriums within the same complex to accommodate changing attendance levels. In addition, operating
efficiencies are realised through the economies of having common box office, concession, projection, lobby and
restroom facilities, which enable the Company to spread certain costs, such as payroll and rent, over a higher
revenue base. Staggered movie starting times also reduce staff requirements and lobby congestion.
The Company’s theatres generally have between 100 to 500 stadium-style seats per screen. The Company
applies standardised interior design and technology in every country in which it operates, which the Company
believes builds brand recognition and creates economies of scale. The Company’s theatres have digital surround
sound systems and wide screens.
The Company maintains an exclusive agreement with the Imax Corporation to develop IMAX» theatres in
Poland, the Czech Republic, Hungary, Bulgaria and Romania. Under the agreement, the Company has leased seven
IMAX» systems, and it expects to lease two additional systems for IMAX» theatres that will be constructed by the
end of 2008.
Most of the Company’s theatres employ a computerised telephone ticketing service that enables patrons to
purchase or reserve tickets over the telephone. Within Central and Eastern Europe, these transactions are settled in
cash at the box office. However, in Israel, the Company also offers customers the option to purchase reserved
seating tickets by credit card, for which the Company receives a service fee.
The Company’s movie theatre revenues are predominantly generated from box office receipts, concession
sales and on-screen advertising. The following table indicates the breakdown of these revenues for the periods
indicated:
2003
(B in
millions)
2004
(%)
(B in
millions)
For the six months ended 30 June
2005
(%)
(B in
millions)
2005
(B in
(%)
millions)
(%)
2006
(B in
(%)
millions)
Admissions:
Multiplex . . . . . . . . . . .
IMAX» . . . . . . . . . . . .
Concessions. . . . . . . . . . .
Advertising . . . . . . . . . . .
48.1
5.3
12.4
6.5
66.5
7.3
17.2
9.0
50.8
4.1
13.3
7.1
67.5
5.4
17.7
9.4
45.5
4.3
13.3
10.5
61.8
5.8
18.1
14.3
21.2
2.1
5.7
3.7
64.8
6.4
17.4
11.4
30.4
2.2
8.5
6.3
64.1
4.6
17.9
13.4
Total . . . . . . . . . . . . . . . .
72.3
100.0
75.3
100.0
73.6
100.0
32.7
100.0
47.4
100
Admissions
The following table indicates by country the number of admissions for the periods indicated:
For the
six months ended
30 June
2003
(’000)
2004
(’000)
2005
(’000)
2005
(’000)
2006
(’000)
6,642
2,964
1,290
—
3,685
7,585
3,089
1,422
—
3,241
6,979
2,663
1,127
—
2,662
3,138
1,341
565
—
1,225
5,112
1,241
692
—
1,230
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,581
15,337
13,431
6,269
8,275
Admissions:
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hungary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
A1.6.2
Theatre Operations by Country
Poland
Poland has emerged as the most significant country for the Company’s theatre operations. In 2005, the country
accounted for almost 52% of total box office sales. In the first six months of 2006, the Company’s multiplex
network in Poland generated 62% of the Company’s total revenues from cinema operations. The Company
currently operates 203 screens with 43,258 seats in 18 cinemas in Poland, which include five IMAX» theatres.
The Company entered the Polish market in 1999 and initially commenced the development of multiplexes in
Warsaw. The Company co-developed the Sadyba shopping centre, which was integrated with a cinema facility that
the Company developed on its own, encompassing a multiplex and an IMAX» theatre. The Sadyba project was
opened in September 2000 and the Company has gradually sold down, with its last remaining interest in the project
being sold in 2005 to Plaza Centres (Europe) B.V. Another multiplex was opened in Bemowo, Warsaw by the end of
2000. In 2001, the Company continued its expansion with two new multiplexes opened in the south of Poland. In
2002, the Company opened two additional multiplexes in Katowice and Kraków.
Apart from its organic growth, the Company acquired Ster Century’s four multiplexes in Poland in 2002. In
2003, the Company also acquired a multiplex in Gdansk. From 2004 through mid-2006, the Company continued its
rapid expansion throughout Poland with the opening of seven additional multiplex complexes.
The Company’s portfolio of currently operated multiplexes consists of six locations in Warsaw, eight
multiplexes in the South of Poland, three in Central Poland and one in Gdansk. Apart from regular multiplexes,
the Company simultaneously developed five IMAX» theatres adjacent to its cinema locations in Katowice,
Kraków, Poznan, Lodz and Sadyba, Warsaw. Four out of 18 multiplexes operated by the Company in Poland are on
real estate owned by the Company. Another multiplex was developed on leased land and the remaining 13
multiplexes are located on leased properties.
The Company’s geographical development in Poland has reflected its strategy to target densely populated
urban areas. Between 2000 and the third quarter of 2006, the Company was successful in entering the Polish market
and becoming a leading exhibitor in the country. All properties are leased other than Janki, Warsaw; Katowice;
Lodz; and Torun, which are owned by the Company.
Geographic al Location of
Theatres in Poland
Location
Theatre Name
Warsaw
Sadyba
Mokotów
Bemowo
Promenada
Janki
Arkadia
Punt 44
Krakow
Zakopianka
Cze˛stochowa
Korona
Krewetka
Ruda Śla˛ska
Torun
Kazimierz
Poznan
Silesia
Lodz
Toru
Warsaw
Pozna
Katowice
Kraków
Lód
Wrocaw
Czetochow
Katowice
Ruda Slaska
Kraków
Cze˛stochowa
Wrocław
Gdańsk
Ruda Śla˛ska
Torun(1)
Krakow(1)
Poznan(1)
Katowice(1)
Lodz(1)
Total
(1)
No. of
admissions
(’000)
in 2005
No. of multiplex
screens
IMAX»
screen
644
617
351
520
353
775
615
422
353
386
466
393
140
286
275
377
6
—
12
14
11
13
10
15
13
9
10
8
9
8
8
12
10
9
13
14
1
—
—
—
—
—
1
1
—
—
—
—
—
—
—
1
—
1
6,979
198
5
Theatres opened during 2005 or in 2006.
Box office receipts from the multiplex and IMAX» theatres constitute the majority of the Company’s revenues
from theatre operations accounting for 66% of revenues in 2005. Concession sales generate the second largest
amount or revenue of this line of business accounting for 17% of revenues in 2005.
48
The tables below set out the admissions for the period 2003 to first half of 2006 and the revenue sales
breakdown from theatre operations for 2005:
For the year ended
31 December
Admissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average ticket price in Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average ticket price in PLN. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the
six months ended
30 June
2003
2004
2005
2005
2006
6,642
3.53
15.47
7,585
3.33
15.10
6,979
3.67
14.75
3,138
3.66
14.96
5,112
3.86
15.00
Revenue breakdown from theatre operations in Poland for the year ended 31 December 2005 (E, in
thousands):
Box office . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IMAX» . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.......................................
.......................................
.......................................
.......................................
22,769
2,776
6,392
6,707
38,644
Growth in sales was predominantly achieved by the expansion of cinema facilities. Furthermore, 2003 results
were additionally strengthened by sales from multiplex theatres acquired by the Company from Ster Century in
2002. While average ticket prices in PLN remained stable between 2002 and the first six months of 2006, due to
significant appreciation of the PLN against the Euro through 2004, average ticket prices expressed in Euros
increased during that period. However, while average ticket prices were stable overall, this reflects in part an
increase in prices in cities where the Company is established, offset by lower initial prices in new cities of operation
such as Lodz.
Another developing source of revenues from the theatre operations is from advertising activity. In order to take
advantage of the growing interest in cinema advertising, a dedicated advertising sales house — New Age Media Sp.
z o.o. (“New Age Media”) — was established in September 2002 as a wholly-owned subsidiary of the Company.
New Age Media provides clients with full service on-screen and off-screen campaigns, including adapting client’s
advertisements to cinema standards, delivering cinema-media planning services, organising promotion events in
the Company’s venues and developing posters, stickers and various handouts. The total revenues of New Age Media
for 2005 amounted to PLN 24.6 million or A6.1 million. Of these revenues 95% were generated from the Company’s
theatre operations in Poland.
Based on the initial successful development of the Company’s Polish operations and the Company’s belief in
Poland’s still untapped market potential, the Company plans to continue to aggressively grow its Polish operations.
New multiplexes will be located in various regions of the country, which will broaden its geographical coverage. By
expanding its geographical coverage, the Company will additionally be able to broaden its cinema advertising
activities, since potential customers will have the opportunity to reach an audience spread out in various parts of the
country, not only the three or four largest cities.
Hungary
Hungary was the first country in which the Company commenced its activities outside Israel. The Company
currently operates 12 multiplexes with 86 screens and 16,432 seats across the country. In 2005, the Company’s
Hungarian theatre activities accounted for over 16% of sales from the theatre operations business.
The Company entered the Hungarian market in 1997 with the opening of a seven-screen multiplex in
Budapest. Since the Budapest cinema exhibition market, with over 15 multiplex centres, was already relatively
developed at that time, the Company decided to continue its theatre development in relatively underdeveloped
markets outside the capital. Between 1998 and 2000, the Company opened eight new multiplexes in selected major
cities around the country. The facilities were predominantly medium size, with the number of screens per multiplex
ranging from six to ten.
In 2001, the Company commenced operating smaller multiplex theatres in less populated cities. The Company
opened three facilities of that type during 2001 and 2002, with four screens per multiplex. In 2004, the Company
49
opened an additional four screens multiplex in Veszprem. The Company currently has the largest network of
multiplexes in Hungary. All of its theatres are leased.
Location
Theatre Name
No of
admissions
(in thousands)
in 2005
Budapest
Csepel
Uj-udvar(1)*
Szeged
Debrecen
Gyor
Alba
Pecs
Szolnok
Miskolc
Szavaria
Sopron
Veszprem
Zala
Total:
116
104
435
335
327
281
253
137
169
159
101
139
107
2663
Miskolc
Debrecen
Sopron
Budapest
Gyor
Szolnok
Savaria
Veszprem
Alba
Szeged
Zala
Pecs
(1)
Szeged
Debrecen
Gyor
Alba
Pecs
Szolnok
Miskolc
Szavaria
Sopron
Veszprem
Zala
No. of
screens
7
6
9
9
10
10
10
4
8
4
7
4
4
92
Closed at the end of 2005
Box office receipts constituted over 70% of 2005 sales from theatre operations in Hungary. Concession sales
represented close to 22% of the 2005 revenue generated in Hungary from theatre operations. The remaining 8% of
revenues in this line of business was attributable to on-and off-screen advertisements.
The tables below set out the admissions for the period 2003 to the first half of 2006 and the sales breakdown
from theatre operations for 2005:
For the year
ended 31 December
2003
2004
2005
Admissions (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average ticket price in HUF. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,964
2.83
717.4
3,089
2.99
754.3
2,663
3.12
777
For the sixmonths
ended 30 June
2005
2006
1,341
3.12
769
1,241
3.12
817
Revenue breakdown from theatre operations in Hungary for the year ended 31 December 2005
(E in thousands):
Box office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,326
2,581
986
11,893
The fluctuation in the number of admissions between 2003 and 2005 was predominantly influenced by the
movie supply for that period and was consistent with the overall performance of the cinema industry in Hungary,
which, according to Dodona, contracted by 11% from 13.7 million to 12.0 million between 2003 and 2005 in terms
of the number of admissions.
The Company’s current business plan envisages opening a flagship megaplex of more than 20 screens
including an IMAX» theatre in a newly developed modern entertainment and shopping centre in the heart of
Budapest, which is scheduled for completion in the second half of 2007.
Czech Republic
The Company operates four multiplex sites and one IMAX» theatre in Prague, which constitute a total of 32
screens and 6,568 seats. The Czech Republic accounted for approximately 9% of Company sales from theatre
operations in 2005.
50
The Company entered the Czech market in September 1999 with the acquisition of Galaxie, the country’s first
multiplex located in Prague. The following year, the Company began developing a new multiplex, Cinema CityGalaxie, adjacent to the originally acquired location. Upon completion of the project in 2001, the old multiplex was
replaced with the new facility. Expansion of theatre operations in the Czech Republic continued in 2002 with the
opening of another multiplex in Prague (Zilcin). In 2003, the Company opened its Prague-Flora multiplex
combined with an IMAX» theatre. The Company opened the Novodrorska Multiplex in March 2006. The
Company has entered into an agreement to sell the old Galaxie theatre.
So far, Prague has been the sole area of the Company’s Czech operations. The Company’s multiplexes secured
the Company a national market share of around 27% in terms of box office admissions in 2005. All theatres are
leased other than Galaxie, Prague, which is owned by the Company.
Geographical location of
theatres in the Czech Republic
Location
Theatre Name
Prague
Flora
Galaxie
Zilcin
Novodroska
Pragu e
Total:
No of admissions
(in thousands)
in 2005
No. of screens
IMAX»
screen
690
167
270
—
8
9
10
5
1
—
—
1,127
32
1
The tables below set out the admissions for the period 2003 to first half of 2006 and the revenues breakdown
from theatre operations for 2005:
For the
six months
ended 30 June
For the year ended
31 December
Admissions (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . .
Average ticket price in Euro . . . . . . . . . . . . . . . . . . . . . . . .
Average ticket price in CZK . . . . . . . . . . . . . . . . . . . . . . . .
2003
2004
2005
2005
2006
1,290
3.84
122.91
1,422
3.94
125.28
1,127
4.01
125.91
565
4.20
126.57
692
4.6
124.38
Revenue breakdown from theatre operations in the Czech Republic for the year ended
31 December 2005 (E, in thousands):
Box office . . . . . . . . . . . . . . . . . . . .
IMAX» . . . . . . . . . . . . . . . . . . . . . .
Concessions . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . .
.................................................
.................................................
.................................................
.................................................
3,213
1,543
827
758
6,341
The fluctuation in the number of admissions between 2003 and 2005 was predominantly influenced by the
movie supply for that period and was consistent with the overall performance of the cinema industry in the Czech
Republic, which contracted by approximately 20% from 2003 to 2005 in terms of the number of admissions,
according to Dodona.
The Company’s current business plan calls for the opening of four multiplexes outside of Prague, by the end of
2008.
Israel
Israel is the second most significant market for the Company’s theatre operations in terms of revenue and the
number of screens. The Company currently operates 23 multiplexes with 131 screens and 24,698 seats in the
country. The Company’s theatres in Israel operate under the brand names “Rav-Chen” and “Planet”. In 2005,
approximately 23% of all theatre operation sales were generated in Israel whereas in 2003 32% of the theatre
operations sales were generated in Israel. In the first half of 2006, the Company’s multiplex network generated 18%
of total sales from theatre operations in Israel.
51
Theatre operations commenced in Israel in 1931 with the opening of the Company’s first cinema in Haifa. In
1982, the Company opened Israel’s first multiplex theatre in Tel-Aviv. Until 1997, Israel was the sole territory of
Company operations. The Company is one of the two leading exhibitors in the country, with approximately 32%
market share in 2005 in terms of the total number of tickets sold.
The Company’s movie theatres are mainly spread along the coastline and in Israel’s major cities including TelAviv (along with the contiguous Dan region), Jerusalem, Haifa and Beer-Sheba. Historically, the Company’s typical
facility in Israel has had between three to eight screens, which is less than the average number of screens in the
Company’s multiplexes in other countries predominantly because of unique characteristics of the Israeli market:
exhibitors in Israel maintain preferential distribution arrangements with distributors, which means that different
cinema operators display movies of different film studios. Each operator exhibits only a certain portion of all titles
displayed in Israel, which proportionally reduces the optimal screen capacity of cinemas in Israel. This arrangement
has slowly eroded in recent years. With the introduction of a new generation of megaplexes in the country to replace
older theatres, the Company believes this three to eight screen trend will ultimately disappear. The Company itself
is heading in that direction with the opening of a 15-screen megaplex in Ramat Gan in the outskirts of Tel-Aviv in
July 2006. The Company has a 20-screen project scheduled to open in Haifa at the end of 2007 and a number of
additional megaplex projects slated to other regions in the country. All of the Company’s theatres in Israel are
leased.
Geographical Location of Cinemas in Israel
Haifa
Tel-Aviv
Jerusalem
Beer -Sheba
(Rav-Chen theatres)
Location
Theatre Name
Rehovot
Jerusalem
Herzlia
Givataim
Tel-Aviv
Herzelia
Petach Tikva
Ramat Gan(1)
Haifa
Bat-Yam
Kiriat Ono
Yahud
Beer-Sheba
Ashdod
Carmiel
Rishon
Netanya
Haifa
Or-Akiva
Haifa
Tel-Aviv
Ashkelon
Afula(2)
Tel-Aviv
Ramat Gan(1)
Total:
Rehovot
Jerusalem
7 Stars
Givataim
Dizengoff
Marina
Avnat
Ayalon
Lev Hamifraz
Bat-Yam
Kiriat Ono
Savyonim
Negev
Ashdod
Carmiel
Rishon
Netanya
Kongresim
Or-Akiva
Horev
Opera
Ashkelon
Afula
Gat
Yes Planet
No of admissions
(’000) in 2005
No. of
screens as at
30 September
2006
238
227
192
186
179
171
164
131
128
111
107
93
90
74
79
73
69
68
65
58
48
41
40
30
—
2,662
6
7
6
7
6
8
8
—
7
7
5
4
4
6
5
4
4
5
3
3
5
5
—
1
15
131
(1)
The Ayalon multiplex consisted of four screens. It closed in June 2006. The Yes Planet multiplex at Ramat Gan replaced the Ayalon
multiplex in July 2006.
(2)
The Afula multiplex consisted of three screens. It closed in January 2006.
In Israel in 2005, 71% of the Company’s sales from movie exhibition activities were directly generated
through box office receipts. Another 21% were attributable to concession sales, whereas advertising activities are
the source of 8% of sales. Revenues from movie exhibition activities in Israel have slowly declined between 2003
and the first half of 2006. Admissions have been down and ticket prices have remained relatively flat. Since 2004,
several underperforming smaller multiplexes have been closed, including a four-screen theatre in Ramat Gan that
52
was replaced by a 15-screen megaplex in July 2006. The Company believes that the opening of this megaplex and
additional new generation of megaplexes will reverse the downward trend of admissions.
The tables below set out the admissions for the period 2003 to first half of 2006 and the sales breakdown from
theatre operations for 2005:
For the year ended
31 December
Admissions (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average ticket price in NIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the
six months
ended 30 June
2003
2004
2005
2005
2006
3,685
4.48
23.52
3,241
4.56
25.41
2,662
4.66
25.95
1,225
4.44
24.98
1,230
4.82
27.07
Revenue breakdown from theatre operations in Israel for the year ended 31 December 2005
(E in thousands):
Box office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,633
3,542
2,034
17,209
Periodic concerns over the security situation in Israel resulting from the conflict with the Palestinians have
contributed to decreases in the total number of admissions in the movie theatres operated in Israel in the last three
years. Sales for the first half of the year are usually lower than in the subsequent two quarters. During the period
2003-2005 sales from theatre operations in Israel in the first half of every year represented, on average, 43.1% of
sales for the whole year.
Although the Israeli cinema exhibition market reached a mature stage almost a decade ago, the Company plans
to continue its steady development of a new generation of megaplexes in Israel in order to maintain its market share
and remain one of the country’s leading exhibitors.
Since the Company has developed multiplex theatres in Israel for over 20 years, its facilities tend, on average,
to be older in Israel than in Central and Eastern Europe. The development of new projects will therefore be
accompanied by the closing down of several older multiplexes over the next few years in order to maintain its
leading position in the market. Although the recent conflict between Hezbollah and Israel forced the temporary
closure of certain of the Company’s theatres in northern Israel, overall, it did not have material adverse effect on the
Company’s Israeli operations.
Bulgaria
The Company recently opened the first modern multiplex and IMAX» theatre in Sofia as part of a shopping
mall project that the Company was a partner in developing. The multiplex consists of 13 screens plus one IMAX»
theatre with a total of 2,870 seats.
The shopping mall project represents the first modern shopping mall in Sofia. The Company began this project
in 2001 together with its partners Aviv Holdings GmbH and Ocif Holdings GmbH and together they sold half of
their 100% interest in July 2005 to a joint venture between Quinlan Estates and GE Capital. The Company, Aviv and
Ocif sold their remaining 50% interest to Quinlan and GE in May 2006. The Company has retained favourable lease
terms for its multiplex and IMAX» theatre on the site.
Currently, the Company has plans to develop four further multiplexes in Bulgaria, comprising 32 screens
before the end of 2008.
Romania
The Company is in the process of rolling out its expansion into Romania, a particularly large and underscreened market in the Company’s geography. The Company has already signed three leases for cinemas in
Bucharest, with a total of 50 screens plus one IMAX» theatre. All three projects are currently scheduled to open in
the first half of 2008. The Company is in the process of forming a Romanian operating subsidiary and obtaining all
necessary licenses to operate cinemas in the country and municipality. The Company expects to hire its first senior
local managers in early 2007 and to have a full operational team on the ground prior to its planned 2008 launch.
53
Complementary Theatre-Related Activities
IMAX»
The Company’s IMAX» theatres feature twin-lens projection systems that are capable of creating a threedimensional effect. Patrons are provided with polarised glasses, which enhance this 3D effect. The theatres are
equipped with screens that are 20 to 24 meters high, which are designed to encompass the peripheral vision of
viewers. IMAX» theatres are equipped with digital, wrap-around sound systems. The films shown in the IMAX»
theatres are created with 70 mm film and specially designed IMAX» cameras. However, non-IMAX» films, which
use 35mm film, can be converted to an IMAX» format. Film producers have increasingly begun to convert regularly
formatted films into both 2D and 3D IMAX» formats to take advantage of the superior visual and audio experience
of IMAX». This has most recently been done with such films as Superman Returns and The Polar Express.
The leases relating to the IMAX» systems used by the Company are for 20-year terms, with an option to extend
the lease for an additional 10 years. The exclusivity provisions of the Company’s agreement with Imax Corporation
remain in effect until 31 December 2010, which may be automatically extended for an additional three years if the
Company leases 11 IMAX» systems.
The Company derives additional revenue for its IMAX» operations through sponsorship of its IMAX»
theatres. Recently such sponsorship deals have been made with Orange plc for all of the IMAX»theatres in Poland
and with Mtel for the theatre in Bulgaria.
Concessions
Concession sales are the Company’s second largest revenue source, representing approximately 12% of total
revenues for 2005. In the first half of 2006, concession sales amounted to 11% of revenues. Concession sales have a
much higher margin than admission sales. The Company has devoted considerable management effort to increase
concession sales and improve operating margins. These efforts include implementation of the following strategies:
•
Optimisation of product mix. Concession products are primarily comprised of various sizes of popcorn,
soft drinks and candy. Different varieties and flavours of candy and soft drinks are offered at theatres based
on preferences in that particular geographic region. Specially priced “combo-meals” have been implemented for all patrons as well as meals targeted toward children and senior citizens. The Company
periodically introduces new concession products designed to attract additional concession purchases.
•
Staff training. Employees are continually trained in “suggestive-selling” and “upselling” techniques.
Various incentive schemes are operated by the Company from time to time under which employees and
individual theatre managers receive additional compensation based on concession sales at their theatres
and are therefore motivated to maximise concession sales.
•
Theatre design. The Company’s theatres are designed to optimise efficiencies at the concession stands,
which includes the strategic placement of concession stands to emphasise their visibility, reduce the length
of concession queues and aid in improving the traffic flow around them.
•
Cost control. The Company negotiates prices for concession supplies directly with concession vendors
and manufacturers on a bulk rate basis. Concession supplies are distributed by the vendors. The Company
has an agreement to exclusively sell Coca-Cola» products and sales of these products represented
approximately 25% of concession sales in 2005.
Film Licensing
The Company’s theatres license the films they exhibit from distributors, including those from the Company’s
distribution subsidiaries in Israel, Hungary and Poland. Licence terms are generally determined on a film-by-film
basis. Rental fees are based on either mutually agreed upon or firm terms established prior to the opening of the
picture. Under a firm terms formula, the Company pays the distributor a specified percentage of box office receipts,
with the percentages declining over the term of the run. The Company generally uses three or four declining scales
and the one applied to a film licence depends upon the expected success of the film.
Advertising and Sponsorship
Advertising and sponsorship represents a developing source of revenues from theatre operations. In order to
take advantage of the growing interest in the cinema advertising, the Company has established an advertising sales
house in Poland under the name New Age Media. New Age Media provides clients with full service on-screen and
off-screen advertising campaigns, including adapting client’s advertisements to cinema standards, delivering
54
cinema-media planning services, organising promotional events within the Company’s venues and developing
posters, stickers and various other marketing materials. In 2005, New Age Media had total revenues of A6.1 million.
Of these, almost 100% were generated from the Company’s operations in Poland.
The Company’s distribution subsidiary in Poland, Forum Film (Poland), engages New Age Media in the
marketing of films distributed by it.
The Company has already established its own advertising activities in Israel and is in the process of doing so in
Hungary. In Romania and Bulgaria, the Company conducts these activities through third party agencies.
Distribution
Overview
In addition to movie theatre operations, the Company is also involved in film distribution through its 50%
owned Israeli subsidiary, Forum Film (Israel) its wholly owned Polish subsidiary, Forum Film (Poland), and its
wholly owned Hungarian subsidiary, Forum Hungary Distribution (Hungary). In Israel, the Company is the
distributor of Disney, New Line, Weinstein Co., Revolution and Spyglass pictures. In Poland, it is the exclusive
distributor for Buena Vista and additionally distributes movies produced by Spyglass and other independent
studios. In Hungary, it is the exclusive distributor for Buena Vista and additionally distributes movies produced by
Spyglass.
Film distribution involves the initial positioning and marketing of the film, followed by distribution to the
cinemas that will show the film. Whilst distribution in Poland and Hungary is to all theatre operators, in Israel, in
line with local practice, films distributed by Forum Film (Israel) in certain cities are exhibited exclusively in the
Company’s theatres. Prior to negotiating film licences with the cinemas, the Company’s distribution subsidiaries
evaluate the prospects for the film. Films are typically licensed to the cinemas in return for licence payments, which
are generally related to the anticipated performance of the movie based on results in North America and in other
markets, if available. The payments are split between the distributor and the movie producer.
The Company believes that its success as a distributor derives, in part, from its innovative approach to
distribution. It does not act as a pure intermediary between film production studios and movie exhibitors, but rather
it is also actively engaged in the marketing and promotional efforts to seek to increase the film’s visibility in the
marketplace.
In Israel, Forum Film (Israel) also distributes films on video and DVD to over 700 outlets, as well as licensing
film rights for network and cable television programming. In connection with video and DVD distribution, Forum
Film (Israel) typically pays an ongoing licence fee to the film production company or distributor. It obtains a master
copy of the film, which it reproduces in the desired format (i.e. video or DVD) at its own expense through a third
party duplicator. Forum Film (Israel) then sells the videos and DVDs to stores throughout Israel, including to its
affiliate, Blockbuster/Giant Video. The Company recently entered into agreements with two major film distributors
to commence distribution of movies on DVD and video in Hungary as well.
Exclusive Agreements with Buena Vista
The Company’s wholly owned Polish subsidiary, Forum Film (Poland), its wholly owned subsidiary Forum
Film (Hungary) and its 50%-owned Israeli subsidiary, Forum Film (Israel), have entered into agreements with
Buena Vista for the distribution of Buena Vista films. Forum Film (Israel) has been a distributor for Disney or its
film subsidiaries for almost 50 years. The Forum Film (Israel) agreement expires on 30 September 2007 and Buena
Vista has the option to extend the agreement for two additional one-year terms. The Forum Film (Poland)
agreement expires on 30 September 2007 and Buena Vista has the option to renew the agreement for an additional
one-year term. The Forum Film (Hungary) agreement expires on 30 September 2007 and Buena Vista has four
options to renew for additional one-year terms.
Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) have the exclusive right to distribute
Disney motion pictures to movie theatres in Israel, Poland and Hungary, respectively. Buena Vista films are
generally those licensed to Buena Vista by its affiliates, Walt Disney Pictures and Touch Stone Pictures, or films
produced by third parties and distributed by Buena Vista. Neither Forum Film (Israel), Forum Film (Poland) nor
Forum Film (Hungary) is allowed to distribute films produced by any other major motion picture producer without
Buena Vista’s prior written consent. Buena Vista can terminate the agreement if the Company’s Chief Executive
Officer, Mr Moshe Greidinger, ceases to be directly involved in the business of Forum Film (Israel), Forum Film
(Poland) or Forum Film (Hungary), as the case may be.
55
Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) must promote the Buena Vista films
they distribute and use their best efforts to exhibit such films in the most desirable theatres at the most favourable
playing times.
The agreements require payment to Buena Vista of a licensing fee of a fixed percentage based on the box office
receipts for the distributed films after deduction of all related expenses of releasing the movie in the relevant
territory.
Other activities
Entertainment centres
The Company operates two entertainment centres in Poland under the name Hokus Pokus, which offer
bowling, video arcade games, billiard tables, internet cafes and bars. These entertainment centres are intended to
facilitate and augment movie attendance with theatres that are not connected to a shopping mall.
Real estate activities
The Company maintains a flexible approach with respect to the real estate component associated with the
development of new theatres. In the first instance, the Company generally seeks to lease theatres rather than to
purchase or develop in order to lower capital requirements. The Company, however, will consider owning the
multiplex itself if strategically desirable, which may be the case, for example, where the current leasing costs appear
prohibitively high, but the general location is deemed important, or if a leasable property does not exist. In certain
circumstances, the Company will, on its own or with partners, acquire the land and engage contractors and
designers to build an entertainment complex containing a multiplex and leasable commercial space, as it has done
in Bemowo and Katowice, both of which are dense population centres with scarce modern indoor entertainment
facilities. In addition, the Company may also acquire all or part of an entire shopping centre project that will contain
a multiplex. The Company believes that this flexible approach to theatre property development gives it an
opportunity to identify and implement optimal projects, providing the Company with a strong and stable mix of
leased and owned properties and allowing it to selectively leverage upon the success of multiplexes into real estate
and entertainment opportunities.
The Company’s other revenues include leasing fees from real estate in Poland and the Czech Republic. As at
30 June 2006 the Company owned approximately 53,904m2 of space and leased approximately 5,400m2 of space to
third parties, and for 2005 the rental revenue was A1.1 million.
The Company currently has ownership interests in four real estate complexes in Poland. The first, located in
Katowice was developed by the Company between 2000 and 2002 and encompasses a multiplex theatre and a
Hokus Pokus entertainment centre and commercial rental space. The second site, located in Janki, Warsaw, was
owned by Ster Century, a small cinema chain acquired by the Company in 2002. This site serves primarily as a
multiplex facility, but has potential, additional rental space. The third located at Torun in the north of Poland
includes 12 screens multiplex with 1,500 m2 of leasable area and the fourth located in Lodz in the centre of Poland
includes 15 multiplex screens, with one IMAX».
Between 1999 and 2000, the Company also co-developed another site, located in Bemowo, Warsaw, with the
French retailer Carrefour. The development involved land leased by Carrefour, which was subleased to the
Company. The Bemowo site is comprised of a multiplex theatre and a commercial rental area.
The Company owns a real estate complex in Prague in the Czech Republic, consisting of a multiplex theatre
and a space leased to two shops. This complex opened in 2001.
In 2005, the Company completed the sale of its remaining 50% interest in the Sadyba Best Mall, Warsaw,
Poland to Plaza Centers (Europe) B.V. The Company will continue to maintain its lease for its multiplex and
IMAX» operations on the Sadyba site.
In 2005, the Company and its joint venture partners, Aviv Holdings GmbH and Ocif Holdings GmbH, sold
their 50% interest in a mall development project in Sofia, Bulgaria to GE Capital and Quinlan Estates. The
Company and its joint venture partners sold their remaining 50% share in the project to Quinlan and GE in May
2006 in conjunction with the opening of the mall. The Company has entered into a long-term lease to operate a
multiplex and an IMAX» theatre on the site. Aviv Holdings GmBH and the Company have entered into an
agreement to acquire 60% of the shares of a Bulgarian company, which owns land in the city of Plovdiv, Bulgaria,
on which the Company is planning on developing a second shopping centre project in Bulgaria.
56
The following table sets out certain information concerning real property leased and owned by the Company as
at 30 June 2006:
A1.8.1
As at 30 July 2006
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Number of
Properties
M2 Owned
M2 Leased
18
12
4
1
24
59
50,104
—
3,800
—
—
53,904
51,000
24,144
7,435
4,300
34,107
120,986
Includes 2,000 m2 of space leased by the Blockbuster» joint venture.
The leases for the Company’s theatre premises generally provide for contingent rental based upon operating
results, some of which are subject to an annual minimum. Generally, these leases will include renewal options for
various periods at stipulated rates. The Company attempts to obtain lease terms that provide for build-to-suit
construction obligations of the landlord. No leases have remaining terms, including optional renewal periods, of
less than five years, and approximately 90% of the Company’s leases, with 387 screens, have remaining terms,
including optional renewal periods, of more than 10 years.
Video and DVD rentals and sales
The Company, through its indirect subsidiary Ya’af-Giant Video Library Network Limited, has a 50% interest
in a joint venture with the Israeli Blockbuster» franchisee. The joint venture sells and rents movies on video and
DVD formats. The joint venture currently operates 30 stores. The average store offers approximately 4,000 titles,
with the megastores offering approximately 10,000 titles. The Blockbuster joint venture is the leading chain in
Israel. Around 80% of the joint venture’s business is generated through rental activities, with the remaining 20%
achieved through video and DVD sales.
Competitors of the joint venture in Israel consist principally of local operators of video and DVD rental outlets,
none of which the Company considers to pose a material competitive threat to the joint venture.
In addition to its chain of outlets, the joint venture also has two types of video and DVD vending machines
aggregating to approximately 260 machines, of which approximately 70 are called ‘‘Moviemats’’, which allow the
Company to offer 24-hour services and each contains up to 800 DVDs. Moviemats are produced by Ya’af
Automatic Video Machines, Limited, a wholly owned subsidiary of Forum Film (Israel).
New Products and Services
The Company has recently introduced a new service in Israel that permits customers to order and purchase
tickets over the Internet for the Yes Planet theatre, print the tickets at home and then bring them to the cinema, this
service replacing the ticket booth and the local kiosk machines. The tickets are read via bar codes. If this service
proves successful in the Israeli market, the Company currently plans to introduce this technology to its other
geographies as well.
Customers and Suppliers
Suppliers
None of the Company’s suppliers have accounted for more than 10% of the total costs of goods sold in any of
the last three years.
However, the long-standing relationship with the production studios for which the Company acts as distributor
in Israel, Hungary and Poland described in this document is of strategic importance to the Company.
Customers
Due to the nature of its products and services, the Company is not dependant on any client or group of clients.
No single customer accounts for more than 10% of total sales of the Company.
57
A1.6.1.2
Material Contracts
A1.22
The Company is a party to a number of contracts and agreements that are necessary for the conduct of the
Company’s business. The following is a summary description of the Company’s material contracts.
Exclusive Distribution Agreement with Buena Vista
Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) have each entered into a distribution
agreement with Buena Vista.
The Forum Film (Israel) agreement came into effect on 1 October 2003 and is subject to annual renewal.
Although the term of the agreement is relatively short, the basic relationship between the parties has been in effect
for more than 50 years. The Forum Film (Israel) agreement expires on 30 September 2007 and Buena Vista has the
option to extend the agreement for two additional one-year terms. The Forum Film (Poland) agreement expires on
30 September 2007 and Buena Vista has the option to renew the agreement for one additional one-year term. The
Forum Film (Hungary) agreement expires on 30 September 2007 and Buena Vista has four options to renew for
additional one-year terms.
Under these agreements, Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) each hold an
exclusive right to distribute Disney motion pictures in their respective territories. The motion pictures distributed by
Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) are exhibited in cinemas operated by the
Company and in other theatres as well. Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) are
not allowed to distribute pictures produced by any other major motion picture producer without Buena Vista’s prior
written approval. Forum Film (Israel), Forum Film (Poland) and Forum Film (Hungary) are obliged to use their best
efforts to exhibit Buena Vista’s pictures in the most desirable theatres at the most favourable playing time and must
use every reasonable security measure to prevent duplication or pirating of the pictures. Forum Film (Israel), Forum
Film (Poland) and Forum Film (Hungary) are entitled to deduct a “distribution fee”, which is a percentage share in
all of the rentals actually invoiced from the exhibition of each motion picture in their respective territories.
Buena Vista can terminate the agreement if the Company’s Chief Executive Officer, Mr Moshe Greidinger,
ceases to be directly involved with Forum Film (Israel)’s, Film (Poland)’s, or Forum Film (Hungary)’s business, as
the case may be.
Agreements on the Operation of IMAX» Theatres
The Company is party to a master agreement with the Imax Corporation which gives the Company the
exclusive right to develop and open IMAX» theatres in each of Poland, the Czech Republic, Hungary, Bulgaria and
Romania. Under these arrangements, the Company does not have an automatic right to exclusivity.
The master agreement related to the lease of up to nine IMAX» systems. To date, the Company has entered into
lease agreements for seven such systems and has taken delivery of one more system pending completion of theatre
construction. The initial term of each IMAX» system lease agreement is for 20 years with one option to extend it for
10 more years. Both parties are entitled to terminate the lease agreement if all or a part of any theatre is rendered
unusable by damage from fire or any other event which cannot be substantially repaired within 180 days from a set
date. The lease price for each IMAX» system consists of initial rent for the use of the system payable in instalments
plus “additional rent” (a percentage of receipts from theatre admissions net of VAT), subject to a “minimum rent”.
The Company is obliged to purchase polarised glasses exclusively from Imax Corporation.
The lease of the seventh IMAX» system, dated 21 December 2000, imposes on Imax Corporation an
obligation not to open any other IMAX» theatre within Poland, Hungary, the Czech Republic, Bulgaria and
Romania until 31 December 2010 (extendable for up to another three years if the Company enters into an
11th lease).
Agreements with Plaza Centres (Europe) B.V.
The Company is a party to a master agreement dated 9 July 1997 with Plaza Centres (Europe) B.V. (“Plaza
Centres”) for the construction of theatre sites in shopping malls constructed by Plaza Centres throughout Hungary,
Poland and the Czech Republic.
The Company will build multiplex cinemas in each shopping mall constructed by Plaza Centres in areas with
minimum populations (and also based on some limitations if nearby competition exists). The Company currently
has 17 operating multiplexes in Plaza Centres shopping malls in Poland, the Czech Republic and Hungary, and
three more under construction.
58
Each of the 17 multiplexes is covered by a specific lease agreement. The basic lease for each multiplex is for a
minimum of 10 years, with three options for the Company to extend the term for additional five-years periods (for
up to a total of 25 years). The Company is obliged to pay minimum annual rental fees, which under certain
conditions may be increased by payments based on a formula relating to a percentage of revenues. In addition, the
Company is also required to pay agreed fixed service fees to management companies in each shopping mall.
The Company is granted exclusivity for cinema operations in each shopping mall and the Company has the
right to terminate for each specific multiplex if certain admission levels are not sustained for two consecutive years.
Mall of Sofia Agreements
Pursuant to a share purchase agreement dated 29 July 2005, I.T. Sofia sold 50% of its remaining 50% interest
in M.O. Sofia AD (i.e., 25% of the Company’s registered share capital) to GE Capital Investments Holding B.V. and
Fellstone Limited (Quinlan Estates). Simultaneously on completion of the above, I.T. Sofia, Aviv Holdings GmbH
and Ocif Holdings GmbH (as the selling shareholders) and GE Capital Investments Holding B.V. and Fellstone
Limited (Quinlan Estates) (as new shareholders) entered into an agreement regulating the rights and obligations of
all parties as shareholders in M.O. Sofia AD and in relation to the development, construction and management of
the mall in Sofia.
The remaining interest in M.O. Sofia AD held by I.T. Sofia (i.e. 25% of the registered share capital) was sold to
Fellstone Limited (Quinlan Estates) pursuant to a share purchase agreement dated 19 January 2006 (as amended).
The rights under the above share purchase agreement were thereafter also assigned to GE Capital Investments
Holding B.V.. The Company (and its joint venture partner) remains responsible for completion of the project.
Agreements with Coca-Cola»
The Company is a party to agreements with the local Coca-Cola» representative in each of the countries in
which the Company operates.
Under these agreements, which all have a similar structure, the Company is committed to sell Coca-Cola»
products as its exclusive soda fountain beverages. Each of the agreements specifies terms under which the
beverages will be supplied to the Company, including volume discounts more favourable than the local Coca-Cola»
distribution prices. Coca-Cola» is required to install the equipment necessary to sell the soft drinks (POM Towers,
coolers, etc.) and to maintain such equipment.
Coca-Cola» is required to create a marketing fund reflecting a specified percentage of the Company’s
purchases from Coca-Cola», which is dedicated to support the Company promotional activities. In addition,
Coca-Cola» is obligated to advertise its products on the Company’s screens on an ongoing basis for agreed fees.
Financing Agreements
The Company has entered into a number of loan agreements, which are described in “Operating and Financial
Review — Liquidity and Capital Resources”.
Insurance
The Company maintains a multi-national insurance programme covering the Company’s activities in Europe
and a separate insurance program in respect of its activities within Israel. The European programme is maintained
through the Clal Insurance Company Limited, one of Israel’s leading insurers, and the Israeli programme is
maintained through the Menora Insurance Co. Limited, a large Israeli insurer.
Under the programmes, the Company has insurance policies in each country of operation. The local policies
contain comprehensive property coverage, as well as third party liability insurance in amounts which the Company
believes are customary in each country, subject in each case to a limit of US$10 million per occurrence for the
European programme and US$20 million per occurrence for the Israeli programme.
Legal Matters
A1.20.8
There are no governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which the Company is aware), which, during the 12 month period prior to the publication
of this document, may have or have had, in the recent past, significant effects on the Company’s financial position or
profitability.
59
At present, the Company is involved in the following disputes, neither of which the Company believes is
material to its financial position or profitability, market position or creditworthiness:
During the first quarter of 2005, the Company was informed by the developer of two of its future Polish sites
(Wloclawek and Elblag) that it would seek to cancel the lease agreements which the developer presigned with the
Company for these sites. The Company has refused to agree to the cancellation of these agreements and will
vigorously pursue all its legal remedies to force the developer to honour the agreements in accordance with their
terms. As the Company is simply seeking to enforce what the Company believes to be valid and existing contracts, it
does not believe that any outcome of this dispute could have a material adverse effect on the Company.
Cinema City Poland Sp. z o.o. is the defendant in a claim brought by Zwiazek Autorów i Kompozytorów
(“ZAIKS”), a Polish collection society representing screenplay authors and authors of other literary and musical
works used in audiovisual works that are exhibited in Poland. The Company understands that ZAIKS has also
brought similar claims against every other major cinema exhibitor and cable tv operators in Poland. The claimant
seeks royalties in the amount of approximately A2.0 million plus interest for the use of works by certain of its
members in movies exhibited in Poland on the basis that those works were protected by applicable copyright laws.
The Company is challenging the suit on two grounds. First, the Company believes ZAIKS’s claims are not justified
by the relevant copyright laws. Second, the Company does not believe ZAIKS has sufficient standing to represent
the authors as Polish collection societies are not entitled to collect such royalties on behalf of non-Polish authors (in
particular authors based in the United States) without the respective agreements. The case is pending before the
court of first instance.
Intellectual Property
A1.11
A1.6.4
Patents
The Company does not have any registered patents.
Licences
Forum Film (Israel), Forum Film (Hungary) and Forum Film (Poland), the film distribution subsidiaries of the
Company, enter into licence agreements from time to time with movie production companies for the distribution of
their movies in Poland, in Hungary and Israel. See “— Complementary Theatre-Related Activities — Film
Licensing”.
Trademarks
Cinema City» Trademark
The Company holds one trademark significant for its business, Cinema City», which is registered under
International Registration Number 699960 by the World Intellectual Property Organisation. The period of
registration is for 10 years commencing on 8 April 1998 (which the Company plans to renew prior to its
expiration). The Company is entitled to use this trade mark in the territory of the following countries: Czech
Republic, Hungary and Poland. The trademark is not registered in Israel, where one of the Company’s competitors
uses the name Cinema City, but not the Company’s logo.
IMAX» Trademark
Under the terms and conditions of the master agreement concluded on 25 September 1998 between Imax
Corporation and ITIT, Imax Corporation granted to ITIT a non-exclusive, non-transferable licence to use the
trademarks “IMAX»” and “IMAX» 3D” during the term of the IMAX» system lease in connection with the
services of promoting and operating of the IMAX» theatres being developed by ITIT in Poland, Hungary, the Czech
Republic and other areas where ITIT has been granted rights by Imax Corporation. This agreement has been
assigned by ITIT to the Company.
The Company is required to use or display the trademarks in all media advertising and other promotional
material for the theatre, in a manner and proper logo form directed by Imax Corporation.
Regulatory Environment
No special or significant concessions, permits and other administrative authorisations for carrying business are
required in Israel, Poland, Hungary, Czech Republic or Bulgaria. The Company obtains from time to time permits
required in connection with its ordinary course of business, such as permits to sell alcohol or to buy real estate in
Poland or for selling products (concession sales) in the Hungarian multiplexes.
60
INFORMATION ON THE INDUSTRY AND MARKETS
Some of the statements in this section of the Prospectus include forward-looking statements which reflect the
Issuer’s current views with respect to future events and financial performance. Statements which include the words
“intend’, “plan”, “project”, “expect”, “anticipate”, “will” and similar statements of a future or forward-looking
nature identify forward-looking statements.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or
will be important factors that could cause the Issuer’s actual results to differ materially from those indicated in these
statements. These factors include, but are not limited to, those set out under “Risk Factors”, which should be read in
conjunction with the other cautionary statements that are included elsewhere in this Prospectus. If one or more of
these or other risks or uncertainties materialise, or if the Issuer’s underlying assumptions prove to be incorrect,
actual results may vary materially from those projected in this Prospectus.
Apart from any continuing obligations under the Dutch Securities Act, the Act on Offerings, or WSE
Corporate Governance Rules to which the Issuer is subject to, the Issuer undertakes no obligation to publicly update
or review any forward-looking statement contained in this Prospectus, whether as a result of new information,
future developments or otherwise.
Overview of the Industry
A1.12.1
Motion Picture Theatres
A1.12.2
A1.6.3
The motion picture industry continues to grow on a global basis. According to the MPAA, global box office
revenues have increased by 46% from $15.9 billion in 2000 to an estimated $23.2 billion in 2005 as a result of
increasing acceptance of movie going as a popular form of entertainment throughout the world, ticket price
increases and the further development of multiplex cinemas in many countries. In Central and Eastern European
countries in which the Company operates, the growth has increased by 105% from $134.6 million to $276.6 million
for the years 2000 to 2004, according to Dodona.
The Company believes the following market trends will drive the continued growth and strength of its industry
and the markets in which it operates:
•
Development of film franchises and increased appeal of a diversity of films. Studios are increasingly
producing films in series, such as Ice Age, Harry Potter, Lord of the Rings, Star Wars, Spiderman and the XMen. When the first in a series of films is successful, sequels typically attract large audiences and generate
strong box office revenues. The Company believes that, as studios increasingly produce franchise films,
exhibitors will benefit from their greater and more reliable revenues. An increase in the breadth of
successful film genres also benefits film exhibitors. The aggressive marketing of a wide variety of diverse
yet commercially appealing movies, such as The DaVinci Code and Chronicles of Narnia has expanded the
demographic base of moviegoers and also contributes to a greater per capita attendance. Box office
revenues are increasingly diversified among a number of strong movies rather than being concentrated on a
few blockbuster hits. The number of films that generated gross box office revenues in excess of
US$100 million increased from 10 in 1995 to 20 in 2005.
•
Increased importance of international markets for ensuring box office success. International markets are
becoming an increasingly important component of the overall box office revenues generated by Hollywood films. For example, markets outside of North America accounted for more than US$1.4 billion, or
greater than 60%, of the global box office revenues for Harry Potter and the Sorcerer’s Stone, Lord of the
Rings: Fellowship of the Ring and Monsters, Inc. With the continued growth of the international motion
picture exhibition industry, the relative contribution of markets outside North America should become
even more significant. As a result, the Company believes that studios will continue to devote greater
resources to the promotion of films in international markets.
•
Increased studio spending on the production and marketing of new film releases. The theatrical success
of a movie is typically the most important factor in determining its overall popularity, thereby establishing
its value in other film distribution channels such as home video, DVD, and cable and broadcast television,
as well as in international markets. These other film distribution channels have become significant sources
of additional revenue for film studios. The Company believes that, as a result, film studios are placing an
increased emphasis on maximising the theatrical success of their first-run films through increased
expenditures on production and marketing.
•
Growth in local production. Movie production in each of the Company’s territories, particularly in
Poland, is playing an increasingly important role in developing movie attendance and a local movie
61
culture, and have had commercial success, especially in attracting audiences who would otherwise not
necessarily be as interested in the international movie fare.
•
Favourable attendance trends. The Company believes that patrons are attending movies more frequently
because of the appeal of movie going as a convenient and affordable form of out-of-home entertainment.
The cost of the movie going experience continues to compare favourably to alternative forms of
entertainment such as professional sporting events or live music concerts.
The following table presents information regarding the film exhibition market in 2005 in the countries in
which the Company has a presence, as well as the comparable figures for the European Union. It demonstrates the
lower per capita attendance and higher population per screen in most of the Company’s markets. The Company
believes this disparity illustrates the potential for growth in these markets.
Country
Poland . . . . . .
Hungary. . . . . .
Czech Republic .
Bulgaria . . . . .
Israel . . . . . . .
Romania . . . . .
United States . . .
United Kingdom.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total
Theatres
Total
Screens
Total
Multiplex
Theatres
Total
Multiplex
Screens
Multiplex
screen
density
per 100
people
2005
2005
2005
2005
2005
2005
2005
3.24
2.83
3.17
2.45
4.60
2.13
5.15
6,50
244
530
116
60
105
6,114
772
937
635
667
167
313
120
37,740
3,486
38
22
18
3
45
2
n/a
95
374
180
156
38
306
15
n/a
916
0.97
1.78
1.53
0.49
5.5
0.07
n/a
1.54
0.65
1.19
0.93
0.31
1.41
0.13
5.03
2.87
Gross
Box Office
Revenues
Average
Ticket
Price
Admissions
(E in millions)
(in thousands)
(E)
2005
2005
80.1
39.29
36.68
5.75
59.9
8.8
7,233.62
1,126.3
24,920
12,040
9,480
2,420
8,370
2,830
1,402,700
165,000
Average
Admissions
per head
Polish theatre market
A1.6.3
Multiplex development in Poland is continuing rapidly, driven by growth in shopping mall development. Entry
to the European Union in May 2004 has attracted European investment funds to the country, fuelling a property
boom. The capital, Warsaw, has around 30 malls. Outside the capital in secondary and tertiary cities with a
population of more than 100,000, there are numerous mall developments in the process of being built, many of
which are seeking cinemas as anchor tenants.
In addition to the underdevelopment of cinema infrastructure, the Polish movie theatre market remains
generally underserved, particularly outside of Warsaw. Moreover, as of June 2006, multiplexes were located in only
20 of Poland’s largest cities, while Poland has 32 metropolitan areas with over 100,000 people. For 2005,
admissions per capita in Poland were 0.65, compared to the European Union average of 2.5. Warsaw accounts for
approximately one third of the entire multiplex market in Poland, both in terms of box office and admissions. The
city also had a relatively high admission per capita rate of 2.8 for period, which is an indication of a maturing
market.
The Company is the largest cinema operator in Poland based on number of screens, and in 2005, had a
multiplex box office market share of 38% based on box office revenues, according to ES Media and Company
estimates. The Company has a particularly strong presence in Warsaw, with a total cinema admissions market share
of 65% in 2005, according to ES Media.
Within Poland, the Company’s largest competitor is Multikino in terms of the number of screens, which had 8
theatres, and 80 screens as of June 2006, and received approximately 20% of total multiplex box office receipts in
2005. Multikino’s multiplexes are relatively evenly distributed in major cities throughout Poland. The next four
largest exhibitors in terms of the number of screens according to Dodona are Helios, with 50 screens at the end of
2005, Silver Screen, with 44 screens at the end of 2005, Kinoplex, with 34 screens at the end of 2005 and Kinepolis,
with 20 screens at the end of 2005. In addition, there are new entrants in the market as well. A new investor, Max
Film, opened its first multiplex in April 2006 and has announced plans to open four more by the end of 2007.
The year 2004 proved to be a very strong year for the Polish market as a whole, with over 33 million
admissions according to Dodona. That number dropped to just under 25 million admissions in 2005, due in large
part to the death of the Pope, a poor product mix, and the fact that 2004 was, in retrospect, a particularly good year.
However, Poland has posted strong half year numbers in 2006, and the Company believes the overall market is
poised to return to 2004 levels. The Company continues to believe that Poland is a strong growth market given its
growing economy and large number of urban areas that are still not served by modern multiplexes.
62
Hungarian theatre market
The Hungarian film exhibition market consisted of a total of 635 screens in June 2006. This translates into
approximately 21,400 people per screen. However, Hungary has only one multiplex screen per 51,000 inhabitants
as of June 2006, which was significantly above the European Union average of approximately 44,000. Annual
admissions in Hungary per capita in 2005 were 1.19, the highest in the Central and Eastern Europe region, although
this level was significantly lower than the annual European Union average of 2.5. Budapest is the most important
city for cinema operations in Hungary, representing approximately 57.1% of total admissions in 2005 with a very
robust admissions per capita of 4.0 in 2005 according to Dodona. The southern part of the country, encompassing
Sopron and Pecs, accounted for approximately 14% of total admissions in 2005 according to Company estimates.
Admissions were evenly divided among the other regions of Hungary.
The Hungarian movie exhibition market is dominated by four companies, which, according to Company
estimates, accounted for approximately 83% of total admissions in 2005. As of June 2006, the Company had the
largest cinema network in Hungary, with 12 theatres and 86 screens. According to Dodona and Company estimates,
the Company’s market share in Hungary was approximately 22% in 2005, based on admissions. The Company’s
theatres are primarily located outside of Budapest, and currently, the Company has 92% of its total screens outside
of Budapest. According to the Ministry of National Cultural Heritage and Company estimates, the second largest
cinema operator in Hungary as of June 2006 was InterCom, which had 10 multiplex theatres and 64 screens. Its
theatres were equally split in and outside of Budapest. Based on total admissions, InterCom had the leading market
share in 2005, with 33% of all admissions. The Company also competes with Palace Cinemas, which had four
multiplex facilities with 47 screens as of June 2006 and an 18% market share, based on admissions, in 2005. In
addition, Budapest Film operates five cinemas in Budapest. It sold the 13 screen Mammut I & II to Palace Cinemas
in October 2005. In 2006, Palace Cinemas acquired InterCom, and became the largest theatre operator in Hungary.
Hungary was one of the earliest Central or Eastern European countries to see rapid development of multiplex
theatres, which primarily took place in the late 1990s. Since then, investment has slowed dramatically. Nonetheless,
there continues to be rapid growth in those regions outside Budapest where modern multiplexes replace older
theatre complexes.
Like the rest of Central and Eastern Europe, admissions dropped from 2004 to 2005 from approximately
13.7 million to 12.0 million. The Hungarian industry has seen improvement in the first half of 2006 (actual
admissions decreased, by 4% in this period, but revenues increased by 2%). The Company believes that with the
growth in popularity of locally produced movies, which have already shown to be successful, box office results
should continue to increase in Hungary, particularly in those underscreened regions outside of Budapest where the
Company has focused its operations.
Czech theatre market
The Czech movie exhibition market is characterised by a relatively small number of multiplex theatres.
According to Dodona and Company estimates, there are currently 18 multiplex facilities with 156 screens in the
Czech Republic. The country’s other movie theatres tend to be older, single screen cinemas.
With approximately 65,000 people per multiplex screen, the Czech Republic has significantly less multiplex
concentration than the European Union, which has an average of 44,000 people per multiplex. Nonetheless, in
2005, according to Dodona, multiplexes accounted for 5.2 million out of the 9.5 million admissions.
Prague is the most significant metropolitan region within the Czech Republic, and it accounted for approximately 38.7% of total admissions in 2005. As of June 2006, Prague had 11 multiplexes with 98 screens, which
represented approximately 67% of all multiplexes in the country. Most of these multiplex facilities were built
between 2001 and 2006. The Company regards the Prague market as mature, as indicated by multiplexes selling
more than 80% of all tickets within the city in 2005. In addition to multiplexes, the Company estimates that Prague
has 30 to 40 older, single screen cinemas. Brno is another significant city within the Czech Republic, accounting for
approximately 11% of the total number of admissions in 2005, and is the only Czech city other than Prague with
more than one multiplex.
The Czech cinema market is dominated by four companies, which currently operate 17 of the 18 multiplexes in
the country. The largest is Palace, which had 6 multiplexes with 55 screens as of June 2006. Four of these theatres
are located in Prague and two operate in Brno. The Company has 4 sites in Prague with 38 screens, and it operates an
IMAX» theatre in Prague. Another competitor, Cinestar, had 5 theatres located outside of Prague, with 41 screens,
as of June 2006. The Australian company, Village Cinemas, operated two theatres in Prague with 22 screens as at
such date.
63
The Czech market dropped by more than 20% in admissions in 2005. The bulk of that drop, however, was
experienced by the older single cinema theatres. The market has shown improvement in 2006, and the Company
believes the market is poised to return to 2004 levels. In addition, with economic expansion tied to its accession to
the European Union, the Company believes there continues to be growth opportunity in the Czech Republic,
particularly in the regions outside of Prague that have few or no modern multiplexes.
Bulgarian theatre market
Compared to other countries in Central and Eastern Europe, the Bulgarian film exhibition market is quite
underdeveloped with, Dodona and Company estimates, only 97 screens and 2.42 million admissions in 2005,
representing huge growth potential in the future. In 2003, with the opening of a 15-screen multiplex in Sofia,
admissions rose by 50% and Bulgarian movie-goers generated A7.0 million revenues for the country’s box office,
Dodona and Company estimates, and spent 57% more on movie tickets compared to 2002. However, in 2004 and
2005, admissions dropped significantly and the number of screens in the country decreased from 200 to 97. Theatre
operators tried to counteract the decrease in admissions with steep increases in ticket prices. According to Dodona,
the average ticket price increased by 19% in 2005, but this was more than offset by a 22% decrease in admissions.
With the Company’s recent opening of a 12-screen (including an IMAX») multiplex theatre as part of its Mall
of Sofia project, there are currently only four multiplex theatres in Bulgaria, all located in Sofia. Two multiplex
theatres are owned by Alexandra Group Holding of which one was opened in May 2006 and one multiplex theatre is
owned by United New Cinema. Alexandra Group Holding also owns several other cinema theatres throughout the
country.
The Company believes that the cinema market will continue to develop in Bulgaria and that admissions should
return to 2003 levels within the next few years. The Company believes that this process will be enhanced by
Bulgaria’s accession to the European Union in 2007, which the Company expects will drive a significant increase in
investment and capital spending.
Romanian theatre market
The Romanian theatre market is very poorly developed. The country, which has a population of almost
22 million, had only two multiplexes as at 30 June 2006. Audience attendance has decreased annually for the past
5 years, and this trend was exacerbated in 2005 with the introduction of a 19% value added tax on ticket prices. The
number of cinemas has decreased significantly in recent years — from 434 screens in 1995 to only 100 screens in
2006, according to Dodona. Moreover, the cinema sector remains largely state-owned, and as a result, there has
been little outside investment in new theatres or modernisation of existing theatres.
According to Dodona, the Romanian market is ripe for change. The two largest exhibitors, the state-owned
RomaniaFilm, (with 57 screens) and the privately owned Hollywood Multiplex Operations (with 15 screens), are
both for sale. The State is in the process of privatising RomaniaFilm through the sale of its theatres by public tender
or simply to the current operators.
The Company believes Romania presents a very compelling investment opportunity. With its scheduled
accession to the European Union in 2007, foreign investment should increase significantly. Moreover, the dearth of
multiplexes within a relatively large urban population indicates there is a strong potential growth story, particularly
when looking at the estimated admissions per person (0.13) in Romania in 2006 according to Dodona.
Israeli theatre market
The Israeli movie exhibition market is well developed and mature, with 60 multiplex theatres and a total of 306
screens as of 31 December 2005. The Israeli population of approximately 7 million generated approximately
8.4 million admissions in 2005. Taking into consideration that certain Arab and Jewish populations who generally
avoid cinemas as a matter of religious practice, the Company estimates that annual attendance per capita in Israel
was approximately 1.20 in 2005, which was below the European Union average of 2.5.
Tel-Aviv and the surrounding cities of Bat-Yam, Herzlia, Petah Tikva, Ramat Gan and Ranana form what is
called the “Dan area”, which encompasses approximately 15% of the entire population of Israel. Tel-Aviv, with
approximately 5% of Israel’s population, represented approximately 15% of total cinema admissions in 2005.
Excluding Tel-Aviv, cities from the Dan region accounted for approximately 54% of total admissions in 2005.
Jerusalem and Haifa represent other significant regions in Israel. With a combined population of approximately
14% of Israel’s total population, these two cities represented approximately 14% of the total number of admissions
in 2005.
64
A unique feature of the Israeli cinema industry is the close cooperation between theatre operators and
distributors. It is common practice for film distributors to maintain preferential distribution arrangements with
selected exhibitors, which means that each cinema operator may offer a different selection of movies from its
preferred distributor. Only cinemas that face no local competition will show movies of all distributors. These
arrangements have influenced the size of movie theatres. Because the movie pipeline of each exhibitor is limited to
a specific list of titles offered by its particular distributors, there is less need for extensive capacity, i.e. number of
screens. As a result, the number of screens in Israeli multiplexes tends to range from three to eight. The Company
believes that the recent trend in Israel towards the “megaplex” — more than 12 screens per theatre — is likely to end
this historical arrangement, since each megaplex will show all the available first run products, similarly to the other
territories in which the Company operates.
The Israeli movie exhibition market is dominated by two cinema operators. As of the end of September 2006,
the Company is the largest cinema operator in Israel based on number of screens with 23 theatres and 131 screens.
Globus is the second largest operator with 24 theatres and 123 screens. In 2005, the Company had a 32% market
share based on the total number of admissions. The Cinema City brand name is registered in Israel to another
exhibitor, which has one megaplex with 21 screens. Other significant market participants include Lev Cinemas
Limited and A.D. Mattalon Cinemas Limited, which operate relatively smaller facilities. Lev Cinemas had six sites
with a total of 20 screens and Mattalon Cinemas operated three theatres with 13 screens as of 31 December 2005.
The Company distributes films in Poland, Israel and Hungary. These markets are discussed below.
Polish motion picture distribution market
The largest film distributors within Poland include major US companies, including Warner and UIP, as well as
the Company’s wholly owned subsidiary, Forum Film (Poland), and Monolith. According to ES Media and
Company estimates, Warner, Forum Film (Poland), Monolith Plus and UIP had market shares, based on revenues,
of 14%, 13%, 13% and 22%, respectively, as at 31 December 2005. The Company believes these companies’
market positions are the result of the strong movie pipelines of the studios they represent. Warner represents Warner
Brothers, UIP represents Universal, Paramount Dreamworks and Sony, Forum Film (Poland) represents Disney
affiliates Buena Vista and Spyglass. The remaining distribution market is fragmented among a list of distributors,
including a number of independents, such as SPI, Monolith, Best Film and Gutek Film.
The competitive landscape of the Polish distribution market was substantially altered in 2003, when Syrena
Entertainment, the third largest distributor in 2003, wound up its operations. The Company formed Forum Film
(Poland), its distribution entity in Poland, to fill this void and quickly became the second largest distributor in
Poland based on revenues. During 2003 the Company distributed 3 of the top 10 movies exhibited in Poland. After
only 5 months of operations, Forum Film (Poland) captured 11% of the Polish distribution market based on
revenues, whereas after 11 months of operations Forum Film (Poland)’s market share based on revenues increased
to 18%. In the first six months of 2006, Forum Film (Poland) had 26% of the distribution market share in Poland,
which made it the largest distributor for that period.
Israeli motion picture distribution market
Distributors play a key role in the Israeli cinema industry, because exhibitors generally have preferential
arrangements with selected distributors. Only cinemas that face no local competition will show movies of all
distributors. As a result, the major exhibitors have developed their own distribution entities. The Company’s 50%
owned subsidiary, Forum Film (Israel), had a market share of approximately 22%, based on revenues for 2005, and
it distributes movies primarily to Rav-Chen and Planet cinemas. Globus operates Noah Films, which distributes
films to Globus’ theatres. In 2005, Noah Films had a market share of approximately 34%, based on revenues. Other
significant distributors in Israel include Shani Movies Limited, which is operated by Lev Cinemas, and A.D.
Mattalon Limited, operated by Mattalon. A.D. Mattalon provides films to the Company’s theatres in addition to
Mattalon cinemas.
Hungarian motion picture distribution market
InterCom dominates film distribution, handling films for Sony Pictures, Twentieth Century Fox, Warner Bros
and Buena Vista. In addition, it also releases independent US films, European-language films, art films and
Hungarian films. In 2005 InterCom released 68 films and captured a 45% share of box office.
The UIP-Duna joint venture is the only studio-owned distributor operating in Hungary.
65
Since its entry to the Hungarian market in 2002, SPI International has quickly established itself as the thirdlargest distributor with 11% of box office in 2005.
The year 2005 saw two new distributors enter the market. Hungaricom launched in October, releasing
domestic films. Forum Film (Hungary), a subsidiary of the Company, achieved an 8% box office share, largely due
to three films, Mr and Mrs Smith, The Chronicles of Narnia: The Lion, the Witch and the Wardrobe and Chicken
Little, which all made the top 20.
Video and DVD rentals
The Company has historically engaged in video and DVD rentals and sales in Israel. The Israeli home
entertainment market is well developed and consists of a total of 200 outlets offering videos and DVDs for rental
and for sale.
In May 2006, the Israeli government anti-monopoly office approved the merger of Video Giant with
Blockbuster. Video Giant and Kafan Video Libraries Limited (operator of the Blockbuster video libraries in
Israel) (“Kafan”), have since formed a 50/50 joint venture operating the combined video chain under the brand
name Blockbuster». Under the joint venture agreement, the Company provides the managing director (chief
executive officer) for the joint venture, while Kafan provides the chairman of the board. The joint venture is jointly
controlled between Kafan and the Company and the Company consolidates the results of operations of this entity
proportionally (50%). The joint venture is the only nationwide video and DVD rental and sales operator in Israel,
with a market share of approximately 60% based on the combined 2005 gross sales of the two entities that are now
operated by the joint venture. The joint venture has 30 stores and 260 video machines, of which 70 are Moviemats.
66
DIRECTORS AND EMPLOYEES
The Company has a two-tier corporate governance structure, consisting of a management board (the
“Management Board”) and a supervisory board (the “Supervisory Board”). The day-to-day management and
policy-making of the Company is vested in the Management Board, under the supervision of the Supervisory
Board. There are currently three members of the Management Board whose names are set out below. The
Supervisory Board supervises the Management Board and the Company’s general course of affairs and the business
it conducts. It also supports the Management Board with advice. In performing their duties the Supervisory Board
members must act in accordance with the interests of the Company and the business connected with it. For a
detailed description of the powers and functions of the Management Board and the Supervisory Board, see
“Description of the Shares and Corporate Rights and Obligations”.
A1.14.1
Members of the Management and Supervisory Boards
Management Board
The following table sets out information with respect to each of the members of the Management Board, their
respective ages, and their positions at the Company as at the date of this Prospectus. The terms of office as President
and Members of the Management Board for the directors listed below expire in June 2008. The business address of
the following persons is the Company’s principal place of business at Weena 210-212, 3012 NJ, Rotterdam, the
Netherlands.
Name
Position
Age
Moshe J. (Mooky) Greidinger . . . . . . . .
President of the Management Board, Chief Executive Officer
54
Amos Weltsch . . . . . . . . . . . . . . . . . . . .
Israel Greidinger . . . . . . . . . . . . . . . . . .
Member of the Management Board, Chief Operating Officer
Member of the Management Board, Chief Financial Officer
56
45
Supervisory Board
A1.16.1
A1.16.1
The following table sets out information with respect to each of the members of the Supervisory Board, their
respective ages and their positions at the Company as at the date of this Prospectus. The terms of office for all
members of the Supervisory Board, except Yair Shilhav’s, expire in June 2008. Yair Shilhav’s term shall expire in
November 2010.
A1.16.3
Name
Position
Age
Coleman K. Greidinger . . . . . . . . . . . . .
Chairman of the Supervisory Board, member of the Audit
Committee
82
Member of the Supervisory Board, Chairman of the
Audit Committee
48
Member of the Supervisory Board, Remuneration Committee
and Appointment Committee
76
Member of the Supervisory Board, Chairman of the
Remuneration Committee and the Appointment Committee,
member of the Audit Committee
57
Member of the Supervisory Board and of the Remuneration
Committee
50
Member of the Supervisory Board and of the Appointment
Committee
71
Yair Shilhav . . . . . . . . . . . . . . . . . . . . .
Arthur F. Pierce . . . . . . . . . . . . . . . . . . .
Scott S. Rosenblum . . . . . . . . . . . . . . . .
Caroline M. Twist . . . . . . . . . . . . . . . . .
Peter J. Weishut . . . . . . . . . . . . . . . . . .
67
Relevant expertise and experience of the members of the Management and Supervisory Boards
Management Board
Moshe J. (Mooky) Greidinger
Moshe J. (Mooky) Greidinger was appointed Chief Executive Officer of the Company in 1984. Mr Greidinger
joined the Company in 1976. Since 1984, he has held executive positions with the Company with substantially the
same responsibilities as he presently maintains. Mr Greidinger has also served as a director and Deputy Managing
Director of Israel Theatres Limited since 1983 and Co-Chairman of the Cinema Owners Association in Israel since
August 1996. He is the brother of Israel Greidinger and the son of Coleman Greidinger.
Amos Weltsch
A1.14.1
Amos Weltsch joined the Company in 1980 at which time he was appointed Chief Operating Officer of the
Company. Since that time, Mr Weltsch has held executive positions with the Company with substantially the same
responsibilities as he presently maintains. He has also held various senior management positions with Israel
Theatres Limited and affiliated companies since 1980. From 1974 to 1978, he was a manager at L. Glickman
Building Materials, and from 1978 to 1980, a managing director of Eitan Cement Limited
Israel Greidinger
Israel Greidinger joined the Company in 1994 and was appointed Chief Financial Officer of the Company in
1995. Since that time he has held executive positions with the Company with substantially the same responsibilities
as he presently maintains. Mr Greidinger has also served as a director of Israel Theatres Limited since 1994. From
1985 to 1992, Mr Greidinger served as Managing Director of C.A.T.S. Limited (Computerised Automatic Ticket
Sales), a London company, and from 1992 to 1994, he was President and Chief Executive Officer of Pacer C.A.T.S.,
Inc. He is the brother of Moshe Greidinger and the son of Coleman Greidinger.
Supervisory Board
A1.14.1
Coleman K. Greidinger
A1.16.3
Coleman Greidinger was appointed a member of the Supervisory Board in 2004, is the current Chairman of the
Supervisory Board and a member of the Audit Committee. He founded Israel Theatres Limited in 1958 and has
been Managing Director of Israel Theatres Limited and affiliated companies since that time. He was also a
President of Variety Israel, serves as a member of the International Board of Variety Clubs and is a member of the
board of governors of the Hebrew University in Jerusalem and the board of governors of the Technion University in
Haifa. He is the father of Moshe and Israel Greidinger.
A1.14.1
Yair Shilhav
Yair Shilhav was appointed a member of the Supervisory Board in November 2006, and is the Chairman of the
Audit Committee. Since 2004, Mr Shilhav has been the owner of a business consulting office in Haifa. Between
2000 and 2003, he was a member of executive directory committee, the Somekh Chaikin CPA firm, a member firm
of KPMG (“Somekh Chaikin”). Between, 1995 and 2003, he was the head of the Tel-Aviv branch of Somekh
Chaikin, of which he was partner from 1990 to 2003. Prior to becoming a partner at Somekh Chaikin, he was head of
the professional and finance department of the same firm. He was also the head of the accountancy faculty at Haifa
University between 1998 and 2002.
A1.16.3
Scott S. Rosenblum
Scott Rosenblum was appointed a member of the Supervisory Board in 2004, was appointed Chairman of the
Remuneration Committee and of the Appointment Committee in November 2006 and is also a member of the Audit
Committee. He is licensed as a lawyer and admitted to the New York Bar Association. For the past ten years he was
a partner in the law firm of Kramer Levin Naftalis & Frankel LLP, New York, and was Managing Partner between
1994 and 2000. He is currently a director of Escala Group, Inc and Temco, Inc.
A1.16.3
Arthur F. Pierce
Arthur Pierce was appointed a member of the Supervisory Board in 2004 and, as of November 2006, has been
a member of the Remuneration Committee and the Appointment Committee. From 1996 to the present time, he has
worked as a consultant providing services related to the international motion picture distribution. Between 1954
and 1972, Mr Pierce held various executive positions with Columbia Pictures International, Paramount Pictures
68
A1.16.3
International and Cinema International Corporation. From 1972 to 1993, he served as Vice President of Europe for
Warner Brothers Theatrical Distributions. From 1993 to 1996, he served as Senior Vice President for European
Theatrical Distributions, Time Warner Entertainment. Mr Pierce currently serves as Director of Luna Productions,
Limited, a UK subsidiary of New Regency Productions, Inc., Director of The Todd-AO Corporation, a U.S.
company, and as President of Frank Pierce Partners, International Theatrical Representation. He received his B.A.
and M.A. from Boston College in the United States.
Caroline M. Twist
Caroline Twist was appointed a member of the Supervisory Board in 2004 and, as of November 2006, has been
a member of the Remuneration Committee. Between 1978 and 1984, Ms Twist worked as a manager in ABC /
Thorn EMI cinemas in the UK. From 1984 to 1988, she served as West End Regional Manager / New Projects
Manager for C.I.C. Theatres in the U.K. From 1989 until now, Ms Twist has held various managerial positions, with
PACER CATS, a leading supplier of computerised ticketing systems, both in the United States and Europe.
A1.16.3
Peter J. Weishut
Peter Weishut was appointed a member of the Supervisory Board in 2004 and, as of November 2006, has been
a member of the Appointment Committee. Between 1969 and 1997, Mr Weishut worked as a director in Akzo
Nobel in the Netherlands and Japan. From 1997 to 1999, he served as Management Consultant for Rafino, producer
of pet foods, in the Netherlands. Between 1999 and 2001, Mr Weishut was the treasurer of a foundation celebrating
the 400-year relationship between Netherlands and Japan.
A1.16.3
Supervisory Board Composition; Audit, Remuneration and Appointment Committees
A1.16.3
The Company’s Supervisory Board consists of six members. In accordance with the requirements of the Code,
the Supervisory Board has installed from among its members an Audit Committee, a Remuneration Committee,
and an Appointment Committee. Membership of these committees is set out in the table under “— Members of the
Management and Supervisory Boards — Supervisory Board”.
Directors’ Remuneration, Benefits and Terms and Conditions
A1.15.1
Remuneration Policy
A1.15.2
A1.16.2
The objective of the Company’s remuneration policy is to provide a compensation programme that allows the
Company to attract, retain and motivate members of the Management Board and Supervisory Board who have the
character traits, skills and background to successfully lead and manage the Company.
The remuneration policy, as recommended by the Supervisory Board, and which sets forth the terms of
remuneration of members of the Management Board, was adopted by the General Shareholders’ Meeting in
November 2006. The remuneration for the Supervisory Board was also adopted at the same General Shareholders’
Meeting upon recommendation of the Supervisory Board. In the year ended 31 December 2005, total remuneration,
including salary and benefits, paid to all members of the Management Board and the Supervisory Board amounted
to A1.2 million.
The three members of the Company’s Management Board have three-year employment contracts that
terminate in December 2007 and are automatically renewed by the year periods unless notice of termination is
given by either party. These persons are paid under contractual agreements that provide a monthly base salary
indexed to the Israeli consumer price index and annual participation in a bonus pool with the other Management
Board members that is equal to 7% of the Company’s pre-tax profit before the bonus. In addition, each Management
Board member receives certain perquisites as described below.
Each Supervisory Board member receives annual remuneration of A8,500 and A1,500 per attendance at
meetings or A750 if attendance is by telephone.
Management Board
Moshe J. (Mooky) Greidinger is employed under a service contract dated 2 May 1998, which was extended in
May 2004. The contract is due to expire in December 2007, but is automatically extended for one year periods
subject to a six month notice provision from either party. It includes a non-compete clause that requires Mr
Greidinger to refrain from any activity that is competitive to the Company’s activity for a period of twelve months
after termination of employment. Forum Film (Israel), the Company’s 50% subsidiary, pays 33% of Mr
Greidinger’s remuneration and covers 100% of the proportion of the bonus pool derived from Forum Film (Israel).
69
The service contract entitles Mr Greidinger to benefits including monthly remuneration of NIS 48,110, which
is indexed monthly to the Israeli Consumer Price Index. As of August 2006, his monthly remuneration was 61,600
NIS. He is also entitled to participate in a bonus pool with Messrs Israel Greidinger and Amos Weltsch. The pool
was originally set at 5.5% of the Company’s pre tax profit before the bonus, but was later increased by the Company
to 7%. In addition, under the terms of his employment, Mr Greidinger is entitled to a car, contribution to a severance
fund, contribution to a statutory provident fund, a A175 per diem payment for business travel days and reimbursement of reasonable business expenses, including payment of reasonable telephone bills. Mr Greidinger is not
entitled to any benefits on termination of his employment except for a severance payment, which is equal to his
monthly base salary at the time of termination, multiplied by the number of years of his employment by the
Company.
Amos Weltsch is employed under a service contract dated 2 May 1998 which was extended in May 2004. The
contract is due to expire in December 2007, but is automatically extended for one year periods subject to six months’
notice provision from either party. It includes a non-compete clause that requires Mr Weltsch to refrain from any
activity that is competitive to the Company’s activity for the period of twelve months after termination of
employment. Forum Film (Israel), the Company’s 50% subsidiary, covers 100% of the portion of the bonus pool
derived from Forum Film (Israel) profits.
The service contract entitles Mr Weltsch to benefits including monthly remuneration of NIS 43,673, which is
indexed monthly to the Israeli Consumer Price Index. As of August 2006, his monthly remuneration was
NIS 55,805. He is entitled to participate in a bonus pool with Messrs Israel Greidinger and Moshe Greidinger.
The pool was originally set at 5.5% of the Company’s pre tax profit before the bonus, but was later increased by the
Company to 7%. In addition, under the terms of his employment, Mr Weltsch is entitled to a car, contribution to a
severance fund, contribution to a statutory provident fund, a A175 per diem payment for business travel days and
reimbursement of reasonable business expenses, including payment of reasonable telephone bills. Mr Weltsch is
not entitled to any benefits on termination of his employment except for a severance payment which is equal to the
greater of: (a) the statutory amount accumulated in his policy account for severance pay and (b) his monthly base
salary at the time of termination, multiplied by the number of years of his employment by the Company.
Israel Greidinger is employed under a service contract dated 2 May 1998, which was extended in May 2004.
The contract is due to expire in December 2007, but is automatically extended for one year periods subject to a
six month notice provision from either party. It includes a non-compete clause that requires Mr Greidinger to refrain
from any activity that is competitive to the Company’s activity for a period of twelve months after termination of
employment. Forum Film (Israel), the Company’s 50% subsidiary, pays 33% of Mr Greidinger’s remuneration and
covers 100% of the portion of the bonus pool derived from Forum Film (Israel).
The service contract entitles Mr Greidinger to benefits including monthly remuneration of NIS 40,251, which
is indexed monthly to the Israeli Consumer Price Index. As of August 2006 his monthly remuneration was
NIS 51,808. He is also entitled to participate in a bonus pool with Messrs Moshe Greidinger and Amos Weltsch. The
pool was originally set at 5.5% of the Company’s pre tax profit before the bonus, but was later increased by the
Company to 7%. In addition, under the terms of his employment, Mr. Greidinger is entitled to a car, contribution to a
severance fund, contribution to a statutory provident fund, a A175 per diem payment for business travel days and
reimbursement of reasonable business expenses, including payment of reasonable telephone bills. Mr Greidinger is
not entitled to any benefits on termination of his employment except for a severance payment, which is equal to his
monthly base salary at the time of termination, multiplied by the number of years of his employment by the
Company.
The Management Board members (other than M.J. Greidinger and I. Greidinger) are also eligible to participate
in the Company’s Employee Stock Incentive Plan as described in “— Employee Stock Incentive Plan” below.
Supervisory Board
Coleman Kenneth Greidinger, Yair Shilhav, Arthur Frank Pierce, Scott S. Rosenblum, Caroline Mary Twist
and Peter John Weishut serve as Supervisory Board members to the Company. The Company has a compensation
programme for Supervisory Board members that provides the following benefits: annual remuneration of A8,500;
and per meeting remuneration of A1,500 (A750 if by telephone conference). The Supervisory Board members are
not entitled to any benefits on termination of their service.
70
Value of remuneration and bonuses
The following table presents the remuneration and bonuses (in cash and in kind) paid out or payable for the
year ended 31 December 2005 for each of the Management Board and Supervisory Board members.
Salary/Fees
E
Management Board
Moshe J. (Mooky) Greidinger . . . . . . . . . . . . . . . . . .
Amos Weltsch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel Greidinger . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supervisory Board
Coleman Greidinger
Arthur Pierce . . . . .
Scott Rosenblum . . .
Caroline Twist. . . . .
Peter Weishut . . . . .
.........................
.........................
.........................
.........................
.........................
As at 31 December 2005
Deferred
Taxable
Bonus
Bonus
Benefits
E
E
E
A1.15.1
Total
E
198,000
171,000
165,000
332,000
161,000
161,000
—
—
—
—
—
—
520,000
332,000
326,000
10,000
10,000
10,000
10,000
10,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,000
10,000
10,000
10,000
10,000
No Management Board or Supervisory Board members nor any relatives of such persons, were advanced any
loans, credits, guarantees or warranties by the Company.
The Company does not set aside any amounts in respect of pension, retirement or any similar benefits for
members of the Management Board or Supervisory Board.
A1.15.2
Indemnity
Members of the Management Board and Supervisory Boards have the benefit of an indemnity as provided for
in the Articles of Association and pursuant to individual agreements with the Issuer. The indemnity gives members
of the Management Board and Supervisory Boards a right, to the fullest extent permissable by law, to recover from
the Issuer including but not limited to litigation expenses and any damages they are ordered to pay in relation to acts
or omissions in the performance of their duties, unless such acts or omissions amount to wilful misconduct or
recklessness, unless this would not be reasonable and fair. In addition to compensation for such litigation expenses,
the Company provides the members of its Management Board and Supervisory Board with directors’ liability
insurance policies.
Directors’ Interests
The direct and indirect interests of Management Board and Supervisory Board members of the Company in the
Company are as follows:
Name of a person
Amos Weltsch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Moshe Greidinger and Israel Greidinger(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
% of shares
% of votes
1.5%
34.3%
1.5%
98.2%
A1.18.3
A1.17.2
A1.18.1
A3.3.3
The table above represents each of Moshe and Israel Greidinger’s interests in the Company. Neither Moshe nor Israel Greidinger owns
directly any Shares in the Company. For a description of their indirect holdings, see “Greidinger Family Interests” below.
Other than as set out above no Management Board or Supervisory Board member or any connected person
holds any legal or beneficial interest in the share capital of any member of the Company.
A1.14.2
A1.17.2
Greidinger Family Interests
The Greidinger family has indirect control of the Company’s majority shareholder, ITIT, through its majority
shareholding in Israel Theatres Limited. More than 75% of the shares in Israel Theatres Limited are held by Mr
Israel Greidinger, Mr Moshe Greidinger and their sisters, Ms Rebecca Greidinger and Ms Merav Greidinger as
follows:
•
Ms Rebecca Greidinger holds 2.85% directly;
•
Ms Merav Greidinger holds 2.85% directly;
A1.14.1
71
A1.18.3
1.14.1
A1.14.2
A1.17.2
A1.18.3
•
Mr Israel Greidinger holds 3.47% of the shares directly and has 50% control of DKG Investment Limited,
which company owns the entire share capital of Near East Finance Cooperation Limited, which in turn
holds a 63.78% interest in Israel Theatres Limited, representing 63.78% of votes at the general meeting of
shareholders;
•
Mr Moshe Greidinger holds 3.47% of the shares directly and has 50% control of DKG Investment Limited,
which company owns the entire share capital of Near East Finance Cooperation Limited, which in turn
holds a 63.78% interest in Israel Theatres Limited, representing 63.78% of votes at the general meeting of
shareholders.
No other shareholder owns more than 10% of Israel Theatres Limited.
The 50% of Norma Film not owned by the Company is held by M.I. Greidinger Investment Limited, in which
both Mr Moshe Greidinger and Mr Israel Greidinger each hold a 50% interest.
Other
At the date of this Prospectus, no member of the Management Board or Supervisory Board has, in the previous
five years (i) been convicted of any offences relating to fraud; (ii) held an executive position at any company at the
time of or immediately preceding any bankruptcy, receivership or liquidation; (iii) been subject to any official
public sanction by any statutory or regulatory authority (including any designated professional body), and (iv) been
the subject of any official public incrimination or been disqualified by the court from acting as a member of the
administrator, management or supervisory bodies of a company or from acting in the management or conduct of the
affairs of any company.
A1.14.1
No family relationships exist between the members of the Management Board or Supervisory Board other than
the family relationship between Mr Moshe J. Greidinger, Mr Israel Greidinger and Mr Coleman K. Greidinger as
described above.
No member of the Management Board or Supervisory Board has a conflict of interest (actual or potential)
between his private interests and duties to the Company.
A1.14.2
No member of the Management Board or Supervisory Board holds a supervisory or a non-executive position in
another listed company or carries on principal activities outside the Company which are significant with respect to
the Company.
No member of the Management Board or Supervisory Board is entitled to any benefits on termination of their
employment under their respective service contracts, except that the service contracts of Mssrs Moshe and Israel
Greidinger, the Company’s Chief Executive Officer and Chief Financial Officer, respectively, stipulate that they are
entitled to a severance payment that is equal to their respective monthly base salaries at the time of termination,
multiplied by the number of years of their respective employment with the Company; and the service contract for
Mr Weltsch, the Company’s Chief Operating Officer, stipulates that he entitled to a severance payment that is equal
to the greater of: (a) the statutory amount accumulated in his policy account for severance pay and (b) his monthly
base salary at the time of termination, multiplied by the number of years of his employment by the Company.
Other than as set out above, the Company is not aware of any person who has a disclosable interest in the share
capital of the Company under the law of the Netherlands.
72
A1.16.2
Employees
A3.3.3
A1.17.1
The information set out below includes employee data for the Company as a whole.
As at 31 December
2003
Poland:
Full time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel:
Full time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic:
Full time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hungary:
Full time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria:
Full time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total employees:
Full time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
30 June
2005
2005
2006
208
522
219
663
239
878
231
828
244
928
244
631
115
650
123
555
115
652
168
528
57
156
53
203
42
147
46
169
41
192
122
27
124
23
120
20
128
20
115
18
3
0
10
0
20
0
16
0
14
75
634
1,336
521
1,539
544
1,600
536
1,669
582
1,666
1,970
2,060
2,144
2,205
2,248
The majority of employees are employed in operations of the Company’s various theatres. The number of
employees fluctuates due to the seasonal nature of the Company’s business. In Poland, the Company employs most
of its part time employees through a wholly-owned subsidiary, All Job (Poland), which enables the Company to
optimise operational flexibility. The Company considers its employee relations to be good. None of the employees
are members of unions in any of the countries in which the Company operates. The Company has not experienced
any material disruptions to its operations arising from labour disputes with its employees in the last three years.
Employee Stock Incentive Plan
The Company intends to present to its Shareholders, for approval prior to the Allotment Date, an employee
stock incentive plan (the “Employee Stock Incentive Plan”) comprising of a maximum of 930,000 newly issued or
repurchased shares for members of the Management Board, members of management and employees of the
Company. Therefore, the Shareholders have resolved to authorise the Supervisory Board to determine, with the
participation of at least one independent member of the Supervisory Board, the exact terms of any stock or stockbased incentive scheme, and the persons entitled to participate therein, upon the recommendation of the Management Board. The General Meeting of Shareholders shall approve the exact terms, criteria and beneficiaries of
the Employee Stock Incentive Plan. In addition, under such resolution, the Company may purchase its shares in the
open market to satisfy any share entitlements upon exercise of any options issued or granted under its Employee
Stock Incentive Plan. However, the Issuer has agreed with the Managers to reasonably procure that any beneficiary
of the Employee Stock Incentive Plan who receives any options, shares or other securities of the Issuer in
connection with the Employee Stock Incentive Plan will not offer, sell, contract to sell, pledge or otherwise transfer
or dispose of any such options, shares or other securities during the Lock-up Period. See “The Offering — Lock-up
Agreements”.
Other than as described above, the Company has not granted any other rights, including but not limited to
rights to subscribe for shares, warrants, option rights or entitlements to any person or entity.
Pensions
According to the relevant laws, the Company’s subsidiaries in Europe are required to deposit amounts, on a
monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no liabilities
towards them.
Local applicable labour laws and agreements require Cinema City or its subsidiaries to pay severance pay to
dismissed or retiring employees (including those leaving their employment under certain other circumstances). The
73
A1.17.3
A1.21.1.5
A1.21.1.6
calculation of the severance pay liability was made in accordance with labour agreements in force and based on
salary components that, in management’s opinion, create entitlement to severance pay.
Cinema City’s and/or its subsidiaries’ severance pay liabilities to their employees are funded partially by
regular deposits with recognised pension and severance pay funds in the employees’ names and by purchase of
insurance policies and are accounted for as if they were a defined contribution plan. The amounts funded as above
are netted against the related liabilities and are not reflected in the balance sheets since they are not under the
control and management of the companies.
74
RELATED PARTY TRANSACTIONS
Lease Agreements with Related Parties
A1.14.1
In June 1998, Israel Theatres Limited, a company that is controlled by Messrs Moshe and Israel Greidinger,
entered into a lease agreement with ITIT to lease to ITIT the real estate properties on which six of the Company’s
Israeli theatres are located, for the period running until 30 November 2007. Under the agreement, the Company has
a right to terminate any lease prior to its original termination date and has done so with respect to two leases. The
annual lease payments for the remaining four properties amount to A311,000 in total. The leases were extended in
July 2006 for an additional five years on substantially the same terms.
The Company’s subsidiaries Forum Film (Israel) and Giant Video have been leasing offices and storage space
from Israel Theatres Limited since February 1994, for a rental payment of A10,000 per month, linked to the change
in the Israeli consumer price index.
I.T. International Theatres 2004, a subsidiary of the Company, has a lease for offices in Herzlia and Haifa from
Israel Theatres Limited terminating on 30 November 2007, for a rental payment of A52,000 per annum, linked to the
change in the Israeli consumer price index. The amount of rent paid for the lease is the market rate.
Share Transfer
In November 2006, ITIT transferred 4,940,352 Shares of the Company to ITIT’s parent company, Israel
Theatres Limited. Such Shares represent the shares purchased by ITIT in February 2006 from certain minority
shareholders. See “Principal and Selling Shareholders”.
75
A1.19
DESCRIPTION OF THE SHARES AND CORPORATE RIGHTS AND OBLIGATIONS
The following is a summary of certain information in relation to the share capital of the Company and of
certain significant provisions of Dutch corporate law and the Articles of Association. This summary is intended to
contain all material information in relation to the share capital of the Company and the rights attaching to the
Shares and in relation to the Articles of Association of the Company, but does not purport to be complete. This
summary is qualified entirely by reference to the Articles of Association, which can be obtained from the
commercial register in Amsterdam, and by Dutch law in effect at the date of this Prospectus.
General
A1.21.2
A1.21.2.3
A1.21.2.4
A3.4.1
A3.4.5
A3.4.8
A3.4.9
A1.5.1.1
A1.5.1.2
The Company is a limited liability company (naamloze vennootschap) of unlimited duration incorporated,
existing and operating under the laws of the Netherlands, in compliance with Book 2 of the Dutch Civil Code. On
12 April 1994, I.T. International Cinemas B.V. (the previous name of the Company), was incorporated as a private
limited liability company (besloten vennootschap met beperkte aansprakelijkheid) under the law of the Netherlands, with statutory seat in Rotterdam, the Netherlands. I.T International Cinemas B.V. was converted into a
limited liability company (naamloze vennootschap) on 24 March 2004 and changed its name to Cinema City
International N.V. The Company is registered in the commercial register of the Chamber of Commerce and Industry
for Amsterdam under the number 33260971. The Company’s corporate seat is in Amsterdam and its current office
address at its principal place of business is Weena 210-212, 3012 NJ, Rotterdam, the Netherlands. The telephone
number of the Company’s office is +31 10 201 3602 and the Company’s office fax number is +31 10 201 3603.
A1.5.1.3
A1.5.1.4
The following description is based on, and qualified in its entirety by reference to, the full text of the Articles of
Association as approved at the General Meeting of Shareholders on 31 October 2006.
Corporate Purpose
Article 3 of the Articles of Association provide that the principle objects of the Company are:
a.
to show, distribute, sell and rent films, to build and develop shopping centres, amusement centres, movie
theatre complexes, video clubs and to enter into other real property transactions;
b.
to incorporate, participate in, conduct the management of and take any other financial interest in other
companies and enterprises;
c.
to acquire, dispose of, manage and exploit real and personal property, including patents, marks, licences,
permits and other industrial property rights;
d.
to render administrative, technical, financial, economic or managerial services to other companies,
persons or enterprises;
e.
to borrow and/or lend moneys, act as surety or guarantor in any other manner, and bind itself jointly and
severally or otherwise in addition to or on behalf of others,
A1.21.2.1
the foregoing (a) through (e) whether or not in collaboration with third parties and inclusive of the performance
and promotion of all activities which directly and indirectly relate to those objects, all this in the broadest sense
of the terms.
Share Capital
Under the Articles of Association, the Company’s authorised share capital amounts to A1,750,000.—, divided
into 175,000,000 ordinary shares in registered or bearer form with a nominal value of A0.01 each. As at the date of
this Prospectus, the issued and outstanding share capital of the Company amounts to A407,240 and is divided into
40,724,000 fully paid ordinary shares with a nominal value of A0.01 each. All of the Shares are ordinary shares, are
fully paid up and rank pari passu with each other and there is no other class of shares authorised. No depositary
receipts for shares in the capital of the Company have been issued with the agreement of the Company, and the
Company has not been informed that depositary receipts for shares in the capital of the Company have been issued
without its agreement.
76
A1.21.1.1
A1.21.2.3
The table below shows the current Company’s share capital and the Company’s share capital after the New
Shares have been issued:
Issued ordinary share capital
Current shares issued as at the date hereof . . . . . . . . . . . . . . . . . . . . . . . . .
New Shares to be issued for the Offering . . . . . . . . . . . . . . . . . . . . . . . . . .
Total issued shares post-Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative number
of shares
Nominal value
(E per share)
40,724,000
10,000,000
50,724,000
0.01
0.01
0.01
Confirmation of Ownership of Shares
Subsequent to admission and listing of the Shares to trading on the WSE on or about 8 December 2006,
because of the principles of trading on the regulated market and the dematerialisation of securities in Poland, the
document confirming the ownership of the Shares will be the registered depository certificate issued in particular
for the purpose of participation in the General Meetings of Shareholders. Such a certificate is issued by the broker or
the custodian with whom the relevant shareholder has a securities account. The registered depository certificate
confirms that the shares have been blocked for the duration of the General Meeting of Shareholders and at least
seven days ahead of it.
Issue of Additional Ordinary Shares and Pre-emption Rights
The Company shall only issue shares pursuant to a resolution of the General Meeting of Shareholders or of
another corporate body designated to do so by a resolution of the General Meeting of Shareholders for a fixed
period not exceeding five years. The designation must be accompanied by a stipulation as to the number of shares
that may be issued. The designation may each time be extended for a period of up to five years. The designation may
not be cancelled, unless the designation provides otherwise.
A decision by the General Meeting of Shareholders to issue shares or to designate another body to issue shares
can only be taken upon the proposal of the Management Board. The proposal is subject to the approval of the
Supervisory Board.
Each holder of Shares shall have a right of pre-emption in proportion to the aggregate nominal value of such
holder’s Shares. Shareholders shall, however, have no right of pre-emption on Shares which are issued against a
contribution other than cash, which are issued to employees of the Company or of a group company of the
Company, or which are issued to any person who exercises a previously acquired right to subscribe for Shares.
Pre-emption rights may be restricted or excluded by a resolution of a General Meeting of Shareholders. A
decision by the General Meeting of Shareholders to restrict or to exclude pre-emptive rights can only be taken upon
the proposal of the Management Board. The proposal is subject to the approval of the Supervisory Board. The
reasons for such proposal and the issue price of the shares must be given in writing in the proposal thereto. Preemptive rights may also be excluded or restricted by the authorised corporate body designated to do so by a
resolution of the General Meeting of Shareholders for a fixed period not exceeding five years. The designation may
each time be extended for a period of up to five years.
The Company must announce any issue of shares with pre-emption rights for shareholders and the period
during which these rights can be exercised in the Staatscourant (the Dutch official Gazette) and in a Dutch daily
newspaper with nation-wide distribution as well as publication in each country in which the shares of the Company
have been admitted to official listing on a regulated stock exchange in accordance with the applicable rules, as well
as by means of any additional publications as the Management Board deems necessary. The period during which
pre-emption rights can be exercised must be at least two weeks starting from the date on which the issue is
announced in the Staatscourant (the Dutch Official Gazette).
If the Company decides to issue new Shares in the future and does not waive the pre-emptive rights of existing
shareholders then the Company will publish the decision by placing an announcement in the Staatscourant (the
Dutch official gazette) and simultaneously in a Dutch and a Polish newspaper of nationwide circulation. In addition,
the decision will be published in Poland as a Current Report filed with the FSC, the WSE and the PPA. The
announcement will specify the period in which the pre-emptive right may be exercised. Such period may not be
shorter than two weeks from the day of publication in the Staatscourant. Dutch law does not provide for any
procedure for determining the pre-emptive right exercise date and such date is always defined in the relevant
resolution on the issue of shares. The Company will agree upon the draft resolution regarding the issue of new
shares, which will be offered as a result of the exercise of pre-emptive right, with the NDS and the WSE. The
77
A1.21.2.8
A3.4.5
announcement will also specify the details regarding the procedure for exercise of the pre-emptive rights. The preemptive right is exercised by placing an order with the Company and paying for the newly issued shares. If the
Company decides to apply for admission of newly issued shares to trading on a regulated market in Poland then the
pre-emptive rights will be exercised, and the payment for new shares will be made, in accordance with the rules of
the WSE and of the NDS. Under Dutch laws pre-emptive rights are transferable and tradable property rights.
Purchase of its own Shares by the Company
The Company may acquire fully paid Shares at any time for no valuable consideration or, subject to certain
provisions of Dutch law and the Articles of Association, if (i) the Company’s shareholders’ equity less the payment
required to make the acquisition does not fall below the sum of called-up and paid-up share capital and any statutory
reserves; (ii) the Company would thereafter not hold, or hold in pledge, shares with an aggregate nominal value
exceeding ten per cent (10%) of its issued share capital; and (iii) the Management Board has been authorised at the
General Meeting of Shareholders to make such acquisition, which authorisation shall be valid for not more than
18 months and shall specify the number of Shares which may be acquired, the manner in which they may be
acquired, the limits within which the price must be set and the time within which the Shares must be resold.
No such authorisation is required for the acquisition by the Company of fully paid Shares for the purpose of
transferring such Shares to employees of the Company or employees of a group company of the Company under a
scheme applicable to such employees. Such Shares must be officially listed on an exchange. Any such acquisition
of Shares may be effected by a resolution of the Management Board, subject to approval of the Supervisory Board.
In the General Meeting of Shareholders, no voting rights may be exercised for any Share held by the Company
or a subsidiary of the Company.
At the date of this Prospectus, the Company does not hold any shares in its own share capital.
Reduction of the Issued Capital
A1.21.1.3
A1.21.2.8
At the proposal of the Supervisory Board, a General Meeting of Shareholders may, subject to Dutch law and
the Articles of Association, resolve to reduce the issued share capital. A reduction of the Company’s issued capital
may be effected (i) by cancellation of Shares held by the Company; or (ii) by reducing the nominal value of Shares,
to be effected by an amendment to the Articles of Association. A reduction of the nominal value of Shares without
repayment must be effected in proportion to all Shares. This principle may be deviated from with the consent of all
shareholders.
Management Board
The management of the Company is entrusted to the Management Board under the supervision of the
Supervisory Board. The Articles of Association provide that the Management Board shall consist of two or more
managing directors. Managing directors are appointed by the General Meeting of Shareholders.
The Management Board shall meet as often as a managing director requests a meeting. All resolutions by the
Management Board shall be adopted by an absolute majority of the votes cast.
The authority to represent the Company shall also be vested in the Management Board and in two managing
directors acting jointly. In addition, the Articles of Association may require that the Management Board shall obtain
prior approval from the Supervisory Board for certain resolutions and the Management Board shall require the prior
approval of a General Meeting of Shareholders for resolutions entailing a significant change in the identity or
character of the Company or its business. The absence of approval by a General Meeting of Shareholders or the
Supervisory Board, as the case may be, for a resolution that requires the approval of the General Meeting of
Shareholders or the Supervisory Board, respectively, shall not affect the authority of the Management Board or its
members to represent the Company.
In the event that the Company has a conflict of interest with a managing director, in the sense that the managing
director in private enters into an agreement with, or is party in a legal proceeding between him and the Company, the
Company shall be represented by two other managing directors. If there are no such other managing directors, the
supervisory board directors shall appoint a person to that effect. Such person may be the managing director in
relation to whom the conflict of interest exists. In all other cases of a conflict of interest between the company and a
managing director, the Company can also be represented by that managing director. A General Meeting of
Shareholders shall at all times be authorised to appoint one or more other persons to that effect.
78
A21.2.2
Managing directors may be suspended or removed by a General Meeting of Shareholders at any time.
Managing directors may also be suspended by the Supervisory Board, but such suspension may be discontinued at
any time by the General Meeting of Shareholders.
The Articles of Association provide that the Company shall have a policy on the remuneration of the
Management Board, which remuneration policy shall be proposed by the Supervisory Board and adopted by the
General Meeting of Shareholders. The remuneration and further terms of employment of the Management Board
shall be determined by the Supervisory Board, with due observance of the remuneration policy. If the remuneration
of the Management Board also consists of schemes under which Shares and/or rights to subscribe for Shares are
granted, the Supervisory Board shall submit these schemes to the General Meeting of Shareholders for approval. As
a minimum, the proposal must state the number of Shares or rights to subscribe for Shares that can be granted to the
Management Board and the conditions for the granting and amending thereof.
The Management Board may appoint officers with general or limited power to represent the Company.
Supervisory Board
The Supervisory Board advises the Management Board and is responsible for supervising the management of
the Management Board and the general course of affairs of the Company and the business connected with it. In
performing their duties, the members of the Supervisory Board (each a “Supervisory Director”) shall act in
accordance with the interests of the Company and the business connected with it.
The Articles of Association provide that the Company shall have a Supervisory Board consisting of at least
three (3) and at most six (6) natural persons of which at least two (2) supervisory directors shall be independent.
Supervisory Directors are appointed by the General Meeting of Shareholders for a period of four years. After
holding office for the first period of four years, Supervisory Directors are eligible for re-election for two additional
terms of four years each, as referred to in article 23.3 of the Articles of Association.
Each Supervisory Director may be suspended or removed by the General Meeting of Shareholders at any time.
The Supervisory Board may appoint one of the Supervisory Directors as chairperson of the Supervisory Board.
The Supervisory Board shall meet whenever a Supervisory Director or the Management Board deems necessary.
The Supervisory Board shall meet with the Management Board as often as the Supervisory Board or the
Management Board deems necessary. All resolutions by the Supervisory Board shall be adopted by an absolute
majority of the votes cast. The chairman of the Supervisory Board shall not have a casting vote and, in the event of
deadlock on a matter presented to the Supervisory Board, the matter will be deemed not to have been approved.
The General Meeting of Shareholders shall establish the remuneration for each Supervisory Director.
General Meeting of Shareholders
A1.21.2.5
The annual General Meeting of Shareholders shall be held within six months after the end of the financial year
to deal with, among other matters: (i) the annual report; (ii) adoption of the annual accounts, (iii) discussion of any
substantial changes in corporate governance; (iv) discussion of remuneration policy board of managing directors,
(v) discharge of the board of managing directors for the management over the past financial year (vi) discussion of
remuneration supervisory board, (vii) discharge of the board of Supervisory Directors for the supervision over the
past financial year, (viii) policy on additions to reserves and dividends and (ix) adoption of the profit appropriation.
Extraordinary General Meetings of Shareholders
Other General Meetings of Shareholders shall be held as often as the Management Board or the Supervisory
Board deems necessary. Shareholders representing in the aggregate at least one-tenth of the Company’s issued
capital may request the Management Board or the Supervisory Board to convene a General Meeting of Shareholders, stating specifically the business to be discussed. If the Management Board or the Supervisory Board has
not given proper notice of a General Meeting of Shareholders following receipt of such request such that the
meeting can be held within six weeks after receipt of the request, the applicants shall be authorised to convene a
meeting themselves. If the requesting shareholders represent more than half of the issued capital, however, they
shall be authorised to call the general meeting themselves without first having to request the board of managing
directors to call the general meeting.
Notwithstanding the previous paragraph, notice of General Meetings of Shareholders shall be given by the
Management Board or the Supervisory Board, no later than on the fifteenth day prior to the day of the meeting.
79
A1.21.2.5
The board of managing directors and the board of Supervisory Directors shall inform the General Meeting of
Shareholders by means of a shareholder circular of all facts and circumstances relevant to the approval, delegation
or authorisation to be granted if a right of approval is granted to the General Meeting of Shareholders.
A notice of the General Meeting of Shareholders shall specify the business to be discussed and the manner in
which shareholders can register and exercise their rights. All notices of General Meetings of Shareholders, all
announcements concerning dividends and other payments and all other communications to shareholders shall be
effected by (i) publication in at least one daily newspaper which is nationally distributed in the Netherlands,
(ii) publication in at least one daily newspaper in each country in which the shares of the company have been
admitted to official listing on a regulated stock exchange in accordance with the applicable rules and (iii) by means
of any additional publications as the board of managing directors deems necessary. In case there are registered
Shares issued, such notices and announcements shall also be sent to the addresses of the shareholders shown in the
register of shareholders.
Unless the notice of the General Meeting of Shareholders includes the contents of all documents which,
according to Dutch law or the Articles of Association, are to be available to shareholders for inspection in
connection with the General Meeting of Shareholders to be held, these documents are to be made available free of
charge to shareholders at the registered office of the Company in the Netherlands, at its office in ul. Powsinska 31,
Warsaw, Poland and on the Company’s website, www.cinemacity.nl.
Shareholders who, alone or jointly, represent at least one per cent of the issued capital or, as the Company is
listed at a stock exchange not being a Dutch stock exchange, a block of shares, alone or jointly, worth at least
A50 million according to the price list of that exchange, shall have the right to request to the Management Board or
the Supervisory Board that items be placed on the agenda of the General Meeting of Shareholders. Such requests
shall be complied with by the Management Board or the Supervisory Board provided (i) that important interests of
the Company do not dictate otherwise and (ii) that the request is received by the chairperson of the Management
Board or of the Supervisory Board in writing at least 60 days before the date of the General Meeting of
Shareholders.
General Meetings of Shareholders are held in Amsterdam, Rotterdam or at Schiphol Airport (Municipality of
Haarlemmermeer). General Meetings of Shareholders may also be held elsewhere, within or outside the Netherlands, in which case valid resolutions of the General Meeting of Shareholders may only be adopted if all of the
Company’s issued capital is represented. Shareholders may adopt resolutions of the General Meeting of Shareholders in writing without holding a meeting, provided they are adopted by the unanimous vote of all shareholders
entitled to vote.
The General Meeting of Shareholders shall be presided over by the person appointed by the Supervisory
Board, which may be substituted in accordance with the Articles of Association.
Record Date
The Management Board may schedule a record date for each General Meeting of Shareholders. This record
date shall not be earlier than the seventh day prior to the date of the General Meeting of Shareholders. The voting
rights and the right to attend the General Meeting of Shareholders and the Pre-Meeting shall accrue to those holding
such entitlements and registered as such in a register designated for that purpose by the Management Board on this
record date, irrespective of to whom these rights accrue at the time of the General Meeting of Shareholders or the
pre-meeting, respectively. The record date scheduled shall be specified in the notice of the relevant meeting
together with the manner in which shareholders can register and exercise their rights, all in accordance with the
Articles of Association.
Voting Rights
At the General Meeting of Shareholders or at the Pre-Meeting, each Share confers the right to cast one vote,
subject to the relevant provisions of the Articles of Association. Each shareholder that has complied with the
conditions as set out in the notification to attend the General Meeting of Shareholders is then entitled to attend the
General Meeting of Shareholders, to address the meeting and to exercise his or her voting rights, in accordance with
the Articles of Association.
Where it concerns registered Shares, shareholders may be requested to notify the Management Board in
writing of the intention to attend the General Meeting of Shareholders. The Management Board must receive such
notice no later than on the date mentioned in the notice of the relevant meeting. Shareholders that have duly
registered at the record date may be represented in a meeting by a proxy authorised in writing, provided that the
power of attorney has been received by the Management Board no later than on the date mentioned in the notice of
80
the relevant meeting. In both instances, this date shall not be earlier than the seventh day prior to the date of the
General Meeting of Shareholders.
At a General Meeting of Shareholders, each person present with voting rights must sign the attendance list.
The shareholder shall have the right to vote on Shares, which is subject to a right of usufruct (vruchtgebruik) or
a right of pledge. However voting rights shall be vested in the pledgee if such is provided upon the creation of the
right of usufruct or the pledge.
To the extent that Dutch law and the Articles of Association do not provide otherwise, all resolutions of the
General Meeting of Shareholders shall be adopted by a simple majority of the votes cast. The Supervisory Directors
and the Management Board members have, as such, the right to render advice in the General Meeting of
Shareholders.
Shareholders may adopt resolutions of the General Meeting of Shareholders in writing without holding a
meeting, provided they are adopted by the unanimous vote of all shareholders entitled to vote.
The Company envisages that, in addition of the Dutch corporate law requirements, the information concerning
the dates and places of its General Meetings of Shareholders will also be announced in the form of a Current Report
and a press release in Poland as described below:
The Company will publish in Poland information of any General Meeting of Shareholders at least 30 days
prior to the date of a given General Meeting of Shareholders, by filing with the FSC, the WSE and the PAP a Current
Report containing a Polish translation of invitation to the General Meeting of Shareholders with the agenda of the
meeting and information on the proxy voting procedure. Invitation to the General Meeting of Shareholders,
together with any accompanying documents, will also be published in Dutch and Polish on the website of the
Company. No resolution of the General Meeting of Shareholders may be adopted on a matter not included in the
agenda, except where the entire share capital is represented at the General Meeting of Shareholders. The Company
will publish draft resolutions that are to be adopted at the General Meeting of Shareholders not later than 15 days
prior to the date of the General Meeting of Shareholders, by way of a Current Report.
Shareholders may take part in the General Meeting of Shareholders and vote (i) in person, or (ii) by an
individual proxy appointed by the shareholder or (iii) by a proxy indicated by the Company. It is an additional
option for a shareholder to appoint a proxy indicated by the Company and, therefore, each shareholder may attend
the General Meeting of Shareholders personally or may appoint its individual proxy as well.
The proxy indicated by the Company that may be appointed by the shareholders to act as a proxy for the
purpose of voting at the General Meeting of Shareholders and that will be given a voting instruction shall be a
natural or legal person indicated by the Company in the invitation to the General Meeting of Shareholders. Such
proxy or proxies will be appointed by the Management Board. Each shareholder may appoint a proxy indicated by
the Company at the address mentioned in the invitation to the General Meeting of Shareholders or by submitting
these documents at the Pre-Meeting. The voting instruction card and power of attorney should be accompanied by a
depository certificate issued by the broker or custodian maintaining the securities account on which the Shares held
by such voting shareholder are registered. The depository certificate should contain, inter alia, the name of the
shareholder, the number of Shares held, as well as a statement of the broker or the custodian that the Shares will
have been blocked in the securities account until the date of the General Meeting of Shareholders indicated in the
Current Report containing the invitation to the General Meeting of Shareholders. The voting instruction card may
be in Polish.
The proxy indicated by the Company will follow the voting instructions of a shareholder as an individual proxy
of each shareholder that has granted the authorisation to him. The shareholder may abstain from voting in particular
resolutions. Abstentions will be excluded from the vote, but they will count for purposes of determining whether a
quorum is present. If the proxy indicated by the Company receives the power of attorney from a given shareholder
but does not receive the voting instruction card the proxy indicated by the Company will vote in the manner as
proposed by the Management Board. The power of attorney granted to the proxy indicated by the Company may be
revoked at any time by mailing or personal delivery of a revocation notice to the address indicated in the invitation
to the General Meeting of Shareholders, provided that the revocation notice is received at least two business days
prior to the General Meeting of Shareholders. Such term will be determined in accordance with the relevant
provisions of Polish law. The shareholder may personally revoke the authorisation given to the proxy indicated by
the Company in the course of the General Meeting of Shareholders and vote in person or by its individual proxy at
the General Meeting of Shareholders. In the event that during the General Meeting of Shareholders the content of a
draft resolution has been changed, the proxy indicated by the Company will vote in a manner which, in his/her
opinion, is the closest to the intentions of the principal. If due to mistake or malicious intentions a proxy indicated
81
by the Company while voting on behalf of the shareholder does not follow the shareholder’s instruction, such vote
will be valid and the shareholder may demand the redress of damages from such a proxy. The Company will bear the
costs of the proxy indicated by the Company.
The shareholders may request a copy of the invitation to the General Meeting of Shareholders, together with
any accompanying documents, free of charge, by sending a request to the Investors Relations Office of the
Company at its registered office.
Pre-meetings
The Company intends to hold in Poland preliminary meetings with shareholders (“Pre-Meeting”) not more
than 10 business days and not less than 1 business day prior to the date of each General Meeting of Shareholders.
The agenda of the Pre-Meeting will be identical with the agenda of the General Meeting of Shareholders which
follows the Pre-Meeting. Invitation to the Pre-Meeting will be published in Poland by way of a press release and a
Current Report. The invitation to a Pre-Meeting may be published simultaneously with the invitation to the General
Meeting of Shareholders.
Shareholders may participate, ask questions, review documents and vote on the Pre-Meetings on terms
identical to those applicable to the General Meeting of Shareholders. Shareholders present or represented at the PreMeeting will be able to appoint proxies (indicated by the board of directors) to cast on behalf of shareholders votes
at the General Meeting of Shareholders which follows the Pre-Meeting.
Challenging resolutions of General Meetings of Shareholders
Under Dutch law and the conflict of law rules, a resolution of a general meeting of shareholders of a Dutch
company may only be appealed to a Dutch court in accordance with the Dutch company and civil proceedings law.
Pursuant to Dutch law, a resolution of a general meeting of shareholders may be appealed if the resolution is
(i) in conflict with the statutory law, provisions of the articles of association on the proceedings for taking
resolutions, (ii) in conflict with principles of reasonableness and fairness as set forth in Art. 2.8 of the Dutch Civil
Code; or (iii) in conflict with the internal regulation of the company itself (inter alia the articles of association). Art.
2.8 of the Dutch Civil Code includes a general clause which appeals for the exercise of corporate rights and
obligations in compliance with principles of reasonableness and fairness. The plaintiff should furthermore show a
legal interest in appealing against the resolution.
Generally the appeal should be filed with a district court having jurisdiction over the relevant company’s
statutory seat, and Dutch civil proceedings rules shall be applicable. Generally, the appeal will be subject to court
fees. If the court finds in favour of the appealing party, the resolution can be nullified (vernietigd).
Furthermore, Dutch law provides for a right to challenge a resolution taken by other governing bodies of a
Dutch company (i.e. the board of directors) on the same grounds as specified above. The same appeal procedure
would apply.
Annual accounts
Annually, not later than five months after the end of the financial year, save where this period is extended by
the General Meeting of Shareholders by not more than six months by reason of special circumstances, the
Management Board shall prepare annual accounts, which must be accompanied by an annual report and an auditor’s
report. The Supervisory Board shall prepare a report, which shall be enclosed with the annual accounts and the
annual report. All managing directors and Supervisory Directors must sign the annual accounts.
The annual accounts, the annual report, the report of the Supervisory Board and the auditor’s report must be
made available to the shareholders for review as from the day of the notice convening the General Meeting of
Shareholders at the registered office of the Company in the Netherlands, at its office at Powsinska 31, Warsaw,
Poland, and on the Company’s website, www.cinemacity.nl. Shareholders may inspect the documents at that place
and obtain a copy free of charge. The annual accounts shall be adopted by the General Meeting of Shareholders.
After adoption of the annual accounts, the General Meeting of Shareholders shall pass a resolution concerning
release of the managing directors and the Supervisory Directors from liability for the exercise of their respective
duties, insofar as the exercise of such duties is reflected in the annual accounts or otherwise disclosed to the General
Meeting of Shareholders prior to the adoption of the annual accounts. The scope of a release from liability shall be
subject to limitations by virtue of the law.
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Dividends and other Distributions
The Management Board shall, subject to the approval of the Supervisory Board, determine the amount of the
profits accrued in a financial year that shall be added to the reserves of the Company. The allocation of the profits (if
any) remaining shall be determined by the General Meeting of Shareholders. The Management Board may, subject
to the prior approval of the Supervisory Board, resolve to make interim distributions at the expense of any reserve of
the Company.
Distributions to shareholders may only be made in so far as the Company’s shareholders’ equity exceeds the
sum of the paid-up and called-up share capital plus the reserves required to be maintained by law and by the Articles
of Association. Any distribution of profit shall be made only after the adoption of the financial statements by the
General Meeting of Shareholders from which it is demonstrated that such distribution is permitted.
Distributions that have not been claimed within five years as from the date that they have become available
shall lapse.
Subsequently to the Offering, it is expected that the dividends (if any) will be paid through the NDS. The
Company will transfer the dividend, less the tax due under Dutch law, to the NDS on the dividend payment date.
The NDS will pay that amount to the accounts of its members (investment firms and custodians) that will then pay
the dividend directly to the shareholders. The funds will be payable in Euro or in PLN. The NDS will distribute
successive dividends (if any) in accordance with the regulations prevailing on the Polish capital market.
Statutory Merger and Statutory Demerger
The Company may enter into a statutory merger with one or more other legal entities. A merger resolution may
only be adopted on the basis of a merger proposal prepared by the management boards of the merging legal entities.
Within the Company, the merger resolution shall be adopted by the General Meeting of Shareholders. In certain
specific circumstances, Dutch law allows for the merger resolution to be adopted by the Management Board. The
Company may also be a party in a statutory demerger, which may include both split-up and spin-off. The procedure
is very similar to the procedure for statutory mergers, as described above.
A1.21.2.6
Right to Acquire Minority Shareholdings
Section 2:92a of the Dutch Civil Code contains a procedure for the acquisition of shares owned by minority
shareholders of a Dutch public limited company such as the Company. If a majority shareholder (either alone or
together with its group companies) holds directly and for its own account at least 95 per cent of the issued share
capital of the Company, such shareholder may institute proceedings against the minority shareholders in order to
force them to transfer their shares to the majority shareholder.
Amendment to the Articles of Association and Dissolution
Only upon the proposal of the Management Board, subject to the approval of the Supervisory Board, the
General Meeting of Shareholders may resolve to amend the Articles of Association. When a proposal to amend the
Articles of Association is to be made to the General Meeting of Shareholders, the notice convening the General
Meeting of Shareholders must state so and a copy of the proposal, including the verbatim text thereof, shall be
deposited and kept available at the registered office of the Company in the Netherlands, at its office in ul. powsinska
31, Warsaw, Poland, and on the Company’s website, www.cinemacity.nl, for inspection by the Shareholders, until
the conclusion of the meeting. From the day of deposit until the day of the meeting, a shareholder shall, on
application, be provided with a copy of the proposal free of charge.
Only upon the proposal of the Management Board, subject to the approval of the Supervisory Board, the
Company may be dissolved pursuant to a resolution to that effect by the General Meeting of Shareholders. When a
proposal to dissolve the Company is to be made to the General Meeting of Shareholders, this must be stated in the
notice convening the General Meeting of Shareholders.
Liquidation rights
If the Company is dissolved pursuant to a resolution of the General Meeting of Shareholders, the Company’s
business shall be liquidated with due observance of the provisions of Dutch law and the managing directors shall
become liquidators of the Company’s property. The board of Supervisory Directors shall supervise the liquidation.
During liquidation, the provisions of the Articles of Association shall remain in force to the extent possible.
The balance remaining after payment of the Company’s debts shall be transferred to the shareholders in proportion
to the aggregate nominal value of the shares held by each of them.
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A1.21.2.4
A1.21.2.8
Directors’ Liability
Under Dutch law, members of the Management Board and Supervisory Board are jointly and severally liable
to the Company for failure to fulfil their respective duties properly. Members of either board may, in the event of the
Company’s bankruptcy, be liable to the trustee in bankruptcy for improper fulfilment of their respective duties. The
provisions of Dutch law governing such liability are mandatory in nature. In certain exceptional circumstances,
liability of directors towards third parties may also arise.
Dutch Corporate Governance Code
On 1st January, 2004 the Dutch Corporate Governance Code (the “Code”) entered into force. The Code is
based upon national and international best practices in corporate governance. The Code contains 21 principles and
113 best practice provisions covering the management board, the supervisory board, the shareholders and general
assembly, financial reporting, auditors, disclosure, compliance and enforcement. The Code requires Dutch
companies that are listed on a government-recognised stock exchange, whether in the Netherlands or in any
other country, to disclose in their annual reports (commencing with those annual reports for financial years
beginning on or after 1st January 2004), whether or not they comply with the provisions of the Code and, if they do
not comply, to explain the reasons why. Compliance with these measures was initially voluntary. However, since
31st December 2004, Dutch companies are legally required to set forth in their annual report whether they comply
with the Code or explain why they do not.
The Code sets forth a number of “Best Practice Provisions” governing the conduct of management and
supervisory board members and shareholders. The Company acknowledges the importance of good corporate
governance. Save as disclosed below, the Company complies with the Code. The Management Board and
Supervisory Board have reviewed the Code, and generally agree with its basic provisions, and have, to the extent
possible, implemented and subsequently applied most of the best practice provisions of the Code in its corporate
governance structure and Articles of Association. The Code recognises that non-application of a Best Practice
Provision is not in itself objectionable and indeed may be justified under certain circumstances. In certain respects
where the provisions of the Code conflict with Polish law or Polish corporate governance requirements, the
Company has determined that it will comply with the Polish requirements rather than the provisions of the Code in
view of the fact that the Company is solely listed on a Polish stock exchange and the majority of its public
shareholders are expected to be based in Poland.
The following is a description of the material deviations from the provisions of the Code:
•
Best Practice Provision II.2.7 of the Code states that severance payments may not exceed the annual salary.
Employment contracts of the members of the Management Board, which were entered into before the
Code was developed, provide severance payments that exceed the annual salary. The employment
contracts are considered to be in line with standard company policy and the Supervisory Board intends
to honour this contractual commitment and is of the view that a deviation from the Code is justified.
•
Best Practice Provision III.2.1 of the Code prescribes that the Supervisory Board consists of independent
persons, except for one. The company currently has two non-independent members of the Supervisory
Board, which is a deviation from the Code. However, the current composition of Supervisory Board is
consistent with Polish corporate governance guidelines.
Any further deviations (if any) from the Best Practice Provisions of the Code will be included and explained in
the Company’s annual report 2006.
Polish Corporate Governance
On 15 December 2004, the WSE management board and the WSE supervisory board adopted corporate
governance rules of the WSE contained in the Best Practices in Public Companies in 2005 (the “WSE Corporate
Governance Rules”). The WSE Corporate Governance Rules reflect the achievements in this field at both national
and international level and apply to companies listed on the WSE, irrespective of whether such companies are
incorporated in Poland or outside of Poland. The WSE Corporate Governance Rules consist of five general
principles and 48 best practice provisions relating to shareholders’ meetings, management boards, supervisory
boards and relations with third parties and third party institutions. The WSE Corporate Governance Rules impose
on companies listed on the WSE an obligation to disclose in their annual reports, whether or not the companies
comply with those principles and provisions and, if they do not comply, to explain the reasons why. Moreover, every
year, each company listed on the WSE is required to announce its detailed statement on compliance or noncompliance with the WSE Corporate Governance Rules by way of a Current Report published before 1 July.
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A1.16.4
Compliance with WSE Corporate Governance Rules is voluntary. Companies listed on the WSE are required,
however, to give reasons justifying non-compliance or partial compliance with any rule.
The Issuer intends, to the extent practicable, to comply with all principles of the WSE Corporate Governance
Rules. However, certain principles will apply to the Company only to the extent allowed by Dutch law. In particular,
as Dutch law does not provide for elections of the Supervisory Board’s members by separate groups of shareholders, the Company’s internal regulations do not and will not include provisions on group elections (Rule 6). No
reports will be provided by the Supervisory Board member delegated by a group of shareholders (Rule 30) because
Dutch law does not provide for delegation of a board member by a group of shareholders.
Detailed information regarding non-compliance, as well as additional explanations regarding partial compliance with certain Corporate Governance Rules of the WSE due to incompatibilities with Dutch law, will be
included in the full text of the Company’s declaration regarding WSE Corporate Governance Rules, which will be
filed with the WSE at the time of filing the application for admission to listing and will be available on the Issuer’s
website and published by way of a Current Report.
Obligations of Shareholders to Make a Public Offer
On 21 April 2004 the EU Directive 2004/25/EC of the European Parliament and the Council of the European
Union on takeover bids (the “Takeover Directive”) was adopted in the Netherlands. The Takeover Directive applies
to all companies governed by the laws of a European Union member state of which all or some securities are
admitted to trading on a regulated market in one or more member states. Pursuant to the Takeover Directive, a
person holding securities in such a company that, when added to any existing holdings and the holdings of persons
acting in concert with him, directly or indirectly, give him control of that company, is required to make a public offer
to all the holders of those securities for all their holdings at an equitable price. The laws of the member state in
which the company has its registered office will determine what percentage of the voting rights in that company is
regarded as conferring control over the company and the method of calculation of such percentage. The main
feature of the legislative proposal is the introduction into Dutch law of a requirement for a shareholder, or
shareholders acting in concert, acquiring 30 per cent or more of the voting rights in a listed company, to make a
mandatory bid for that company. Any such interests existing as at the moment of the new legislation coming into
force in the Netherlands (i.e., on the basis of the current draft) will be grandfathered.
The Takeover Directive was due to be implemented in each EU member state by 20 May 2006. However,
implementation in the Netherlands has been delayed as a result of the debate that has arisen following the Dutch
government’s proposal to include the breakthrough provisions of the Takeover Directive in the implementing
legislation. In brief, the Dutch government proposed the creation of a statutory right for an offeror to breakthrough
takeover defences after six months following the offer if it had acquired at least 75 per cent of the issued share
capital of the target company. The breakthrough provisions of the Takeover Directive are however optional and it
was generally felt within Dutch parliament and by the financial press that the Netherlands should not go further than
was absolutely necessary in this respect. A revised legislative proposal for implementing the Takeover Directive,
which excludes the breakthrough provisions, has now been submitted to the Dutch parliament. If the proposal is
adopted, the legislation could come into force at the beginning of next year. For information on Polish tender offer
obligations applicable to the Company’s shareholder see “Warsaw Stock exchange — Tender Offer Obligations”
Dutch Squeeze-Out Proceedings
If a person or company or group companies (the “Controlling Entity”) hold in total 95.0% of a company’s (the
“Controlled Entity”) issued share capital by nominal value for their own account, Dutch law permits the Controlling
Entity to acquire the remaining shares in the Controlled Entity by initiating proceedings against the holders of the
remaining shares. The price to be paid for such shares will be determined by the Enterprise Section of the
Amsterdam Court of Appeal. A shareholder who holds less than 95.0% of the shares, but in practice controls the
Controlled Entity’s general meeting of shareholders, could attempt through a legal merger with another business or
by subscribing to additional shares in the Controlled Entity (e.g. in exchange for a contribution of part of its own
business) to raise its interest to 95.0%.
Significant Ownership of Shares; Dutch Disclosure Act
The disclosure of shareholdings in Dutch listed companies will be governed by the Act of 5 July 2006,
Disclosure of Major Holdings and Capital Interest in Listed Institutions (Wet Melding Zeggenschap en Kapitaalbelang in Effectenuitgevende Instellingen) (“Disclosure Act”), which supersedes the Disclosure of Major
Holdings in Listed Companies Act 1996 (Wet melding zeggenschap in ter beurze genoteerde vennootschappen
1996). As of 5 August 2006, the Decree of 5 August 2006 Disclosure of Major Holdings and Capital Interest in
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Listed Entities (“Disclosure Decree”) came into effect and provides for more detailed rules regarding the contents
of the notification pursuant to the Disclosure Act. The requirements relating to notifications regarding the
“denominator” (i.e. notifications by the listed company itself, regarding the outstanding share capital and votes)
under both the Disclosure Act and the Disclosure Decree came into effect on 1 October 2006. However, the sections
of the Disclosure Act in connection with notifications regarding the numerator (i.e. notifications regarding the
entitlement to shares and votes) came into force with effect from 1 November 2006.
Pursuant to the Disclosure Act and the Disclosure Decree, any person (i.e. natural person or legal entity) who
acquires or loses the right of disposal to shares or voting rights of a public limited company incorporated under
Dutch law whose shares have been admitted to the official listing on a regulated market within the European
Economic Area (“EEA”) or a non-EEA legal entity whose shares have been admitted to the official listing on the a
regulated market in the Netherlands (“Listed Company”) must provide written notice to Netherlands Authority for
the Financial Markets (“AFM”) of such acquisition or loss if certain thresholds are met or exceeded (downward or
upward). Except for notifications to be made by a shareholder, mandatory notifications need to be made by the
Listed Company, and if applicable, by members of the Management Board and the Supervisory Board. The
information below provides a summary of the obligations of either the Listed Company and persons with capital
interest/voting rights or persons with deemed interest (including options).
Notification obligations of the Listed Company
•
A Listed Company has an obligation to notify the AFM in the event of a change in its capital of more than
1%. In addition, each quarter, a Listed Company is required to provide written notice to the AFM of any
changes in its capital.
•
A Listed Company has an obligation to provide written notice to the AFM in the event of any change in
voting rights.
•
A Listed Company has an obligation to provide written notice to the AFM upon every issuance or purchase
of shares of 1% or more in its own capital. In addition, each quarter, a notification shall be made of any
issuance or purchase of shares in its own capital.
•
In the event a Dutch public limited liability company or a non-EEA legal entity becomes a Listed Company
(e.g. by means of an IPO), a written notice describing its share capital and voting rights must be provided to
the AFM.
Notification obligations of persons with capital interest / voting rights
•
Any person who acquires or loses the right of disposal to shares or voting rights of a Listed Company
(except for certain non-EEA entities) must give written notice to the AFM if certain thresholds are
exceeded. Thresholds for this notification in relation to Dutch public limited liability companies are set at
5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75%, and 95%.
•
Any person who acquires or loses the right of disposal to shares or voting rights with special powers
attached to them (e.g. priority shares, golden shares) in a Listed Company must provide written notice to
the AFM. No thresholds need to be met or exceeded in this respect.
•
Any person whose substantial interest (i.e. more than 5% of the shares in the capital of the Listed Company
or voting rights) at December 31 of a particular calendar year deviates from its latest notification pursuant
to (i) a conversion of depositary receipts for shares into shares and vice versa or (ii) the exercise of rights
pursuant to an agreement to acquire or dispose voting rights shall make a notification to the AFM within
four weeks after such moment.
•
Any person who (ends up being a subsidiary) and who holds a substantial interest or shares with special
powers attached to them under the articles of association of a Listed Company must provide written notice
to the AFM.
•
Any person who, as he knows or ought to know, holds a substantial interest in a legal entity, which becomes
a Listed Company, is required to provide notification.
Notification obligations of persons with deemed interest
•
Upon the establishment of a usufruct or pledge whereby the voting rights are allocated to the usufructuary
or pledgee, the usufructuary or pledgee shall be deemed to have the right of disposal of the voting rights.
86
•
A company which subsidiary has the right of disposal to shares or voting rights is deemed to have the right
of disposal to the shares or voting rights of that company. This means that a person may be required to
notify if one of its subsidiaries acquires or disposes of interests in the capital or voting rights of a Listed
Company. The subsidiary itself does not need to provide notification.
•
A person is deemed to have the disposal to shares if a third person holds such shares for his/her account.
The same applies for voting rights, which can be exercised by that third person (e.g. when a bank holds
shares for someone else’s account).
•
A person is deemed to have the disposal to shares if a third person has the disposal to such shares pursuant
to an agreement, which provides for a long-lasting joint policy with regard to voting rights (e.g. voting
agreements).
•
A person is deemed to have the disposal to shares if a third person has the disposal to such shares pursuant
to an agreement, which provides for a temporary transfer of voting rights against a consideration.
•
In case shares are jointly held in a community of property (e.g. Dutch limited partnership), the interests
shall be allocated pro rata among the co-owners.
•
A person is deemed to have the disposal to voting rights, which he can freely exercise (at his own
discretion) as proxy holder.
The AFM is required to maintain a register in which all data reported pursuant to the Disclosure Act will be
kept (the “Register”). Upon receipt of any notification pursuant to the Disclosure Act, the AFM must provide notice
to the Listed Company and the person who made such notification. The Register will be updated accordingly within
one business day after the day of receipt of a notification made to the AFM, except in the event the AFM requests for
further information. The AFM shall forthwith give notice of such update to the Listed Company. For the purpose of
correctness of the Register, the AFM is allowed to obtain additional information among others from the person with
a notification obligation, the holder of a substantial interest, securities institutions, and the Listed Company.
For the purpose of calculating the percentage of capital interest or voting rights, the actual and potential (e.g.
options) as well as direct and deemed interests must be taken into account.
In case of non-compliance with the reporting obligations under the Disclosure Act, the AFM is entitled to
impose administrative penalties and fines per occurrence. In addition, a breach may also qualify as an economic
offence pursuant to which criminal prosecution may follow leading to fines and/or imprisonment. In case of a
failure to notify or an incorrect notification, the AFM is furthermore entitled to make a public announcement of
such non-compliance.
Principles of Reasonableness and Fairness
On the basis of a general rule of Dutch corporate law, a company and those connected with it pursuant to law or
its articles of association are bound to act towards each other in accordance with the ”principles of reasonableness
and fairness”. Acts in violation of such principles may be challenged through court proceedings.
Certain Polish Requirements Applicable to Shareholders
Polish Foreign Exchange Regulations
Under the Polish Foreign Exchange Law, certain Polish residents holding shares in a foreign company,
including the Shares, are obliged to report their shareholdings to the National Bank of Poland. Institutional
investors (securities and commodity brokers, investment funds, general and employee pension funds, insurance
companies) are obliged to file the reports on a quarterly basis, within 20 days after the end of each calendar quarter.
Other investors are obliged to file the reports on an annual basis, within 30 days after the end of each calendar year,
if at the end of a calendar year they hold the Shares of value exceeding A10,000 or equivalent. The reports are filed
on special forms available at the website of the National Bank of Poland (www.nbp.pl).
Polish Large Shareholding Reporting Requirements
Under the Act on Offerings shareholders (i.e., persons registered as holders of securities accounts on which the
securities concerned are registered) are required to report a large shareholding in listed companies.
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Calculation of ownership percentages
For the purpose of calculating a large shareholding, the Act on Offerings refers to the voting rights held by
each shareholder (i.e., the number of votes held in relation to the total number of votes at the shareholders’
meeting), and not to the share percentage held in the listed company’s share capital. Voting shares of all classes are
aggregated. For the purposes of calculating the number of votes, it is assumed that all shares give full voting rights,
even if such voting rights are restricted or excluded by an agreement, or by the articles of association of a listed
company or by applicable laws.
Reporting thresholds
In accordance with Art. 69 of the Act on Offerings, a shareholder in a listed company, who individually or
jointly with other entities:
•
has reached or exceeded 5%, 10%, 20%, 25%, 33%, 50% or 75% of voting rights in a listed company;
•
held shares giving at least 5%, 10%, 20%, 25%, 33%, 50% or 75% of voting rights in a publicly-traded
company and as a result of a reduction of its equity interest achieved or reduced its interest below 5%, 10%,
20%, 25%, 33%, 50% or 75% of voting rights in a listed company;
•
held over 10% of voting rights and this shareholding has changed by at least 2%;
•
held over 33% of voting rights and this shareholding has changed by at least 1%;
is required to notify both the FSC and the respective listed company of the fact.
Such notification should be filed within four days from (i) the date of the occurrence of a change in such a
shareholder’s shareholding in voting rights, or (ii) the date on which the shareholder becomes, or by exercising due
care could have become, aware of such change.
The reporting requirements are not triggered by day-trading activities, i.e. when a shareholder engaged in a
number of transactions during a trading day but upon the settlement of transactions made by a shareholder on a
single day, there was no change in the shareholding or the change did not result in reaching or exceeding any
threshold which triggers the reporting requirement.
The large shareholding notification requirement applies also if:
•
the shares have been pledged or are subject to other security interest, unless the voting rights resulting from
those shares have been transferred to the beneficiary of the security interest and that beneficiary has stated
its intention to exercise the voting rights;
•
a person other than the shareholder has a personal and lifelong economic benefit from the rights from
shares;
•
shares are deposited or registered with an entity which may dispose of them at its own discretion;
•
a shareholder gains or exceeds the respective threshold as a result of legal occurrence other than purchase
transaction (e.g., inheritance).
The notification should provide the following information:
•
the date and type of event which resulted in the change of shareholding;
•
the original shareholding in the company, i.e., (i) the number of shares held before the change in the
shareholding occurred, (ii) the percentage of shares held in the company’s share capital, (iii) the number of
voting rights, as well as (iv) the total number, as a percentage, of votes held in the public company;
•
the current shareholding in the company, i.e. (i) the number of shares held by the shareholder after the
change in the shareholding occurred, (ii) the percentage of shares held in the company’s share capital,
(iii) the number of voting rights, as well as (iv) the total number, as a percentage, of votes held in the public
company.
Furthermore, the notification submitted in connection with reaching or exceeding 10 % of the voting rights
should also contain information on: (i) whether the shareholder intends to increase further its shareholding within
the next 12 months, and (ii) the purpose of such an increase. If the intention or the purpose of the acquisition
changes after notification, the shareholder must immediately, but in no event later than 3 days following the change,
notify the FSC and the relevant public company.
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Once a listed company receives a notification from a shareholder, the company is obliged to forward it to the
FSC, WSE (or other market on which the shares are traded) and to the PAP. In consequence the large shareholding is
disclosed to the public. A listed company may however, upon FSC approval, withdraw the disclosure of the
shareholder’s notification, if such disclosure: (i) could be contrary to the public interest, or (ii) could seriously affect
the company’s interests, provided that investors are not misled by that non-disclosure when assessing the value of
securities.
Shareholdings of various legally separate parties must be aggregated for the purpose of large shareholding
notifications if such parties are related or are acting in concert. The concept of “related parties” and “parties acting
in concert” is broad. The following entities are regarded as related parties or parties acting in concert:
•
affiliates;
•
parties who are bound by an agreement (including an oral agreement) regarding joint acquisition of shares
in a listed company;
•
parties who are bound by an agreement (including an oral agreement) regarding voting at the shareholders’
meeting on material matters of a listed company;
•
investment funds (Polish or foreign) managed by the same investment manager;
•
portfolios managed by the same investment manager if the manager may exercise votes resulting from the
managed shares;
•
agents holding shares on behalf of, or for the benefit of a principal;
•
parties who exercise discretionary voting power on behalf of, a principal;
•
brokers who act as proxies for their clients and exercise discretionary voting power;
•
family members (if the shareholder is an individual).
The reporting requirements also apply to an entity that reaches or exceeds the above-described thresholds (i) by
becoming a parent company of an entity that directly or indirectly holds shares in a listed company, (ii) as a result of
other occurrences relating to that legal transaction and (iii) as a result of any actions taken by subsidiaries or other
occurrences relating to this subsidiary.
In accordance with Art. 88 of the Act on Offerings the following instruments need to be disclosed as well:
•
bonds convertible into shares in listed companies;
•
depository receipts based on shares in listed companies;
•
other securities which confer a right to acquire shares in listed companies.
All those securities are deemed to confer the right to such a share in the total number of voting rights as their
holder may come to hold upon conversion of the securities into shares.
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SELLING RESTRICTIONS
No action has been taken by the Issuer, the Selling Shareholders or the Managers that would permit, other than
under the Offering, an offer of the Offer Shares or possession or distribution of this Prospectus or any other offering
material in any jurisdiction where action for that purpose is required.
No Offering Outside Poland
No action has been or will be taken by the Issuer, the Selling Shareholders or the Managers in any jurisdiction
other than Poland that would permit an offering of the Offer Shares, or the possession or distribution of this
Prospectus or any other offering material relating to the Issuer or the Shares in any jurisdiction where action for that
purpose is required. Accordingly, the Shares may not be offered or sold, directly or indirectly, and neither this
Prospectus nor any other offering material or advertisements in connection with the Shares may be distributed or
published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of
any such country or jurisdiction.
The distribution of this Prospectus and the offer of the Offer Shares in certain jurisdictions may be restricted by
law and therefore persons into whose possession this Prospectus comes should inform themselves about and
observe any such restrictions, including those in the paragraphs that follow. Any failure to comply with these
restrictions may constitute a violation of the securities laws of any such jurisdictions.
European Economic Area
In relation to each member state of the European Economic Area which has implemented the Prospectus
Directive (each, a “Relevant Member State”), each Manager has represented and agreed that it has not made and
will not make an offer of Shares to the public in that Relevant Member State prior to the publication of a prospectus
in relation to the Shares which has been approved by the competent authority in that Relevant Member State or,
where appropriate, approved in another Relevant Member State and notified to the competent authority in that
Relevant Member State, all in accordance with the Prospectus Directive, except that it may make an offer of Shares
to the public in that Relevant Member State under the following exemptions under the Prospectus Directive, if such
exemption have been implemented in that Relevant Member State:
•
to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised
or regulated, whose corporate purpose is solely to invest in securities;
•
to any legal entity which has two or more of (i) an average of at least 250 employees during the last
financial year; (ii) total balance sheet assets of more than A43,000,000; and (iii) an annual net turnover of
more than A50,000,000, as shown in its last annual or consolidated accounts;
•
to fewer than 100 natural or legal persons in such Relevant Member State or to fewer than 100 natural or
legal persons in all member states, depending on the method of calculation provided for under applicable
regulations of such Relevant Member State.
•
in any other circumstances which do not require the publication by the Issuer of a prospectus or obtaining
any approvals pursuant to the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Shares to the public” in relation to any Shares in
any Relevant Member State means the communication in any form and by any means of sufficient information on
the terms of the offer and the Offer Shares to be offered so as to enable an investor to decide to purchase or subscribe
the Offer Shares, as the same may be varied in that Relevant Member State by any measure implementing the
Prospectus Directive.
United Kingdom
Neither this Prospectus nor any other offering material has been submitted to the clearance procedures of the
Financial Services Authority in the United Kingdom. The Offer Shares have not been offered or sold and, prior to
the expiry of a period of six months from the sale of the Offer Shares, will not be offered or sold to persons in the
United Kingdom except to “qualified investors” as defined in section 86 of the Financial Services and Markets Act
2000 (the “FSMA”). Each Manager will represent, warrant and agree that: (i) it is a person whose ordinary activities
involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its
business; (ii) it has not offered or sold and will not offer or sell the Offer Shares other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the
purposes of their businesses; (iii) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement to engage in investment activity (within
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the meaning of section 21 of FSMA) received by it in connection with the issue or sale of the Shares in
circumstances in which section 21(1) of the FSMA does not apply to the Issuer or in respect of which an exemption
(as set out in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005) applies; and (iv) it
has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in
relation to the Shares in, from or otherwise involving the United Kingdom.
France
Neither this Prospectus nor any other material relating to the Offering has been submitted for clearance by the
Autorité des Marchés Financiers in France. The Offer Shares have not been offered or sold and will not be offered or
sold, directly or indirectly, to the public in France. Neither this Prospectus nor any other documents or materials
relating to the Offering or the Offer Shares has been or will be (i) released, issued, distributed, or caused to be
released, issued or distributed, to the public in France or (ii) used in connection with any offer, sale or distribution of
the Offer Shares to the public in France. Such offers, sales and distributions may be made in France only to
(i) providers of investment services relating to portfolio management for the account of third parties, and/or
(ii) qualified investors (investisseurs qualifiés) investing for their own account, all as defined in, and in accordance
with Article L.411-2 of the French Code monétaire et financier. Investors in France and persons who come into
possession of this Prospectus or any other documents or materials relating to the Offering or the Offer Shares are
required to inform themselves about and observe any such restrictions.
United States
THE SHARES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE “US SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY
AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR
IN TRANSACTIONS NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE US SECURITIES
ACT. THE SHARES ARE BEING OFFERED AND SOLD OUTSIDE THE UNITED STATES IN RELIANCE
ON REGULATION S.
Canada
This Prospectus is not, and under no circumstances is to be construed as, a prospectus, an advertisement or a
Offering of the securities described herein in any province or territory of Canada. No securities commission or
similar authority in Canada has reviewed or in any way passed upon this document or the merits of the securities
described herein, and any representation to the contrary is an offence.
Japan
The Shares have not been and will not be registered under the Securities and Exchange Law of Japan (Law
No. 25 of 1948, as amended), and are not being offered or sold and may not be offered or sold, directly or indirectly,
in Japan or to or for the account of any resident of Japan (which term as used herein includes any corporation or
other entity organised under the laws of Japan), or to others for offering or sale, directly or indirectly, in Japan or to,
or for the account of, any resident of Japan, except (i) pursuant to an exemption from the registration requirements
of the Securities and Exchange Law of Japan and (ii) in compliance with any other applicable requirements of
Japanese law.
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THE WARSAW STOCK EXCHANGE
The Issuer intends to apply for the admission of all the Issuer’s Shares, including the Offer Shares and up to
930,000 Authorised Shares to be reserved in the authorised capital for the issuance in connection with the Employee
Stock Incentive Plan, to trading on the WSE and to list the Issuer’s Shares on the main market of the WSE. Due to
listing and trading of the Issuer’s Shares on the WSE, the Issuer will be subject to certain Polish securities
regulations, in particular with regard to disclosure of information, and will also be subject to supervision of the
relevant Polish authorities in these areas.
This summary is based on Polish regulations in force as at the date of this Prospectus, without prejudice to any
amendments introduced at a later date or implemented with retroactive effect and does not purport to provide the
exhaustive description of requirements imposed on shareholders holding shares in companies listed on the WSE,
including the Issuer.
Therefore, the investors should consult his, her or its legal adviser for legal advice in this respect.
Regulation of the Polish Securities Market
Although the Issuer has a registered office in the Netherlands, and therefore, governed by Dutch law, the
Issuer’s Shares will be listed on a regulated market in Poland and therefore certain Polish legal considerations may
also be relevant, especially with regard to the rights and obligations arising out of trading in the Shares and the rights
and obligations of shareholders.
In particular, the Issuer will be subject to the regulations which constitute the framework of the Polish capital
market and contain provisions relating to securities listed in Poland and their issuers:
•
the Act on Trading in Financial Instruments;
•
the Act on Supervision over the Capital Market;
•
the Act on Offerings; and
•
the Act on Supervision over the Financial Market.
Trading and Settlement
Generally, shares and other equity securities listed on the WSE are quoted in PLN per share. The electronic
trading system used by the WSE is WARSET, a trading system similar to those used on Euronext, in Chicago and
Singapore. The settlement system uses automated netting procedures and daily mark-to-market evaluation of
collateral requirements to reduce transfer costs.
Trading in securities can be suspended by the WSE if a given listed company violates the binding regulations
or upon the FSC request if orderly stock exchange trading is endangered or if its suspension is necessary in order to
protect interests of investors. The electronic system provides for automatic volatility interruptions and market order
interruptions during continuous auctions and for automatic volatility interruptions during continuous trading.
The settlement of the transactions (on spot and forward markets) concluded on the WSE takes place outside
the WSE through the NDS.
Listed Securities in Book-entry Form
In accordance with Article 5 of the Act on Trading in Financial Instruments, securities admitted to trading on a
regulated market in Poland (such as the WSE) cease to have a documentary form and exist only as book entries
(“dematerialised securities”). In the case of securities offered to the public, which after offering will not be traded
on a regulated market, as well as in the case of securities traded exclusively on an alterative trading system, their
issuer may determine, on their own discretion, whether to issue securities in a documentary form or as book entries.
The rights to dematerialised securities are created upon first registration of a security in a securities account.
Generally, securities accounts are operated by: brokerage houses, banks conducting brokerage activities, custodian
banks, foreign investment firms and foreign legal entities conducting brokerage activity in Poland in the form of a
branch office, the NDS, and the National Bank of Poland. A holder of the securities account may demand that a
depository certificate be issued in his/her name. Such a certificate is issued separately for each type of security
registered on the account and serves as a basis for the exercise by the holder of the securities account of all rights
arising from securities set forth in the certificate which cannot be exercised exclusively on the basis of securities
account records.
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Transfer of dematerialised securities becomes effective once the appropriate record has been made in the
relevant securities account.
Tender Offer Obligations
In accordance with section 1 of Article 72 of the Act on Offerings, any acquisition of listed shares by a
shareholder who holds shares entitling it to less than 33% of the total vote at the shareholders’ meeting in a publicly
traded company, in secondary trading and within a period of less than 60 days, leading to the increase of its share in
the total vote by more than 10% of the total vote at a shareholders’ meeting, shall be effected exclusively through a
public tender offer.
Furthermore, any acquisition of listed shares by a shareholder, who holds shares entitling it to at least 33% of
the total vote at the shareholders’ meeting in a publicly traded company, in secondary trading and within a period of
less than 12 months, leading to the increase of its share in the total vote by more than 5% of the total vote at a
shareholders’ meeting, shall be effected exclusively through a public tender offer. Additionally, a shareholder must
launch a mandatory public tender in the following circumstances:
•
a shareholder that wishes to cross the 33% voting rights threshold is obliged to launch a public tender for
shares that will entitle it to hold 66% of the total vote; and
•
a shareholder that wishes to cross the 66% voting rights threshold is obliged to launch a public tender for
all the remaining shares in a publicly traded company.
Except for the cases indicated below, crossing the 33% or 66% thresholds requires that a mandatory public
tender be launched.
If the indicated thresholds are exceeded due to acquisition of shares in an public offering, in-kind contribution,
merger or division of a company, change of the articles of association or the expiry of preferences attached to shares
or legal occurrence other than a purchase transaction, the shareholder either has to:
•
launch a respective public tender, or
•
sell the appropriate amount of shares so that the number of votes to which the shareholder is entitled is no
more than 33% or 66% of votes respectively.
If during the 6-month period following the “66% mandatory tender offer”, the shareholder who launched the
tender offer (or its subsidiaries, dominant entity or entities acting in concert) pays a higher price for shares than it
offered in the tender offer, it will be obliged to pay the difference to all entities that have sold shares in the “66%
mandatory tender offer”.
A shareholder launching a tender offer must provide security for 100% of the value of the shares which are to
be purchased. The tender offer must be carried out through an entity authorised to conduct brokerage activities in
Poland. The rules of determining the tender price are set out in detail in Article 79 of the Act on Offerings.
Sanctions for Violation of Regulations Governing Large Shareholdings
The exercise of voting rights resulting from shares acquired in violation of: (i) the large shareholding reporting
obligations as described under “Description of Shares and Corporate Rights and Obligations — Certain Polish
Requirements Applicable to Shareholders — Polish Large Shareholding Reporting Requirements”, (ii) public
tender requirements when a shareholder wishes to cross the 33% voting rights threshold or increases its voting
rights by more than 10% or 5%, respectively, in the circumstances described above, is invalid, which means that
votes that are exercised in breach of the above-mentioned requirements will be not counted when establishing the
result of the vote on a resolution of the shareholders’ meeting.
Violation of the mandatory tender offer requirement when a shareholder wishes to cross the 66% voting rights
threshold results in invalidity of the exercise of voting rights attached to all the shares held by a given shareholder.
Additionally, a shareholder who violates any requirement of the securities regulations described above may be
subject to a fine of up to PLN 1.0 million.
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Disclosure Obligations
Once the Shares have been admitted to trading on the WSE, the Issuer will be required to comply with certain
disclosure obligations regarding the publication of information under Polish and Dutch law. Such obligations
include:
(i)
the disclosure of inside information (e.g., any events that may substantially affect the price or the value
of the shares);
(ii)
publication of current and periodic information; and
(iii)
the disclosure of transaction undertaken by insiders.
All information will be in Polish and/or English. The Company intends to disseminate current and periodic
reports using the ESPI system (the electronic disclosure system for issuers listed in Poland).
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CERTAIN TAX CONSIDERATIONS
The information set out below describes the principle Dutch and Polish tax consequences of the
acquisition, holding and disposal of the Shares and is included for general information only. This summary
does not purport to be a comprehensive description of all Dutch or Polish tax considerations that may be
relevant to a decision to acquire, to hold or to dispose of the Issuer’s Shares. Each prospective investor should
consult a professional tax advisor regarding tax consequences of acquiring, holding and disposing of the
Issuer’s Shares under the laws of their country and/or state of citizenship, domicile or residence.
This summary is based on tax legislation, published case law, treaties, rules, regulations and similar
documentation, in force as at the date of this Prospectus, without prejudice to any amendments introduced at
a later date and implemented with retroactive effect.
Taxation in the Netherlands
Withholding Tax
Dividends distributed by the Issuer generally are subject to Dutch dividend withholding tax at a rate of 25%. A
bill has been presented to parliament that, when adopted, reduces the statutory dividend withholding tax rate from
25% to 15% as per 1 January 2007. The expression “dividends distributed” includes, among others, (i) distributions
in cash or in kind; (ii) liquidation proceeds, proceeds of redemption of the Shares, or proceeds of the repurchase of
the Shares by the Issuer or one of the Issuer’s subsidiaries or other affiliated entities to extent such proceeds exceed
the average paid-in capital of the Shares recognised for Dutch dividend withholding tax purposes; (iii) an amount
equal to the par value of the Shares issued or an increase in the par value of the Shares, to the extent that it does not
appear that a contribution, recognised for the purposes of Dutch dividend withholding tax, has been made or will be
made; and (iv) partial repayment of the paid-in capital, recognised for Dutch dividend withholding tax purposes, if
and to the extent that the Issuer has net profits (zuivere winst), unless the holders of the Shares have resolved in
advance at a General Meeting of Shareholders to make such repayment and the par value of the Shares concerned
has been reduced by an equal amount by way of an amendment to the Issuer’s Articles of Association.
Dutch Resident Holders
A holder of the Shares, individuals and corporate entities, who are, or who are deemed to be, a resident of the
Netherlands or, if he or she is an individual who has opted to be taxed under the rules of the Dutch Income Tax Act
2001 (Wet inkomstenbelasting 2001) as they apply to resident individuals of the Netherlands, can generally credit
the Dutch dividend withholding tax against their Dutch income tax or Dutch corporate income tax liability and are
generally entitled to a refund of dividend withholding taxes exceeding their aggregate Dutch income tax or Dutch
corporate income tax liability, provided certain conditions are met, unless such holder of the Shares is not
considered to be the beneficial owner of the dividends. In general, the Issuer will be required to remit all amounts
withheld as Dutch dividend withholding tax to the Dutch tax authorities.
Non-Dutch Resident Holders
A holder of the Shares who is not treated as a resident of the Netherlands for purposes of Dutch taxation and
who is considered to be a resident of the Netherlands Antilles or Aruba under the provisions of the Tax Convention
for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk), or who is considered to be a resident of
a country other than the Netherlands under the provisions of a double taxation convention the Netherlands has
concluded with such country may, depending on the terms of that double taxation convention, be eligible for a full
or partial exemption from, or reduction or refund of, Dutch dividend withholding tax. In addition, subject to certain
conditions and based on Dutch legislation implementing the Parent Subsidiary Directive (Directive 90/435/EEG)
an exemption from Dutch dividend withholding tax will generally apply to dividends distributed to certain entities
that are resident of another European Union member state.
Anti-Dividend Stripping Legislation
A refund, reduction, exemption or credit of Dutch dividend withholding tax on the basis of Dutch tax law or on
the basis of a tax treaty between the Netherlands and another state, will be granted only if the dividends are paid to
the beneficial owner of the dividends. A receiver of a dividend is not considered to be the beneficial owner of a
dividend in an event of “dividend stripping” in which he has paid a consideration related to the receipt of such
dividend. In general terms, “dividend stripping” can be described as the situation in which a foreign or domestic
person (usually, but not necessarily, the original shareholder) has transferred his Shares or his entitlement to the
dividend distributions to a party that has a more favourable right to a refund or reduction of Dutch dividend
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A3.4.11
withholding tax than the foreign or domestic person. In these situations, the foreign or domestic person (usually the
original shareholder), by transferring his Shares or his entitlement to the dividend distributions, avoids Dutch
dividend withholding tax while retaining his “beneficial” interest in the Shares and the dividend distributions. This
regime may also apply to the transfer of Shares or the entitlement to dividend distributions as described above, if the
avoidance of dividend withholding tax is not the main purpose of the transfer.
Taxes on Income and Capital Gains
Dutch Resident Individuals
Individuals who are resident or deemed to be resident of the Netherlands for Dutch tax purposes, including
individuals who have opted to be taxed as a resident of the Netherlands for the purposes of the Dutch Income Tax
Act 2001 (Wet inkomstenbelasting 2001), are in general annually taxed on deemed income in the amount of 4% of
their average net wealth for the year at an income tax rate of 30% (“box 3 taxation”).
The net wealth for a certain year is calculated as the average of (i) the fair market value of portfolio
investments (not including business assets or substantial shareholdings) less the qualifying liabilities at the
beginning of that year and (ii) the fair market value of portfolio investments less the qualifying liabilities at the end
of that year. The Shares are included as investment assets. An annual threshold of A19,698 of net wealth is generally
available for each Dutch resident individual taxpayer. Because of the fixed yield of 4%, the actual benefits derived
from the net portfolio investments, including any actual distributions on the Shares and actual capital gains realised
upon the disposal of the Shares, are not as such subject to Dutch income tax.
However, the following exceptions apply to the above general rule:
•
if the Shares are attributable to an enterprise from which a Dutch resident individual derives a share of the
profit, whether as an entrepreneur (ondernemer) or as a person who has a co-entitlement to the net worth of
such enterprise, without being an entrepreneur or a shareholder, as defined in the Dutch Income Tax Act
2001, any benefit derived or deemed to be derived from the Shares, including any income and capital gains
realised on the disposal of the Shares, will be subject to income tax at a progressive rate with a maximum of
52% (“box 1 taxation”);
•
if the holding and/or disposal of the Shares qualify as income from ‘miscellaneous activities’ (resultaat uit
overige werkzaamheden), any benefit deriving from these Shares will be subject to income tax at a
progressive rate with a maximum of 52% (“box 1 taxation”). The holding and/or disposal can be treated as
‘miscellaneous activities’ in the event that the management of the portfolio of which the Shares form part
exceeds regular active portfolio management;
•
If the Shares constitute a substantial interest or deemed substantial interest in the Issuer, any benefit
deriving from these Shares will be subject to income tax at a rate of 25% (“box 2 taxation”).
Generally, a holder of Shares will have a substantial interest in the Issuer if he/she, his/her partner, certain other
relatives (including foster children) or certain persons sharing his/her household, alone or together, directly or
indirectly:
•
hold Shares representing 5% or more of our total issued and outstanding capital (or the issued and
outstanding capital of any class of our Shares) of the Issuer;
•
hold or have rights to acquire Shares (including the right to convert notes or stock options into Shares),
whether or not already issued, that at any time (and from time to time) represent 5% or more of our total
issued and outstanding capital (or the issued and outstanding capital of any class of our Shares) of the
Issuer; or
•
hold or own certain profit participating rights that relate to 5% or more of the Issuer’s annual profit and/or
to 5% or more of the Issuer’s liquidation proceeds.
A deemed substantial interest arises if a substantial interest (or part thereof) has been disposed of, or is deemed
to have been disposed of, on a nonrecognition basis.
Dutch Resident Entities
Corporate and quasi corporate entities (including but not limited to non-transparent partnerships, foundations
and non-transparent mutual funds for joint account (open fondsen voor gemene rekening), which are taxable under
the Dutch Corporate Income Tax Act 1969 (Wet op de Vennootschapsbelasting 1969) and are resident or deemed to
be resident of the Netherlands for purposes of Dutch tax are, in principle, subject to Dutch corporate income tax at
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the statutory rate of 29.6%, with a rate of 25.5% applying to the first A22,689 of taxable profits. A bill has been
presented to parliament that, when adopted, reduces, as per 1 January 2007, the statutory corporate income tax rate
from 29.6% to 25.5%, with a rate of 20% applying to taxable profits up to A25,000, the first bracket, and 23.5% for
profits up to A60,000, the second bracket.
Any benefit derived or deemed to be derived from the Shares held by Dutch resident entities, including any
actual distributions on the Shares and actual capital gains realised upon the disposal thereof, will generally be
subject to corporate income tax, unless the Dutch participation exemption (deelnemingsvrijstelling) applies or
unless the benefit is deemed to be included in the cost price of the Shares. The Dutch participation exemption is
generally applicable if such entities own at least 5% of the Issuer’s nominal paid-up share capital.
Qualifying Dutch resident pension funds are exempt from Dutch corporate income tax. Qualifying Dutchresident investment funds (fiscale beleggingsinstellingen) are subject to Dutch corporate income tax at a special
rate of 0% if they meet certain conditions with respect to their shareholder base and the annual distribution of
dividends to their shareholders. Distributions on the Shares and capital gains realised upon the disposal on the
Shares will be exempt from Dutch corporate income tax or subject to a special rate of 0% in the hands of
shareholders who are qualifying Dutch resident pension funds or qualifying Dutch resident investment funds.
Distributions on the Shares or capital gains realised upon the disposal of the Shares for a holder that is not
resident, nor deemed to be resident of the Netherlands for Dutch tax purposes (and, in the case of an individual
holder, that has not opted to be taxed as a resident of the Netherlands) are not taxable in the Netherlands, provided
that:
•
such holder does not have an interest in an enterprise or a deemed enterprise that is, in whole or in part,
carried on through a permanent establishment, a deemed permanent establishment (a statutorily defined
term) or a permanent representative in the Netherlands to which (part of the) enterprise, or to whom, the
Shares are attributable or deemed to be attributable; or
•
such holder is not entitled to a share in the profits of an enterprise that is effectively managed in the
Netherlands to which the Shares are attributable, other than by way of securities or through an employment
contract; or
•
the activities of such holder do not qualify as income from ‘miscellaneous activities’ carried out in the
Netherlands, as defined under “Dutch Resident Individuals” second bullet point; or
•
such holder does not have a substantial interest or deemed substantial interest in the Issuer (as defined
under “Dutch Resident Individuals” third bullet point), or, if such holder has a substantial interest or a
deemed substantial interest, it forms part of the assets of an enterprise.
If the non-Dutch resident holder is taxable in the Netherlands pursuant to one of the four eventualities
mentioned above, such holder will, in principle, be taxed in the same way as Dutch resident taxpayers, as described
above.
If a tax treaty is in force between the Netherlands and the state of residence of the non-Dutch resident holder of
the Shares and if such holder qualifies as a resident under that tax treaty, capital gains on the Shares will, in general,
not be taxable in the Netherlands, except insofar as they are attributable to a permanent establishment in the
Netherlands.
Non-Dutch resident pension funds which are non-resident taxpayers for Dutch corporate income tax purposes,
can qualify for the abovementioned corporate income tax exemption for Dutch-resident pension funds, provided
that the conditions formulated by the Dutch State Secretary for Finance in the Decree of 26 January 2000, nr. DB99/
3511, are met.
Dutch Gift, Estate and Inheritance Tax
Dutch Resident Holders
Generally, gift and inheritance taxes will be due in the Netherlands in respect of the acquisition of the Shares
by way of a gift by, or on death of, a holder who is resident or deemed to be resident of the Netherlands for the
purposes of the Dutch gift and inheritance tax at the time of the gift by or on the death of the holder of the Shares.
For purposes of Dutch gift and inheritance taxes, among others, a Dutch national holder is deemed to be a resident
of the Netherlands if he or she has been resident of the Netherlands at any time during the ten years preceding the
date of the gift or his or her death. Additionally, an individual not holding the Dutch nationality will, among others,
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be deemed to be resident of the Netherlands for purposes of Dutch gift tax if he or she has been resident of the
Netherlands, at any time during the twelve months preceding the date of the gift. The same one-year rule may apply
to entities that have transferred their seat of residence out of the Netherlands.
No Dutch gift or inheritance taxes will arise in respect of the acquisition of the Shares by way of a gift by, or on
the death of, a holder who is neither resident nor deemed to be resident in the Netherlands, unless:
•
such holder at the time of the gift has, or at the time of his/her death had, an enterprise or an interest in an
enterprise that, in whole or in part, is or was carried on through a permanent establishment or a permanent
representative in the Netherlands and to which enterprise or part of an enterprise the Shares are or were
attributable, or are or were deemed to be attributable; or
•
such holder at the time of the gift is, or at the time of his/her death was entitled to a share in the profits of an
enterprise effectively managed in the Netherlands, other than by way of the holding of securities, or
through an employment contract, to which enterprise the Shares are or were attributable, or are or were
deemed to be attributable; or
•
in case of a gift of Shares by an individual who at the date of the gift was neither resident nor deemed to be
resident of the Netherlands, such individual dies within 180 days after the date of the gift, while at the time
of his/her death being resident or deemed to be resident of the Netherlands.
Dutch Value-Added Tax
No Dutch VAT will arise in respect of the acquisition, ownership, and disposal of the Shares.
Other Dutch Taxes and Duties
No Dutch registration tax, customs duty, transfer tax, stamp duty or any other similar documentary tax or duty
will be payable by a holder of the Shares in respect of the subscription, issue, placement, allotment, holding or
disposal of the Shares.
Taxation in Poland
The information contained in this section is based also on the provisions of the convention between the
Kingdom of the Netherlands and Poland for the avoidance of double taxation and prevention of fiscal evasion with
respect to taxes on income dated 13 February 2002 (the “Dutch-Polish Tax Treaty”).
Dutch Taxation of Polish Resident Individuals
Taxation of Capital Gains
Pursuant to Dutch individual income tax law, capital gains realised upon the disposal of the Shares for an
individual holder who is resident of Poland will only be subject to Dutch individual income tax if:
•
the Shares should be allocated to an enterprise carried on by the holder through a permanent establishment
of permanent representative in the Netherlands; or
•
the Shares of the Issuer qualify as a substantial interest in the Issuer and the substantial interest should not
be allocated to an enterprise carried on by the holder outside the Netherlands.
In the event the Polish resident carries on an enterprise in the Netherlands, to which its Shares are to be
allocated, capital gains on a disposal of these Shares will be regarded as part of the profit of the enterprise and will
thus be subject to Dutch individual income tax at progressive rates (52% at maximum). The percentage of
shareholding is irrelevant in such a case.
In the event Polish resident individuals hold a substantial interest in the Shares, which is not to be allocated to
an enterprise carried on by such holder outside the Netherlands, a capital gain on a disposal of the substantial
interest will be subject to 25% Dutch individual income tax on the basis of Dutch domestic law. However, according
to article 13 of the Dutch-Polish Tax Treaty, no taxation will occur with respect to capital gains on substantial
interests, provided that the Polish resident holders have not been a tax-resident of the Netherlands in the course of a
period of ten years prior to the disposal of the substantial interest in the Issuer.
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Taxation of Dividends
Pursuant to Dutch individual income tax law, dividend income received by a Polish resident individual in
relation to a shareholding in the Issuer will only be subject to Dutch individual income tax if:
•
the Shares are to be allocated to an enterprise carried on by the Polish resident individual through a
permanent establishment or permanent representative in the Netherlands; or
•
the Shares qualify as a substantial interest in the Issuer and the substantial interest should not be allocated
to an enterprise carried on by the Polish resident individual outside the Netherlands.
In the event the Polish resident individual carries on an enterprise in the Netherlands, to which its Shares are to
be allocated, dividend income received in relation to the shareholding in the Issuer will be regarded as part of the
profit of the enterprise and will thus be subject to Dutch individual income tax at progressive rates (52% at
maximum). The Issuer is the dividend withholding agent and will deduct this tax from the gross amounts of
dividends paid to its shareholders and it will transfer to the NDS a net amount after deduction of tax. Dutch dividend
withholding tax paid can be credited against the income tax liability of the permanent establishment. A credit will
be available for the Dutch dividend tax that has been withheld on the dividend.
In the event Polish resident individuals hold a substantial interest in the share capital of the Issuer, which
should not be allocated to an enterprise carried on by such holder outside the Netherlands, dividend income
received in relation to the substantial interest will be subject to 25% Dutch individual income tax on the basis of
domestic law. However, this rate will be reduced to 15% as a consequence of article 10 of the Dutch-Polish Tax
Treaty. The Issuer is the dividend withholding agent and will deduct this tax from the gross amounts of dividends
paid to its shareholders. As a result a net amount after deduction of tax will be transferred to the NDS. Dutch
dividend withholding tax paid can be credited against the individual income tax liability.
Dutch Taxation of Polish Resident Entities
Pursuant to Dutch corporate income tax law, capital gains realised by a Polish resident entity are only subject
to Dutch corporate income tax as a result of the disposal of the Shares if:
•
the Shares are to be allocated to a permanent establishment or permanent representative of the Polish
resident entity in the Netherlands; or
•
to an enterprise carried on by the Polish resident entity outside the Netherlands.
In the event the Polish resident entity has a permanent establishment in the Netherlands, to which its holding in
the Issuer should be allocated, any capital gain on a disposal of the Shares will be regarded as part of the profit of the
permanent establishment and will thus be subject to Dutch corporate income tax. In the event the Polish resident
entity (its permanent establishment in the Netherlands) has a shareholding in the Issuer of at least 5%, an exemption
from corporate income tax may apply to the capital gain (participation exemption).
In the event the Polish resident entity has a substantial interest in the Issuer that cannot be allocated to an
enterprise carried on by the Polish resident entity, a capital gain on a disposal of the substantial interest will be
subject to Dutch corporate income tax at 25.5% of the first A22,689 of profit and at 29.6% on any excess thereafter.
Taxation may, however, be restricted as a consequence of article 13 of the Dutch-Polish Tax Treaty. Article 13 of the
Dutch-Polish Tax Treaty stipulates that the right to tax such capital gain is exclusively reserved to the state of which
the recipient of the gain is a tax-resident, i.e. Poland. It should therefore be examined whether a Polish resident
entity has access to the Dutch-Polish Tax Treaty. Polish resident entities that are subject to domestic taxation should
be able to gain access to the Dutch-Polish Tax Treaty and consequently, benefit from its provisions. On the other
hand, Polish resident entities that are exempt from domestic taxation may not be able to benefit from the provisions
of the Dutch-Polish Tax Treaty. A tax-exempt Polish resident entity may thus, in the event it holds a substantial
interest in the Issuer that cannot be allocated to an enterprise, be subject to Dutch corporate income tax on a capital
gain realised on a disposal of its substantial interest in the Issuer.
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Pursuant to Dutch corporate income tax law, dividend income received by a Polish resident entity in relation to
a shareholding in the Issuer will only be subject to Dutch corporate income tax if:
•
the Shares are to be allocated to a permanent establishment or permanent representative of such Polish
resident entity in the Netherlands; or
•
to an enterprise carried on by the Polish resident entity outside the Netherlands.
In the event the Polish resident entity has a permanent establishment in the Netherlands, to which its Shares
should be allocated, dividend income received in relation to the shareholding in the Issuer will be regarded as part of
the profit of the permanent establishment and will thus be subject to Dutch corporate income tax. In the event the
Polish resident entity (its permanent establishment in the Netherlands) has a shareholding in the Issuer of at least
5%, an exemption from Dutch corporate income tax may apply to the dividend income (participation exemption). In
the event of taxation on the dividend income, a credit will be available for the Dutch dividend tax that has been
withheld on the dividend.
In the event the Polish resident entity has a substantial interest in the Issuer that cannot be allocated to an
enterprise carried on by the Polish resident entity, dividend income received in relation to the shareholding in the
Issuer will be subject to Dutch corporate income tax. Provided that the Polish resident entity can apply for the
benefits of the Dutch-Polish Tax Treaty, the dividend income will be taxed at a reduced rate of 5% or 15%,
dependent on the size of the shareholding. A credit will be available for the Dutch dividend withholding tax that has
been withheld on the dividend.
As per 1 January 2005, the provisions of the “updated” European Union Parent Subsidiary Directive became
effective. As a consequence, as of that date, a dividend paid by the Issuer to a Polish resident entity with a share
interest in the Issuer of at least 20% is exempt from Dutch withholding tax, provided certain requirements are met.
These requirements pertain, among others, to the legal form and taxation of such Polish shareholder. As from
1 January 2007, the required minimum share interest will be 15%. On 1 January 2009, the required minimum share
interest will be further reduced to 10%. The Directive will only apply in situations, in which Shares of the Issuer that
are held by a Polish resident entity should not be allocated to a permanent establishment of the Polish resident entity
in the Netherlands. In the highly unlikely event that a Polish holder meets both (i) the conditions for Dutch
substantial interest taxation on dividends and (ii) the requirements for the application of the European Union Parent
Subsidiary Directive, this Directive does not only preclude the levy of Dutch dividend withholding tax, but also
precludes the levy of Dutch corporate income tax on dividends arising from a substantial shareholding.
Dutch Dividend Withholding Tax
Pursuant to Dutch dividend withholding tax law, dividends paid by the Issuer will be subject to 25% dividend
withholding tax. This rate may be reduced by virtue of article 10 of the Dutch-Polish Tax Treaty.
Polish Resident Individuals
Pursuant to article 10 of the Dutch-Polish Tax Treaty, dividends paid by the Issuer to Polish resident
individuals, who do not carry on an enterprise in the Netherlands, to which their Shares should be allocated, will be
subject to 15% Dutch withholding tax, regardless the extent of shareholding in the Issuer. In the event a Polish
resident individual carries on an enterprise in the Netherlands, to which his or her Shares should be allocated, Dutch
withholding tax will be due on the dividend of 25% (the domestic rate). Dividend withholding tax paid can be
credited against Dutch individual income tax that may be due on the dividend.
Polish Resident Entities
Pursuant to article 10 of the Dutch-Polish Tax Treaty, dividends paid to a Polish resident corporate entity with a
minimum share interest in the Issuer of 10% will be subject to 5% dividend withholding tax, provided that the
Shares should not be allocated to a permanent establishment or permanent representative in the Netherlands.
Dividends paid to Polish resident entities with a shareholding in the Issuer of less than 10% will be subject to 15%
Dutch dividend withholding tax, provided that the Shares should not be allocated to a permanent establishment or
permanent representative in the Netherlands. It should be examined whether a Polish resident entity has access to
the Dutch-Polish Tax Treaty and thus will be able to benefit from a reduced withholding tax rate.
In the event the Polish resident corporate entity has a permanent establishment in the Netherlands, to which its
Shares should be allocated, Dutch withholding tax will be due on the dividend at 25% (the domestic rate). However,
100
based on Dutch withholding tax law, in the event the Polish resident entity (its permanent establishment in the
Netherlands) has a shareholding in the Issuer of at least 5%, an exemption from Dutch withholding tax may apply to
the dividends paid in respect of that shareholding.
As described above, dividend withholding tax paid can be credited against Dutch corporate income tax that
may be due on the dividend.
As per 1 January 2005, the provisions of the “updated” European Union Parent Subsidiary Directive became
effective. As a consequence, as of that date, a dividend paid by the Issuer to a Polish resident entity with a share
interest in the Issuer of at least 20% is exempt from Dutch withholding tax, provided certain requirements are met.
These requirements pertain, among others, to the legal form and taxation of the Polish entity. As from 1 January
2007, the required minimum share interest will be 15%. On 1 January 2009, the required minimum share interest
will be further reduced to 10%. The Directive will only apply in situations, in which Shares that are held by a Polish
resident entity should not be allocated to a permanent establishment or permanent representative of the Polish
resident entity in the Netherlands.
Polish Taxation of Polish Resident Individuals
Individuals having their place of residence in Poland are subject to the Polish personal income tax on their
worldwide profits, irrespective of the location of the source of income. Individuals who do not have a place of
residence in Poland are subject to Polish personal income tax only as regards the profits that they derive on the
territory of Poland.
Pursuant to article 30b.1 of the Polish Personal Income Tax Act, income tax on the disposal of shares in Poland
is payable at the rate of 19% of income earned. Income earned on disposal of shares is the difference, in a given
calendar year, between revenue earned on disposal of shares, i.e. value of shares understood as a price specified in a
sale agreement, and costs incurred on an acquisition and a disposal of shares. If a price differs significantly from the
market value of shares without a justified reason, a tax authority can adjust income to a market level. After the end
of a given calendar year, taxpayers who earned income on disposal of shares are required to declare such income in
an annual tax return, and to calculate the amount of income tax due. These regulations do not apply if a disposal of
shares is effected as part of a taxpayer’s business activity; then, income is taxed as business income.
Pursuant to article 30a.1.4 of the Polish Personal Income Tax Act, income earned on dividends and other
similar income from sharing in the profits of a Dutch company is subject to income tax for an individual with
unlimited tax liability. Such income is accumulated with other income and is taxed at the flat 19% personal income
tax rate. Under article 30a.9 of the Polish Personal Income Tax Act, tax paid in the Netherlands on such income can
be deducted from the Polish tax payable. However, the amount of Dutch tax deducted from Polish tax cannot exceed
the amount of tax calculated at the 19% rate on income taxable in the Netherlands.
Income on dividends and the amounts of foreign tax to be deducted should be declared in an annual tax return
be filed by 30 April of the calendar year following the year in which income was earned.
Polish Taxation of Polish Resident Corporate Entities
Legal entities, companies in organisation and other entities with no legal personality (with the exception of
certain types of partnerships) that have their registered seats or their management in Poland, are subject to Polish
corporate income tax on their worldwide income irrespective of the country from which they were derived. These
entities (including foreign partnerships that have no legal personality, if treated as a legal entity under the tax law of
a given country and if they are subject to taxation in that country on their worldwide income) that do not have their
registered seat or their management in Poland, are subject to Polish corporate income tax only as regards profits that
they derive on the territory of Poland.
Corporate Income Tax on Disposal of Shares Applicable to Polish Tax Residents
Income earned by Polish legal persons on disposal of shares is subject to corporate income tax in Poland in
accordance with the general rules. Income earned on a disposal of shares is the difference between an amount
earned through a disposal of shares, i.e. value of shares understood as a price specified in a sale agreement, and costs
incurred on an acquisition and the disposal of the shares. If a price differs significantly from the market value of the
shares without a justified reason, a tax authority can adjust the income to a market level. Income earned on disposal
101
of shares increases a taxpayer’s tax base. Pursuant to article 19.1 of the Polish Corporate Income Tax Act, the
corporate income tax on such income amounts to 19% of the tax base.
Under article 20.1 of the Polish Corporate Income Tax Act, dividends and other similar income from sharing in
the profits of a Dutch company earned by Polish tax residents is subject to corporate income tax. Such income is
taxed at 19%. Under article 20.1, tax paid in the Netherlands on such income can be deducted from the Polish tax
payable. The amount of foreign tax deducted cannot exceed the Polish tax on this income calculated as a proportion
of total tax payable.
Under article 20.3 of the Polish Corporate Income Tax Act, if a Polish legal entity holds at least 20% (15% in
2007/2008 and 10% from 2009) of the shares of a Dutch company which is subject to tax on its worldwide income
in a Member State other than Poland, a credit may also be claimed by the shareholder for tax paid by the Dutch
company, up to a maximum of the Polish tax payable calculated proportionately. A credit can also be claimed for
corporate income tax payable by the subsidiaries of the Dutch company being tax residents in a Member State other
than Poland in which the Dutch company holds more than 20% (15% in 2007/2008 and 10% from 2009) of shares.
The income should be declared in the tax return for the period when the income is received. Any Polish tax is
due by the due date for the return.
Civil Law Transactions Tax
The sale of securities to brokerage houses and banks conducting brokerage activity, and the sale of securities
through the intermediation of a brokerage house or a bank conducting brokerage activity, is exempt from civil law
transactions tax in Poland.
102
THE OFFERING
General
Pursuant to this Prospectus, 15,664,352 newly issued and existing ordinary bearer Shares (the “Firm Shares”)
created under Dutch law are being offered in the Offering consisting of a public offering in Poland and a private
placement to Institutional Investors in certain jurisdictions outside of Poland. No public offering in the Netherlands
will take place, although, for the purpose of the public offering in Poland the Issuer has taken and will take certain
actions in the Netherlands as its European Union home member state. For further information on the selling
restrictions please refer to “Selling Restrictions”.
The Issuer is offering 10,000,000 newly issued ordinary bearer Shares (the “New Shares”), and the entities
listed below (the “Selling Shareholders”) are jointly offering 5,664,352 existing Shares (the “Sale Shares”) in the
following amounts:
1.
4,940,352 Sale Shares are being offered by Israel Theatres Limited, a company organised under the laws
of Israel, with its address at 91 Medinat Ha-Yehudim, Herzlia Pituah, Israel;
2.
600,000 Sale Shares are being offered by Mr Amos Weltsch with his business address at c/o ITIT, 91
Medinat Ha-Yehudim, Herzlia Pituah, Israel; and
3.
124,000 Sale Shares are being offered by Mr Mark Segall with his business address at c/o Kidron
Corporate Advisors LLC, 555 Fifth Avenue, 17th Floor, New York, NY 10017, USA.
Eligible Investors
A3.5.1
A3.5.1.1
A3.4.5
A3.4.2
A3.4.3
A3.6.2
A3.5.1.2
A3.4.1
A3.7.1
A3.7.2
A3.5.2.1
The Offering within the territory of Poland is addressed both to the individuals, corporate entities (legal
persons) and non-corporate entities other than individuals to whom the Offering within the territory of Poland is
addressed (“Retail Investors”) and corporate entities (legal persons) and non-corporate entities, other than
individuals to whom the Offering is addressed and received from the Managers, the invitation to submit a
subscription for Firm Shares or the Managers or the entity selected by the Managers (“Institutional Investors”). The
Offering by way of a private placement in certain jurisdictions outside of Poland is addressed solely to Institutional
Investors. Under no circumstances shall the Offering be regarded as addressed to US persons as defined in
Regulation S. Retail Investors, both Polish residents and non-residents (except for US persons, as defined in
Regulation S), may place their subscription orders in the Offering, solely on the territory of the Republic of Poland.
Non-resident Retail Investors who intend to acquire the Firm Shares should acquaint themselves with the relevant
laws of their countries of residence.
A3.6.3
Institutional Investors having their registered office in the territory of the Republic of Poland or outside the
territory of Poland, except for US persons, as defined in Regulation S, may place subscription orders in the
Offering. Selected Polish Institutional Investors and Institutional Investors in certain jurisdiction outside of Poland
will be invited by the Managers to participate in the book-building process. No Retail Investor will be participating
in the book-building process.
Entities managing portfolios of securities on behalf of their clients should liaise with the Managers in order to
discuss actions required to place subscription orders for their clients.
It is expected that the final number of the Firm Shares allotted in the Offering to the Retail Investors will
account for 20% of all the Firm Shares offered in the Offering, provided, however, that the Company and the
Affiliated Shareholder reserve the right to increase or reduce the number of the Firm Shares to be allotted to the
Retail Investors in the Offering, with the agreement of the Lead Manager.
A3.5.2.3(a)
A3.5.2.3(d)
Information on the allotment of the Firm Shares shall be published in the official electronic information
dissemination service (the “Current Report”) as defined in article 56.1 of the Act on Offerings.
Stabilisation and the Overallotment Option
In connection with the Offering, the Lead Manager (or any person acting for the Lead Manager) may purchase
Shares on the WSE with a view to supporting the market price of the Shares on the WSE at a level higher than that
which might otherwise prevail. The purchases of the Shares shall be made in accordance with the rules set out in the
European Commission Regulation (EC) No. 2273/2003 of 22 December 2003 implementing Directive 2003/6/EC
of the European Parliament. There is no obligation on the Lead Manager (or any agent of the Lead Manager) to
engage in such activities. Such stabilising, if commenced, may be discontinued at any time and must be brought to
an end within 30 days after the Listing Date.
103
A3.5.2.5
(a)-(c)
A3.6.5
A3.6.5.1
A3.6.5.2
A3.6.5.3
A3.6.5.4
In connection with the stabilising transactions that may be carried out by the Lead Manager following the
Offering on the WSE, the Principal Shareholder has granted to the Managers an option exercisable for up to 30 days
following the Allotment Date to purchase up to an additional 2,349,652 Shares, the maximum number of which is
equal to 15% of the Firm Shares being offered in the Offering, at a price equal to the Offer Price, less the fees due to
the Lead Manager in accordance with the Underwriting Agreement.
A3.5.2.3(g)
A3.4.7
A3.5.1.2
A3.5.1.3
Expected Timetable of the Offering
On or about
2006
On or about
2006
On or about
On or about
20 November 2006 — 30 November
Book-building process among the Institutional
Investors.
Subscription period for Retail Investors.
24 November 2006 — 30 November
23 November 2006
30 November 2006
Determination of the Maximum Price.
Determination of the Offer Price and the final number
of Offer Shares.
Subscription period for Institutional Investors.
Acceptance of orders in performance of the
underwriting commitments, if any.
Allotment Date
Settlement Date
On or about 1 December 2006 — 4 December 2006
On or about 4 December 2006
The Company and the Affiliated Shareholder, with the agreement of the Lead Manager, reserve the right to
change the above timetable of the Offering, including the dates for accepting subscription orders. Information on
timetable changes shall be published by way of a press release in Poland and in the same manner as this Prospectus.
Maximum Price
The Maximum Price per Offer Share will be determined by the Issuer and the Affiliated Shareholder, with the
agreement of the Lead Manager, on or about 23 November 2006, based on (i) an assessment of the current and
anticipated situation of the Polish and international capital markets, and (ii) an assessment of the growth prospects,
risk factors and other information relating to the Company’s activities.
A3.5.3.1
Determination of the Offer Price
A3.5.3.1
The Offer Price will be determined by the Company and the Affiliated Shareholder, with the agreement of the
Lead Manager, based on the following criteria and rules: (i) size and price sensitivity of demand from the
Institutional Investors as gauged during the book-building process, (ii) the current and anticipated situation on the
Polish and international capital markets and (iii) assessment of the growth prospects, risk factors and other
information relating to the Company’s activities contained in this Prospectus. Investors are advised that based on
the above factors the Offer Price for Institutional Investors may be set at a level higher than the Maximum Price. In
such case, the Offer Price for Retail Investors would be different from the Offer Price for the Institutional Investors,
provided that the Offer Price for Retail Investors shall in no event be higher than the Maximum Price. In the event
that the Offer Price for the Institutional Investors is set at a level not higher than the Maximum Price, the Offer Price
for the Retail Investors shall be the same as the Offer Price for the Institutional Investors.
The Offer Price will be expressed in PLN. The information on the final Offer Price will be announced by way
of a press release in Poland and in the same manner as this Prospectus has been published before the commencement of the subscription period for Institutional Investors.
Final Number of the Shares Offered in the Offering
The Company and the Selling Shareholders, with the agreement of, the Lead Manager, may decide to reduce
the final number of the Offer Shares offered in the Offering based on the following terms and criteria: (i) the volume
and quality of the demand for the Firm Shares from Institutional Investors, in particular international Institutional
Investors, during the book-building process; (ii) the anticipated demand from various groups of investors during the
period of the first 30 days from the Listing Date of the Shares on the WSE; and (iii) the current and anticipated
situation on the Polish and international capital markets. The relevant decision shall be published by way of a press
release in Poland in the same manner as this Prospectus has been published.
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A3.5.3.2
A3.4.4
Rules Governing Placing of Subscription Orders for the Shares
Subscription orders from Retail Investors shall be accepted at the Customer Service Points of Biuro
Maklerskie Banku BPH S.A. and Centralny Dom Maklerski Pekao S.A. listed on the Company’s website at
www.cinemacity.nl or at any other place that may be publicly communicated by the Lead Manager prior to the end
of the subscription period for Retail Investors.
A3.5.1.3
A3.5.1.8
For information on the detailed rules governing the placing of subscription orders, in particular: (i) the
documents required if a subscription order is placed by a statutory representative, proxy or any other person acting
on behalf of an investor, and (ii) the possibility of placing subscription orders and deposit requests in a form other
than the written form i.e. by telephone or internet, Retail Investors should contact the Customer Service Point of the
brokerage house accepting orders for Shares from Retail Investors at which they intend to place their subscription
order.
Subscription orders from the Institutional Investors that have received the invitation to subscribe for the Firm
Shares from the Managers shall be accepted at the registered office of CA IB Securities S.A. at ul. Emilii Plater 53,
Warsaw, Poland. For information on the detailed rules governing the placing of subscription orders, in particular:
(i) the documents required if an order is placed by a statutory representative, proxy or any other person acting on
behalf of an investor, and (ii) the possibility of placing orders and deposit instructions in a form other than the
written form, the Institutional Investors should contact the Lead Manager.
Investors have a right to place multiple subscription orders, provided the aggregate number of the Firm Shares
subscribed by one investor is not greater than the total number of the Firm Shares. Subscription orders for a total
number of Shares greater than the number of the Firm Shares shall be considered orders for all Firm Shares. A
subscription order placed by an investor must cover at least one Firm Share.
A3.5.1.6
A3.5.2.3(h)
Subscription orders shall be placed on subscription forms made available at the brokerage houses accepting
orders for Shares or through fax, telephone or other electronic means of communication if the brokerage house
accepting subscription orders provides for such possibility and in compliance with terms and conditions set down
for such placement.
By placing subscription orders, each of the prospective investors will be deemed to have read this Prospectus,
accepted the terms of the Offering, consented to being awarded a lower number of the Firm Shares than the number
specified in such investor’s orders, or to not being awarded any Firm Shares at all, pursuant to the terms and
conditions set forth in this Prospectus. Investors will not be entitled to withdraw their subscriptions in the Offering,
other than as may be required under article 8 and article 16 of the Prospectus Directive, as implemented in each
Relevant Member States’ jurisdictions of the European Union applicable to the Offering.
A3.5.1.7
Rules Governing Payment for the Firm Shares
A3.5.1.8
Retail Investors placing subscription orders for Firm Shares should pay for the Firm Shares at the time of
placing the order. The payment should be equal to the product of the number of Firm Shares for which the investor
placed the order and the Maximum Price.
Institutional Investors placing subscription orders should pay for the Firm Shares no later than by the end of the
subscription period for Institutional Investors. If an order is not paid up in full, it shall be valid for the number of the
Shares corresponding to the amount paid by the investor.
Payments should be transferred to such account as indicated by the investment institution accepting
subscription order for the Firm Shares.
Allotment of the Shares
A3.4.7
The allotment of Offer Shares between Retail Investors and Institutional Investors will be determined by the
Lead Manager, at its discretion, subject to the consent of the Company and the Affiliated Shareholder. The
minimum allotment in the Offering will be one Share, regardless of how and through whom the subscription order
has been placed provided however that such an investor gets any share allocation at all.
The exact number of the Offer Shares to be allotted to Retail Investors and Institutional Investors participating
in the Offering together with the information on the Offer Price shall be published following the setting of the Offer
Price as indicated in “Determination of the Offer Price”. The allotment of the Offer Shares is expected to take place
on or about 4 December 2006 (the “Allotment Date”). Neither the Issuer, nor the Selling Shareholders will give
preferential treatment to or discriminate against any Retail Investor or groups of Retail Investors who will place
subscription orders. In the case of an over-subscription, Shares shall be allotted to Retail Investors participating in
105
A3.5.1.9
A3.5.2.3(a) —
(f)
A3.5.2.4
A3.5.1.5
A3.5.1.6
A3.5.1.9
A3.5.2.3 (c)
A3.5.2.4
the Offering in accordance with the proportional reduction principle with respect to each order placed. Fractional
allocations (after the proportional reduction, if any) will be rounded down to the nearest integer, and remaining
individual shares shall be allotted to the Retail Investors who subscribed for the largest number of Shares.
Within 14 days from the Allotment Date or from the date of the announcement on abandoning the Offering,
Retail Investors who have not been allotted any Shares or whose subscriptions for the Shares have been reduced
shall receive reimbursements of cash payments and of excess payments in accordance with the instructions
provided by each Retail Investor as required under the procedures applicable in the brokerage house in which the
subscription order was placed. The excess payments shall be reimbursed without any damages for costs incurred by
the Retail Investors in the course of subscribing for the Shares.
A3.5.1.5
The Shares shall be allotted to Institutional Investors, subject to full payment for the Shares for which they
subscribed in accordance with the provisions set forth in this Prospectus, in the first instance to those of the
Institutional Investors who has been invited by the Lead Manager to participate in the book-building and will be
included in the allotment list prepared by the Issuer and the Affiliated Shareholder based upon the recommendation
and with the agreement of the Lead Manager (the “Allotment List”). The allocation of the Offer Shares to
Institutional Investors will be determined by the Lead Manager, at its discretion, subject to the consent of the Issuer
and the Affiliated Shareholder.
Institutional Investors will be notified about their allocations by the Lead Manager.
Retail Investors and Institutional Investors may be allotted the Sale Shares or New Shares and Overallotment
Shares. It is contemplated that the proportion of the Sale Shares to New Shares allotted to each Retail Investor and
Institutional Investor shall be substantially the same for each investor, however, a prospective investor should be
aware that he/she may receive various numbers of the New Shares and the Sale Shares as a proportion of their total
allocation of the Offer Shares.
An investor may be allocated New Shares only, or any combination of New Shares, Sale Shares and
Overallotment Shares. All Shares have equal rights and will be delivered to investors at the same time by
registration on their brokerage accounts through the facilities of the NDS. The Issuer and the Affiliated Shareholder
will attempt to allocate first the New Shares, and the Sale Shares will be allocated only after all New Shares have
been allocated.
A3.4.3
Dilution
A3.9.1
Upon completion of the Offering, the amount and percentage of the immediate dilution of the Issuer’s Shares
will be as follows, assuming all New Shares are subscribed and issued and all Sale Shares are sold and the
Overallotment Option is exercised in full:
Principal Shareholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,709,996
Overallotment Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,349,652
Sale Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,664,352
New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000
64.49%
4.63%
11.17%
19.74%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,724,000
100.00%
*
A3.9.2
Excluding any Shares that may in the future be issued in connection with the Employee Stock Incentive Plan.
Settlement
Registration of the Shares on investors’ securities accounts in their brokerage houses or custodian banks shall
be made through the NDS once the Shares have been admitted to trading on the WSE on or around 8 December
2006.
A3.4.3
Abandonment of the Public Offering
A3.5.1.4
The Company and the Selling Shareholders may abandon the Public Offering or a part thereof at any time
before the opening of the subscription period for Retail Investors without disclosing any reason for doing so.
The Managers may also cancel the Offering, at any time after the opening of the subscription period for Retail
Investors, if proceeding with the Offering will be considered impracticable or inadvisable. Such reasons include,
but are not limited to: (i) suspension or material limitation in trading in securities generally on the WSE; (ii) sudden
and material adverse change in the economic or political situation in Poland, Israel, the Czech republic, Hungary
and Bulgaria or worldwide; (iii) a material adverse change in or affecting the Company’s business or a material loss
106
A3.5.1.5
A3.5.2.3(g)
or interference with the Company’s business; (iv) insufficient, in the opinion of the Issuer or the Lead Manager,
expected free float of the Shares on the WSE; or (v) any change or development in or affecting the general affairs,
management, financial position, shareholders’ equity or results of the Company and its subsidiaries taken as a
whole in a material adverse way. In such event, subscription orders for the Firm Shares that have been made will be
disregarded, and any subscription payments made will be returned without interest or any other compensation.
Listing of the Shares
The Shares will be dematerialised and registered with the NDS. Application will be made to the WSE for the
admission of all of the Company’s Shares authorised and issued as at the Settlement Date, including the Firm Shares
and the Overallotment Shares plus 930,000 Shares that have been authorised and may be issued from time to time
under the Company’s Employee Stock Incentive Plan for listing on the main market in the continuous trading
system. Trading in the Shares is expected to commence on or about 8 December 2006.
A3.6.1
A3.6.2
Investors should consider that since under Dutch law, no registration process is needed in order to validly issue
any shares, the New Shares will be eligible for a listing application upon payment by investors, on par with the
remaining Shares — consequently, the Issuer will not be seeking to apply for listing of any temporary share
receipts, such as “rights to shares” (prawa do akcji) within the meaning of the Act on Trading in Financial
Instruments.
At present, the Company does not intend to seek listing of the Shares at any stock exchange other than the
WSE.
Offeror
A3.4.1
The Issuer has appointed CA IB Securities S.A. to act as its Offeror with respect to the Shares for the purposes
of the Offering and admission to trading on the main market of the WSE.
A3.4.3
A3.5.4.2
Registration of Shares
In accordance with applicable regulations, all the outstanding Shares as at the Settlement Date, including the
Firm Shares and the Overallotment Shares plus 930,000 Shares that have been authorised for issuance from time to
time under the Company’s Employee Stock Incentive Plan will be electronically registered with and cleared
through the NDS (Krajowy Depozyt Papierów Wartościowych S.A.) which is a Polish central clearinghouse and
depository of securities with its seat at ul. Ksia˛że˛ca 4, 00-498 Warsaw, Poland. All the Shares have been assigned
ISIN code: NL0000687309.
Lock-up Agreements
A3.7.3
Each of the Issuer, the Principal Shareholder and the Selling Shareholders have agreed that, without the prior
written consent of the Lead Manager, it or he will not, subject to certain exceptions, during the 180 days period after
the Allotment Date (the “Lock-up Period”) issue, offer, sell, contract to sell, pledge or otherwise transfer or dispose
of, or announce the proposed sale of, any Shares or other equity securities or securities linked to the Issuer’s share
capital, and the Issuer has agreed with the Managers to reasonably procure that any beneficiary of the Employee
Stock Incentive Plan (as defined below) who receives any options, shares or other securities of the Issuer in
connection with the Employee Stock Incentive Plan will not offer, sell, contract to sell, pledge or otherwise transfer
or dispose of any such options, shares or other securities during the Lock-up Period, provided, however, that (i) the
Issuer may, in connection with its Employee Stock Incentive Plan, issue options or other securities or contracts
whose value is linked to the value of the Issuer’s shares; and (ii) members of the Company’s management may
exercise any options granted to them under the Employee Stock Incentive Plan but any shares of the Issuer thus
acquired may not be offered, sold, contracted to sell, pledged or otherwise transferred or disposed of during the
Lock-up Period by such persons or on their behalf.
Expenses of the Offering
A3.8.1
The total estimated expenses to be incurred by the Company and the Affiliated Shareholder in connection with
the Offering will be announced in a press release on the Pricing Date. These will be comprised of the Managers’
underwriting fees of up to 5% of the gross proceeds of the Offering, plus an amount that is not expected to exceed
A1.5 million in relation to professional fees (including auditors’ fees and fees of local counsel) and other expenses
incurred in connection with preparation of the Offering.
107
PLACING AND UNDERWRITING
The Issuer and the Selling Shareholders intend to enter, on or about the Pricing Date, into an underwriting
agreement (the “Underwriting Agreement”) in respect of the Offering with the Managers, in which the Managers
will commit, on a best efforts basis, to procure subscribers for, or failing that, to subscribe in their own name and pay
for, the Firm Shares at the Offer Price. The underwriting commitment is summarised below:
Bank Austria Creditanstalt AG, Vordere Zollamtsstrasse 13, A-1030, Vienna, Austria . . . . . . . . . . . . . 90%
ING Bank N.V., London Branch, 60 London Wall, London EC2M 5TQ, England . . . . . . . . . . . . . . . . 10%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
CA IB Securities S.A., ul. Emilii Plater 53, 00-113 Warsaw, Poland, will act as Offeror in Poland with respect
to the Shares for the purposes of the Offering and admission to trading on the main market of the WSE.
In connection with the Offering, the Issuer has and the Selling Shareholders have agreed to pay a fee of up to
5%, including an incentive fee, of the gross proceeds from the placement and sale of the Offer Shares, pro rata to the
number of the New Shares and the Sale Shares in the Offering. In addition, the Issuer and the Selling Shareholders
have agreed to indemnify the Managers against certain liabilities and to reimburse the Managers for certain of their
expenses in connection with the management of the Offering. The Managers are entitled in certain circumstances to
be released and discharged from their respective obligations under the Underwriting Agreement prior to the Listing
Date. Such circumstances include the non-satisfaction of certain conditions precedent and the occurrence of certain
force majeure events. See “The Offering — Abandonment of the Public Offering”.
In addition, the Principal Shareholder has granted to the Managers an option exercisable for up to 30 days
following the Allotment Date to purchase up to an additional 2,349,652 Shares, the maximum number of which is
equal to 15% of the number of Firm Shares being offered in the Offering, solely to cover overallotments, if any,
made in connection with the Offering and short positions resulting from stabilisation transactions. See “The
Offering — Stabilisation and the Overallotment Option”.
Pursuant to the Underwriting Agreement, the Company, Principal Shareholder and the Selling Shareholders
have agreed to a lock-up. See “The Offering — Lock-up Agreements”.
Other Relationships
The Offeror and its respective affiliates have engaged in, and may in the future engage in, investment banking
and other commercial dealings in the ordinary course of business with the Company and the Selling Shareholders
and any of their respective affiliates. The Offeror and its respective affiliates have received and may receive in the
future customary fees and commissions for these transactions and services.
Selling Restrictions
The Offer Shares have not been and will not be registered under the US Securities Act, or with any securities
regulatory authority of any state or any jurisdiction in the United States. The Offer Shares are being offered only
outside the United States in accordance with Regulation S of the US Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, US persons except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the US Securities Act.
108
A3.5.4
A3.6.3
A3.6.4
A3.5.4.1
A3.5.4.2
A3.5.4.3
A3.5.4.4
A3.5.4.1
LEGAL MATTERS
Certain legal maters in connection with the Offering will be passed upon for the Company and the Selling
Shareholders with respect to United States laws and the laws of England and Wales by Baker & McKenzie LLP,
London, with respect to Polish law, by Baker & McKenzie Gruszczyński i Wspólnicy Kancelaria Prawna Sp.K., and
with respect to Dutch laws by Baker & McKenzie Amsterdam N.V.
109
INDEPENDENT AUDITORS
KPMG Accountants N.V., the Netherlands (“KPMG Netherlands”), independent auditors, with their address at
Burgemeester Rijnderslaan 10, 1185 MC Amstelveen, the Netherlands, have audited the consolidated financial
statements of the Issuer for each of the financial years ended 2003, 2004 and 2005 and reviewed the Interim
financial statements for the six-month periods ended 30 June 2005 and 30 June 2006. KPMG Netherlands have
given, and have not withdrawn, their written consent to the inclusion of their report and the reference to themselves
herein in the form and context in which they are included. KPMG Netherlands has no interest in the Issuer. The
signatory of the independent auditors’ report on the audited consolidated financial statements for the years 2003,
2004 and 2005 of the Issuer is a member of Royal NIVRA (het Koninklijk Nederlands Instituut van
Registeraccountants).
110
A1.20.4.1
A1.20.4.2
A1.2.1
A3.10.2
A3.10.3
A1.20.5.1
A1.20.6.2
A1.23.1
A1.20.6.1
GENERAL INFORMATION
Prospectus
This Prospectus constitutes a prospectus for the purposes of article 5.3 of the Prospectus Directive for the
purpose of giving the information with regard to the Issuer and the Shares it intends to offer pursuant to this
Prospectus which is necessary to enable prospective investors to make an informed assessment of the assets and
liabilities, financial position, profit and losses and prospects of the Issuer. The Prospectus Directive has been
implemented in the Netherlands as at 1 July 2005 in the Act on the Supervision of the Securities Trade 1995 (Wet
toezicht effectenverkeer 1995), as amended, the Decree on the Supervision of the Securities Trade 1995 (Besluit
toezicht effectenverkeer 1995), as amended, and the Exemption Regulation pursuant to the Act on the Supervision
of the Securities Trade 1995 (Vrijstellingsregeling Wet toezicht effectenverkeer 1995), as amended.
This Prospectus constitutes a prospectus in the form of a single document within the meaning of article 3 of the
Prospectus Directive. This Prospectus has been filed with, and was approved on 17 November 2006 by, the
Netherlands Authority for the Financial Markets, which is the Dutch competent authority for the purpose of relevant
implementing measures of the Prospectus Directive in the Netherlands. Under the Prospectus Directive and the Act
on Offerings, this Prospectus, once approved by the competent authority of one member state of the European
Union (“home member state”) may be used for making a public offering and admission of securities to listing on a
regulated market in another member state of the European Union (“host member state”), provided that the
competent authority of the home member state provides the competent authority of the host member state with a
certificate of approval of the Prospectus.
For the purposes of the public offering in Poland, the Issuer will publish a Polish translation of this Prospectus,
including a translation of the summary of the Prospectus. The Issuer is responsible solely for the accuracy of the
Polish translation of the summary of this Prospectus, or for omission of any information therein.
The Company
The Company is a limited liability company (naamloze vennootschap) of unlimited duration (registered
number 33260971) that is incorporated, exists and operates under the laws of the Netherlands, in compliance with
Book 2 of the Dutch Civil Code. On 12 April 1994, I.T. International Cinemas B.V. (the previous name of the
Company), was incorporated as a private limited liability company (besloten vennootschap met beperkte
aansprakelijkheid) under the law of the Netherlands, with statutory seat in Rotterdam, the Netherlands. I.T.
International Cinemas B.V. was converted into a limited liability company (naamloze vennootschap) on 24 March
2004. The Issuer’s address is Weena 210-212, 3012 NJ, Rotterdam, the Netherlands. The telephone number of the
Company’s registered office is +31 10 201 3602 and the Company’s fax number is +31 10 201 3603.
A1.5.1.3
A1.5.1.4
Shares in Book-Entry Form
The Issuer’s Shares are bearer shares and will be in book-entry form. The Shares will be registered with the
NDS, the central securities depository of Poland. No individual share certificates will be issued.
Corporate Resolutions and Share Capital
A1.21.1.7
The issued share capital of the Company is A407,240 divided into 40,724,000 ordinary bearer shares of A0.01
each. All of the shares are fully paid up.
The Company was incorporated on 12 April 1994 as a private limited liability company (besloten
vennootschap met beperkte aansprakelijkheid) under the law of the Netherlands with a share capital of NLG 40,000,
divided into 400 ordinary registered shares of NLG 100 each.
On 29 January 2004, the Company increased its share capital by A11,118.10 through the creation of
245 ordinary registered shares each having a par value of A45.38, which par value before the introduction of
the Euro amounted to NLG 100.
On 11 March 2004, the Company increased its share capital by A4,764.90 to A34,000 through the creation of
105 ordinary registered shares each having a par value of A45.38.
On 24 March 2004, the 750 ordinary registered shares were converted into 3,403,352 registered shares each
with a par value of A0.01 pursuant to the resolution of the shareholders, under which the Company was also
converted from a private limited liability company into a public limited liability company. At the same time
31,656,296 ordinary registered shares were issued each with a par value of A0.01.
111
On 13 May 2004, pursuant to the resolution of the Shareholders, the 4,940,352 ordinary registered shares, each
with a par value of A0.01, were issued.
On 13 June 2004, in accordance with article 9 of the current Articles of Association, the Company’s
shareholders pursuant to their resolution authorised the Management Board to issue shares within the authorised
share capital for a period of 5 (five) years, until June 14 2009.
On 14 June 2004, the Shareholders resolved to issue 724,000 ordinary registered shares, each with a par value
of A0.01, which issuance was realised on June 15 2004. Following this share issue, the Issuer’s issued and paid up
share capital is A407,240.
On 6 September 2004 the Management Board adopted a resolution in which it resolved, amongst other things,
to exchange 40,724,000 ordinary registered shares for 40,724,000 ordinary bearer shares, each share having a par
value of A0.01, which proceedings also involved the revocation of the shareholders’ register and execution of six
global share certificates representing all the ordinary bearer shares.
On 6 June 2006, the Management Board adopted a resolution in which it resolved, amongst other things, to
exchange 40,724,000 ordinary bearer shares for 40,724,000 ordinary registered shares, each share having a par
value of A0.01, which proceedings also involved the registration of such shares in the shareholders’ register and
cancellation of six global share certificates.
On 31 October 2006, in accordance with the resolution of the General Meeting of Shareholders, which was
adopted upon the proposal of the Management Board and under approval of the Supervisory Board, the Articles of
Association were amended.
On 7 November 2006, the Shareholders adopted a resolution in which it resolved, amongst other things, to
exchange 40,724,000 ordinary registered shares for 40,724,000 ordinary bearer shares, each share having a par
value of A0.01, all in accordance with the Articles of Association.
A3.4.6
On 7 November 2006, the Shareholders resolved to confirm, in accordance with the Articles of Association,
the designation of the Management Board as the corporate body with the power to issue Shares, subject to the
approval of the Supervisory Board, for a fixed period not exceeding five years from 18 June 2004 to 18 June 2009,
up to a number equal to not more than the Authorised Shares at the time of the resolution of issue or grant.
On 7 November 2006, the Shareholders resolved to confirm, in accordance with the Articles of Association,
the designation of the Management Board as the corporate body with the power to restrict or exclude pre-emptive
rights for a fixed period of five years, starting from 7 November 2006.
On 7 November 2006, the Shareholders resolved to authorise the board of managing directors for eighteen
months effective from 7 November 2006, subject to the Supervisory Board’s approval, to purchase for consideration
fully paid-up shares in the Company’s own capital, on the stock exchange or otherwise, and to alienate shares in the
Company’s own capital, irrespective of whether such shares were purchased by the Company before or after
aforementioned date, in the context of Employee Stock Incentive Plans or for other general corporate purposes. The
said authorisation will cover the maximum number of shares which may be acquired by the Company in its own
capital pursuant to the law and its Articles of Association at the time of the acquisition, in which respect the price
must be between the shares’ nominal value and 110% of the average price of the shares listed on the WSE over the
five days immediately preceding the purchase.
On 7 November 2006, the Shareholders resolved to approve an incentive based Employee Stock Incentive Plan
comprising of a maximum of 930,000 incentive shares consisting of newly issued and/or repurchased Shares for
managing directors, members of management and employees of the Company and to authorise the Supervisory
Board to determine, with the participation of at least one independent member of the Supervisory Board, the exact
criteria of any options granted, and the persons to whom they shall be granted. A General Meeting of Shareholders
shall approve the exact terms and criteria and the number of stock options granted to the members of the
Management Board.
Sale of the Sale Shares does not require any approval by the Issuer or approval of the current Shareholders.
Group Structure and Subsidiaries
The Company is a holding company and a controlling entity of companies that pursue business activities in
various countries including Poland, Hungary, Czech Republic, Bulgaria and Israel. The Issuer is responsible for
strategic management of the Company and its new investments and financing.
112
A1.7.1
A1.7.2
A1.25
The following table sets out the Company’s focus of operations:
Principal direct and indirect subsidiaries
A1.7.1
% held by the
Company
indirect/direct %
of votes held by
the Company
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
99%
. . Poland
100%
100%
Holding company
Financing Vehicle
Multiplex
Multiplex
Cinema advertising
Distribution
Real estate
management,
advertising
Manpower
. . Poland
. . Poland
. . Poland
100%
100%
100%
100%
100%
100%
Inactive
Movie exhibition
Movie exhibition
.
.
.
.
.
.
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
99%
100%
Real estates
Multiplex
Distribution
Distribution
Multiplex
Multiplex
. . Bulgaria
100%
100%
Multiplex
. . Israel
. . Israel
100%
100%
100%
100%
.
.
.
.
Israel
Israel
Israel
Israel
100%
100%
50%
50%
100%
100%
60%
60%
Multiplex
Sale of the tickets
over the phone
Cinema advertising
Movie exhibition
Holding company
Film distribution
. . . . . . . . Israel
30%
60%
Video - retail
. . . . . . . . Israel
50%
60%
Video - AVM
(Automated Video
Machines)
Company
Country
I.T. Sofia B.V. . . . . . . . . . . . . . . . . . .
Cinema City Finance B.V. . . . . . . . . . .
Cinema City Poland Sp. z o.o. . . . . . . .
I.T. Poland Development 2003 Sp. z o.o.
New Age Media sp. z o.o . . . . . . . . . .
Forum Film Poland sp. z o.o . . . . . . . .
New Cinemas Poland sp. z o.o . . . . . . .
All Job Poland sp. z o.o. . . . . . . . . . .
Cinema City International Poland
sp. zo.o . . . . . . . . . . . . . . . . . . . .
Stars Poland sp. z o.o . . . . . . . . . . . .
Star Poland sp. z o.o . . . . . . . . . . . . .
Janki Properties sp. z o.o.
(in liquidation) . . . . . . . . . . . . . . .
I.T. Magyar Cinema Kft. . . . . . . . . . .
Forum Film Home Entertainment Kft.
Forum Film Distribution Kft. . . . . . . .
Kino 2005 a.s . . . . . . . . . . . . . . . . . .
I.T Czech Cinemas S.R.O . . . . . . . . .
Cinema City Bulgaria International
EOOD . . . . . . . . . . . . . . . . . . . . .
I.T. International Theatres 2004
Limited . . . . . . . . . . . . . . . . . . . .
Teleticket Limited . . . . . . . . . . . . . . .
Mabat Advertisement Limited
I.T. Cinema Plus Limited . . . .
Norma Film Limited . . . . . . .
Forum Film Limited . . . . . . .
Ya’af — Giant Video Library
Network Limited . . . . . . . .
Ya’af — Automatic Video
Machines Limited . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
The Netherlands
The Netherlands
Poland
Poland
Poland
Poland
Poland
Poland
Hungary
Hungary
Hungary
Czech Republic
Czech Republic
A1.7.2
Activity
Documents Available for Inspection
A1.25
A1.24
The following documents will be available for inspection free of charge at the Company’s specified office
address during normal business hours from the date of this Prospectus for a period of one year:
•
the Articles of Association;
•
the Company’s audited financial statements as at and for the years ended 31 December 2003, 31 December
2004 and 31 December 2005;
•
the Company’s interim financial statements as at and for the six month period ended 30 June 2006;
•
copies of corporate resolutions mentioned in the preceding section; and
•
copies of third party source publications cited in this Prospectus.
Moreover, the following documents will be available through the Company’s website www.cinemacity.nl:
•
this Prospectus, together with its summary translated into the Polish language;
•
the Polish-language version of this Prospectus;
•
the current Articles of Association;
•
copies of the documents required to be published on the Company’s website pursuant to the Dutch
Corporate Governance Code and the WSE Corporate Governance Rules; and
•
statement of the Company’s compliance or non-compliance with the WSE Corporate Governance Rules.
113
(This page has been left blank intentionally)
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements As At and for the Year Ended 31 December 2003 . . . . . . . . . . . . . . . . .
Audited Financial Statements As At and for the Year Ended 31 December 2004 . . . . . . . . . . . . . . . . .
A1.20.3
F-2
F-50
Audited Financial Statements As At and for the Year Ended 31 December 2005 . . . . . . . . . . . . . . . . . F-98
Interim Financial Statements As At and for the Six Month Period Ended 30 June 2006 . . . . . . . . . . . . F-144
F-1
A3.10.2
A1.20.5.1
A1.20.6.1
A1.20.6.2
Financial Statements
for the year ended
31 December 2003
F-2
Financial Statements for the year ended 31 December 2003
Contents
Page
Auditors’ report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements for the year ended 31 December 2003
Consolidated Balance Sheet as of 31 December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Income Statement for the year ended 31 December 2003 . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Shareholders’ Equity for the year ended 31 December 2003 . . . . . . . . . . . . .
Consolidated Statement of Cash Flows for the year ended 31 December 2003 . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dutch GAAP information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent Company Financial Statements
Parent Company Balance Sheet as of 31 December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent Company Income Statement for the year ended 31 December 2003 . . . . . . . . . . . . . . . . . . . . . .
Notes to the Parent Company Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-3
F-4
F-5
F-7
F-8
F-9
F-11
F-41
F-42
F-44
F-45
Auditors’ Report
To the Shareholders of
Introduction
We have audited the consolidated balance sheet of Cinema City International N.V., Amsterdam,
as of 31 December 2003, and the related consolidated income statement, changes in shareholders’ equity and cash flows for the year then ended, as set out on pages F-5 to F-40. These
consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.
Scope
We conducted our audit in accordance with International Standards on Auditing that are also
accepted in the Netherlands. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial
position of the Company as at 31 December 2003 and of the results of its operations, the change
in the shareholders’ equity and its cash flows for the year then ended in accordance with
International Financial Reporting Standards promulgated by the International Accounting
Standards Board.
Amstelveen, 26 March 2004
KPMG ACCOUNTANTS N.V.
P. Mizrachy RA
F-4
Consolidated Balance Sheet
31 December
Note
ASSETS
FIXED ASSETS
Intangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial fixed assets
Loans to unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total financial fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
2002
EUR (thousands)
4
5
374
138,548
328
140,227
267
86,776
6
24
—
2,080
3
2,083
18,956
2,603
3
21,562
19,322
1,265
190
20,777
141,005
162,117
107,820
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001
CURRENT ASSETS
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
3,042
2,831
3,002
Receivables
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to (unconsolidated) subsidiaries . . . . . . . . . . . . . . . . . . . .
Receivable from related parties . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other amounts receivable and prepaid expenses . . . . . . . . . . . . .
8
6
25
24
9
5,371
15,743
596
701
5,155
4,805
—
59
564
4,424
4,586
—
53
201
4,087
27,566
9,852
8,927
208
117
964
117
406
117
325
1,081
523
5,377
808
6,185
2,241
1,619
3,860
2,818
1,961
4,779
37,118
178,123
17,624
179,741
17,231
125,051
Total receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-marketable securities held for sale . . . . . . . . . . . . . . . . . . .
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquid funds
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liquid funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
11
See accompanying notes to the Consolidated Financial Statements.
F-5
31 December
Note
SHAREHOLDERS’ EQUITY AND LIABILITIES
SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium on share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation adjustment . . . . . . . . . . . . . . . . .
18
29,531
17,402
(189)
18
29,530
15,177
(292)
51,869
46,762
44,433
13
53
779
1,083
14
24
15
743
1,781
9,997
786
1,915
11,228
625
1,106
—
12,521
13,929
1,731
76,731
3,957
3,340
164
73,170
4,771
1,790
149
30,236
—
1,091
513
84,192
79,880
31,840
12,648
8,315
2,670
1,234
1
4,620
29,488
19,188
10,984
286
1,389
474
6,070
38,391
28,886
10,239
67
1,486
—
5,286
45,964
178,123
179,741
125,051
16
25
Total Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES . . . . . .
17
25
24
18
F-6
2001
18
40,100
11,749
2
Total Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG TERM LIABILITIES
Long-term loans, net of current portion . . . . . . . . . . . . . . . . . . . . .
Loan from shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income received in advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002
EUR (thousands)
12
Total Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROVISIONS
Accrued employee retirement rights, net . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision related to onerous lease contracts . . . . . . . . . . . . . . . . . .
2003
Consolidated Income Statement
Note
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain/(loss) on disposals and write-off of other
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxation . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net profit after taxation . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests in (profit)/loss of consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
21
95,783
85,696
88,608
78,629
75,540
63,838
22
22
10,087
4,630
5,457
3,476
(4,082)
9,979
4,785
5,194
1,993
(3,741)
11,702
4,369
7,333
1,718
(794)
23
(231)
(164)
(2,421)
24
13
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*)
Number of average equivalent shares . . . . . . . . . . . . . . .
Net earnings per ordinary share (basic and diluted) of
EUR 0.01*) each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 26
*)
2003
2002
2001
EUR (thousands, except per share data and
number of shares)
4,620
756
3,282
1,059
5,836
1,779
3,864
2,223
4,057
(270)
2
(868)
3,594
2,225
3,189
35,059,648
35,059,648
35,059,648
0.10
0.06
0.09
The net earning per share was calculated taking into account the par value of share and the number of shares as of the date of this financial
statements see note 12, 26.
F-7
Statement of Shareholders’ Equity
Number of
Shares1
Share
capital
Share
Premium
Retained
earnings
Accumulated
currency
translation
adjustments
Total
EUR (thousands) except number of shares
Balance as of 1 January 2001. . . . . . . . . .
Net income for the year 2001. . . . . . . . . .
Costs of options granted . . . . . . . . . . . . .
Foreign currency translation adjustment . .
Balance as of 31 December 2001 . . . . . . .
Costs of options granted . . . . . . . . . . . . .
Foreign currency translation adjustment . .
400
—
—
—
400
—
—
—
18
—
—
—
18
—
—
—
29,526
—
4
—
29,530
—
1
—
11,988
3,189
—
—
15,177
2,225
—
—
—
—
—
(292)
(292)
—
—
103
41,532
3,189
4
(292)
44,433
2,225
1
103
Net income for the year 2003. . . . . . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . . . .
Transfer to Share Premium2 . . . . . . . . .
Balance as of 31 December 2003 . . . . . .
400
—
18
—
29,531
—
17,402
3,594
(189)
—
46,762
3,594
—
—
400
—
—
18
—
10,569
40,100
—
(9,247)
11,749
1,513
(1,322)
2
1,513
—
51,869
1
As part of the Restructuring, the Company allocated additional shares to ITIT, then split each share to a par value of EUR 0.01, and issued
new shares to ITIT to bring its holding to 35,059,648 shares. As ITIT is the 100% shareholder, the effect of this transaction is very similar
to a stock split. The formal registration of the new shares was completed in March 2004. The number of shares and the share capital
presented in the table above reflect the actual number as of 31 December 2001, 2002 and 2003.
2
The Transfer to Share Premium relates to the effects of the Restructuring on the statutory composition of the Company’s shareholders
equity (see Notes 1 and 7 to the Parent Company Financial Statements).
F-8
Consolidated Statement of Cash Flows
2003
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase)/decrease in value of marketable securities . . . . . . . . . . . . . . . . . . . .
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss/(gain) on disposition of property and equipment, net . . . . . . . . . . . . . . . .
Decrease in provision related to onerous lease contracts . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accrued employee rights upon retirement, net . . . . . . . . . . . . . . . .
Minority interests in (losses)/earnings of consolidated subsidiaries. . . . . . . . . .
Write-off of other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange and others . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in long-term film distribution costs and deferred
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase/(decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase/(decrease) in employee and payroll accruals . . . . . . . . . . . . . . . . . . .
Increase/(decrease) in related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in income received in advance . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities
Purchase of property and equipment and other assets . . . . . . . . . . . . . . . . . . .
Purchase of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposition of property and equipment . . . . . . . . . . . . . . . . . . .
Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to third party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from non-marketable securities held for sale. . . . . . . . . . . . . . . . . . .
Investment in subsidiary companies (Appendix A) . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in long-term payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term bank credit, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend to minority shareholders of subsidiary company . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange differences on cash . . . . . . . . . . . . . . . . . . . . . .
Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001
3,594
2,225
3,189
(3,476)
4,082
756
(2,865)
(226)
10,391
156
(1,231)
(933)
37
270
—
—
(98)
10,457
(378)
593
(1,993)
3,741
1,059
(2,076)
(370)
9,583
105
(1,126)
(1,713)
161
(2)
—
1
(621)
8,974
174
679
(1,718)
794
1,779
(1,232)
39
6,402
(14)
—
(1,724)
87
868
2,409
5
(684)
10,200
(576)
(515)
15
(996)
(37)
1,802
(620)
30
409
10,866
392
418
(96)
160
111
(365)
1,473
10,447
(99)
(3,937)
335
(50)
236
163
(4,443)
5,757
(14,999)
—
—
725
811
—
(1,225)
884
—
(13,804)
(30,271)
—
—
155
342
366
—
—
(18,584)
(47,992)
(28,892)
(374)
(826)
187
13,202
(13,346)
—
—
(56)
(30,105)
18,960
(8,061)
1,550
(5,435)
(904)
6,110
(36)
3,136
2,241
5,377
77,340
(28,581)
—
(11,291)
(302)
37,166
(198)
(577)
2,818
2,241
24,552
(824)
—
(1,599)
(1,129)
21,000
(292)
(3,640)
6,458
2,818
F-9
2002
EUR (thousands)
Appendix A: Acquisition of consolidated subsidiaries
For the year ended
31 December
2003
2002
2001
EUR (thousands)
Investment in subsidiary companies
Working capital, other than cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision related to onerous lease contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
377
(31,314)
12,353
221
(458)
181
Total investment in subsidiary company — see also note 3 . . . . . . . . . . . . . . . . . . . .
—
—
(18,584)
(18,584)
(56)
(56)
The investments in 2002 relate to Ster Century Poland (see also Note 3.II.1). The 2001 investments in
subsidiaries relate to investments in I.T. Sofia B.V. and Megaplex Poland Sp.Zoo.
F-10
Notes to the Consolidated Financial Statements
Note 1 — General and principle activities
The accompanying Consolidated Financial Statements present the financial position, results of operations,
changes in shareholders’ equity, and cash flows of Cinema City International N.V. — previously known as
I.T. International Cinemas B.V. — (“the Company”, or “the Group”). The financial statements were authorised for
issue by the directors on 26 March 2004.
Cinema City International N.V., incorporated in the Netherlands, is a wholly-owned subsidiary of I.T. International Theaters Ltd. (“ITIT” or “parent company”), incorporated in Israel. The Group is principally engaged in
the operation of entertainment activities in various countries including: Poland, Hungary, Czech Republic, Bulgaria
and Israel. The Company is also engaged in managing and establishing its own entertainment real estate projects for
rental purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in
short-term and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the
availability of suitable motion pictures from third parties for exhibition in its theatres, and the performance of such
films in the Company’s markets.
Historically, the film exhibition, distribution and video rental operations in Israel, as well as the assets related
to these operations, were divided among ITIT and other subsidiaries of ITIT. As a result of the continuing expansion
into Central Europe, and the increasing significance of Central Europe operations to the Group, during 2003 ITIT
restructured its operations in Israel to be included within the Company (‘the Restructuring’).
At the end of 2003 financial year, as part of the Restructuring, ITIT and the Company performed certain
transactions that, among other things, provided for: (i) the transfer to I.T. International Theatres 2004 Ltd. (“IT2004”), a new subsidiary of ITIT (See note 3 (I) (4)), of all assets connected with the film exhibition business in
Israel; (ii) The transfer from ITIT to the Company of all shares in IT-2004 and in all other subsidiaries which relate
to the Group’s operations in Israel; (iii) ITIT’s agreement not to compete in the markets that the Company operates
in; (iv) the assignment of all remaining ITIT loans and balances from financial institutes to the Company; (v) the
assignment of all assets and liabilities of Pan-Europe Finance B.V., a wholly-owned subsidiary of ITIT, to the
Company, in consideration of debt. The debt was then converted to shares in the Company.
Upon completion of the Restructuring, the Company became owner and holder of all the operations of the
Group in both Europe and Israel.
The Consolidated Financial Statements for the year ended 31 December 2003 present the ownership and
operation of the Group as if the entire Group’s business had been owned and operated by the Company since
1 January 2003 (Consolidated Financial Statements in accordance with IFRS). Although the Restructuring was
completed towards the end of 2003, such a presentation would appropriately reflect the economic operation and
financial position of the Group. Prior to the Restructuring, the equivalent economic operations and financial
position were held by ITIT, and are therefore shown as the comparative figures in the 2003 financial statements of
the Company. The comparative figures were presented in the 2002 Consolidated Financial Statements of ITIT in US
dollars. For the purposes of the 2003 financial statements of the Company, the comparative figures were translated
to euro in accordance with the principle set in note 2 B (5).
The comparative figures of shareholders’ equity and its constituent elements for the years ended 31 December
2002 and 31 December 2001 have been presented to reflect the equity position of the Group and the Company on an
equivalent basis.
The Consolidated Financial Statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”), and interpretations issued by the Standing Interpretations Committee of the IASB. The Company’s separate financial
statements (the ‘Parent Company Financial Statements’) are prepared in accordance with the applicable laws
and regulations of the Company, being Generally Accepted Accounting Principles in the Netherlands (’Dutch
GAAP’) and are taken up on pages F-42 through F-49. For an explanation of the comparison between IFRS and
Dutch GAAP reference is made to the section Dutch GAAP Information on page F-41.
F-11
Notes to the Consolidated Financial Statements (Continued)
Note 2 — Summary of Significant Accounting Policies
A.
Statement of compliance
The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the IASB.
The Company has adopted the standards and interpretations with an effective date before 31 December 2003.
The Company did not use the possibility for early adoption of standards and interpretations that were not yet
effective.
B.
Basis of presentation
(1)
Measurement basis
The financial statements are presented in euro, rounded to the nearest thousand. They are prepared on
the historical cost basis adjusted for the change in the measurement currency. Prior to 31 December
2002, measurement of the cost was accounted for in US dollars. As described in section (4) below, the
currency changed to euro from 1 January 2003. Consequently, historical cost was translated into euro at
the exchange rate of 31 December 2002, and was then accounted for in euro. Unless otherwise stated,
monetary assets and liabilities are presented at nominal value. Marketable securities are presented at fair
value.
(2)
Integral foreign operations
The measurement currency of the operations in Central Europe is the euro. All of the Central European
subsidiaries are considered to be integral to the Company’s operations. Management believes that the
euro reflects the economic substance of the underlying event and circumstances and is the relevant
currency for the Central European subsidiaries.
The financial statements of integral foreign operations were translated into euro as follows: Monetary
items were translated at the closing exchange rate; non-monetary items were translated at the exchange
rate on the date of transaction. Income statement items were translated at the average exchange rate for
the year. Foreign exchange differences arising on translation have been recognised in the income
statement.
(3)
Non-integral foreign operations
The measurement currency of the operations in Israel is the New Israeli Shekel (NIS). Management
considers that the Israeli operations to be autonomous from the Company, with a measurement currency
of NIS rather than euro. Management believes that NIS reflects the economic substance of the
underlying event and circumstances relevant to the Israeli subsidiaries.
The financial statements of non-integral foreign operations were translated into euro as follows:
Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate.
Income statement items were translated at the average exchange rate for the year. Foreign exchange
differences arising on translation have been are recognised directly in equity.
(4)
Change in measurement and presentation currency
Prior to 1 January 2003, the measurement and presentation currency of the Group was US dollars (with
the exception of one subsidiary in the Czech Republic which defined the Czech Crown as its
measurement currency). The growth of the Company’s operations in Central Europe, the change in
management focus to operate in euro, and the reorganisation resulting in the Company being the
controlling entity of the Group, has led the Company to change its measurement and presentation
currency in Europe to euro (including all subsidiaries in the Czech Republic). The Israeli operations, as
non-integrated autonomous foreign operations, have the NIS as measurement currency and euro as
presentation currency. As a result of the recent significant changes in the Company’s economic
environment in Israel, the measurement currency of the Israeli operations as from 1 January 2003 is
the NIS.
F-12
Note 2 — Summary of Significant Accounting Policies (continued)
B.
Basis of presentation (continued)
(5)
C.
Comparative balance sheet figures and results prior to 1 January 2003, that were previously measured in
US dollars, have been translated into euro to enable comparison between the reporting periods. The
translation from US dollars to euro has been performed in accordance with Interpretation 30 of the
Standing Interpretations Committee of the IASB (“SIC”), as follows:
•
Assets and liabilities were translated at the closing rate prevailing as at 31 December 2002.
•
Income and expense items and equity transactions were translated at the exchange rates prevailing
during 2002 at the dates of the transactions or a rate that approximates the actual exchange rates.
•
Equity items other than the net profit or loss were translated at the closing rate prevailing as
31 December 2002.
•
All exchange differences resulting from the above translations were recognised directly in equity.
Exchange rates
Information relating to the relevant euro exchange rates (at year end and averages for the year):
Czech
Crowns
As of 31 December
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change during the year
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate of euro
Hungarian
Polish
US
Forints
Zloty
Dollar
Israeli
Shekel
(CZK)
(HUF)
(PLN)
(USD)
(NIS)
32.41
31.60
246.33
235.90
4.72
4.02
1.26
1.05
5.53
4.97
%
%
%
%
%
2.56
(1.19)
4.42
(10.04)
17. 41
14.14
20.00
18.51
11.27
27.52
Czech
Crowns
Hungarian
Forints
Polish
Zloty
US
Dollar
Israeli
Shekel
(CZK)
(HUF)
(PLN)
(USD)
(NIS)
34.08
30.81
253.18
262.19
4.40
4.29
1.15
0.95
5.13
4.98
%
%
%
%
%
10.61
(3.23)
(3.44)
(13.40)
2.50
(0.59)
21.05
5.56
2.90
12.74
Average for year
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change year over year
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D.
Principles of consolidation
The Consolidated Financial Statements include the accounts of the Company, its subsidiaries, and jointly
controlled entities.
Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the
power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits
from its activities. The financial statements of subsidiaries are included in the Consolidated Financial Statements
from the date that control effectively commences until the date that control effectively ceases.
Jointly controlled entities are those enterprises over whose activities the Company has joint control,
established by contractual agreements. The Consolidated Financial Statements include the Company’s proportionate share of the enterprises’ assets, liabilities, revenues and expenses with items of similar nature on a
line-by-line basis, from the date that joint control commences until the date that joint control ceases.
F-13
D.
Principles of consolidation (continued)
All inter-company accounts and transactions are eliminated when preparing the Consolidated Financial
Statements.
A list of the companies whose financial statements are included in the Consolidated Financial Statements and
the extent of ownership and control appears in note 32 to these financial statements.
E.
Use of estimates
The preparation of financial statements in conformity with IFRS requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
F.
Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortization, calculated
over the estimated useful life of the assets, and impairment losses, if any. The recoverable amount is estimated at
least at each balance sheet date. According to IAS 36, the carrying amount of the intangible assets mentioned above
is reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such
indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.
G. Property and equipment
(1)
Property and equipment are stated at cost less accumulated depreciation and impairment losses.
Expenditures for maintenance and repairs are charged to expenses as incurred, while renewals and
betterments of a permanent nature are capitalised.
(2)
Depreciation is calculated by means of the straight-line method over the estimated useful lives of the
assets.
Annual rates of depreciation are as follows:
%
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movie cassettes and DVDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
...........
2-3
. . . . . . . . . . . Mainly 10
. . . . . . . . . . . Mainly 5
...........
6-33
...........
15-20
...........
25-33
...........
20
(3)
Leasehold improvements are depreciated over the estimated useful lives of the assets, or over the period
of the lease, including certain renewal periods, if shorter.
(4)
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are
classified as finance leases. Plant and equipment acquired by way of finance lease is stated at an amount
equal to the lower of its fair value and the present value of the minimum lease payments at inception of
the lease, less accumulated depreciation.
(5)
According to IAS 36 the carrying amount of assets mentioned above is reviewed at each balance sheet
date to determine whether there is any indication of impairment. If any such indication exists, the
recoverable amount is estimated as the higher of net selling price and value in use.
(6)
Financing expenses relating to short-term and long-term loans, which were taken for the purpose of
purchasing or constructing property and equipment, as well as other costs which refer to the purchasing
or constructing of property and equipment, are capitalised to property and equipment, in accordance
with IAS 23.
F-14
H. Inventories
Inventories include concession products, spare parts, music cassettes, CDs and video cassettes, and are stated
at the lower of cost or net realisable value. Cost is determined by means of the “first in, first out” method. Cost of
music cassettes is determined on the basis of the average purchase price. Net realisable value is the estimated selling
price during the normal course of business, less the estimated costs of completion and selling expenses.
I.
Allowance for doubtful accounts
The allowance for doubtful accounts is determined based upon management’s evaluation of receivables
doubtful for collection on a case-by-case basis.
J.
Marketable securities
The investments in securities held by the Group are classified as trading securities. Trading securities are
bought and held principally for the purpose of selling them in the short term and are recorded at fair value. The fair
value of investments held for trading is their quoted bid price as of the balance sheet date. Unrealised gains and
losses on these securities are included in the income statement. Dividends and interest income are recognised when
earned.
K. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term highly liquid investments, that are readily
convertible to known amounts of cash, and which are subject to insignificant risk of changes in value.
L.
Employee benefits — defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income
statement as incurred.
M. Provision related to onerous lease contracts
During July 2002, the Group acquired a cinema chain in Poland at a discount, which was allocated to the lease
agreements of the cinemas acquired. In the financial statements of the Company the discount is presented as a
provision related to onerous lease contracts and is released to the income statement over the term of the lease (see
also note 3 (II) 1).
N.
Long term liabilities
Long term liabilities are stated at their nominal value plus accumulated interest. For information regarding the
fair value of long term liabilities reference is made to Note 27 e.
O. Severance pay
The Group’s liability for severance pay is calculated pursuant to local applicable severance pay laws and
employee agreements based on the most recent salary of the employees. The Group’s liability for all of its
employees is partly provided by monthly deposits with insurance policies and by accruals. The deposited funds
include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the
fulfilment of the obligation pursuant to local severance pay law or labour agreements. The value of the deposited
funds is based on the cash value of these policies, and includes immaterial profits.
P.
Revenue recognition
(1)
Revenues from admission (ticket sales) and concession sales (snack-bars operated by the Company) are
recognised when services are provided.
(2)
Revenues from distribution of cinema films are recognised on an accrual basis by a percentage of
admissions from the related films.
F-15
P.
Revenue recognition (continued)
(3)
Revenues from distribution of films to cable television companies and television stations are recognised
over the agreed period for the screening of the film.
(4)
Revenues from sales of video cassettes and DVDs are recognised upon delivery to the customer.
(5)
Revenues from video cassettes and DVD rentals are recognised as the rental services are provided.
(6)
Revenues from “on screen” advertising contracts are included in other revenues and are recognised
when the related advertisement or commercial is screened, or, in some cases, over the period of the
contract.
(7)
Revenues from rental contracts are included in other revenues and are recognised on an accrual basis.
(8)
Revenues from the sale of real estate are included in other revenues and are recognised when the
significant risks and benefits of the ownership have been transferred and when the buyer is committed to
the purchase, and the sales price is considered collectible.
Q. Operating costs
R.
(1)
Theatre operating costs — Include direct concession product and joint theatre facility costs such as
employee costs, theatre rental and utilities, which are common to both ticket sales and concession
operations.
(2)
Cost of films distributed — Cost of films distributed are capitalised until the time the films are
distributed for screening. Once the films have been distributed and screening has begun, the costs are
amortised at a rate equal to the ratio of revenues in the period to total estimated revenues for the films.
(3)
Advertising expenses — General advertising expenses are expensed as incurred. Film advertising
Net financing cost
recognised on hedging instruments are recognised in the income statements.
Interest income is recognised in the income statements as it accrues, taking into account the effective yield on
the asset.
S.
Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to foreign exchange rate risks arising
from operational and financing activities.
Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative
financial instruments are stated at fair value.
Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a
recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging
instrument is recognised in the income statement.
T.
Income taxes
recognised in equity.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
F-16
T.
Income taxes (continued)
purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
U.
Earnings per share
Earnings per share were computed according to IAS 33 of the IASB. The computation is determined on the
basis of the weighted average par value of the issued and paid-in share capital outstanding during the year.
V.
Stock Option Plan
The Company applies the intrinsic value-based method of accounting prescribed by the Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in
accounting for its fixed plan stock options. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for
Stock-Based Compensation”, established accounting and disclosure requirements using a fair value-based method
of accounting for stock-based compensation plans for employee and for advisor. As allowed by SFAS No. 123, the
Company has elected to apply the intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123, and the relevant disclosures mentioned in IAS 19.
W. Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services
(business segment), or in providing products or services within a particular economic environment (geographical
segment), which is subject to risks and rewards that are different from those of other segments.
Note 3 — Changes in Consolidated Entities
(I) Changes in consolidated entities during 2003:
(1)
Forum Film Poland Sp.Zoo — 100% shares. This company commenced operations in July 2003. This
company specialises in distribution of films in Poland.
(2)
MO. Sofia EAD — 50% share. In July 2003, the Company has sold 50% of its holding in this company
for a total price of EUR 2,696,000 (which was partly paid through the repayment of shareholders loans
provided to MO Sofia by the Company).
(3)
I.T. Sofia BV — 100% shares. in conjunction with the above (2), the Company acquired the remaining
25% of the shares of I.T. Sofia BV. The Company has paid a EUR 269,000 (USD 300,000) down
payment out of a total payment of EUR 526,000 (USD 600,000), and may pay additional amounts after
the opening of the project. The rest of the initial payment is subject to milestones relating to the progress
of the development of the project, and the additional payments are subject to agreed success criteria after
the opening.
(4)
IT Theatres 2004 Ltd. — 100%. New subsidiary, incorporated as part of the reorganisation (See note 1).
Movie theatres operations in Israel were transferred to this subsidiary in December 2003.
(II) Changes in consolidated entities during 2002:
(1)
In July 2002, the Company acquired four multiplex cinemas in Poland from Ster Century Europe
Limited. The multiplexes comprise a total of 46 screens and approximately 10,000 seats. The Company
purchased all of the shares of Ster Century Europe’s Polish subsidiaries, and purchased shareholder
loans provided to these subsidiaries, for a total price of approximately EUR 19 million (USD 20 million).
F-17
Note 3 — Changes in Consolidated Entities (continued)
(II) Changes in consolidated entities during 2002: (continued)
A provision of EUR 12,731,000 (USD 13,369,000), relating to onerous lease contracts, which the
acquired subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition.
The provision is amortised over the non-cancellable periods of the lease contracts.
(2)
IT Czech cinemas — 100% shares. This company commenced operations in December 2002 to operate
all new projects in the Czech Republic. The first multiplex was opened during December 2002. A new
IMAX multiplex was opened in March 2003.
(3)
Cinema-City Poland Sp.Zoo — 100% shares, directly and indirectly. This company resulted from the
merger of IT Bemowo and IT Poland Cinemas during June 2001. The principal business of this company
is the construction and operation of multiplexes in Poland. During 2002 Cinema-City Poland Sp.Zoo
took over Megaplex Baildon Sp.Zoo, IT Poland Development 2001 Sp.Zoo, Ster Century Poland
Sp.Zoo and Janki Properties Poland Sp.Zoo.
(4)
Megaplex Baildon Sp.Zoo — 100% shares. This company owns land and an entertainment centre in
Katowice. Cinema City S.p.Zoo leases the above entertainment centre through “IT Poland Development
2001” and operates the IMAX multiplex and the entertainment centre itself. During 2002 Megaplex
Baildon was merged into Cinema-City Sp.Zoo.
(5)
IT Poland Development 2001 Sp.Zoo — 100% share. During 2001, this company opened a multiplex in
Ruda Slonska, and IMAX Multiplex in Krakow. In the middle of 2002, this company opened a multiplex
in Krakow and an entertainment centre in Katowice. During 2002, the company was merged into
Cinema-City Sp.Zoo.
(6)
Ster Century Poland Sp.Zoo — 100% shares — acquired in July 2002. The main aim of this company
was to develop four cinemas in Poland which development has subsequently been completed. The
company holds 100% of the shares of Ster Century Cinemas Poland Sp.Zoo. During 2002, after the
acquisition, this company was merged into Cinema-City Poland Sp.Zoo.
(7)
Ster Century Cinemas Poland Sp.Zoo — 100% share — acquired on July 2002. The main aim of this
company was to maintain the operation of the 4 cinemas owned by its parent company. During 2002,
after the acquisition, this company was merged into Cinema-City Poland Sp.Zoo.
(8)
Janki Properties Poland Sp.Zoo — 100% shares — acquired on July 2002. The main aim of this
company was to hold the land and the construction, which was used to develop one of the cinemas held
by Ster Century Poland. During 2002, after the acquisition, this company was merged into Cinema-City
Poland Sp.Zoo.
(9)
New Age Media Sp.Zoo — 100% shares. During 2002, the name was changed from IT Poland Cinemas
2001. This company specialises in cinema advertising in Poland.
(III) Changes in consolidated entities during 2001:
(1)
I.T. Czech Cinemas — 100% share. As of 31 December 2001 this company was not as yet operational,
was incorporated with the aim of establishing and operating all new projects in the Czech Republic.
(2)
Cinema City Poland Sp.Zoo — 100% share. This company was established as a result of the merger of
I.T. Bemowo Sp.Zoo, I.T. Poland Development Sp.Zoo and I.T. Poland Cinemas Sp.Zoo — all were
fully held by the Company.
(3)
Megaplex Sp.Zoo — in May 2001 the Company purchased a 100% share of Megaplex. Megaplex
Sp.Zoo has land in Katowice and licenses to build a cinema.
(4)
I.T. Poland Development 2001 — was established during 2001, for the purpose of building and
operating a multiplex in Poland (opened in October 2001).
F-18
Note 3 — Changes in Consolidated Entities (continued)
(III) Changes in consolidated entities during 2001: (continued)
(5)
In May 2001, the Company purchased a 75% share of Ilperveld Real Estate Holding B.V. and changed
its name to I.T. Sofia B.V. This Company holds all the shares in MO Sofia EAD, which is building a
shopping centre in Sofia, Bulgaria.
(6)
I.T. Bulgaria EAD — was established during 2001 with the purpose of operating an IMAX theatre and
multiplex cinema in Bulgaria.
(7)
In September 2001, the Company sold its 50% interest in Galafilm a.s. (the investment was previously
presented at cost).
(8)
I.T. Communication Theatres Ltd., a subsidiary company, wrote-off its investment in Entertec Ltd. and
IOL Israel Online (2000) Ltd., at an amount of EUR 1,577,000 (USD 1,503,000).
(9)
The Company, together with third parties, formed a company named “News 24”. In 2001 the Company
and the third parties decided to end “News 24” operations, and therefore the Company wrote-off its
investment, at an amount of EUR 673,000 (USD 642,000).
(10) During 2001 the Group has accounted additional write-downs at a total amount of EUR 159,000 (USD
152,000).
Note 4 — Intangible fixed assets
The intangible fixed assets comprise mainly of investments in the development of video venting machines and
are stated at cost less accumulated amortization and impairment losses, if any.
Composition:
Financial year 2003
Balance at
beginning
of the year
Additions
during
the year
Foreign
currency
translation
adjustments
Balance at
end of year
EUR (thousands)
Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
471
192
(54)
609
Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . .
143
125
(33)
235
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
328
374
Financial year 2002
Balance at
beginning
of the year
Additions
during
the year
Foreign
currency
translation
adjustments
Balance at
end of year
EUR (thousands)
Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . .
389
122
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
267
F-19
96
34
(14)
(13)
471
143
328
Note 5 — Property and equipment, net
Composition
31 December 2003
Balance at
beginning
of the year
Additions
during
the year
Foreign
currency
translation
adjustments
Sales and
disposals
during
the year
Balance at
end of year
EUR (thousands)
Cost
Land and buildings(1) . . . . . . . . . . . . . . . . . . . .
Cinema equipment(1) . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines. . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation
Land and buildings . . . . . . . . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines. . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . .
(1)
62,265
56,610
43,094
8,493
918
4,278
1,477
3,378
3,985
2,346
890
289
1,311
65
—
(1,574)
(1,608)
(1,002)
(101)
(515)
(143)
(1,104)
(470)
(357)
(181)
—
(2)
—
64,539
58,551
43,475
8,200
1,106
5,072
1,399
177,135
12,264
(4,943)
(2,114)
182,342
2,335
18,064
7,500
5,897
409
1,921
782
36,908
2,018
4,181
1,682
848
144
1,161
232
10,266
—
(1,069)
(488)
(701)
(47)
(285)
(66)
(2,656)
(29)
(279)
(287)
(127)
—
(2)
—
(724)
4,324
20,897
8,407
5,917
506
2,795
948
43,794
140,227
138,548
Includes EUR 2,409,000 (2002 — EUR 3,995,000) construction in progress for entertainment purposes (See also note 19 (1)b.), and
cinema equipment to an amount of EUR 5,400,000 (2002 — EUR 6,752,000) not operated yet (See also note 19 (1) c).
F-20
Note 5 — Property and equipment, net (continued)
Composition:
Balance at
beginning
of the year
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines. . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines. . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . .
31 December 2002
Foreign
Sales and
Additions
currency
disposals
during
translation
during
the year
adjustments
the year
EUR (thousands)
Balance at
end of year
35,251
44,528
18,174
7,974
882
3,092
1,537
111,438
25,081
11,869
24,982
568
101
1,186
—
63,787
2,049
214
—
8
—
—
—
2,271
(116)
(1)
(62)
(57)
(65)
—
(60)
(361)
62,265
56,610
43,094
8,493
918
4,278
1,477
177,135
819
13,058
3,753
5,117
311
1,037
567
24,662
1,522
4,988
3,775
793
145
884
229
12,336
5
18
—
—
—
—
—
23
(11)
—
(28)
(13)
(47)
—
(14)
(113)
2,335
18,064
7,500
5,897
409
1,921
782
36,908
86,776
140,227
Includes EUR 3,995,000 (2001 — EUR 5,136,000) construction in progress for entertainment purposes (See
also note 19 (1)b.), and cinema equipment to an amount of EUR 6,752,000 (2002 — EUR 6,949,000) not operated
yet (See also note 19 (1)c.).
Additions during 2002 included an amount of EUR 31,314,000 relating to acquired subsidiaries (see note 3 II).
Note 6 — Loans to Unconsolidated Subsidiaries
This item mainly represents loans to unconsolidated subsidiary companies presented at cost. The loans are
denominated in USD and bear annual interest at the rate of 7%. The loan is due to be repaid when the option is
exercised, as described in note 10 below.
Note 7 — Inventories
Composition:
31 December
2002
2001
2003
EUR (thousands)
Concession products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video cassettes and DVDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IMAX films inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-21
644
817
1,389
78
114
596
951
937
177
170
538
1,480
618
226
140
3,042
2,831
3,002
Note 8 — Trade Accounts Receivable
Composition:
31 December
2003
2002
2001
EUR (thousands)
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,390
(19)
4,822
(17)
4,752
(166)
5,371
4,805
4,586
Note 9 — Other Amounts Receivable and Prepaid Expenses
Composition:
31 December
2003
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid cinema film and video film distribution costs(1) . . . . . . . . . . . . . . . . . . . . . .
Film distribution costs and deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
2002
2001
EUR (thousands)
1,107
22
1,351
1,356
1
1,225
93
456
306
1,000
2,280
16
—
366
934
291
149
1,934
409
—
370
5,155
4,424
4,087
Stated at cost, incurred by a subsidiary company, of video and cinema film which has not yet been distributed, after being reviewed for
recoverability — see also Note 19 (1).
Note 10 — Non-Marketable Securities — Held for Sale
This concerns an investment in a subsidiary in Central Europe, which has an investment in real estate. The
investment is presented at cost, since the investment is acquired and held exclusively with a view to its subsequent
disposal (see also note 6).
During the year ended 31 December 2000, the Company, through a subsidiary, sold 50% of the real estate to a
third party. The Company, through the subsidiary, has agreed to provide the third party with an option to sell the
remaining 50% (including 50% share in Hocus Pocus) for an agreed price. The option will expire at the end of
March 2004. The value of the option is not lower than the book value of the investment, including the loans.
Note 11 — Short-Term Bank Deposits
In 2003, deposits with Central European Bank denominated in euro for a total amount of EUR 808,000
(2002 — EUR 1,619,000) were made to serve as collateral for credits provided to a subsidiary. The deposits bear
interest of 2.5%-3% per annum.
Note 12 — Shareholders’ Equity
a.
Share capital consists of:
31 December
2003
Issued and
Authorised
outstanding
Number of shares
Ordinary shares of EUR 45.38 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000
Ordinary shares entitle one vote per share and participation in payments of dividends.
F-22
400
Note 12 — Shareholders’ Equity (continued)
b.
Regarding employees’ stock option plan — see note 25.
c.
As part of the Restructuring, the Company issued new shares to its 100% shareholder, ITIT, then split each
existing share to a par value of EUR 0.01, and issued new shares to ITIT to bring its holding to
35,059,648 shares. As ITIT is the 100% shareholder, the effect of this transaction is very similar to a stock
split. The formalities regarding the registration of the new shares were completed in March 2004. The number
of shares and the per share presented in the table above reflect the actual numbers as of 31 December 2001,
2002 and 2003. Subsequent to the issuance and registration of the new shares, the share capital of the Company
consists of:
Issued and
outstanding
Authorised
Number of shares
Ordinary shares of EUR 0.01 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000,000
35,059,648
Note 13 — Minority Interests
31 December
2003
2002
2001
EUR (thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests in earnings/(losses) of consolidated subsidiaries . . . . . . . . . . . . . .
Dividend to minority shareholders of subsidiary companies . . . . . . . . . . . . . . . . . . .
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779
270
(904)
(92)
1,083
(2)
(302)
—
1,483
868
(1,129)
(139)
Balance at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
779
1,083
Note 14 — Accrued Employee Retirement Rights
a.
monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no such
liabilities towards them.
b.
Local applicable labour laws and agreements require Group companies to pay severance pay to dismissed or
retiring employees (including those leaving their employment under certain other circumstances). The
calculation of the severance pay liability was made in accordance with labour agreements in force and based
on salary components that, in Management’s opinion, create entitlement to severance pay.
Group companies’ severance pay liabilities to their employees are funded partially by regular deposits with
recognised pension and severance pay funds in the employees’ names and by purchase of insurance policies
and are accounted for as if they were a defined contribution plan. The amounts funded as above are netted
against the related liabilities and are not reflected in the balance sheets since they are not under the control and
management of the companies.
c.
The amounts of the liability for severance pay presented in the balance sheets (see d below) reflect that part of
the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as the liability
that is funded by deposits with recognised central severance pay funds held under the name of the Company’s
subsidiaries.
F-23
Note 14 — Accrued Employee Retirement Rights (continued)
d.
The provision for accrued employee rights upon retirement, net, comprises:
31 December
2003
2002
2001
EUR (thousands)
Provision for severance pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,696
Less: Amounts deposited with recognised central severance pay funds, including
earnings thereon and other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (953)
743
1,742
(956)
786
1,652
(1,027)
625
Note 15 — Provisions related to onerous lease contracts
In July 2002, the Group purchased four multiplex cinemas in Poland from Ster Century Europe Limited. The
multiplexes comprised a total of 46 screens and approximately 10,000 seats. As part of the transaction, the Group
acquired all of the shares of Ster Century Europe’s Polish subsidiaries, and purchased shareholder loans provided to
these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million). A provision of
EUR 12,731,000 (USD 13,369,000), relating to onerous lease contracts, which the acquired subsidiaries were party
to prior to the acquisition, has been recorded as part of the acquisition. The provision is amortised over the noncancellable periods of the lease contracts. Amortisation in 2003 amounted to EUR 1,231,000 (2002: EUR
1,126,000) and was credited to the operating expenses. During 2003, an additional write-down of EUR 377,000
to onerous lease contracts was charged to operating expenses.
Note 16 — Long-Term Loans
A.
Composition:
Interest rates
%
Linked to the CPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Linked to the CPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In NIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In Hungarian forint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In Czech crowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from minority interest holder . . . . . . . . . . . . . . . . . . . .
(1)
4.1-6.65
(2)
(1)
5.7
(3)
(4)
(6)
(5)
(7)
(1)
Less —
current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Fixed rate.
(2)
Ogen Kfir + 1.3%.
(3)
Linked to the Hungarian forint bearing interest at the rate of BUBOR + 1.75-2%.
(4)
Linked to the Czech crowns bearing interest at the rate of PRIBOR + 2.6%.
(5)
Linked to the US Dollar bearing interest at the rate of LIBOR + 1%-1.75%.
(6)
In euro, bearing interest at the rate of EURIBOR + 1.5%-2.25%.
(7)
In dollars, bearing no interest.
7
31 December
2002
2003
—
—
—
—
8,394
58,036
16,672
—
139
12,839
1,602
1,303
1,869
9,047
—
52,238
—
167
11,894
1,779
4,312
2,157
7,815
—
6,175
238
167
83,241
79,065
34,537
(6,510)
(5,895)
(4,301)
76,731
73,170
30,236
The interest rates shown concern the rates per the end of the appropriate financial years.
F-24
2001
EUR (thousands)
Note 16 — Long-Term Loans (continued)
B.
The loans mature as follows:
31 December
2002
2003
2001
EUR (thousands)
First year — current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,510
Second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,677
Third year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,826
Fourth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,034
Fifth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,072
Sixth year and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,320
Undefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,802
83,241
C.
5,895
43,159
6,067
5,395
3,502
15,047
—
79,065
4,301
4,923
4,944
4,553
4,180
11,636
—
34,537
31 December
2002
2001
Liens — see note 19 (2).
Note 17 — Short-Term Bank Credit
Composition:
Interest rate
2003
%
Current maturities. . . . . . . . . . . . .
Short-term bank credit:
Unlinked (NIS). . . . . . . . . . . . . . .
Linked (US dollar) . . . . . . . . . . . .
Linked (Hungarian Forints) . . . . . .
(1)
EUR (thousands)
.....................
6,510
5,895
4,301
. . . . . . . . . . . . . . . . . . . . . (1)9.8%-11.4%
.....................
. . . . . . . . . . . . . . . . . . . . . Bubor + 2%
6,138
—
—
12,995
—
298
7,761
16,136
688
12,648
19,188
28,886
Variable
Note 18 — Other Accounts Payable
Composition:
31 December
2002
2001
2003
EUR (thousands)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances and income received in advance(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
1,454
753
1,847
566
4,620
Consist mainly of advances received from several customers, for feature video rentals and film distribution.
F-25
2,054
549
3,416
51
6,070
1,239
360
3,640
47
5,286
Note 19 — Commitments, Contingent Liabilities and Liens
(1) Commitments
a.
The Company and its subsidiaries conduct most of their cinema, video library stores and corporate
operations in leased premises. These leases, which have non-cancellable clauses, expire at various dates
after 31 December 2003. Many leases have renewal options. Most of the leases provide for contingent
rentals based on the revenues of the underlying cinema or video library stores, while certain leases
contain escalating minimum rental provisions. Most of the leases require the tenant to pay city taxes,
insurance, and other costs applicable to the leased premises.
Future minimum lease payments under non-cancellable operating leases from third parties for the years after
31 December 2003, are as follows:
EUR
(thousands)*
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....................
.....................
.....................
.....................
.....................
.....................
11,523
11,415
12,576
12,491
12,268
33,487
93,760
*
Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period.
Rental expenses for theatres are summarised as follows:
31 December
2003
Minimum rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002
2001
EUR (thousands)
12,127
644
12,771
8,923
297
9,220
5,938
681
6,619
b.
The Group is a party to a master agreement with a developer, Control Centres Ltd. (“Control Centres”),
for the construction of theatre sites in shopping malls and other commercial centres throughout
Hungary, Poland and the Czech Republic. Under this agreement, the Company currently has 14
multiplexes that are already operating in shopping malls in Central Europe.
c.
The Group has commitments to acquire equipment of approximately EUR 2,720,000 (2002:
EUR 10,000,000) in connection with the development of new systems and movie theatres. In addition,
the Group is committed to pay a percentage of its revenues from some of these new systems, subject to a
minimum monthly cost per system.
d.
In consideration for its rights to be the exclusive distributor of their films in Israel, Poland and Hungary,
subsidiary companies are committed to pay fees to certain producers based on a percentage of its
revenues (or in some cases, specific profits) from the films. In some cases, a minimum fee has been
determined.
e.
Ya’af Network, a subsidiary company, has agreements for the rental of video library stores, and for the
rental of space for videomats, which it uses in its operations. The rental terms pursuant to these
agreements (including renewal options) granted to Ya’af Network are for periods of one to ten years.
The rental expenses relating to these agreements are calculated as a lump-sum linked either to the Israeli
CPI or to the US dollar, or as a percentage of the turnover. Annual rent expenses for 2003 amounted to
EUR 875,000.
f.
Subsidiary companies signed agreements with third parties in Israel, Poland and Hungary. According to
these agreements, the subsidiary companies grant the third parties exclusive broadcasting rights on
F-26
Note 19 — Commitments, Contingent Liabilities and Liens (continued)
(1) Commitments (continued)
Israeli, Polish and Hungarian television for specific movies. These rights are for various periods and will
end during the years 2004-2008.
g.
Movie films are typically licensed from film distributors representing film production companies. Film
exhibition licences typically specify rental fees based upon a gross receipts formula, which is negotiated
on a movie-by-movie basis in advance of distribution. The fees are generally related to the anticipated
performance of the movie based on the distributor’s experience in other markets, if possible. Under such
a formula, the distributor receives a specified percentage of box office receipts, with the percentage
declining over the term of the run.
h.
In July 2003, the Company has signed an agreement to buy the minority interest in IT Sofia BV, for a
consideration of EUR 526,000 (USD 600,000), with potential additional success payments. Through its
Bulgarian subsidiary, IT Sofia BV is developing a shopping entertainment centre in Sofia, Bulgaria. The
first part of the purchase price was paid in cash during 2003. The balance is due subject to milestones
based on the progress of the project, and additional payments are subject to success of the shopping
centre after opening.
(2) Liens
a.
As part of the reorganisation, the Company has assumed the majority of the Group’s bank debt, provided
originally via ITIT. Based on the agreement between the Company and ITIT of December 2003, the
bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the bank. In
order to secure the Company’s liabilities for such bank credits and loans in the amount of approximately
EUR 53 million, the Company has provided the bank the following: (i) a registered first degree fixed lien
on IT 2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first degree floating
lien on IT 2004’s assets, including insurance benefits in respect of the assets and rights of any kind
which the ITIT has or will have in the future; (iii) that the assets of IT 2004 will not be pledged and the
lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to guarantee the debt
of the Company, and ITIT has provided the bank with a fixed lien on 70% of the Company’s issued share
capital; (v) that certain financial covenants will be fulfilled and maintained.
b.
The local subsidiaries in Poland and the Czech Republic have obtained financing from banks for some
of the cinema complex projects. The securities given include: mortgage on the assets of the financed
projects, pledge on the shares of the subsidiaries, and an assignment of all revenues and insurance
policies of the projects.
c.
In order to secure an outstanding loan from a central European bank of approximately EUR 6,000,000, a
subsidiary company has provided to the bank the following: (i) a registered first degree fixed lien on its
outstanding share capital and goodwill; (ii) a first degree floating lien on its assets, including insurance
benefits in respect of the assets and rights of any kind which the subsidiary has or will have in the future;
(iii) that the assets of the subsidiary will not be pledged and the lien cannot be transferred without the
agreement of the bank.
(3) Contingent Liabilities
a.
From time to time, the Group is involved in routine litigation and proceedings during the normal course
of business. As of balance sheet date, the Group is not involved in any litigations or proceedings.
b.
The Israeli government office (“the Office”) in charge of antitrust matters commenced an investigation
into the theatre business in Israel in 2001. Under the investigation, the Office investigated the Group’s
activities in Israel including the interaction between the Group and its competitors. Since the commencement of the investigation, no further actions were taken by the Office, and the Group was not
asked to provide any further information, or answer any further questions. Management is of the opinion
that the consequences of the investigation cannot be determined at this stage.
F-27
Note 20 — Revenues
2003
Theatre sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*
2002
EUR (thousands)
2001
72,252
13,427
7,771
2,333
*67,991
9,834
9,231
*1,552
*52,640
11,624
10,677
*599
95,783
88,608
75,540
Reclassified
Note 21 — Operating costs
2003
Theatre operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution operations . . . . . . . . . . . . . . . . . . . . . . . . .
Video operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . .
2002
2001
EUR (thousands)
. . . . . . . . . . . . . . . . . . 58,088
. . . . . . . . . . . . . . . . . . 11,958
..................
5,259
. . . . . . . . . . . . . . . . . . 10,391
53,454
8,000
7,592
9,583
39,710
8,033
9,693
6,402
85,696
78,629
63,838
Note 22 — Financial Income/Expenses
A.
Financial Income
For the year ended
31 December
2003
2002
2001
EUR (thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B.
1,321
2,155
3,476
1,993
—
1,993
1,718
—
1,718
Financial Expenses
2003
2002
2001
EUR (thousands)
Interest expenses incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost capitalised(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,216)
134
—
(3,831)
374
(284)
(1,674)
1,388
(508)
Total financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,082)
(3,741)
(794)
(1)
The Company has capitalised interest expenses to the cost of buildings in progress as well as to other fixed assets components before being
taken into operation.
F-28
Note 23 — Gain/(loss) on disposals and write-off on other investments
For the year ended
31 December
2003
2002
2001
EUR (thousands)
Capital (loss)/gain on disposition of property, equipment and other assets, net . . . . . . (156)
Write-off on other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75)
(105)
—
(59)
14
(2,409)
(26)
(231)
(164)
(2,421)
(1)
The write-off of other investments during 2001 related to various investments. For a more detailed description reference is made to Note 3
(III) under items (8), (9) and (10).
Note 24 — Income Taxes
I.
Tax laws applicable to the Group:
1.
Results of operations for tax purposes of the Company and its Dutch subsidiaries are computed in
accordance with Dutch tax legislation.
2.
Tax rates applicable to the Company and its subsidiaries are as follows:
The subsidiary
Tax rate
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34.5%
18%
31%
27%
36%
23.5%
Tax rates in several countries the Group is operating in, will change as of 1 January 2004 as follows:
— Hungary to 16%.
— Poland to 19%.
— Bulgaria to 19.5%
3.
Tax ruling in Israel
The Group has received a special ruling from the Israeli tax authorities to allow for the transfer of the
Israeli activities to IT-2004, and to transfer the shares of all the operating Israeli subsidiaries to the Dutch
company. Under the ruling, ITIT has committed not to sell its shares in the Company for a period of four
years, and the Company has committed to pay tax in Israel on any future gains on the sale of Israeli
subsidiaries.
II. Deferred income taxes
1.
Deferred income taxes are primarily provided for all the temporary differences between the tax and the
accounting basis of assets and liabilities based on the tax rate that is expected to be in effect at the time
the deferred income taxes will be realised.
Realisation of the deferred income tax assets is dependent upon generating sufficient taxable income in
the period that deferred income tax assets are realised. Based on all available information, Management
believes that all of the deferred income tax assets are realisable and therefore has not provided for
valuation allowance.
F-29
Note 24 — Income Taxes (continued)
II. Deferred income taxes (continued)
2.
Changes in deferred income taxes are in respect of the following items:
For the year ended
31 December
2003
2002
2001
EUR (thousands)
Accrued employee rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (315)
Operating tax loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (284)
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (67)
Long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
(593)
3.
(37)
(17)
1,025
(1,589)
83
—
8
(527)
(86)
17
838
(239)
(31)
(123)
(120)
256
Deferred income taxes are in respect of the following items:
Deferred income tax included in assets:
For the year ended
31 December
2003
2002
2001
EUR (thousands)
Accrued employee rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating tax loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
271
(239)
1,675
89
284
2,080
467
(287)
2,211
38
174
2,603
429
75
622
121
18
1,265
Deferred tax included in liabilities:
For the year ended
31 December
2003
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002
2001
EUR (thousands)
1,934
—
(153)
1,751
—
164
1,088
18
—
1,781
1,915
1,106
III. Income taxes in the income statements comprises:
Current taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In respect of previous years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-30
2003
2002
EUR (thousands)
2001
331
425
—
1,359
(842)
542
1,639
282
(142)
756
1,059
1,779
IV. Tax reconciliation
The difference between the amount of tax calculated on income before taxes at the regular tax rate and the tax
expenses included in the financial statements is explained as follows:
2003
2002
2001
EUR (thousands)
Tax calculated at the regular rate (34.5%). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,594
Adjustment for reduced tax rate in foreign subsidiary . . . . . . . . . . . . . . . . . . . .
298
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,279
Effect of tax losses utilized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,093
Income exempt from taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,508)
Taxes in respect of previous years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
756
1,132
(37)
542
—
(1,326)
542
206
2,013
(642)
1,472
—
(1,245)
(143)
324
1,059
1,779
Note 25 — Related Party Transactions
Related parties —
Parties are considered to be related if one party has the ability to control or exercise significant influence over
the other party in making financial and reporting decisions.
Such relationships include:
1.
Parent-subsidiary relationships.
2.
Entities under common control.
3.
Individuals who, through ownership, have significant influence over the enterprise and close members
of their families.
4.
Key management personnel.
Transactions with related parties:
a.
Income (expenses):
2003
2002
2001
EUR (thousands)
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123
(86)
—
Rental fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
553
(730)
(770)
Management services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
322
383
383
b.
In June 1998, Israel Theatres Ltd. (the parent company of ITIT) leased to ITIT the real estate properties
on which four of the Company’s theatres are located, until 30 November 2007, subject to the Company’s
right to terminate any lease prior to its original termination date. The annual lease payments for the
above properties aggregate to EUR 311,000 (USD 392,000). These leases were assigned to IT-2004 as
part of the reorganisation. (See also notes 1 and 19(1).)
c.
In December 2003, employment agreements with Mr. Moshe Greidinger and Mr. Israel Greidinger, both
managers in the Company, whose family members control Israel Theatres, and with Mr. Amos Weltsch,
its Chief Operating Officer (the “Managers”), signed originally with ITIT, were assigned to the
Company. The fulfilment of the Company’s obligation under the agreements will be performed by
the Company, or by its Israeli subsidiaries.
F-31
Note 25 — Related Party Transactions (continued)
its Chief Operating Officer (the “Managers”), signed originally with ITIT on 1998, were assigned to the
Company. The fulfilment of the Company’s obligation under the agreements will be performed by the
Company, or by its Israeli subsidiaries.
In accordance with the said agreement, the aggregate gross monthly remuneration of the Managers
amounts to EUR 29,000 (USD 37,000) per month (not linked), which, together with related employee
benefits, will amount to EUR 35,000 (USD 44,000) per month.
In addition, the Managers will be entitled to an annual bonus aggregating to 7% of the Company’s
consolidated profits before tax for any fiscal year. The above Managers undertook to be employed by the
Company for an indefinite period, with 6 month notice of termination, and to refrain from competing
with the Company’s business for a period of 12 months following termination of their employment with
the Company.
Forum Film Ltd., a 50% subsidiary, will participate in the aforementioned remunerations to Mr. Moshe
Greidinger and Mr. Israel Greidinger at the rate of 33% thereof and will fully cover the portion of the
abovementioned bonuses that relate to its own revenues.
d.
In May 1998, ITIT entered into a management services agreement with Israel Theatres pursuant to
which the Company will provide Israel Theatres for an indefinite period, but not less than three years,
with certain management services. Management services include office and accounting services
through providing Israel Theatres with senior personnel and administration of Israel Theatres’ business.
The management services agreement is for a fixed annual sum of EUR 299,000 (USD 377,000). In
December 2003, this agreement was assigned to IT 2004, the new Israeli subsidiary of the Company.
e.
Forum Film Ltd. and Giant Video have been leasing offices and storage space from Israel Theatres since
February 1994, for consideration of EUR 10,000 (USD 13,000) per month, linked to the changes in the
CPI.
Israel Theatres leased offices in Herzlia and in Haifa to IT2004 until 30 November 2007, in consideration of EUR 52,000 (NIS 286,000) per annum. The rental fees are linked to the Israeli CPI.
f.
The minority interests mainly represent a 50% indirect share in the equity of Forum Film by related
parties. Pursuant to Forum Film’s Articles of Association, the Company has the right to appoint three of
Forum Film’s five directors, and accordingly, maintains control over all major company decisions.
g.
The Company has entered into an indemnification agreement with each executive officer and director.
These agreements endeavour to fully indemnify and limit the personal liability of the officers and
directors, in certain circumstances, both to the Company and to its shareholders, for acts or omissions by
them in their official capacity. The Company had obtained officers’ and directors’ liability insurance.
h.
Israel Theatres, ITIT and its directors and principal officers undertook not to compete, whether directly
or indirectly, with the Company’s business in the film exhibition, distribution and video rental fields.
The length of this undertaking is for as long as they are directors or officers in either of the companies, or
beneficially own a controlling interest in the Company. The agreement specifically states that Israel
Theatres and ITIT may not engage in the development, sale or lease of property for theatrical or video
rental use without the prior written consent of the Company, unless it is to be used by the Company.
i.
In June 2002, ITIT received a loan from Israel Theatres in the amount of EUR 3,957,000 (USD
5,000,000), for the same terms as Israel Theatres received the loan from the bank (linked to the USD
bearing interest at the rate of LIBOR + 1.15%). In December 2003, the loan was assigned by ITIT to the
Company.
F-32
j.
The reorganisation of the Group and ITIT includes the following transactions (for the accounting
application of the reorganisation — See Note 1):
1.
In December 2003, ITIT and IT-2004, a newly formed subsidiary of ITIT, entered into an agreement in
which ITIT transferred to IT-2004 all fixed assets connected with the film exhibition business of ITIT in
consideration for IT-2004 issuing 10,100 new shares to ITIT. In addition, some other assets were
transferred, in consideration for approximately the same amount of related liabilities. As part of the
agreement, the employees of ITIT were transferred to IT-2004, together with the related central
severance fund.
2.
In December 2003, ITIT transferred to the Company, in exchange for an aggregate of 245 Ordinary
Shares of the Company (i), its 50% interest in the share capital of Norma Film Ltd., (a holding
company), the sole shareholder of Forum Film Ltd. (Israel); (ii) 100% of the share capital of Mabat Ltd.,
Teleticket Ltd. and Cinema Plus Ltd., which are Israeli companies conducting some of the movie
theatres operations in Israel.
3.
On the basis of the agreement between the Company and ITIT dated December 2003, the Company has
assumed the majority of the Group’s bank debt, provided originally via ITIT.
4.
In December 2003, Pan Europe Finance BV (‘PEF’), a wholly-owned subsidiary of ITIT, and the
Company have entered into agreement pursuant to which PEF has assigned to the Company all its loans
receivables from the Company’s subsidiaries in Central Europe, and PEF debt with ITIT and Bank
Leumi UK.
5.
The remaining balances between the Company, or any of its subsidiaries, which remained after the
assignments and transfer of loans described above, was converted into shares, and the only debt that
remained outstanding between the Company and any of its non-affiliated related parties, is the
EUR 3,957,000 (USD 5,000,000) due to ITIT as described in section (i).
6.
On 31 December 2003, the Company performed a share capital split by issuing to ITIT additional
Ordinary Shares to bring the total holding of ITIT (representing 100% of the shares) to 35,059,648 shares
of EUR 0.01 each. On 24 March 2004, the Restructuring was formally completed.
Note 26 — Stock Option plan
Prior to the reorganisation of the Group, executives, Board members, consultants and senior employees of
ITIT and its subsidiaries were holding 418,000 options for shares of ITIT (representing 4.2% of the total shares of
the ITIT), with an exercise price of EUR 4 (USD 5). At grant date the exercise price higher than the stock price. As
part of the reorganization, these options were cancelled in October 2003. In November 2003 those options were regranted under same terms. In March 2004 the board of the Company has decided to transfer some of these options
described above from ITIT to the company representing 1.8% of the total shares in the Company with same original
terms.
In addition the board of directors approved a new option plan for approximately 30 senior employees as part of
a new listing of the company with an exercise price equal to the new listing.
The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, no compensation cost
has been recognized for its stock options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s net income
would have been reduced to the pro-forma amounts indicated below. The fair value of stock options granted, on the
F-33
Note 26 — Stock Option plan (continued)
date of grant, were calculated using the Black & Scholes option-pricing model (excluding a volatility assumption)
with the following weighted-average assumptions:
•
Expected dividend yield (NIL) %, risk-free interest rate of 6%, and an expected life of 3 years.
For the year
ended
31 December
2003
2002
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning per share — basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As reported
3,594
2,225
Pro forma
3,594
2,202
As reported
0.10
0.06
Pro forma
0.10
0.06
Note 27 — Financial Instruments
Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business.
Credit risk
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of
cash and cash equivalents, short-term investments and receivables. The Group places its cash and cash equivalents
and short-term investments in financial institutions with high credit ratings. Management does not expect any
counterparty to fail to meet its obligations. Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Group’s customer base.
Interest rate risk
The Group adopts a policy of a mixture of flat and floating interest rates (see note 16 and 17).
Foreign currency risk
The Group incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency
other than the euro. The currencies giving rise to this risk are primarily USD, PLN, NIS, HUF and CZK.
In order to minimise exposure to foreign currency risk, among other things, the Group converted a major part
of its long-term loans into euros during 2003.
The following are details of the fair values of the financial instruments for which it is practicable to estimate
such value:
a.
Cash and cash equivalents, short-term bank deposit and short-term bank credit. The carrying amounts
approximate fair value because of the short maturity of these instruments.
b.
Marketable securities.
The carrying amounts approximate fair value.
c.
Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities. The
carrying amounts approximate fair value because of the short-term nature of these instruments.
d.
Investment in non-marketable securities.
See Note 10.
e.
Debt — during 2003 the Company refinanced its long-term debts and obligations. As of 31 December
2003, the aggregate fair value of the Company’s long-term debt obligations is similar to its carrying
value of EUR 83 million. As of 31 December 2002, the aggregate fair value of the Company’s long-term
debt obligation was approximately EUR 76 million compared to the carrying value of EUR 79 million.
The above fair values have been based on terms for debts with conditions and maturities similar to those
of the Company’s debts as prevailing in the market per balance sheet date.
F-34
Note 28 — Linkage Terms of Monetary Items
31 December 2003
In or linked
to euro
In or linked
to U.S. Dollar
In or linked
to foreign
currencies
Total
EUR (thousands)
Assets:
Cash and cash equivalents. . . . . . . . .
Short-term bank deposits . . . . . . . . .
Trade account receivable. . . . . . . . . .
Other accounts receivable . . . . . . . . .
Related parties receivable . . . . . . . . .
Marketable securities . . . . . . . . . . . .
Loans to unconsolidated subsidiaries .
...............
...............
...............
...............
...............
...............
...............
Liabilities:
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term loans (including current — maturities) . . . . . .
Long term loans from parent company . . . . . . . . . . . . . .
Accrued employee rights upon retirement . . . . . . . . . . . .
3,056
778
—
792
—
—
—
—
30
—
—
—
—
15,743
2,321
—
5,371
4,363
596
208
—
5,377
808
5,371
5,155
596
208
15,743
4,626
15,773
12,859
33,258
—
153
2
81
—
58,036
—
—
—
—
—
754
—
16,811
3,957
—
6,138
8,162
1,232
3,785
2,670
8,394
—
743
6,138
8,315
1,234
4,620
2,670
83,241
3,957
743
58,272
21,522
31,124
110,918
In or linked
to euro
31 December 2002
In or linked
In or linked
to foreign
to U.S. Dollar
currencies
Total
EUR (thousands)
Assets:
...............
...............
...............
...............
...............
...............
...............
Liabilities:
Long term loans (including current — maturities) . . . . . .
F-35
—
771
—
—
—
—
—
470
848
109
181
41
823
18,956
1,771
—
4,696
4,243
18
141
—
2,241
1,619
4,805
4,424
59
964
18,956
771
21,428
10,869
33,068
—
—
—
—
—
—
—
—
—
912
—
973
—
54,196
4,771
—
13,293
10,072
1,389
5,097
286
24,869
—
786
13,293
10,984
1,389
6,070
286
79,065
4,771
786
—
60,852
55,792
116,644
Note 29 — Segment Reporting
Segment information is presented in respect of the Group’s business and geographical segments. The primary
format, business segments, is based on the Group’s management and internal reporting structure.
The Group’s operations in Israel and Central Europe are organised under the following major business
segments:
— Theatre operations.
— Distribution — Distribution of movies.
— Video + DVD — Rental and sale of video cassettes and DVD.
Business segments:
2003
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
—
(6,426)
(6,426)
95,783
—
95,783
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . .
Inter-segment sales . . . . . . . . . . . . .
Total revenues. . . . . . . . . . . . . . . . .
Results
Segment results before depreciation,
amortization and impairment
write downs . . . . . . . . . . . . . . . .
Depreciation, amortization and
impairment write downs . . . . . . .
Segment results. . . . . . . . . . . . . . . .
Net financial expense . . . . . . . . . . .
Gain and loss on disposals . . . . . . .
Income taxes . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . .
73,190
—
73,190
13,427
5,822
19,249
7,771
604
8,375
1,395
—
1,395
10,942
1,473
2,038
1,395
—
15,848
8,589
2,353
37
1,436
1,765
273
—
1,395
—
—
10,391
5,457
(606)
(231)
(756)
(270)
Net income . . . . . . . . . . . . . . . . . . .
3,594
31 December 2003
Theatre
Operations
Distribution
Video &
DVD
Other
Unallocated
Consolidated
EUR (thousands)
Assets
Segment assets . . . . . . . . . . . . . . . .
146,243
5,589
5,725
18,486
2,080
178,123
Liabilities
Segment liabilities . . . . . . . . . . . . .
29,147
3,751
1,816
381
91,159
126,254
Other information
Capital expenditure . . . . . . . . . . . .
13,633
20
1,346
—
—
14,999
F-36
Note 29 — Segment Reporting (continued)
2002
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . .
69,083
—
9,834
4,564
9,006
700
685
—
—
(5,264)
88,608
—
Total revenues . . . . . . . . . . . . . . . . .
69,083
14,398
9,706
685
(5,264)
88,608
11,718
1,981
1,122
401
(147)
15,075
7,822
394
1,631
34
—
9,881
3,896
1,587
367
(147)
5,194
(1,748)
(164)
(1,059)
2
Results
amortization and impairment write
downs . . . . . . . . . . . . . . . . . . . . .
impairment write downs . . . . . . . .
Segment results . . . . . . . . . . . . . . . .
Net financial expense . . . . . . . . . . . .
Gain and loss on disposals . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . .
(509)
Net income . . . . . . . . . . . . . . . . . . .
2,225
Theatre
Operations
Distribution
31 December 2002
Video &
DVD
Other
Unallocated
Consolidated
EUR (thousands)
Assets
Segment assets . . . . . . . . . . . . . . . .
142,074
5,886
6,897
22,281
2,603
179,741
Liabilities
31,743
4,139
2,722
102
94,273
132,979
Other information:
28,945
17
1,223
86
—
30,271
F-37
2001
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . .
52,850
—
11,624
5,217
10,677
979
389
—
—
(6,196)
75,540
—
Total revenues . . . . . . . . . . . . . . . . .
52,850
16,841
11,656
389
(6,196)
75,540
9,533
2,799
1,426
389
(188)
13,959
4,924
316
1,283
103
—
6,626
4,609
2,483
143
286
(188)
7,333
924
(2,421)
(1,779)
(868)
Results
amortization and impairment write
downs . . . . . . . . . . . . . . . . . . . . .
impairment write downs . . . . . . . .
Segment results . . . . . . . . . . . . . . . .
Net financial income . . . . . . . . . . . .
Gain and loss on disposals . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
3,189
Theatre
Operations
Distribution
31 December 2001
Video &
DVD
Other
Unallocated
Consolidated
EUR (thousands)
Assets
Segment assets . . . . . . . . . . . . . . . .
88,636
4,324
7,756
23,070
1,265
125,051
Liabilities
11,995
4,784
3,283
328
60,228
80,618
Other information:
21,186
83
3,135
4,488
—
28,892
In addition to the information on business segments based on the structure of the Group, the figures below
present information for geographical segments. Determination of geographical segments is based on location of
assets and is identical to customer location.
31 December 2003
Central Europe
Israel
Unallocated
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,538
41,245
—
95,783
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
147,046
28,997
2,080
178,123
Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,562
4,437
—
14,999
F-38
31 December 2002
Central Europe
Israel
Unallocated
EUR (thousands)
Consolidated
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,015
48,593
—
88,608
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
143,690
33,448
2,603
179,741
26,577
3,694
—
30,271
31 December 2001
Central Europe
Israel
Unallocated
EUR (thousands)
Consolidated
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,051
54,489
—
75,540
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,022
32,764
1,265
125,051
23,573
5,319
—
28,892
Note 30 — Interest in a jointly controlled entity
The Company through a subsidiary has a 50% interest in the jointly controlled “M.O. Sofia EAD”, whose
principle activity is to build and to operate a shopping centre in Sofia, Bulgaria. The Company through a subsidiary
sold 50% of “M.O Sofia EAD” in July 2003. The Consolidated Financial Statements as at 31 December 2003
includes the following items that represent the Company’s interests in the assets and liabilities “M.O. Sofia EAD”:
EUR
(Thousands)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . .
......................................
......................................
......................................
......................................
123
2,536
(95)
(1,710)
854
Note 31 — Personnel
Personnel costs are specified as follows:
For the year ended
31 December
2003
2002
2001
EUR (thousands)
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other social charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,338
353
1,353
10,289
362
1,296
8,655
320
882
Total personnel costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,044
11,947
9,857
The average number of personnel, in full time equivalents, employed by the Company and its subsidiaries
during the year 2003 were 2,225 (financial year 2002: 2,125), of which 1 employee (2002: also 1 employee) was
F-39
Note 31 — Personnel (continued)
employed by the 50% consolidated joint venture (see Note 30). A geographical allocation of the average number of
personnel is as follows:
For the
year ended
31 December
2003
2002
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,058
Central Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,165
European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1,107
1,017
1
Total average number of personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,225
2,125
Note 32 — Details of corporations in the Group
31 December 2003
I.T. International Theatres 2004 Ltd. . . . . . .
I.T. Magyar Cinemas Kft . . . . . . . . . . . . . . .
Kino 2005 a.s. . . . . . . . . . . . . . . . . . . . . . .
I.T. Sadyba, B.V. . . . . . . . . . . . . . . . . . . . .
Cinema City Poland Sp.Z.oo . . . . . . . . . . . .
IT Development 2003 . . . . . . . . . . . . . . . . .
I.T. Czech Cinemas S.R.O. . . . . . . . . . . . . .
I.T. Sofia B.V. . . . . . . . . . . . . . . . . . . . . . .
MO Sofia EAD . . . . . . . . . . . . . . . . . . . . . .
New Age Media Sp.Zoo . . . . . . . . . . . . . . .
Forum Film Poland Sp.Zoo . . . . . . . . . . . . .
Norma Film Ltd. . . . . . . . . . . . . . . . . . . . .
Forum Film Ltd. . . . . . . . . . . . . . . . . . . . . .
Ya’af — Giant Video Library Network
Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ya’af — Automatic Video Machines Ltd. . .
Mabat Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Teleticket Ltd. . . . . . . . . . . . . . . . . . . . . . .
Mercaz Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
Cinema Plus Ltd. . . . . . . . . . . . . . . . . . . . .
I.T. Bulgaria EOOD . . . . . . . . . . . . . . . . . .
Sadyba Center S.A. Poland . . . . . . . . . . . . .
Hocus Pocus Centrum . . . . . . . . . . . . . . . . .
(1)
A holding company in the Netherlands.
(2)
Hungarian corporation.
(3)
Czech corporation.
(4)
Polish corporation.
(5)
Bulgarian corporation.
(6)
An Israeli corporation.
Direct/indirect
Voting right
By the Company
The
Company’s
equity share
in subsidiary
Consolidation
%
%
%
100%
100%
99%
100%
100%
100%
100%
100%
50%
100%
100%
60%
60%
100%
100%
99%
100%
100%
100%
100%
100%
50%
100%
100%
50%
50%
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
PROPORTIONATE
FULL
FULL
FULL
FULL
(6)
60%
60%
100%
100%
100%
100%
100%
30%
50%
100%
100%
100%
100%
100%
FULL
FULL
FULL
FULL
FULL
FULL
Unconsolidated Not operational
Unconsolidated temporarily held
Unconsolidated temporarily held
(6)
50%
50%
F-40
50%
50%
Currency
(2)
(3)
(1)
(4)
(4)
(3)
(1)
(5)
(4)
(4)
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(5)
(4)
(4)
Dutch GAAP information
Accounting principles applied for Dutch GAAP purposes
The Consolidated Financial Statements as presented on pages F-5 through F-40 have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting
Standards Board (“IASB”). These accounting principles are largely in conformity with generally accepted
accounting principles in the Netherlands (“Dutch GAAP”). The presentation and description of items in the
Consolidated Balance Sheet on pages F-5 and F-6 and the Consolidated Income Statement have been brought in line
with the presentation model as prescribed under Dutch GAAP. For a summary of significant accounting principles
reference is made to pages F-11 through F-17. The Consolidated Financial Statements including the notes thereto as
prepared under IFRS should be considered an integral part of the financial statements as prepared under Dutch
GAAP which also includes the Parent Company Financial Statements as presented on pages F-42 through F-49.
There are no differences between IFRS and Dutch GAAP that need to be disclosed separately in these
consolidated accounts.
F-41
Parent Company Balance Sheet
31 December
Note
ASSETS
FIXED ASSETS
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
2002
EUR (thousands)
3
5,412
6,761
4
5
34,840
75,626
10,469
4,415
115,878
21,645
1,421
21
165
44
—
151
2,672
808
221
1,600
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,087
2,016
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120,965
23,661
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT ASSETS
Receivables
Receivable from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other amounts receivable and prepaid items . . . . . . . . . . . . . . . . . . . . . . .
Liquid funds
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..
..
..
..
..
6
See accompanying notes to the Parent Company Financial Statements.
F-42
31 December
Note
SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium on share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
2002
EUR (thousands)
7
18
40,100
11,749
2
18
133
8,592
2
51,869
8,745
55,612
3,957
—
14,746
..
59,569
14,746
..
..
..
..
..
..
4,762
33
4,659
2
1
70
—
23
34
—
4
109
Total Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,527
170
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES . . . . . . . . . . . . . . .
120,965
23,661
Total Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans, net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from group companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income and other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
9
F-43
Parent Company Income Statement
Note
For the year
ended
31 December
2003
2002
EUR (thousands)
General and administrative expenses . . . . .
Operating result . . . . . . . . . . . . . . . . . . .
Financial income. . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . .
Currency exchange gain . . . . . . . . . . . . . .
................................
................................
................................
................................
................................
Income before taxation . . . . . . . . . . . . . .
Income taxes. . . . . . . . . . . . . . . . . . . . . . .
Profit after taxation. . . . . . . . . . . . . . . . .
Result from subsidiaries after taxation . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
................................
................................
................................
................................
................................
487
(487)
324
(100)
677
4
F-44
414
—
414
2,743
3,157
405
(405)
402
(51)
133
79
—
79
1,179
1,258
Note 1 — General
The Company was incorporated on 12 April 1994, and has its seat in Hoofddorp, the Netherlands.
Prior to 2003, the Company operated as a holding company of the European cinema activities of the Group.
During the financial year 2003, the Company was involved in a restructuring (the ‘Restructuring’ — for a more
detailed explanation reference is made to Note 1 to the Consolidated Financial Statements). At the end of the
financial year 2003, as part of the Restructuring, all activities, assets, (including the Group’s other subsidiaries) and
liabilities of the Group that were previously not performed and owned by the Company, were transferred to the
Company as a contribution in kind (see Note 7 — Shareholders’ equity). Upon completion of the restructuring, the
Company operates as the parent company of the entire Group, including the Israeli activities.
The Restructuring formally ended in March 2004 when the legal proceedings were completed, which included
a change of the Company’s articles of association. The amendments to the articles of association included, amongst
others, a change of the Company’s legal structure from a limited liability company (‘B.V.’) to a public company
‘N.V.’) under Dutch law, a name change from I.T. International Cinemas B.V. to Cinema City International N.V. and
an increase in the Company’s authorized share capital.
The share capital as taken up in the Parent Company Balance Sheet per 31 December 2003 reflects the actual
number of outstanding shares per the end of the financial year. The effect of the change in the articles of association,
which involved a redenomination of the nominal capital per share as well as a share split, are not reflected in these
Parent Company Financial Statements since these changes were formalised after the end of the financial year. The
composition of the shareholders’ equity as shown in the Consolidated Financial Statements of the Group for the
year ended 31 December 2003 has been brought in line with the presentation of shareholders’ equity in the Parent
Company Balance Sheet.
Note 2 — Accounting principles
The accounting principles and measurement basis of the Company’s statutory accounts are similar to those
applied with respect to the consolidated financial statements (see Note 2 to the Consolidated Financial Statements).
The Parent Company Financial Statements have been prepared in conformity with generally accepted accounting
principles in the Netherlands (‘Dutch GAAP’), whereas the Consolidated Financial Statements have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting
Standards Board (“IASB”). For a comparison between IFRS and Dutch GAAP reference is made to page F-41
“Dutch GAAP information”.
Note 3 — Property and Equipment
Composition:
For the year ended 31 December 2003
Balance at
beginning
of the year
Additions
during
the year
Sales and
disposals
during
the year
Contributed assets
as part of the
Restructuring(2)
Balance at
year end
EUR (thousands)
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . .
Computers, furniture and office
equipment . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . .
6,752
1,960
(3,312)
—
5,400
9
6,761
1
1,961
—
(3,312)
2
2
12
5,412
6,761
F-45
5,412
Note 3 — Property and Equipment (continued)
For the year ended 31 December 2002
Sales and
Balance at
Additions
disposals
beginning
during
during
Balance at
of the year
the year
the year
year end
EUR (thousands)
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment. . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,166
4
4,371
5
(1,785)
—
6,752
9
4,170
4,376
(1,785)
6,761
4,170
6,761
(1)
Consists of prepayments on account of IMAX systems not operated yet. Therefore, no depreciation has been made.
(2)
See Note 7.
Note 4 — Investment in subsidiaries
The subsidiaries of the Company are valued at their net equity value. The movements in subsidiaries are as
follows:
For the year ended
31 December
2003
2002
EUR (thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,469
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
521
Net result subsidiaries during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,743
Subsidiaries contributed as part of the Restructuring (see Note 7) . . . . . . . . . . . . . . . . . . . . 21,107
8,668
622
1,179
—
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,840
10,469
Note 5 — Loans to subsidiaries
For the year ended
31 December
2003
2002
EUR (thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,415
Loans added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,231
Loans redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,111)
Loans contributed as part of the Restructuring (see Note 7) . . . . . . . . . . . . . . . . . . . . . . . . 71,091
5,280
315
(1,180)
—
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,626
4,415
Reference is made to Note 11 to the Consolidated Financial Statements.
F-46
Number of
Shares
Share
capital
Share
Premium
Accumulated
currency
translation
adjustments
Retained
earnings
Total
Balance as of 1 January 2002. . . . . . . . . .
400
—
18
—
133
—
7,334
1,258
2
—
7,487
1,258
Assets and liabilities contributed as part
of the Restructuring . . . . . . . . . . . . . . .
Balance as of 31 December 2003 . . . . . .
400
—
18
—
133
—
8,592
3,157
2
—
8,745
3,157
—
400
—
18
39,967
40,100
—
11,749
—
2
39,967
51,869
As of 31 December 2003 the authorized share capital of the Company consists of 2,000 ordinary shares with a
par value of EUR 45.38 per share (31 December 2002: 2,000 ordinary shares).
At the end of the financial year 2003, as part of the Restructuring, the following assets and liabilities of the
Group that were previously not performed and owned by the Company were transferred to the Company as a
contribution in kind
EUR
(thousands)
Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-company loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current accounts with subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current receivables and payables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
21,107
71,091
2,611
(55,612)
(3,957)
14,099
(4,762)
(4,604)
(8)
Total contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,967
In exchange for this contribution, the Company issued 33,244,527 new shares (with a par value of EUR0.01
per share) to the contributor on 19 March 2004. The resulting increase in the share capital amount of EUR322,445
will be charged to Share Premium in 2004 (see also note 13).
Note 8 — Long term loans, net of current portion
A.
Composition:
In euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate as of
31 December
2003
31 December
2003
%
EUR (thousands)
(1)
(2)
43,702
16,672
60,374
Less —
current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,762)
55,612
(1)
(2)
Linked to the US dollar bearing interest at the rate of LIBOR + 1%-1.75%.
F-47
Note 8 — Long term loans, net of current portion (continued)
B.
31 December
2003
EUR
(thousands)
First year — current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fifth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sixth year and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,762
4,762
4,762
4,762
4,762
4,762
31,802
60,374
Note 9 — Loan from Group Companies
As part of the Restructuring, a loan from the shareholder was transferred to the Company in the amount of
EUR 3,957,000 (USD 5,000,000).The loan is linked to the USD bearing interest at the rate of LIBOR + 1.15% (see
also Note 25 to the Consolidated Financial Statements).
The Company employed one member of staff during the year.
Note 11 — Directors’ remuneration
The Board of Directors of the Company consists of 5 members; one of the new board members was a member
of the board prior the restructuring and has received a fee of EUR 2,000 during 2003. The Company does not have a
Board of Supervisory Directors.
Note 12 — Reconciliation of net income to consolidated net income
As the Parent Company Income Statement includes the result from the Company and its subsidiaries as owned
prior to the Restructuring materially differ from the consolidated net income as presented in the Consolidated
Income Statement, a reconciliation of the net income as per the Parent Company Income Statement and the net
income as per the Consolidated Income Statement is shown below:
2003
2002
EUR (thousands)
Net income — parent company (not consolidated) (see page F-44). . . . . . . . . . . . . . . . . . . 3,157
Result of other activities transferred to the Company as part of the Restructuring . . . . . . . . . .
437
1,258
967
Net income — consolidated (see page F-7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,594
2,225
Note 13 — Post Balance Sheet Event
During the financial year 2003, the Company and its group were involved in a restructuring (the ‘Restructuring’ — for a more detailed explanation reference is made to Note 1 to the Consolidated Financial Statements and
to Note 1 of the Parent Company Financial Statements). On 24 March 2004, on which date the Company’s amended
articles of association came into force and a further share issue took place, the Restructuring was formally
completed. The amendments to the articles of association included, amongst others, a change of the Company’s
legal structure from a limited liability company (‘B.V.’) to a public company (‘N.V.’) under Dutch law, a name
change from I.T. International Cinemas B.V. to Cinema City International N.V., a redenomination of the par value
per share and an increase in the Company’s authorized share capital. As of 26 March 2004, the authorized share
capital of the Company consists of 175,000,000 ordinary shares with a par value of EUR 0.01 per share, and the
number of outstanding ordinary shares is 35,059,648.
F-48
Note 13 — Post Balance Sheet Event (continued)
The issue of new shares in 2004 was made to the Company’s 100% shareholder, ITIT as described in note 7.
The corresponding increase in share capital, amounting to EUR 332,445 will be charged to Share Premium in 2004.
The net impact of the share issue on the Company’s shareholders’ equity is nil.
Amsterdam,
26 March 2004
Chairman
Director and CFO
F-49
for the year ended
31 December 2004
F-50
Contents
Page
Auditors’ report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheet as of 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Income Statement for the year ended 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Shareholders’ Equity for the year ended 31 December 2004 . . . .
Consolidated Statement of Cash Flows for the year ended 31 December 2004 . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dutch GAAP information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent Company Balance Sheet as of 31 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent Company Income Statement for the year ended 31 December 2004 . . . . . . . . . . . . . . . . . . . . . .
Notes to the Parent Company Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-51
F-52
F-53
F-55
F-56
F-57
F-59
F-89
F-90
F-92
F-93
Auditors’ Report
Introduction
We have audited the accompanying consolidated balance sheets of Cinema City International
N.V., Amsterdam, and its subsidiaries (“the Group”) as of 31 December 2004 and 2003 and the
related consolidated income statements, changes in shareholders’ equity and cash flows for each
of the years then ended, as set out on pages F-53 to F-88. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
Scope
our opinion.
Opinion
position of the Company as of 31 December 2004 and 2003 and of the results of its operations,
the changes in shareholders’ equity and its cash flows for each of the years then ended in
accordance with International Financial Reporting Standards adopted by the EU.
Amstelveen, 23 February 2005
P. Mizrachy RA
F-52
31 December
Note
ASSETS
FIXED ASSETS
Intangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
EUR (thousands)
4
5
169
148,794
374
138,548
25
2,516
2,080
151,479
141,002
7
2,858
3,042
8
6
26
25
9
5,707
13,790
616
390
9,097
5,371
15,743
596
701
5,158
29,600
27,569
173
117
208
117
290
325
4,537
715
5,252
5,377
808
6,185
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,000
37,118
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
189,479
178,123
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT ASSETS
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to (unconsolidated) subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other amounts receivable and prepaid expenses . . . . . . . . . . . . . . . . . . . .
Total receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-marketable securities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquid funds
Short-term bank deposits — collateralized . . . . . . . . . . . . . . . . . . . . . . . .
Total liquid funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
11
12
F-53
31 December
Note
SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium on share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . .
13
Total Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued employee retirement rights, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision related to onerous lease contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income received in advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
EUR (thousands)
14
17
26
15
25
16
20
18
26
25
19
407
43,553
17,089
(975)
18
40,100
11,749
2
60,074
51,869
(174)
53
80,433
—
794
2,704
8,389
2,872
173
76,731
3,957
743
1,781
9,997
3,340
164
95,365
96,713
11,084
9,423
850
1,284
—
11,573
12,648
8,315
2,670
1,234
1
4,620
Total Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,214
29,488
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES . . . . . . . . . . . . . .
189,479
178,123
F-54
Note
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
2003
EUR (thousands, except per share
data and number of shares)
21
22
98,938
83,696
95,783
85,696
23
23
24
29
15,242
4,504
10,738
4,454
(5,581)
(1,204)
(1,765)
10,087
4,630
5,457
3,476
(4,082)
(231)
—
6,642
1,549
5,093
4,620
756
3,864
5,340
(247)
3,594
270
5,093
3,864
Number of average equivalent shares *) . . . . . . . . . . . . . . . . . . . . .
38,539,535
35,059,648
0.14
0.10
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain/(loss) on disposals and write-off of other investments . . . . . . .
Write-off of IPO costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attributable to:
Equity holders of the parent company . . . . . . . . . . . . . . . . . . . . . . .
Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings per ordinary share (basic and diluted of
EUR 0.01*) each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*)
25
14
13
The net earning per share was calculated taking into account the par value of share and the number of shares as of the date of this financial
statements see note 13.
F-55
Number of
Shares1
Share
capital
Share
Premium
Retained
Earnings
Accumulated
currency
translation
adjustments
Total
Balance as of 31 December 2002 . . . . .
Net income for the year 2003 . . . . . . . .
adjustment . . . . . . . . . . . . . . . . . . . .
Transfer to Share Premium . . . . . . . . . .
400
—
18
—
29,531
—
17,402
3,594
—
—
—
—
—
10,569
—
(9,247)
Balance as of 31 December 2003 . . . . .
400
New shares issued *)
(Par value EUR 45.38) . . . . . . . . . . . .
350
Split of shares *)
(to par value EUR 0.01) . . . . . . . . . . . 3,402,602
New shares issued *)
(par value EUR 0.01) . . . . . . . . . . . . . 31,656,296
New shares issued )
(par value EUR 0.01) . . . . . . . . . . . . . 5,664,352
Net income for the year 2004 . . . . . . .
—
adjustment. . . . . . . . . . . . . . . . . . . .
—
18
40,100
11,749
2
51,869
Balance as of 31 December 2004. . . . . 40,724,000
*)
(189)
—
46,762
3,594
1,513
(1,322)
1,513
—
16
(16)
—
—
—
—
—
—
—
—
317
(317)
—
—
—
—
5,340
—
—
3,842
5,340
56
—
3,786
—
—
—
—
(977)
407
43,553
17,089
(975)
(977)
60,074
As part of the restructuring
Statement of recognised income
For the year ended
31 December
2004
2003
EUR (thousands)
Net income attributable to equity holders of the parent company . . . . . . . . . . . . . . . . . . . . . 5,340
Net income attributable to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (247)
3,594
270
Total net income before minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,093
3,864
1
As part of the Restructuring, the Company allocated 350 additional shares to ITIT, than split each share to a par value of EUR 0.01, and
issued 31,656,296 new shares to ITIT to bring it’s holding to 35,059,648 shares. As ITIT at that time was 100% shareholder, the effect of
this transaction is very similar to a stock split.
F-56
For the year ended
31 December
2004
2003*)
EUR (thousands)
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in provision related to onerous lease contracts . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accrued employee rights upon retirement, net. . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income before working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase)/decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in governmental institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase)/decrease in long-term film distribution costs and deferred expenses . . . . . . . . .
Increase/(decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase/(decrease) in employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease)/increase in related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in income received in advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,738
5,457
10,659
(1,608)
94
1,411
1,260
(3,874)
(649)
(1,765)
16,266
117
(1,066)
(2,838)
(1,671)
(102)
1,956
96
(1,725)
18
10,391
(1,231)
37
337
1,176
(4,041)
(951)
—
11,175
(378)
205
(351)
(651)
15
(944)
(37)
1,802
30
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,051
10,866
Purchase of property and equipment and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,955)
Investment in development of video vending machines . . . . . . . . . . . . . . . . . . . . . . . . . .
(138)
Proceeds from disposition of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,555
Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
Loans to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
805
Loans to third party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,061
Proceeds from non-marketable securities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Proceeds from disposition of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37
(14,999)
—
725
811
—
(1,225)
884
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,542)
(13,804)
*)
The 2003 cash flows from operating activities have been reclassified for reasons of comparison
F-57
Consolidated Statement of Cash Flows (Continued)
For the year ended
31 December
2004
2003
EUR (thousands)
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,842
Proceeds from long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,520
Repayment of long-term loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,804)
Repayment of loan from shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,957)
Increase in long-term payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(468)
Short-term bank credit, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,480)
Dividend to minority shareholders of subsidiary company . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
18,960
(8,061)
—
1,550
(5,435)
(904)
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,653
6,110
Foreign currency exchange differences on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)
(840)
5,377
4,537
(36)
3,136
2,241
5,377
F-58
changes in shareholders’ equity, and cash flows of Cinema City International N.V. — previously known as I.T.
International Cinemas B.V. — (“the Company”, or “the Group”). The financial statements were authorised for issue
by the directors on 26 February 2005.
Cinema City International N.V., incorporated in the Netherlands, is a subsidiary of I.T. International Theatres
Ltd. (“ITIT” or “parent company”), incorporated in Israel. The Group is principally engaged in the operation of
entertainment activities in various countries including: Poland, Hungary, Czech Republic, Bulgaria and Israel. The
Company is also engaged in managing and establishing its own entertainment real estate projects for rental
purposes, in which the Company operates motion picture theatres. In addition, the Company is involved in shortterm and long-term real estate trading in Central Europe. The Company’s business is dependent both upon the
into Central Europe, and the increasing significance of Central Europe operations to the Group, during 2003 ITIT
restructured its operations in Israel to be included within the Company (‘the Restructuring’). At the end of 2003
financial year, as part of the Restructuring, ITIT and the Company performed certain transactions that, among other
things, provided for: (i) the transfer to I.T. International Theatres 2004 Ltd. (“IT-2004”), a new subsidiary of ITIT
(See note 3 (II) (4)), of all assets connected with the film exhibition business in Israel; (ii) The transfer from ITIT to
the Company of all shares in IT-2004 and in all other subsidiaries which relate to the Group’s operations in Israel;
(iii) ITIT’s agreement not to compete in the markets that the Company operates in; (iv) the assignment of all
remaining ITIT loans and balances from financial institutes to the Company; (v) the assignment of all assets and
liabilities of Pan-Europe Finance B.V., a wholly-owned subsidiary of ITIT, to the Company, in consideration of
debt. The debt was then converted to shares in the Company. Upon completion of the Restructuring, the Company
became owner and holder of all the operations of the Group in both Europe and Israel.
The comparative figures in the 2004 Consolidated Financial Statements present the ownership and operation
of the Group as if the entire Group’s business had been owned and operated by the Company since 1 January 2003
(Consolidated Financial Statements in accordance with IFRS). Although the Restructuring was completed towards
the end of 2003, such a presentation would appropriately reflect the economic operation and financial position of
the Group during the full year 2003.
Reporting Standards (“IFRS”) adopted by the International Accounting Standards Board (“IASB”), and interpretations issued by the Standing Interpretations Committee of the IASB. The Company’s separate financial
statements (the ‘Parent Company Financial Statements’) are prepared in accordance with the applicable laws
and regulations of the Company, being Generally Accepted Accounting Principles in the Netherlands (‘Dutch
GAAP’) and are taken up on pages F-90 through F-97. For an explanation of the comparison between IFRS and
Dutch GAAP reference is made to the section Dutch GAAP Information on page F-89.
A.
The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the IASB.
effective.
F-59
B.
(1) Measurement basis
The financial statements are presented in euro, rounded to the nearest thousand. They are prepared on the
historical cost basis adjusted for the change in the measurement currency. Unless otherwise stated, monetary
assets and liabilities are presented at nominal value. Marketable securities are presented at fair value.
(2) Integral foreign operations
The measurement currency of the operations in Central Europe is the euro. All of the Central European
subsidiaries are considered to be integral to the Company’s operations. Management believes that the euro
reflects the economic substance of the underlying event and circumstances and is the relevant currency for the
Central European subsidiaries.
The financial statements of integral foreign operations were translated into euro as follows: Monetary items
were translated at the closing exchange rate; non-monetary items were translated at the exchange rate on the
date of transaction. Income statement items were translated at the average exchange rate for the year. Foreign
exchange differences arising on translation have been recognised in the income statement.
(3) Non-integral foreign operations
The measurement currency of the operations in Israel is the New Israeli Shekel (NIS). Management considers
that the Israeli operations to be autonomous from the Company, with a measurement currency of NIS rather
than euro. Management believes that NIS reflects the economic substance of the underlying event and
circumstances relevant to the Israeli subsidiaries.
The financial statements of non-integral foreign operations were translated into euro as follows:
Assets and liabilities, both monetary and non-monetary were translated at the closing exchange rate. Income
statement items were translated at the average exchange rate for the year. Foreign exchange differences arising
on translation have been are recognised directly in equity.
C.
Exchange rates
Information relating to the relevant euro exchange rates (at year end and averages for the year):
Czech
Crowns
Hungarian
Forints
Polish
Zloty
US
Dollar
Israeli
Shekel
(CZK)
(HUF)
(PLN)
(USD)
(NIS)
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.51
32.41
246.19
246.33
4.09
4.72
1.36
1.26
5.88
5.53
Change during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
%
%
%
%
%
7.94
20.00
6.33
11.27
As of 31 December
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.86)
2.56
Average for year
Czech
Crowns
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
%
(0.06)
4.42
(13.35)
17. 41
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-60
Hungarian
Forints
Polish
Zloty
US
Dollar
(CZK)
(HUF)
(PLN)
(USD)
(NIS)
31.95
34.08
252.11
253.18
4.53
4.40
1.24
1.15
5.58
5.13
%
%
%
%
2.95
2.50
7.83
21.05
8.77
2.90
(6.25)
10.61
(0.42)
(3.44)
Israeli
Shekel
D.
from its activities. The financial statements of subsidiaries are included in the Consolidated Financial Statements
from the date that control effectively commences until the date that control effectively ceases.
Statements. A list of the companies whose financial statements are included in the Consolidated Financial
Statements and the extent of ownership and control appears in note 34 to these financial statements.
E.
Use of estimates
F.
Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation, calculated
over the estimated useful life of the assets, and impairment losses, if any. The recoverable amount is estimated at
least at each balance sheet date. Under IAS 36, the carrying amount of the intangible assets mentioned above is
reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such
indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.
G. Property and equipment
(1)
(2)
assets.
%
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movie cassettes and DVDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
2-3
. Mainly 10
. Mainly 5
.
6-33
.
15-20
.
25-33
.
20
(3)
(4)
F-61
G. Property and equipment (continued)
(5)
According to IAS 36 the carrying amount of assets mentioned above is reviewed at each balance sheet
(6)
with IAS 23.
H. Inventories
I.
J.
Marketable securities
earned..
K. Cash and cash equivalents
L.
Employee benefits — defined contribution plans
M. Employee benefits — severance pay
In certain countries in which the Group operates, employees are entitled to a severance pay at the end of their
employment. The Group’s liability for these severance payments is calculated pursuant to local applicable
severance pay laws and employee agreements based on the most recent salary of the employees. The Group’s
liability for all of its employees is partly provided by monthly deposits with insurance policies and by accruals. The
deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn
only upon the fulfilment of the obligation pursuant to local severance pay law or labour agreements. The value of
the deposited funds is based on the cash value of these policies, and includes immaterial profits. The unfunded
portion of the Group’s liability is taken up in the balance sheet as a provision under the heading “Accrued employee
retirement rights, net”. The provision is stated at nominal value.
F-62
N.
Provision related to onerous lease contracts
also note 16).
O. Long term loans
All long term loans and borrowings are initially recognised at cost, being the fair value of the consideration
received net of issue costs associated with the borrowing.
After initial recognition, interest-bearing loans are subsequently measured at amortised cost using the
effective interest rate method. Amortised cost is calculated by taking into account any issue costs, and any
discount or premium on settlement.
Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as
through the amortisation process.
For information regarding the fair value of long term liabilities reference is made to Note 28.
P.
Revenue recognition
(1)
(2)
(3)
(4)
(5)
(6)
contract.
(7)
(8)
significant risks and benefits of the ownership have been transferred, when the buyer is committed to the
purchase, and when the sales price is considered collectible.
Q. Operating costs
(1)
Theatre operating costs — Include direct concession product and joint theatre facility costs such as
operations.
(2)
(3)
F-63
R.
Net financing cost
recognised on hedging instruments are recognised in the income statements.
Interest income is recognised in the income statements as it accrues, taking into account the effective yield on
the asset.
S.
financial instruments are stated at fair value. The fair value of foreign contracts is based on the relevant current
exchange rates at balance sheet date. Where a derivative financial instrument is used to economically hedge the
foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain
or loss due to the change in the fair value of the hedging instrument is recognised in the income statement.
T.
Income taxes
A deferred tax ass4et is recognised only to the extent that it is probable that future taxable profits will be
U.
Earnings per share
Earnings per share are computed according to IAS 33 of the IASB. The computation is determined on the basis
of the weighted average par value of the issued and paid-in share capital outstanding during the year.
V.
Stock Option Plan
In 2003, the Company applied the intrinsic value-based method of accounting prescribed by the Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations
in accounting for its fixed plan stock options. As such, compensation expense was recorded on the date of grant only
if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for
Stock-Based Compensation”, established accounting and disclosure requirements using a fair value-based method
of accounting for stock-based compensation plans for employee and for advisor. As allowed by SFAS No. 123, the
Company elected to apply the intrinsic value-based method of accounting described above, and adopted the
disclosure requirements of SFAS No. 123, and the relevant disclosures mentioned in IAS 19. However, as the stock
option plan was terminated in 2004, the accounting policy for the Stock Option Plan is no longer applicable for the
current year.
F-64
X.
Comparative figures
Certain comparative figures have been reclassified to conform with 2004 classifications.
None
(1)
Forum Film Poland Sp.Zoo — 100% shares. This company commenced operations in July 2003. This
company specialises in distribution of films in Poland.
(2)
MO. Sofia EAD — 50% share. In July 2003, the Company has sold 50% of its holding in this company
for a total price of EUR 2,696,000 (which was partly paid through the repayment of shareholders loans
provided to MO Sofia by the Company).
(3)
I.T. Sofia BV — 100% shares. in conjunction with the above (2), the Company acquired the remaining
25% of the shares of I.T. Sofia BV. The Company has paid a EUR 269,000 (USD 300,000) down
payment out of a total payment of EUR 526,000 (USD 600,000), and may pay additional amounts after
the opening of the project. The rest of the initial payment is subject to milestones relating to the progress
of the development of the project, and the additional payments are subject to agreed success criteria after
the opening.
(4)
IT Theatres 2004 Ltd. — 100%. New subsidiary, incorporated as part of the reorganisation (See note 1).
Movie theatres operations in Israel were transferred to this subsidiary in December 2003.
The intangible fixed assets comprise mainly of investments in the development of video vending and renting
machines and are stated at cost less accumulated amortisation and impairment losses, if any.
Composition:
Balance at
beginning of the
year
Financial year 2004
Foreign currency
Additions during
translation
the year
adjustments
Balance at end of
year
EUR (thousands)
Cost . . . . . . . . . . . . . . . . . . . . . . . . . .
609
138
(39)
708
Accumulated amortisation . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . .
235
374
333
(29)
539
169
F-65
Note 4 — Intangible fixed assets (continued)
Financial year 2003
Balance at
beginning of the
year
Additions during
the year
Foreign currency
translation
adjustments
Balance at end of
year
EUR (thousands)
Cost . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . .
471
143
Carrying value . . . . . . . . . . . . . . . . . .
328
192
125
(54)
(33)
609
235
374
Composition
Financial year 2004
Balance at
beginning
of the year
Additions
during
the year
Foreign
currency
translation
adjustments
Sales and
disposals
during the
year
Impairment
Balance at
end of year
EUR (thousands)
Cost
Land and buildings(1) . . . . . . . . . . . .
Cinema equipment(1) . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . .
equipment . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . .
equipment . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . .
(1)
50,549
55,701
57,969
17,515
6,122
59
0
(838)
(842)
—
(2,519)
(2)
—
—
—
68,064
58,466
57,184
9,575
960
6,777
1,085
140
241
1,311
26
(516)
(48)
(355)
(65)
(26)
(120)
—
—
—
—
—
—
9,173
1,033
7,733
1,046
182,616
25,414
(2,664)
(2,667)
—
202,699
4,041
20,213
9,380
2,143
4,568
954
—
(624)
(252)
—
—
—
332
—
—
6,516
24,157
10,082
6,554
393
2,841
646
255
157
2,035
214
(362)
(22)
(316)
(49)
(16)
(77)
—
—
—
—
897
—
6,431
451
5,457
811
44,068
138,548
10,326
(1,625)
(93)
1,229
53,905
148,794
Includes EUR 17,884,000 construction in progress for entertainment purposes and cinema equipment to an amount of EUR 5,098,000 not
operated yet (See also note 20 (1) b. and c.).
The impairment write-offs are further described in Note 24.
F-66
Financial year 2003
Balance at
beginning
of the
year*)
Additions
during
the year
Foreign
currency
translation
adjustments
Sales and
disposals
during the
year
Balance at
end of year
EUR (thousands)
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . .
48,275
53,760
57,588
9,868
772
5,983
1,163
3,378
3,985
2,346
890
289
1,311
65
—
(1,574)
(1,608)
(1,002)
(101)
(515)
(143)
(1,104)
(470)
(357)
(181)
177,409
12,264
(4,943)
(2,114)
182,616
Leasehold improvements . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . .
2,052
17,380
8,473
6,534
296
1,967
480
2,018
4,181
1,682
848
144
1,161
232
0
(1,069)
(488)
(701)
(47)
(285)
(66)
(29)
(279)
(287)
(127)
—
(2)
—
4,041
20,213
9,380
6,554
393
2,841
646
37,182
140,227
10,266
(2,656)
(724)
Carrying value . . . . . . . . . . . . . . . . . . . . . . . .
44,068
138,548
*)
50,549
55,701
57,969
9,575
960
6,777
1,085
(2)
Reclassified for reasons of comparison
Includes EUR 2,409,000 construction in progress for entertainment purposes and cinema equipment to an
amount of EUR 5,400,000 not operated yet.
Note 6 — Loans to Unconsolidated Subsidiaries
This item represents a loan to an unconsolidated subsidiary presented at cost. The loan is denominated in USD
and bear annual interest at the rate of 7%. The loan is due to be repaid upon the sale of a 50%-subsidiary (not
consolidated) that owns real estate located in Central Europe. . For further details of the expected sale of the interest
reference is made to note 10 below.
Composition:
31 December
2004
2003
EUR (thousands)
Concession products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video cassettes and DVDs . . . . . . . . . . . . . . . . . . . . . . . . . .
IMAX films inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-67
........................
643
........................
570
. . . . . . . . . . . . . . . . . . . . . . . . 1,416
........................
64
........................
165
2,858
644
817
1,389
78
114
3,042
Note 7 — Inventories (continued)
Valuation:
31 December
2004
2003
EUR (thousands)
At cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,864
Provision for net realisable value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
2,858
3,048
(6)
3,042
All inventories included above are valued at cost with the exception of certain spare parts (with an original cost
value of EUR 6,000) which in prior years have been written off to zero.
Note 8 — Trade Accounts Receivable
Composition:
31 December
2004
2003
EUR (thousands)
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,720
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13)
5,707
5,390
(19)
5,371
Note 9 — Other Amounts Receivable and Prepaid Expenses
Composition:
31 December
2004
2003
EUR (thousands)
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,733
Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
371
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,113
Prepaid cinema film and video film distribution costs(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,458
Film distribution costs and deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Loans to other(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
258
1,107
22
1,351
1,356
1
1,225
96
9,097
5,158
(1)
recoverability — see also Note 20 (1)f.
(2)
The Loans to other are repayable at March 2005 and earn an interest of 5% per annum.
Note 10 — Non-Marketable Securities — Held for Sale
This concerns an investment in a subsidiary in Central Europe, which has an investment in real estate. The
investment is presented at cost, since the investment is acquired and held exclusively with a view to its subsequent
disposal (see also note 6).
During the year ended 31 December 2000, the Company, sold 50% of a subsidiary that owns a real estate
property to a third party. The Company, has signed a letter of intent to sell the other 50% to the same third party.
Following the signature of the letter of intent, the parties have filed an application with the Polish anti-monopoly
authorities to approve the transaction. The Company does not foresee any reason for the Anti-Monopoly to prevent
the sale, and is expecting a binding agreement to be signed following such approval.
F-68
Note 11 — Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short term deposits freely available for the
Group. The short term deposits have an original maturity varying from one day to three months.
Composition:
31 December
2004
2003
EUR (thousands)
Cash at bank and at hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,936
Short-term deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
601
2,773
2,604
4,537
5,377
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits
are made for varying periods of between one day and three months depending on the immediate cash requirements
of the Group, and earn interest at the respective short-term deposit rates. The fair value of the cash and cash
equivalents is EUR 4,537,000 (2003: EUR 5,377,000)
Note 12 — Short-Term Bank Deposits — collateralized
In 2004, deposits with banks in Central Europe denominated in Euro and PLN for a total amount of
EUR 715,000 (2003 — EUR 808,000) were made to serve as collateral for credit facilities provided to a subsidiary.
Composition:
31 December
2004
2003
EUR (thousands)
In EUR earn interest 0.5%-2.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In PLN earn interest of 4% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
294
421
715
808
—
808
a.
31 December 2004
Issued and
Authorised
outstanding
Number of shares
Ordinary shares of EUR 0.01 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000,000
40,724,000
b.
Regarding the previously existing employees’ stock option plan — see note 27.
c.
As at 31 December 2003, the share capital of the Company consisted of 400 ordinary shares of EUR 45.38 par
value each. As part of the restructuring that took place in 2003, the Company issued new shares to its 100%
shareholder, ITIT, then split each existing share to a par value of EUR 0.01, and issued new shares to ITIT to
bring the number of its issued and outstanding shares to 35,059,648. As at that time, ITIT was the 100%
shareholder, the effect of this transaction is very similar to a stock split. The formalities regarding the
registration of the new shares were completed in March 2004. Subsequent to the issuance and registration of
the new shares on 24 March 2004, the authorised share capital of the Company consisted of 175,000,000 shares
of EUR 0.01 par value each.
On 13 May 2004, the Company issued 4,940,352 new ordinary shares, and a further 724,000 new ordinary
shares were issued by the Company on 15 June 2004. The total amount contributed to the Company’s share
capital and share premium reserve in connection with these share issues amounted to EUR 3,842,000. As a
F-69
Note 13 — Shareholders’ Equity (continued)
result of the share issues during 2004, the total number of shares issued and outstanding at 31 December 2004
totalled 40,724,000. All shares issued and outstanding at 31 December 2004 have been fully paid up.
Note 14 — Minority Interests
31 December
2004
2003
EUR (thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
Minority interests in (losses)/earnings of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . (247)
Dividend paid to minority shareholders of subsidiary companies . . . . . . . . . . . . . . . . . . . . . .
—
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
779
270
(904)
(92)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174)
53
Note 15 — Accrued Employee Retirement Rights
a.
b.
recognised pension and severance pay funds in the employees’ names and by purchase of insurance policies
and are accounted for as if they were a defined contribution plan. The amounts funded as above are netted
against the related liabilities and are not reflected in the balance sheets since they are not under the control and
c.
The amounts of the liability for severance pay presented in the balance sheets (see d below) reflect that part of
the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as the liability
that is funded by deposits with recognised central severance pay funds held under the name of the Company’s
subsidiaries.
d.
31 December
2004
2003
EUR (thousands)
Provision for severance pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,662
earnings thereon and other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (868)
794
F-70
1,696
(953)
743
Note 15 — Accrued Employee Retirement Rights (continued)
e.
The movements in the provision for accrued employee rights upon retirement during the financial year is as
follows:
Financial year 2004
Amount
Gross amount
deposited
Net amount
EUR (thousands)
Balance beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made upon retirement . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly payments to deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net movement in provision (credited)/charged to net profit . . . . . .
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,696
—
(95)
—
61
1,662
(953)
—
51
34
—
868
743
—
(44)
34
61
794
Financial year 2003
Gross amount
Amount
deposited
Net amount
EUR (thousands)
Balance beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made upon retirement . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly payments to deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net movement in provision (credited)/charged to net profit . . . . . .
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,742
—
—
(46)
1,696
(956)
—
3
—
(953)
786
—
3
(46)
743
these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million). The acquisition
also involved the assumption of certain long term lease contracts with onerous terms, expiring in 2009 to 2010. A
provision of EUR 12,731,000 (USD 13,369,000), relating to these onerous lease contracts, which the acquired
subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition.
The provision is amortised over the non-cancellable periods of the lease contracts. Amortisation in 2004
amounted to EUR 1,608,000 (2003: EUR 1,231,000) and was credited to the lease expenses under operating
expenses
Movements:
Financial year
2004
2003
EUR (thousands)
Amortisation during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,608)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-71
8,389
11,228
(1,231)
9,997
Note 17 — Long-Term Loans
A.
Composition:
31 December
Interest rates
%
In Czech crowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In EUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In NIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from minority interest holder . . . . . . . . . . . . . . . . . . . . . . .
(1)
(2)
(3)
(4)
(5)
Less —
current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Linked to the Czech crowns bearing interest at the rate of PRIBOR + 2.6%.
(2)
(3)
Linked to the US Dollar bearing interest at the rate of LIBOR + 1%-1.75%.
(4)
In NIS, linked to the Israeli CPI and bearing interest at the rate of 5.7%
(5)
In dollars, bearing no interest.
2004
2003
EUR (thousands)
8,418
63,122
14,944
605
129
8,394
58,036
16,672
—
139
87,218
83,241
6,785
6,510
80,433
76,731
In 2004 the Company, through a subsidiary, signed a loan agreement with a Polish bank under which
agreement the Company can borrow up, in trenches, to a maximum of PLN 77 million. The loan is intended for the
financing of new cinema projects in Poland. As at 31 December 2004, no amounts have been drawn down under this
agreement.
B.
31 December
2004
2003
EUR (thousands)
First year — current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,785
Second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,671
Third year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,776
Fourth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,640
Fifth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,061
Sixth year and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,609
Undefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,676
87,218
C.
Liens — see note 20 (2).
F-72
6,510
6,677
6,826
7,034
9,072
15,320
31,802
83,241
Note 18 — Short-Term Bank Credit
Composition:
31 December
Interest rates
%
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unlinked (NIS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(1)
9.8% - 11.4%
2004
2003
EUR (thousands)
6,785
6,510
4,299
11,084
6,138
12,648
Variable
Note 19 — Other Accounts Payable
Composition:
31 December
2004
2003
EUR (thousands)
Investment Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances and income received in advance(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward currency contracts (see also Note 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
5,966
1,981
379
2,521
448
278
404
1,454
753
1,847
—
162
11,573
4,620
Note 20 — Commitments, Contingent Liabilities and Liens
(1) Commitments
a.
F-73
Future minimum lease payments under non-cancellable operating leases from third parties for the years
after 31 December 2004, are as follows:
EUR
(thousands)*
2005
2006
2007
2008
2009
After
........................................
........................................
........................................
........................................
........................................
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....................
.....................
.....................
.....................
.....................
.....................
12,612
13,251
12,920
12,792
12,189
43,980
107,744
* Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period.
31 December
2004
2003
EUR (thousands)
Minimum rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,378
Contingent rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
215
12,127
644
11,593
12,771
b.
c.
As at 31 December 2004, the Group has unpaid commitments to invest in the development of properties
of approximately EUR 13.5 million and further commitments to acquire equipment of approximately
EUR 10 million in connection with the development of new systems and movie theatres. In addition, the
Group is committed to pay a percentage of its revenues from some of these new systems, subject to a
d.
determined.
e.
CPI or to the US dollar, or as a percentage of the turnover. Annual rent expenses for 2004 amounted to
EUR 712,000.
f.
Israeli, Polish and Hungarian television for specific movies.
These rights are for various periods and will end during the years 2004-2008.
g.
F-74
h.
In July 2003, the Company has signed an agreement to buy the minority interest in IT Sofia BV, for a
Bulgarian subsidiary, IT Sofia BV is developing a shopping entertainment centre in Sofia, Bulgaria. The
first part of the purchase price was paid in cash during 2003, second part was paid during 2004. The
balance is due subject to milestones based on the progress of the project, and additional payments are
subject to success of the shopping centre after opening.
i.
Lease contracts of certain cinema equipment of IMAX» systems are classified as finance lease and as
such the equipment is included in Tangible fixed assets under Cinema equipment. The total of the lease
obligation at 31 December 2004 amounted to EUR 2,872,000 (31 December 2003: EUR 3,340,000), and
is classified as Other long-term payables. The lease term expires on 31 December 2020, after which the
ownership will be transferred to the Company.
(2) Liens
a.
As part of the reorganisation, the Company has assumed the majority of the Group’s bank debt, provided
originally via ITIT. Based on the agreement between the Company and ITIT of December 2003, the
bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the bank. In
order to secure the Company’s liabilities for such bank credits and loans in the amount of approximately
EUR 56 million, the Company has provided the bank the following: (i) a registered first degree fixed lien
on IT-2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first degree floating
lien on IT-2004’s assets, including insurance benefits in respect of the assets and rights of any kind
which the ITIT has or will have in the future; (iii) that the assets of IT-2004 will not be pledged and the
lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to guarantee the debt
of the Company, and ITIT has provided the bank with a fixed lien on 70% of the Company’s issued share
capital; (v) that certain financial covenants will be fulfilled and maintained.
b.
policies of the projects. As at 31 December 2004, the Company had issued a guarantee for Euro
12 million to a polish bank in connection with a loan provided to a subsidiary. After the end of the
financial year 2004, the Company issued a guarantee for a total amount of PLN 115.5 million to a Polish
bank in order to secure several loan agreements with this bank.
c.
In order to secure an outstanding loan from a central European bank of approximately EUR 5.3 million a
a.
From time to time, the Group is involved in routine litigation and proceedings during the normal course
of business. As of balance sheet date, the Group is not involved in any litigations or proceedings.
b.
The Israeli government office (“the Office”) in charge of antitrust matters commenced an investigation
into the theatre business in Israel in 2001. Under the investigation, the Office investigated the Group’s
activities in Israel including the interaction between the Group and its competitors. Since the
F-75
(3) Contingent Liabilities (continued)
commencement of the investigation, no further actions were taken by the Office, and the Group was not
asked to provide any further information, or answer any further questions. Management is of the opinion
that the consequences of the investigation cannot be determined at this stage.
Financial year
2004
2003
EUR (thousands)
Theatre sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,313
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,991
Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,664
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,970
98,938
72,252
13,427
7,771
2,333
95,783
Financial year
2004
2003
EUR (thousands)
Theatre operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,627
12,959
3,548
903
10,659
*57,425
11,958
5,259
*663
10,391
83,696
85,696
Cost of inventories recognized as an expense are included in Cost of sales for an amount of EUR 3,673,000
(2003: EUR 3,473,000).
*
Reclassified
Note 23 — Financial Income/Expenses
A.
Financial Income
Financial year
2004
2003
EUR (thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,260
Currency exchange gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,194
1,321
2,155
Total financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,454
3,476
F-76
Note 23 — Financial Income/Expenses (continued)
B.
Financial Expenses
Financial year
2004
2003
EUR (thousands)
Interest expenses incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost capitalised(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange loss arising from hedge transactions(2) . . . . . . . . . . . . . . . . . . . . . . . .
Other currency exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,827)
483
(448)
(1,789)
(4,216)
134
—
—
Total financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,581)
(4,082)
(1)
(2)
During 2004, the Company hedged its US dollar rental obligations in respect of its Polish and Hungarian theatre operations against the
Polish Zloty and the Euro, respectively. In connection with these obligations, the Company entered into forward foreign exchange
contracts comprising a commitment to buy USD 400,000 at the beginning of each month during the second half of 2004 and the first half
of 2005 at fixed prices denominated in Polish Zloty. In addition, the Company entered into a forward foreign exchange contracts
comprising a commitment to buy at the beginning of each month USD 190,000 during the second half of 2004 and USD 195,000 during
the first half of 2005 at fixed prices denominated in Euro and Hungarian Forint, respectively. These forward foreign exchange contracts
have been valued in the consolidated balance sheet at 31 December 2004 at their fair value. (See also Note 28).
Financial year
2004
2003
EUR (thousands)
Capital (loss)/gain on disposition of property, equipment and other assets, net . . . . . . . . . . . .
Impairment of video and DVD movies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(897)
(332)
25
(156)
—
—
(75)
(1,204)
(231)
The impairment of video and DVD movies is explained by a shorter estimated life time of video and DVD
movies that are kept for rental purposes. Previously, these items were depreciated in 4 years whereas the Company
now estimates their economic lifetime to be 2 years. The effect of the shortened lifetime is presented as an
impairment write-off.
The impairment of land and buildings relates to a property in the Czech Republic.
For both impairment write-offs reference is also made to Note 5.
Note 25 — Income Taxes
I.
1.
2.
The subsidiary
Tax rate
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34.5%
16%
28%
19%
35%
19.5%
F-77
I.
Tax laws applicable to the Group: (continued)
Tax rates in several countries the Group is operating in, will change as of 1 January 2005 as follows:
3.
•
Netherlands to 31.5%
•
Czech to 26%
•
Israel to 34%
•
Bulgaria to 15%
subsidiaries.
1.
The majority of the deferred tax asset per 31 December 2004 has arisen in Poland.
2.
31 December
2004
2003
EUR
(thousands)
Accrued employee rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25)
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (349)
Operating tax loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(89)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (627)
(511)
F-78
(3)
(315)
(284)
(67)
75
1
(593)
3.
31 December
2004
2003
EUR (thousands)
Accrued employee rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
233
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154
Operating tax loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,244
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115)
2,516
271
(239)
1,675
89
284
2,080
31 December
2004
2003
EUR (thousands)
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,627
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77
2,704
1,934
(153)
1,781
Financial year
2004
2003
EUR
(thousands)
Current taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In respect of previous years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
921
615
13
331
425
—
1,549
756
Financial year
2004
2003
EUR (thousands)
Tax calculated at the regular rate (34.5%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment for reduced tax rate in foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of tax losses utilized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income exempt from taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized exchange rate differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes in respect of previous years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,292
(455)
166
502
(2,089)
1,742
13
(622)
Actual tax charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,549
F-79
1,594
298
2,279
1,093
(790)
(3,649)
—
(69)
756
Note 26 — Related Party Transactions
Related parties
1.
2.
3.
of their families.
4.
a.
Income (expenses):
Financial year
2004
2003
EUR
(thousands)
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
123
Rental fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
965
1,012
Management services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117
322
b.
above properties aggregate to EUR 278,000 (USD 392,000). These leases were assigned to IT-2004, a
100% subsidiary of the Company, as part of the Reorganisation. (See also note 1)
c.
its Chief Operating Officer (“Managing Directors”), signed originally with ITIT in 1998, were assigned
to the Company. The fulfilment of the Company’s obligation under the agreements will be performed by
In accordance with the said agreement, the aggregate gross monthly remuneration for the Managing
Directors amounts to EUR 27,000 (USD 37,000) per month (not linked), which, together with related
employee benefits, will amount to EUR 32,000 (USD 44,000) per month.
In addition, the Managing Directors will be entitled to an annual bonus aggregating to 7% of the
Company’s consolidated profits before tax for any fiscal year. The above Managing Directors undertook
to be employed by the Company for an indefinite period, with 6 month notice of termination, and to
refrain from competing with the Company’s business for a period of 12 months following termination of
their employment with the Company.
abovementioned bonuses that relate to its own revenues.
The Managing Directors of the Company received remuneration totalling EUR 854,000 (2003:
EUR 723,000). The members of the Supervisory Board which was installed in December 2003 received
fees totalling EUR 48,500. Total remuneration is included in General and administrative expenses.
d.
F-80
Related parties (continued)
December 2003, this agreement was assigned to IT-2004, the 100% Israeli subsidiary of the Company.
e.
CPI.
Israel Theatres leased offices in Herzlia and in Haifa to IT-2004 until 30 November 2007, in consideration of EUR 49,000 (NIS 286,000) per annum. The rental fees are linked to the Israeli CPI.
f.
g.
h.
i.
In June 2002, ITIT received a loan from Israel Theatres in the amount of EUR 3,957,000
(USD 5,000,000), for the same terms as Israel Theatres received the loan from the bank (linked to
the USD bearing interest at the rate of LIBOR + 1.15%). In December 2003, the loan was assigned by
ITIT to the Company and, subsequently in 2004, fully redeemed by the Company.
j.
The Reorganisation of the Group and ITIT during 2003 included several transactions which are
described in Note 1.
Note 27 — Stock Option plan
Prior to the reorganisation of the Group, executives, Board members, consultants and senior employees of
ITIT and its subsidiaries were participating in a stock option plan. The stock option plan has been terminated in
2004. During the financial years 2003 and 2004 no options have been exercised.
Note 28 — Financial Instruments
The Group’s principal financial instruments, other than derivatives, comprise bank loans, loans from the
shareholder, operating leases and short-term bank credits. The main purpose of these financial instruments is to
raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors
and trade creditors, which arise directly from its operations.
The Group also enters into derivative transactions, principally forward currency contracts. The purpose is to
manage the currency risks arising from the Group’s operations and its sources of finance. It is, and has been
throughout the financial year 2004, the Group’s policy that no trading in financial instruments shall be undertaken.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign
currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are
summarised below. The Group also monitors the market price risk arising from all financial instruments.
The Group’s accounting policies in relation to derivatives are set out in note 2.
F-81
Note 28 — Financial Instruments (continued)
Credit risk
Interest rate risk
The Group adopts a policy of a mixture of flat and floating interest rates (see note 17 and 18). The Group’s
policy is to manage its interest cost using a mix of fixed and variable rate debt. At 31 December 2004, the Group’s
had no borrowings at fixed rates of interest.
of its long-term loans into EUR during 2003.
As at 31 December 2004, the Company has hedged some of its US dollar investment and expenses through
June 2005 in respect of its Hungarian and Polish theatre operations, against the Hungarian Forint and the Polish
Zloty, respectively. In connection with these obligations, the Company has entered into forward foreign exchange
contracts comprising a commitment to buy USD 400,000 at the beginning of each month during the first half of
2005 at fixed prices denominated in Polish Zloty. In addition, the company has entered into a forward foreign
exchange contract comprising a commitment to buy USD 195,000 at the beginning of each month during the first
two quarters of the 2005 financial year at fixed prices denominated in Hungarian Forint. These forward foreign
exchange contracts have been valued in the consolidated balance sheet at 31 December 2004 at their fair value.
Fair values
The following are details of the fair values of all of the Group’s financial instruments that are carried in the
financial statements at other than fair values and for which it is practicable to estimate such value:
a.
Cash and cash equivalents, short-term bank deposit and short-term bank credit. The carrying amounts
approximate fair value because of the short maturity of these instruments.
b.
Marketable securities. The carrying amounts approximate fair value.
c.
Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities. The
carrying amounts approximate fair value because of the short-term nature of these instruments.
d.
Investment in non-marketable securities. See Note 10.
e.
Debt — as of 31 December 2004, the aggregate fair value of the Company’s long-term debt obligations
is similar to its carrying value of EUR 87 million. As of 31 December 2003, the aggregate fair value of
the Company’s long-term debt obligation was approximately EUR 83 million compared to the carrying
value of EUR 79 million. The above fair values have been based on terms for debts with conditions and
maturities similar to those of the Company’s debts as prevailing in the market at balance sheet date.
Note 29 — Write-off of IPO costs
During 2004, the Company started a process aiming to list the company’s shares on the Warsaw stock
exchange, with the plan to issue 20% of new shares to the public. After having filed a prospectus with the Polish
Security and exchange commission (‘Polish SEC’), in November 2004, the Company was granted admission to the
Warsaw stock exchange. Following the clearance by the Polish SEC, the Company started a road show, aiming at
issuing the new shares through an Initial Public Offering (‘IPO’). At the end of the road show, after consulting with
F-82
Note 29 — Write-off of IPO costs (continued)
its broker, management concluded that the demand for the new shares was not strong enough to ensure successful
future trading of the Company’s shares. The Company therefore decided to delay the IPO without setting a new
date.
It is the intention of management to review carefully the situation in the Polish security market during 2005,
whilst looking also for additional opportunities to raise capital. As no definite time can be set for a future IPO,
management has decided to write off an amount of Euro 1,765,000 against the Company’s net income for 2004,
representing the total investment regarding the IPO process. The expenditures include mainly legal and accounting
fees, public relations and marketing costs.
Note 30 — Linkage Terms of Monetary Items
31 December 2004
In or linked
to euro
In or linked
to U.S. Dollar
In or linked
to foreign
currencies
Total
EUR (thousands)
Assets:
...............
...............
...............
...............
...............
...............
...............
Liabilities:
Long term loans (including current - maturities) . . . . . . .
F-83
719
294
1
479
12
—
—
1,505
317
—
—
34
—
—
13,790
14,141
3,501
421
5,706
8,581
604
173
—
18,986
4,537
715
5,707
9,094
616
173
13,790
34,632
—
122
4
2,648
5
63,122
—
65,901
—
84
—
3,249
—
15,073
—
18,406
4,299
9,217
1,280
5,677
845
9,023
794
31,135
4,299
9,423
1,284
11,574
850
87,218
794
115,442
Note 30 — Linkage Terms of Monetary Items (continued)
31 December 2003
In or linked
to euro
In or linked
to U.S. Dollar
In or linked
to foreign
currencies
Total
EUR (thousands)
Assets:
...............
...............
...............
...............
...............
...............
...............
Liabilities:
Long term loans (including current - maturities) . . . . . . .
3,056
778
—
795
—
—
—
—
30
—
—
—
—
15,743
2,321
5,371
4,363
596
208
—
5,377
808
5,371
5,158
596
208
15,743
4,629
15,773
12,859
33,261
—
153
2
81
—
58,036
—
—
—
—
—
754
—
16,811
3,957
—
6,138
8,162
1,232
3,785
2,670
8,394
—
743
6,138
8,315
1,234
4,620
2,670
83,241
3,957
743
58,272
21,522
31,124
110,918
Note 31 — Segment Reporting
segments:
F-84
Business segments:
Financial year 2004
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
—
(5,095)
(5,095)
98,938
—
98,938
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . .
Total revenues. . . . . . . . . . . . . . . . .
Results
amortisation and impairment
write downs . . . . . . . . . . . . . . . .
Depreciation, amortisation and
Segment results. . . . . . . . . . . . . . . .
IPO cost Write-off . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
75,313
—
75,313
15,991
5,095
21,086
5,664
—
5,664
1,970
—
1,970
16,355
2,861
1,746
435
—
21,397
8,426
7,929
99
2,762
2,497
(751)
534
(99)
—
11,556
9,841
(1,127)
(307)
(1,765)
(1,549)
247
5,340
31 December 2004
Theatre
Operations
Distribution
Video &
DVD
Other
Unallocated
Consolidated
EUR (thousands)
Assets
Segment assets . . . . . . . . . . . . . . . .
153,545
6,763
3,634
23,021
2,516
189,479
Liabilities
26,874
4,916
1,995
1,398
94,222
129,405
Other information
18,084
120
1,479
5,869
—
25,552
F-85
Financial year 2003
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . .
73,190
—
13,427
5,822
7,771
604
1,395
—
—
(6,426)
95,783
—
Total revenues. . . . . . . . . . . . . . . . .
73,190
19,249
8,375
1,395
(6,426)
95,783
10,942
1,473
2,038
1,395
—
15,848
8,589
37
1,765
—
—
10,391
2,353
1,436
273
1,395
—
Results
write downs . . . . . . . . . . . . . . . .
Segment results. . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
5,457
(606)
(231)
(756)
(270)
3,594
Theatre
Operations
Distribution
31 December 2003
Video &
DVD
Other
Unallocated
Consolidated
EUR (thousands)
Assets
Segment assets . . . . . . . . . . . . . . . .
146,243
5,589
5,725
18,486
2,080
178,123
Liabilities
29,147
3,751
1,816
381
91,159
126,254
Other information
13,633
20
1,346
—
—
14,999
31 December 2004
Central Europe
Israel
Unallocated
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,235
36,703
—
98,938
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,011
24,952
2,516
189,479
23,484
2,068
—
25,552
F-86
31 December 2003
Central Europe
Israel
Unallocated
EUR (thousands)
Consolidated
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,538
41,245
—
95,783
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
147,046
28,997
2,080
178,123
10,562
4,437
—
14,999
Note 32 — Interest in a jointly controlled entity
The Company through a subsidiary has a 50% interest in the jointly controlled “M.O. Sofia EAD”, whose
principal activity is to build and to operate a shopping centre in Sofia, Bulgaria. The Company through a subsidiary
sold 50% of “M.O Sofia EAD” in July 2003. The Consolidated Financial Statements as at 31 December 2004
includes the following items that represent the Company’s interests in the assets and liabilities “M.O. Sofia EAD”:
EUR
(Thousands)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . .
......................................
......................................
......................................
......................................
615
7,998
(774)
(7,056)
783
31 December
2004
2003
EUR (thousands)
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,560
Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
303
Other social charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,828
10,338
353
1,353
Total personnel costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,691
12,044
For 2004 and 2003, the pension costs comprise defined contribution expenses only.
during the year 2004 were 1,269 (financial year 2003: 1,252), of which 1 employee (2003: 1 employee) was
employed by the 50% consolidated joint venture (see Note 32). A geographical allocation of the average number of
personnel is as follows:
31 December
2004
2003
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
560
708
1
620
631
1
1,252
F-87
31 December 2004
Direct/indirect
Voting right
By the Company
The Company’s
equity share
in subsidiary
Consolidation
%
%
%
I.T. International Theatres 2004 Ltd. . . . . . . .
I.T. Magyar Cinemas Kft . . . . . . . . . . . . . . . .
Kino 2005 a.s. . . . . . . . . . . . . . . . . . . . . . . . .
I.T. Sadyba, B.V. . . . . . . . . . . . . . . . . . . . . . .
Cinema City Poland Sp.Z.oo. . . . . . . . . . . . . .
IT Development 2003 . . . . . . . . . . . . . . . . . . .
I.T. Czech Cinemas S.R.O. . . . . . . . . . . . . . .
I.T. Sofia B.V. . . . . . . . . . . . . . . . . . . . . . . . .
MO Sofia EAD . . . . . . . . . . . . . . . . . . . . . . .
New Age Media Sp.Zoo . . . . . . . . . . . . . . . . .
Forum Film Poland Sp.Zoo. . . . . . . . . . . . . . .
Norma Film Ltd. . . . . . . . . . . . . . . . . . . . . . .
Forum Film Ltd. . . . . . . . . . . . . . . . . . . . . . .
Ya’af — Giant Video Library Network Ltd. . .
Ya’af — Automatic Video Machines Ltd. . . . .
Mabat Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Teleticket Ltd. . . . . . . . . . . . . . . . . . . . . . . . .
Mercaz Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Cinema Plus Ltd. . . . . . . . . . . . . . . . . . . . . . .
I.T. Bulgaria EOOD . . . . . . . . . . . . . . . . . . . .
100%
100%
99%
100%
100%
100%
100%
100%
50%
100%
100%
60%
60%
60%
60%
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
50%
100%
100%
50%
50%
30%
50%
100%
100%
100%
100%
100%
Sadyba Center S.A. Poland . . . . . . . . . . . . . . .
50%
50%
Hocus Pocus Centrum . . . . . . . . . . . . . . . . . .
50%
50%
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
PROPORTIONATE
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
Unconsolidated —
Not operational
Unconsolidated —
temporarily held
Unconsolidated —
temporarily held
(1)
(2)
(3)
Czech corporation.
(4)
Polish corporation.
(5)
(6)
F-88
Currency
(6)
(2)
(3)
(1)
(4)
(4)
(3)
(1)
(5)
(4)
(4)
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(5)
(4)
(4)
Dutch GAAP information
Accounting principles applied for Dutch GAAP purposes
The Consolidated Financial Statements as presented on pages F-53 through F-88 have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting
Standards Board (“IASB”). These accounting principles are largely in conformity with generally accepted
accounting principles in the Netherlands (“Dutch GAAP”). The presentation and description of items in the
Consolidated Balance Sheet on pages F-53 and F-54 and the Consolidated Income Statement have been brought in
line with the presentation model as prescribed under Dutch GAAP. For a summary of significant accounting
principles reference is made to pages F-60 through F-65. The Consolidated Financial Statements including the
notes thereto as prepared under IFRS should be considered an integral part of the financial statements as prepared
under Dutch GAAP which also includes the Parent Company Financial Statements as presented on pages F-90
through F-97.
There are no differences between IFRS and Dutch GAAP that need to be disclosed separately in these
consolidated accounts.
F-89
31 December
Note
ASSETS
FIXED ASSETS
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
5,098
5,412
4
5
39,153
69,815
34,840
59,883
114,066
100,135
13,790
1,581
20
116
15,743
1,421
21
165
390
—
2,672
808
15,897
129,963
20,830
120,965
CURRENT ASSETS
Receivables
Short-term loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other amounts receivable and prepaid items . . . . . . . . . . . . . . . . . . . . . .
Liquid funds
Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
7
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-90
2004
2003
EUR (thousands)
31 December
Note
SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium on share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from group companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income and other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
407
43,553
11,749
5,340
(975)
18
40,100
8,592
3,157
2
60,074
51,869
9
10
58,225
—
58,225
55,612
3,957
59,569
11
5,000
104
6,244
4
—
312
4,762
33
4,659
2
1
70
11,664
129,963
9,527
120,965
Total Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES . . . . . . . . . . . . . .
F-91
2004
2003
EUR (thousands)
31 December
Note
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IPO costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit after taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Result from subsidiaries after taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
11
13
4
F-92
2004
2003
EUR (thousands)
208
(415)
(207)
2,965
(2,054)
1,144
(1,765)
—
(487)
(487)
324
(100)
677
—
83
—
414
—
83
5,257
5,340
414
2,743
3,157
Note 1 — General
Cinema City International N.V. (‘the Company’) was incorporated on 12 April 1994, and has its seat in
Amsterdam, the Netherlands. The Company is a subsidiary of I.T. International Theatres Ltd. (“ITIT”), incorporated in Israel.
Upon completion of restructuring in the 2003 financial year, the Company became owner and holder of all of
the operations of the Group in both Europe and Israel. For further information, refer to the Company’s Annual
Accounts for the year ended 31 December 2003 (“2003 Annual Accounts”).
Prior to 2003, the Company operated as a holding company of the European cinema activities of the Group.
During the 2003 financial year, the Company was involved in restructuring (the ‘Restructuring’). At the end of the
financial year 2003, as part of the Restructuring, all activities, assets, (including the Group’s other subsidiaries) and
liabilities of the Group that were previously not performed and owned by the Company, were transferred to the
Company. Upon completion of the Restructuring, the Company operates as the parent company of the entire Group,
including the Israeli activities.
The Restructuring formally ended in March 2004 when the legal proceedings were completed, which included
a change of the Company’s articles of association. The amendments to the articles of association included, amongst
others, a change of the Company’s legal structure from a limited liability company (‘B.V.’) to a public company
(‘N.V.’) under Dutch law, a name change from I.T. International Cinemas B.V. to Cinema City International N.V.
and an increase in the Company’s authorized share capital.
The Group is principally engaged in the operation of entertainment activities in various countries including:
Poland, Hungary, Czech Republic, Bulgaria and Israel. The Company is also engaged in managing and establishing
its own entertainment real estate projects for rental purposes, in which the Company operates motion picture
theatres. In addition, the Company is involved in short-term and long-term real estate trading in Central Europe.
The Company’s business is dependent both upon the availability of suitable motion pictures from third parties for
exhibition in its theatres, and the performance of such films in the Company’s markets.
principles in the Netherlands (‘Dutch GAAP’), whereas the Consolidated Financial Statements have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) adopted by the International Accounting
Standards Board (“IASB”). For a comparison between IFRS and Dutch GAAP reference is made to page F-89
“Dutch GAAP information”.
Note 3 — Property and Equipment
Composition:
For the year ended
31 December 2004
Balance at
beginning of
the year
Additions during
the year
Sales and
disposals during
the year
Balance at
year end
EUR (thousands)
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . .
5,400
12
5,412
5,412
F-93
2,172
3
2,175
(2,489)
—
(2,489)
5,083
15
5,098
5,098
Note 3 — Property and Equipment (continued)
For the year ended
31 December 2003
Balance at
beginning of
the year
Additions
during
the year
Sales and
disposals
during
the year
Contributed
assets as
part of the
Restructuring(2)
Balance at
year end
EUR (thousands)
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . .
6,752
9
1,960
1
(3,312)
—
—
2
5,400
12
1,961
(3,312)
2
Carrying value . . . . . . . . . . . . . . . . . . . . . .
6,761
6,761
5,412
5,412
(1)
Consists of prepayments on account of IMAX systems not operated yet. Therefore, no depreciation has been incurred.
(2)
See Note 7.
The subsidiaries of the Company are valued at their net equity value.
The movements in subsidiaries are as follows:
For the year ended
31 December
2004
2003
EUR (thousands)
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(977)
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Subsidiaries contributed as part of the Restructuring (see Note 8) . . . . . . . . . . . . . . . . . . . .
—
10,469
—
521
2,743
21,107
34,840
For the year ended
31 December
2004
2003
EUR (thousands)
Loans added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,608
Loans redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,676)
Loans contributed as part of the Restructuring (see Note 8) . . . . . . . . . . . . . . . . . . . . . . . .
—
4,415
2,231
(2,111)
55,348
59,883
Note 6 — Short-term loans to subsidiaries
In 2003, deposits with Central European Bank denominated in Euro for a total amount of EUR 808,000 were
made to serve as collateral for credit facilities provided to a subsidiary. The deposits generated interest of 2.5% - 3%
per annum. Following a repayment of credit facilities by the subsidiary during 2004, the deposits were no longer
needed as collateral.
F-94
Share
capital
Share
Premium
Net profit
Retained
for
earnings
the year
EUR (thousands)
Accumulated
currency
translation
adjustments
Total
Balance as of 1 January 2003 . . . . . . . . . .
Profit appropriation prior year . . . . . . . . . .
Net profit for the year 2003. . . . . . . . . . . .
Assets and liabilities contributed as part of
the Restructuring . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . .
New shares issued. . . . . . . . . . . . . . . . . . .
18
—
—
133
—
—
7,334
1,258
—
1,258
(1,258)
3,157
2
—
—
8,745
—
3,157
—
18
—
—
—
389
39,967
40,100
—
—
—
3,453
—
8,592
3,157
—
—
—
—
3,157
(3,157)
5,340
—
—
—
2
39,967
51,869
—
(977)
—
407
43,553
11,749
5,340
(975)
5,340
(977)
3,842
60,074
As of 31 December 2004 the authorized share capital of the Company consists of 175,000,000 ordinary shares
with a par value of EUR 0.01 each (31 December 2003: 2,000 ordinary shares with a par value of EUR 45.38 per
share). For further details on shares issued during 2004, reference is made to Note 13 of the Consolidated Financial
Statements.
At the end of the financial year 2003, as part of the Restructuring, the following assets and liabilities of the
Group that were previously not owned by the Company were transferred to the Company as a contribution in kind
EUR
(thousands)
Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-company loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current accounts with subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current receivables and payables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-95
2
21,107
55,348
15,743
2,611
(60,374)
(3,957)
14,099
(4,604)
(8)
39,967
A.
Composition:
Interest rate
as of
31 December
2004
In euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less —
current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(2)
B.
31 December
2004
31 December
2003
%
EUR
(thousands)
EUR
(thousands)
(1)
(2)
48,281
14,944
43,702
16,672
63,225
60,374
(5,000)
(4,762)
58,225
55,612
31 December
2004
EUR
(thousands)
First year to 31 December 2005 - current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second year to 31 December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third year to 31 December 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth year to 31 December 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fifth year to 31 December 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sixth year and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C.
5,000
5,000
5,000
5,000
5,000
5,000
33,225
63,225
The movements of long-term loans are as follows:
For the year ended
31 December
2004
2003
EUR (thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,374
Loans added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,606
Loans redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,522)
Currency exchange difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,233)
Loans contributed as part of the Restructuring (see Note 8) . . . . . . . . . . . . . . . . . . . .
—
Balance at the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,225
—
—
—
60,374
60,374
Note 10 — Loan from Group Companies
At 31 December 2003, as part of the Restructuring, a loan from the shareholder was transferred to the
Company in the amount of EUR 3,957,000 (USD 5,000,000 — see also Note 8). During 2004, the Company
redeemed the loan. The shareholders loan was linked to the USD and did bear interest at the rate of LIBOR + 1.15%.
Note 11 — Financial income
Financial income for the years 2004 and 2003 entirely consisted of interest income on inter-company loans and
receivables.
F-96
Note 12 — Financial expenses
The financial expenses for the year 2004 relate to the interest paid on the long term bank and shareholder loans
that were transferred to the Company at 31 December 2003 as part of the Restructuring.
Note 13 — Income taxes
No Dutch income taxes have been recorded primarily because of available tax losses carry forward from prior
years. Realisation of this deferred income tax asset is dependent upon generating sufficient taxable income in the
period that deferred income tax asset is realised. Based on all available information, it is not probable that the
deferred income tax asset is realisable and therefore the deferred tax asset is valued at nil.
The Company employed two members of staff during the year (2003: one employee).
The Board of Managing Directors of the Company consists of 3 members; the board members are entitled to
total remuneration of EUR 854,000 during the year 2004. The amount of remuneration also include fees, salaries
and bonuses paid and have been paid through the Company’s subsidiaries.
The Supervisory Board of the Company consists of 5 members; the supervisory directors are entitled to an
annual fee of EUR 8,500 plus an amount of EUR 1,500 per board meeting. The total amount paid in respect of
supervisory board fees during 2004 is EUR 48,500.
Note 16 — Reconciliation of net income in 2003 to consolidated net income for 2003
As the comparative figures for 2003 in the Parent Company Income Statement include the result from the
Company and its subsidiaries as owned prior to the Restructuring and since this result materially differs from the
consolidated net income for 2003 as presented in the comparative figures in the Consolidated Income Statement, a
reconciliation of the 2003 net income as per the Parent Company Income Statement and the 2003 net income as per
the Consolidated Income Statement is shown below:
2003
EUR
(thousands)
Net income — parent company (not consolidated) (see page F-92) . . . . . . . . . . . . . . . . . . . . . . .
Result of other activities transferred to the Company as part of the Restructuring . . . . . . . . . . . . . .
3,157
437
Net income — consolidated attributable to equityholders of the parent company
(see page F-55) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,594
Amsterdam,
23 February 2005
The Management Board
Moshe Greidinger
Amos Weltsch
Israel Greidinger
Supervisory Board
Coleman Kenneth Greidinger
Carrie Twist
Frank Pierce
Scott Rosenblum
Peter Weishut
F-97
for the year ended
31 December 2005
F-98
CONTENTS
Page
Auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheet as of 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Income Statement for the year ended 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Changes in Shareholders’ Equity for the year ended 31 December 2005 . . .
Statement of Recognised Income and Expense for the year ended 31 December 2005 . . . . . . . . . . . . .
Consolidated Statement of Cash Flows for the year ended 31 December 2005 . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent Company Balance Sheet as of 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent Company Income Statement for the year ended 31 December 2005 . . . . . . . . . . . . . . . . . . . . .
Notes to the Parent Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-99
F-100
F-101
F-103
F-104
F-105
F-106
F-107
F-137
F-139
F-140
Auditors’ Report
Introduction
We have audited the financial statements of Cinema City International N.V., Amsterdam, and its
subsidiaries (“the Group”) as of 31 December 2005 and 2004 and for each of the years then
ended, as set out on pages F-101 to F-143. These financial statements consist of the consolidated
financial statements and the Company financial statements. 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 audit.
Scope
our opinion.
Opinion
Opinion with respect to the consolidated financial statements
position of the Group as of 31 December 2005 and 2004 and of the results of its operations, the
changes in the shareholders’ equity and its cash flows for each of the years then ended in
accordance with International Financial Reporting Standards adopted by the EU and also
comply with the financial reporting requirements included in Part 9 of Book 2 of the Netherlands
Civil Code as far as applicable.
Opinion with respect to the Company financial statements
In our opinion, the Company financial statements give a true and fair view of the financial
position of the Group as of 31 December 2005 and 2004 and of the results of its operations, the
changes in the shareholders’ equity and its cash flows for each of the years then ended in
accordance with accounting principles generally accepted in the Netherlands and also comply
with the financial reporting requirements included in Part 9 of Book 2 of the Netherlands Civil
Code as far as applicable.
Amstelveen, 6 June 2006
P. Mizrachy RA
F-100
31 December
Note
ASSETS
FIXED ASSETS
Intangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
5
26
6
2005
2004
EUR (thousands)
198
166,610
1,057
2,283
169
148,794
2,516
—
170,148
151,479
8
2,998
2,858
9
7
27
7,083
—
1,702
105
14,763
5,707
13,790
616
390
9,097
23,653
29,600
55
—
173
117
55
290
5,167
—
5,167
4,537
715
5,252
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,873
38,000
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202,021
189,479
CURRENT ASSETS
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to (unconsolidated) subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts receivable and prepaid expenses. . . . . . . . . . . . . . . . . . . . . .
10
Total receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-marketable securities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquid funds
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term bank deposits — collateralised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liquid funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
12
13
F-101
31 December
Note
SHAREHOLDERS’ EQUITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium on share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . .
14
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG-TERM LIABILITIES
Long-term loans, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued employee retirement rights, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision related to onerous lease contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income received in advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
18
16
26
17
21(1)i
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Short-term bank credit . . . . . . . . .
Trade accounts payable. . . . . . . . .
Payable to related parties . . . . . . .
Employee and payroll accruals . . .
Other accounts payable . . . . . . . . .
................................
................................
................................
................................
................................
19
27
20
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES. . . . . . . . . . . . . .
F-102
2005
2004
EUR (thousands)
407
43,553
24,999
4,158
407
43,553
17,089
(975)
73,117
60,074
(411)
(174)
73,888
907
1,918
6,781
2,767
182
80,433
794
2,704
8,389
2,872
173
86,443
95,365
18,299
9,923
437
1,312
12,901
11,084
9,423
850
1,284
11,573
42,872
202,021
34,214
189,479
A1.21.1.1
For the year ended 31
December
2005
2004
Note
EUR (thousands, except per
share data Note and number of
shares)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
23
108,181
90,867
98,938
83,696
17,314
5,387
15,242
4,504
11,927
2,198
(4,951)
(151)
—
9,023
(103)
10,738
4,454
(5,581)
(1,204)
(1,765)
6,642
—
8,920
1,198
6,642
1,549
7,722
5,093
7,910
(188)
5,340
(247)
7,722
5,093
40,724,000
38,539,535
0.19
0.14
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposals and write-off of other investments . . . . . . . . . . . . . . . . .
Write-off of IPO costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before net result from associates . . . . . . . . . . . . . . . . . . . . . . . .
Net result from associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
24
25
29
26
Net income before minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
Attributable to:
Equity holders of the Parent Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
Net income before minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*)
Number of average equivalent shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings per ordinary share (basic and diluted of EUR 0.01(*)
each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*)
14
The net earnings per share were calculated taking into account the par value of the share and the number of shares as of the date of these
financial statements (see Note 14).
F-103
Number of
shares
Share
capital
Share
premium
Retained
earnings
Accumulated
currency
translation
adjustments
Total
Balance as of 31 December 2003 . . . . . . . . .
400
New shares issued(*) (par value EUR
45.38) . . . . . . . . . . . . . . . . . . . . . . . . . . .
350
Split of shares(*) (to par value EUR 0.01) . . . 3,402,602
New shares issued(*) (par value EUR 0.01) . . 31,656,296
New shares issued (par value EUR 0.01) . . . 5,664,352
Net income for the year 2004 . . . . . . . . . . .
—
Foreign currency translation adjustment . . . .
—
18
16
—
317
56
—
—
40,100
(16)
—
(317)
3,786
—
—
2
—
—
—
—
5,340
—
—
—
—
—
—
(977)
17,089
7,910
(975)
—
51,869
—
—
—
3,842
5,340
(977)
Balance as of 31 December 2004 . . . . . . . . . 40,724,000
Net income for the year 2005 . . . . . . . . . .
—
adjustment . . . . . . . . . . . . . . . . . . . . . . .
—
407
—
—
—
—
5,133
5,133
Balance as of 31 December 2005 . . . . . . . . 40,724,000
407
43,553
24,999
4,158
73,117
(*)
43,553
—
11,749
60,074
7,910
As part of the restructurings the Company allocated 350 additional shares to ITIT, then split each share to a par value of EUR 0.01, and
issued 31,656,296 new shares to ITIT to bring it’s holding to 35,059,648 shares. As ITIT at that time was a 100% shareholder, the effect of
this transaction was very similar to a stock split.
F-104
Statement of Recognised Income and Expense
For the year ended
31 December
2005
2004
EUR (thousands)
Foreign exchange translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income recognised directly in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,084
5,084
7,722
(957)
(957)
5,093
Total recognised income and expense for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,806
4,136
Attributable to:
Equity holders of the Parent Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,043
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(237)
4,363
(227)
Total recognised income and expense for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,806
4,136
F-105
For the year ended
31 December
2005
2004
EUR (thousands)
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,927
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,096
Decrease in value of other assets (including write-offs) . . . . . . . . . . . . . . . . . . . . . . . . . .
367
Decrease in provision related to onerous lease contracts . . . . . . . . . . . . . . . . . . . . . . . . .
(1,608)
Increase in accrued employee rights upon retirement, net. . . . . . . . . . . . . . . . . . . . . . . . .
50
Effect of foreign currency exchange and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
670
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,492)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(306)
Costs of IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Operating income before working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,705
(Increase)/decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(309)
Increase in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,012)
Increase in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,004)
Increase in governmental institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(693)
Increase in long-term film distribution costs and deferred expenses . . . . . . . . . . . . . . . . .
(683)
(Decrease)/increase in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(204)
(Decrease)/increase in employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . .
(47)
Decrease in related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(133)
(Decrease)/increase in income received in advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,616
Purchase of property and equipment and other assets(*) . . . . . . . . . . . . . . . . . . . . . . . . . . (33,614)
Investment in development of video vending machines . . . . . . . . . . . . . . . . . . . . . . . . . .
(198)
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
Proceeds from disposition of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,542
Increase in long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,054)
Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
678
Loans to unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,599
Loans to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Loans to third party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
164
Proceeds from disposition of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132
Proceeds from disposition of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,470)
(18,955)
(138)
—
2,555
—
93
—
805
1,061
37
—
(14,542)
Capital contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Proceeds from long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,623
Repayment of long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,927)
Repayment of loan from shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Increase in long-term payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(265)
Short-term bank credit, net increase/(decrease) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,945
Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(624)
Net cash effect due to exclusion of a subsidiary from consolidation . . . . . . . . . . . . . . . . .
(69)
Foreign currency exchange differences on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
177
Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
630
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,537
Cash and cash equivalents at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,167
3,842
14,520
(9,804)
(3,957)
(468)
(1,480)
2,653
—
(2)
(840)
5,377
4,537
(*)
taking into account movements in investment creditors
F-106
10,738
10,659
—
(1,608)
94
1,411
1,260
(3,874)
(649)
(1,765)
16,266
117
(1,066)
(2,838)
(1,671)
(102)
1,956
96
(1,725)
18
11,051
Note 1 — General and principal activities
changes in shareholder’ equity, and cash flows of Cinema City International N.V. — previously known as
I.T. International Cinemas B.V. — (“the Company”, or “the Group”). The financial statements were authorised for
issue by the directors on 6 June 2006.
Cinema City International N.V., incorporated in Amsterdam, the Netherlands, is a subsidiary of I.T. International Theatres Ltd. (“ITIT”), incorporated in Israel. The Group is principally engaged in the operation of
entertainment activities in various countries including Poland, Hungary, the Czech Republic, Bulgaria and Israel.
The Company is also engaged in managing and establishing its own entertainment real estate projects for rental
Reporting Standards (“IFRS”) as adopted by the EU as well as in accordance with article 362.9 of the Netherlands
Civil Code.
These accounting principles, as far as the Consolidated Financial Statements are concerned, are largely in
conformity with generally accepted accounting principles in the Netherlands (“Dutch GAAP”). The presentation
and description of items in the Consolidated Balance Sheet on pages F-101 and F-102 and the Consolidated Income
Statement on page F-103 have been brought in line with the presentation model as prescribed under Dutch GAAP.
The summary of significant accounting principles in note 2 below (pages F-107 through F-113) applied also to
Consolidated Financial Statements as prepared under Dutch GAAP. There are no differences between IFRS and
Dutch GAAP that need to be disclosed separately in these consolidated accounts.
The Company’s separate financial statements (the ‘Parent Company Financial Statements’) are prepared in
accordance with the applicable laws and regulations of the Company, being Dutch GAAP’ and are taken up on
pages F-137 through F-143 For an explanation of the comparison between IFRS and Dutch GAAP see above.
Note 2 — Summary of significant accounting policies
A.
The Consolidated Financial Statements have been prepared in accordance with IFRS adopted by the EU.
effective.
B.
(1)
Measurement basis
The financial statements are presented in euros, rounded to the nearest thousand. They are prepared on
the historical cost basis adjusted for the change in the measurement currency. Unless otherwise stated,
monetary assets and liabilities are presented at nominal value. Marketable securities are presented at fair
value.
(2)
Functional and presentation currency
Up to and including the financial year ended 31 December 2004, the functional currency of the
operations in Central Europe was the euro. Management was of the opinion, at that time, that the euro
better reflected the economic substance of the underlying event and circumstances and thus the euro was
considered to be the relevant currency for the Central European subsidiaries.
In 2005, management considers that with the growth of the size of the operations and activities of the
Company in Central Europe, the local Central European currencies have increasingly shown a more
significant impact on the Company in comparison to the euro. In addition, a transition from local
F-107
Note 2 — Summary of significant accounting policies (continued)
B.
currencies into the euro by the relevant Central European countries is less likely to happen in the near
future as was previously expected. Therefore, starting the financial year ended 31 December 2005, the
functional currencies of those Central European countries are the respective local currencies rather than
the euro.
For the financial year ended 31 December 2004, the financial statements of the above mentioned foreign
operations were translated into euros as follows:
Monetary items were translated at the closing exchange rate and non-monetary items were translated at
the exchange rate on the date of transaction. Income statement items were translated at the average
exchange rate for the year. Foreign exchange differences arising on translation have been recognised in
the income statement.
Starting the financial year ended 31 December 2005, the functional currencies of the operations in
Central Europe are the relevant local currencies: the Czech crown, the Hungarian forint and the Polish
zloty.
The financial statements of the above mentioned foreign operations were translated from the functional
currency into euros (presentation currency) as follows:
differences arising on translation have been recognised directly in equity.
The functional currency of the operations in Israel remained unchanged (the New Israeli shekel (NIS)).
The financial statements of the operation in Israel were translated from the functional currency into
euros (presentation currency) for both 2004 and 2005 as follows:
differences arising on translation have been recognised directly in equity.
F-108
C.
Exchange rates
Information relating to the relevant euro exchange rates (at year-end and averages for the year):
As of 31 December
Czech
crowns
(CZK)
Hungarian
forints
(HUF)
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29
30.51
252.62
246.19
%
%
Change during the year
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Polish
zloty
(PLN)
US
dollar
(USD)
Israeli
shekel
(NIS)
3.86
4.09
1.18
1.36
5.45
5.88
%
%
%
(5.62)
(13.35)
(13.24)
7.94
(7.3)
6.33
(4.95)
(5.86)
2.61
(0.06)
Czech
crowns
Hungarian
forints
Polish
zloty
US
dollar
(CZK)
(HUF)
(PLN)
29.8
31.95
248.54
252.11
%
%
Average for year
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D.
(6.73)
(6.25)
(1.42)
(0.42)
Israeli
shekel
(USD)
(NIS)
4.03
4.53
1.25
1.24
5.58
5.58
%
%
(11.03)
2.95
0.81
7.83
%
0.00
8.77
Subsidiaries are those enterprises which are controlled by the Company. Control exists when the Company has
the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain
benefits from its activities. The financial statements of subsidiaries are included in the Consolidated Financial
Statements from the date that control effectively commences until the date that control effectively ceases.
Statements.
A list of the companies whose financial statements are included in the Consolidated Financial Statements and
the extent of ownership and control appears in Note 34 to these financial statements.
E.
Use of estimates
F-109
F.
Intangible fixed assets
Intangible fixed assets that are acquired by the Group are stated at cost less accumulated amortisation,
calculated over the estimated useful life of the assets, and after impairment losses, if any. The recoverable amount is
estimated at least at each balance sheet date. Under IAS 36, the carrying amount of the intangible fixed assets
mentioned above is reviewed at each balance sheet date to determine whether there is any indication of impairment.
If any such indication exists, the recoverable amount is estimated as the higher of net selling price and value in use.
G. Investment in associate
The investment in associate comprises a minority interest held by the Group and is accounted for using the
equity method.
H. Property and equipment
(1)
improvements of a permanent nature are capitalised.
(2)
assets.
%
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2-3
Cinema equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mainly 10
(*)
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mainly 5
Computers, furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 - 33
15 - 20
Video movie cassettes and DVDs(*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
20
In 2004, the estimated useful lives of video movie cassettes and DVDs were 4 years. Starting the financial year 2005, the useful live of this
category is estimated to be 2 years. The effect of this change in accounting estimate on the depreciation amount for 2005 is further
disclosed in Note 5.
(3)
(4)
(5)
According to IAS 36, the carrying amount of assets mentioned above is reviewed at each balance sheet
(6)
with IAS 23.
F-110
I.
Inventories
J.
K. Marketable securities
earned.
L.
Cash and cash equivalents
M. Employee benefits — defined contribution plans
N.
Employee benefits — severance pay
In certain countries in which the Group operates, employees are entitled to severance pay at the end of their
the deposited funds is based on the cash value of these policies, and includes immaterial profits. The unfunded
portion of the Group’s liability is taken up in the balance sheet as a provision under the heading “Accrued employee
retirement rights, net”. The provision is stated at nominal value.
O. Provision related to onerous lease contracts
also Note 17).
P.
Long-term loans
All long-term loans and borrowings are initially recognised at cost, being the fair value of the consideration
received net of issue costs associated with the borrowing.
F-111
P.
Long-term loans (continued)
For information regarding the fair value of long-term liabilities reference is made to Note 28.
Q. Revenue recognition
R.
S.
(1)
(2)
(3)
(4)
(5)
(6)
Revenues from “on screen” advertising contracts are included in theatre revenues and are recognised
contract.
(7)
(8)
Operating costs
(1)
Theatre operating costs include direct concession product and joint theatre facility costs such as
operations.
(2)
Cost of films distributed are capitalised until the time the films are distributed for screening. Once the
films have been distributed and screening has begun, the costs are amortised at a rate equal to the ratio of
revenues in the period to total estimated revenues for the films.
(3)
General advertising expenses are expensed as incurred. Film advertising expenses are expensed when
the film is distributed or is shown to the public.
Net financing cost
recognised on hedging instruments are recognised in the income statement.
Interest income is recognised in the income statement as it accrues, taking into account the effective yield on
the asset.
F-112
T.
exchange rates at balance sheet date.
recognised monetary asset or liability, no hedge accounting is applied and any gain or loss due to the change in the
fair value of the hedging instrument is recognised in the income statement.
U.
Income taxes
V.
Earnings per share
Earnings per share are computed according to IAS 33 of the IASB. The computation is determined on the basis
of the weighted average par value of the issued and paid-in share capital outstanding during the year.
Note 3 — Changes in consolidated entities
(a)
Forum Hungary Film Distribution KFT-100%Shares. New subsidiary, incorporated in Hungary. This
company commenced operation in February 2005 and specialises in distribution of films in Hungary.
(b)
Per 30 June 2005, the Company, through a subsidiary sold 25% of the shares in MO Sofia EAD after
which the Company still holds a further 25% interest in this company.
The Company has received initial payment of EUR 6.9 million, and is still entitled to an additional
amount of up to EUR 2.5 million. The Company has provided the buyers with a cost overrun guarantee,
to cover its part in any costs of completion of the project exceeding the budget, and has retained the
responsibility of the completion.
The remaining 25% interest in MO Sofia EAD is included in the consolidated balance sheet per
31 December 2005 as “Investments in associate” under “Financial fixed assets”. In prior years, the 50%
interest was proportionally consolidated in the Company’s financial statements.
F-113
Note 3 — Changes in consolidated entities (continued)
(I) Changes in consolidated entities during 2005: (continued)
(c)
All Job Poland S.p.Z.oo — 100% shares. New subsidiary, incorporated in Poland. This company
commenced operation in November 2005 and specialises in recruitment and employment of the
company staff in Poland.
None
The intangible fixed assets comprise mainly of investments in the development of video vending and renting
Composition:
Financial year 2005
Balance at
beginning
of the year
Additions
during
the year
Foreign
currency
translation
adjustments
Balance at
end of
year
EUR (thousands)
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . .
708
539
198
181
60
48
966
768
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169
17
12
198
Balance at
beginning
of the
year
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-114
609
235
374
Financial year 2004
Foreign
Additions
currency
during
translation
the year
adjustments
EUR (thousands)
138
333
(195)
(39)
(29)
(10)
Balance at
end of
year
708
539
169
Balance at
beginning of
the
year
Cost
Land and buildings(1) . . . . . . . . .
Cinema equipment(1) . . . . . . . . .
Leasehold improvements . . . . . .
equipment . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . .
Video movies(2) . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . .
Land and buildings . . . . . . . . . .
Cinema equipment . . . . . . . . . . .
Leasehold improvements . . . . . .
equipment . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . .
Video movies(2) . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . .
Additions
during the
year
Financial year 2005
Foreign
Sales and
currency
disposals
translation
during
adjustments
the year(3)
EUR (thousands)
Impairment
Balance at
end
of year
68,064
58,466
57,184
8,456
8,102
16,639
3,320
2,682
3,854
(12,174)
(800)
(183)
—
—
—
67,666
68,450
77,494
9,173
1,033
7,733
1,046
494
179
1,189
9
654
68
598
83
(292)
(93)
—
—
—
—
—
—
10,029
1,187
9,520
1,138
202,699
35,068
11,259
(13,542)
—
235,484
6,516
24,157
10,082
2,711
5,208
1,875
447
1,321
626
—
(2)
(105)
—
—
—
9,674
30,684
12,478
6,431
451
5,457
811
446
147
1,341
187
463
29
465
69
(211)
(48)
—
—
—
—
—
—
7,129
579
7,263
1,067
53,905
11,915
3,420
(366)
—
68,874
148,794
23,153
7,839
(13,176)
—
166,610
(1)
operational yet (see also Note 20 (1) b. and c.).
(2)
In 2004, the estimated useful lives of video movie cassettes and DVDs were determined to be 4 years. Accordingly, the depreciation
percentage for this category was 25%. Starting the financial year 2005, further to an impairment write-off in 2004, the useful live of this
category is estimated to be 2 years as a result of which depreciation is changed at 50% (annualised). The effect of this change in accounting
estimate on the depreciation amount for 2005 is an increase of EUR 144,000.
(3)
Includes EUR 10,939,000 property and equipment of a subsidiary which is not consolidated starting from 30 June 2005.
F-115
Composition:
Financial year 2004
Balance at
beginning
of the year
Additions
during
the year
Foreign
currency
translation
adjustments
Sales and
disposals
during
the year
Impairment
Balance at
end of year
EUR (thousands)
Cost
Land and buildings(4) . . . . . . . . . .
Cinema equipment(4) . . . . . . . . . . .
Leasehold improvements . . . . . . . .
equipment . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . .
Leasehold improvements . . . . . . . .
equipment . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . .
(4)
50,549
55,701
57,969
17,515
6,122
59
0
(838)
(842)
—
(2,519)
(2)
—
—
—
68,064
58,466
57,184
9,575
960
6,777
1,085
140
241
1,311
26
(516)
(48)
(355)
(65)
(26)
(120)
—
—
—
—
—
—
9,173
1,033
7,733
1,046
182,616
25,414
(2,664)
(2,667)
—
202,699
4,041
20,213
9,380
2,143
4,568
954
—
(624)
(252)
—
—
—
332
—
—
6,516
24,157
10,082
6,554
393
2,841
646
255
157
2,035
214
(362)
(22)
(316)
(49)
(16)
(77)
—
—
—
—
897
—
6,431
451
5,457
811
44,068
138,548
10,326
15,088
(1,625)
(1,039)
(93)
(2,574)
1,229
(1,229)
53,905
148,794
operational as of 31 December 2004 (See also Note 21 (1) b. and c.).
The impairment write-offs are further described in Note 25.
Note 6 — Investment in associate
As at 31 December 2005, the Group holds a 25% interest in MO Sofia EAD, which is involved in the
development of a shopping mall in Sofia, Bulgaria. As at 31 December 2004, the Group held a 50% interest in this
company and therefore the investment was treated as a joint venture and as such was proportionally included in the
Group’s consolidated financial statements. Towards the end of June 2005, the Group reached an agreement to sell
half of its interest in MO Sofia EAD. The joint venture results up to the date of sale of half of the Group’s interest in
MO Sofia EAD are included in the Group’s consolidated income statement. In the consolidated balance sheet as at
31 December 2005, the remaining 25% interest in MO Sofia EAD is no longer proportionally consolidated.
MO Sofia EAD is a private entity that is not listed on any public exchange and therefore there is no quotation
price for the fair value of this investment. The reporting date and reporting year of MO Sofia EAD is identical to the
Group’s.
F-116
Note 6 — Investment in associate (continued)
The following table illustrates summarised information of the investment in MO Sofia EAD and represents the
Company’s interests in the assets and liabilities of M.O. Sofia EAD as at 31 December 2005:
EUR
(thousands)
Current assets . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . .
Current liabilities . . . . . . . . . . . .
Non-current liabilities . . . . . . . . .
.................................................
.................................................
.................................................
.................................................
Net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
683
9,983
(2,888)
(5,495)
2,283
Note 7 — Loans to (unconsolidated) subsidiaries
As at 31 December 2004, this item represented a loan to an unconsolidated subsidiary presented at cost. The
loan was denominated in USD and bore annual interest at the rate of 7%. During the first half of 2005, upon the sale
of a 50%-subsidiary (not consolidated) that owns real estate located in Central Europe, the loan was repaid. For
further details of the sale of the interest, reference is made to Note 11.
Composition:
31 December
2005
2004
EUR (thousands)
Concession products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video cassettes and DVDs . . . . . . . . . . . . . . . . . . . . . . . . . .
IMAX films inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
........................
758
........................
459
. . . . . . . . . . . . . . . . . . . . . . . . 1,512
........................
94
........................
175
643
570
1,416
64
165
2,998
2,858
Valuation:
31 December
2005
2004
EUR (thousands)
At cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,998
Provision for net realisable value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,998
2,864
(6)
2,858
All inventories included above are valued at cost.
Note 9 — Trade accounts receivable
Composition:
31 December
2005
2004
EUR (thousands)
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,111
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28)
7,083
F-117
5,720
(13)
5,707
Note 10 — Other accounts receivable and prepaid expenses
Composition:
31 December
2005
2004
EUR (thousands)
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid cinema film and video film distribution costs(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Film distribution costs and deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to other(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,426
568
5,432
2,141
—
—
3,196
14,763
2,733
371
4,113
1,458
—
164
258
9,097
(1)
recoverability — see also Note 21 (1) d.
(2)
The Loans to other were fully repaid in March 2005 and earned an interest of 5% per annum.
Note 11 — Non-marketable securities — held for sale
As at 31 December 2004, this item concerned an investment in a subsidiary in Central Europe, which held an
investment in real estate. The investment was presented at cost, since the investment was acquired and held
exclusively with a view to its subsequent disposal (see also Note 7). The sale of the investment was completed
during the first half of 2005 following approval by the Polish anti-monopoly authorities.
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits freely available for the
Group. The short term deposits have an original maturity varying from one day to three months.
Composition:
31 December
2005
2004
EUR (thousands)
Cash at bank and at hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,915
Short-term deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,252
3,936
601
5,167
4,537
equivalents is EUR 5,167,000 (2004: EUR 4,537,000).
Note 13 — Short-term bank deposits — collateralised
As at 31 December 2004, deposits with banks in Central Europe denominated in EUR and PLN for a total
amount of EUR 715,000 were made to serve as collateral for credit facilities provided to a subsidiary. No such
deposits existed as at 31 December 2005.
F-118
Note 13 — Short-term bank deposits — collateralised (continued)
Composition:
31 December
2005
2004
EUR (thousands)
In EUR earn interest 0.5% - 2.5% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In PLN earn interest of 4% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
294
421
—
715
Note 14 — Shareholders’ equity
a.
31 December
2005
Issued and
Authorised
outstanding
Number of shares
Ordinary shares of EUR 0.01 par value . . . . . . . . . . . . . . . . . . . . . . . 175,000,000
40,724,000
b.
A1.21.1.1
As at 31 December 2003, the share capital of the Company consisted of 400 ordinary shares of
EUR 45.38 par value each. As part of the restructuring that took place in 2003, the Company issued new
shares to its 100% shareholder, ITIT, then split each existing share to a par value of EUR 0.01, and issued
new shares to ITIT to bring the number of its issued and outstanding shares to 35,059,648. As at that
time, ITIT was the 100% shareholder, the effect of this transaction is very similar to a stock split. The
formalities regarding the registration of the new shares were completed in March 2004. Subsequent to
the issuance and registration of the new shares on 24 March 2004, the authorised share capital of the
Company consisted of 175,000,000 shares of EUR 0.01 par value each.
On 13 May 2004, the Company issued 4,940,352 new ordinary shares, and a further 724,000 new
ordinary shares were issued by the Company on 15 June 2004. The total amount contributed to the
Company’s share capital and share premium reserve in connection with these share issues amounted to
EUR 3,842,000. As a result of the share issues during 2004, the total number of shares issued and
outstanding at 31 December 2005 totalled 40,724,000 and has remained unchanged during the financial
year ended 31 December 2005. All shares issued and outstanding at 31 December 2005 have been fully
paid up.
Note 15 — Minority interests
31 December
2005
2004
EUR (thousands)
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174)
Minority interests in (losses)/earnings of consolidated subsidiaries. . . . . . . . . . . . . . . . . . . . . . (188)
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49)
53
(247)
20
Balance at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (411)
(174)
Note 16 — Accrued employee retirement rights
a.
According to the relevant laws, the Company’s subsidiaries in Europe are required to deposit amounts,
on a monthly basis, to retirement and pension funds on behalf of their employees, and therefore have no
such liabilities towards them.
F-119
Note 16 — Accrued employee retirement rights (continued)
b.
Local applicable labour laws and agreements require Group companies to pay severance pay to
dismissed or retiring employees (including those leaving their employment under certain other
circumstances). The calculation of the severance pay liability was made in accordance with labour
agreements in force and based on salary components that, in Management’s opinion, create entitlement
to severance pay.
Group companies’ severance pay liabilities to their employees are funded partially by regular deposits
with recognised pension and severance pay funds in the employees’ names and by purchase of insurance
policies and are accounted for as if they were a defined contribution plan. The amounts funded as above
are netted against the related liabilities and are not reflected in the balance sheets since they are not
under the control and management of the companies.
c.
The amounts of the liability for severance pay presented in the balance sheets (see (d) below) reflect that
part of the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as
the liability that is funded by deposits with recognised central severance pay funds held under the name
of the Company’s subsidiaries.
d.
31 December
2005
2004
EUR (thousands)
Provision for severance pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,896
earnings thereon and other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (989)
907
e.
1,662
(868)
794
The movements in the provision for accrued employee rights upon retirement during the financial year is
as follows:
Financial year 2005
Amount
Gross amount
deposited
Net amount
EUR (thousands)
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . .
Translation difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly payments to deposit . . . . . . . . . . . . . . . . . . . . . . .
Net movement in provision charged to net profit . . . . . . . . .
1,662
132
—
102
(868)
(69)
(52)
—
794
63
(52)
102
Balance at end of the year. . . . . . . . . . . . . . . . . . . . . . . . . .
1,896
(989)
907
Financial year 2004
Amount
Gross amount
deposited
Net amount
EUR (thousands)
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . .
Payments made upon retirement . . . . . . . . . . . . . . . . . . . . .
Monthly payments to deposit . . . . . . . . . . . . . . . . . . . . . . .
Net movement in provision charged to net profit . . . . . . . . .
1,696
(95)
—
61
(953)
51
34
—
743
(44)
34
61
Balance at end of the year. . . . . . . . . . . . . . . . . . . . . . . . . .
1,662
(868)
794
Note 17 — Provision related to onerous lease contracts
F-120
Note 17 — Provision related to onerous lease contracts (continued)
these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million). The acquisition
also involved the assumption of certain long-term lease contracts with onerous terms, expiring in 2009 to 2010. A
provision of EUR 12,731,000 (USD 13,369,000), relating to these onerous lease contracts, which the acquired
subsidiaries were party to prior to the acquisition, has been recorded as part of the acquisition.
The provision is amortised over the non-cancellable periods of the lease contracts. Amortisation in 2005
amounted to EUR 1,608,000 (2004: EUR 1,608,000) and was credited to the lease expenses under operating
expenses.
Movements:
Financial year
2005
2004
EUR (thousands)
Balance at beginning of the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,389
(1,608)
6,781
9,997
(1,608)
8,389
Note 18 — Long-term loans
A.
Composition:
31 December
Interest rates
%
In Czech crowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In EUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In NIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In Polish zloty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from minority interest holder . . . . . . . . . . . . . . . . . . . . . . .
(1)
(2)
(3)
(4)
(5)
(6)
Less —
current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
Linked to the Czech crowns bearing interest at the rate of PRIBOR + 2%.
(2)
In euros, bearing interest at the rate of EURIBOR + 1.5%-2%.
(3)
Linked to the US dollar, bearing interest at the rate of LIBOR + 1%-1.75%.
(4)
In NIS, linked to the Israeli CPI and bearing interest at the rate of 5.7%.
(5)
In Polish zloty, bearing interest at the rate of 7.1%.
(6)
In US dollars, bearing no interest.
2005
2004
EUR (thousands)
8,452
55,563
29
402
19,377
42
8,418
63,122
14,944
605
—
129
83,865
87,218
9,977
6,785
73,888
80,433
In 2004 and 2005, the Company, through a subsidiary, signed a loan agreement with a Polish bank under which
agreement the Company can borrow up, in trenches, to a maximum of PLN 77 million. The loan is intended for the
financing of new cinema projects in Poland. As at 31 December 2005, the whole amount of PLN 77,000,000 has
been drawn down under this agreement (as at 31 December 2004: nil).
F-121
Note 18 — Long-term loans (continued)
B.
31 December
2005
2004
EUR (thousands)
C.
First year — current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,977
Second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,986
Third year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,834
Fourth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,286
Fifth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,536
Sixth year and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,607
Undefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,639
6,785
7,671
7,776
9,640
7,061
11,609
36,676
83,865
87,218
Liens — see Note 21(2).
Note 19 — Short-term bank credit
Composition:
31 December
Interest rates
%
Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unlinked (NIS)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
6.5%
2005
2004
EUR (thousands)
9,977
6,785
8,322
18,299
4,299
11,084
Variable
The interest rates shown concern the rates per 31 December 2005.
Note 20 — Other accounts payable
Composition:
31 December
2005
2004
EUR (thousands)
Investment Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances and income received in advance(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward currency contracts (see also Note 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
7,411
2,986
323
2,075
—
106
12,901
5,966
1,981
379
2,521
448
278
11,573
Note 21 — Commitments, contingent liabilities and liens
(1) Commitments
a.
F-122
Note 21 — Commitments, contingent liabilities and liens (Continued)
Future minimum lease payments under non-cancellable operating leases from third parties for the years
after 31 December 2005, are as follows:
EUR
(thousands)*
2006
2007
2008
2009
2010
After
........................................
........................................
........................................
........................................
........................................
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....................
.....................
.....................
.....................
.....................
.....................
14,269
15,025
15,783
15,051
14,624
52,538
127,290
*
Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period.
31 December
2005
2004
EUR (thousands)
Minimum rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,514
Contingent rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
11,378
215
12,545
11,593
b.
The Group is party to a master agreement with a developer, Control Centres Ltd. (“Control Centres”),
Hungary, Poland and the Czech Republic. Under this agreement, the Company currently has 17 multiplexes that are already operating in shopping malls in Central Europe.
c.
As at 31 December 2005, the Group has unpaid commitments to invest in the development of properties
of approximately EUR 13 million and further commitments to acquire equipment of approximately
EUR 9 million in connection with the development of new systems and movie theatres. In addition, the
Group is committed to pay a percentage of its revenues from movie systems, subject to a minimum
monthly cost per system.
d.
determined.
e.
The rental expenses relating to these agreements are calculated as a lump-sum linked either to the
Israeli CPI or to the US dollar, or as a percentage of the turnover. Annual rent expenses for 2005
amounted to EUR 728,000.
f.
Israeli, Polish and Hungarian television for specific movies.
F-123
These rights are for various periods and will end during the years 2006 - 2008.
g.
h.
In July 2003, the Company signed an agreement to buy the minority interest in IT Sofia B.V., for a
Bulgarian subsidiary, IT Sofia B.V. is developing a shopping entertainment centre in Sofia, Bulgaria.
The first part of the purchase price was paid in cash during 2003, the second part was paid during 2004
and 2005. The balance is due subject to milestones based on the progress of the project, and additional
payments are subject to success of the shopping centre after opening.
i.
Lease contracts of certain cinema equipment of IMAX» systems are classified as finance lease and as
such the equipment is included in Property & equipment under Cinema equipment. The total of the lease
obligation at 31 December 2005 amounted to EUR 2,767,000 (31 December 2004: EUR 2,872,000), and
is classified as Other long-term payables. The lease term expires on 31 December 2020, after which the
ownership will be transferred to the Company.
(2) Liens
a.
As part of the reorganisation in 2003, the Company has assumed the majority of the Group’s bank debt,
provided originally via ITIT. Based on the agreement between the Company and ITIT of December
2003, the bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the
bank. In order to secure the Company’s liabilities for such bank credits and loans in the amount of
approximately EUR 43 million, the Company has provided the bank the following: (i) a registered first
degree fixed lien on IT-2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first
degree floating lien on IT-2004’s assets, including insurance benefits in respect of the assets and rights
of any kind which ITIT has or will have in the future; (iii) that the assets of IT-2004 will not be pledged
and the lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to guarantee
the debt of the Company, and ITIT has provided the bank with a fixed lien on 70% of the Company’s
issued share capital; (v) that certain financial covenants will be fulfilled and maintained.
b.
policies of the projects. As 31 December 2005, the Company had issued a guarantee for EUR 12 million
to a Polish bank in connection with a loan provided to a subsidiary. In addition, the Company has issued
a guarantee for a total amount of PLN 115.5 million to a Polish bank in order to secure several loan
agreements with this bank.
c.
In order to secure an outstanding loan from a Central European bank of approximately EUR 4.5 million,
a subsidiary company has provided to the bank the following: (i) a registered first degree fixed lien on its
From time to time, the Group is involved in routine litigation and proceedings during the normal course of
business.
F-124
In August 2005, a Polish institute for copy right protection and collection filed a claim against the Company’s
Polish subsidiary demanding payments of copy right fees for screening movies in Polish cinemas during the period
2001 - 2005 to an amount of approximately PLN 8.5 million (EUR 2.1 million). Based on similar law cases by the
same Polish institute against two major competitors of the Company in Poland both of which have failed, and based
on the advice by the Company’s Counsel that it is not probable that the action will succeed, no provision for any
liability has been made in these financial statements following this claim.
Financial year
2005
2004
EUR (thousands)
Theatre sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,641
15,138
4,877
14,525
108,181
75,313
15,991
5,664
1,970
98,938
Financial year
2005
2004
EUR (thousands)
Theatre operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,077
Distribution operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,349
Video operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,454
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,891
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,096
55,627
12,959
3,548
903
10,659
90,867
83,696
Cost of inventories recognised as an expense is included in Cost of sales for an amount of EUR 3,781,000
(2004: EUR 3,673,000).
Note 24 — Financial income/expenses
A.
Financial income
Financial year
2005
2004
EUR (thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
769
Currency exchange gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,429
1,260
3,194
Total financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,198
4,454
F-125
Note 24 — Financial income/expenses (continued)
B.
Financial expenses
Financial year
2005
2004
EUR (thousands)
Interest expenses incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost capitalised(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange loss arising from hedge transactions(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other currency exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,472)
999
—
(1,478)
(4,951)
(3,827)
483
(448)
(1,789)
(5,581)
(1)
(2)
During 2004, the Company hedged its US dollar rental obligations in respect of its Polish and Hungarian theatre operations against the
Polish zloty and the euro, respectively. These forward foreign exchange contracts were valued in the consolidated balance sheet at
31 December 2004 at their fair value (see also Note 28).
Note 25 — Loss on disposals and write-off on other investments
Financial year
2005
2004
EUR (thousands)
Capital loss on disposition of property, equipment and other assets, net . . . . . . . . . . . . . . . . . (151)
Impairment of video and DVD movies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Impairment of land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(897)
(332)
25
(151)
(1,204)
The impairment of video and DVD movies for the 12 months ended 31 December 2004 is explained by a
shorter estimated life time of video and DVD movies that are kept for rental purposes. Previously, these items were
depreciated in 4 years whereas the Company now estimates their economic lifetime to be 2 years. The effect of the
shortened lifetime is presented as an impairment write-off for the 12 months ended 31 December 2004.
The impairment of land and buildings relates to a property in the Czech Republic.
For both impairment write-offs during 2004 reference is also made to Note 5.
I.
Tax laws applicable to the Group
1.
2.
The subsidiary
Tax rate
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.5%
16%
26%
19%
34%
15%
F-126
Note 26 — Income taxes (continued)
In several countries in which the Group is operating, tax rates will change as of 1 January 2006 as
follows:
— Netherlands to 29.6% (as of 1 January 2007: 25.5%)
— Czech Republic to 24%
— Israel to 31%
3.
subsidiaries.
1.
2.
Changes in deferred income taxes in relation to tax assets are in respect of the following items:
31 December
2005
2004
EUR (thousands)
3.
(79)
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(282)
Operating tax loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,146)
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
574
(25)
(349)
579
(89)
(627)
(580)
(511)
Deferred income taxes in relation to tax liabilities are in respect of the following items:
31 December
2005
2004
EUR (thousands)
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating tax loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
17
667
307
1,057
F-127
233
154
2,244
(115)
2,516
Deferred income tax included in liabilities:
31 December
2005
2004
EUR (thousands)
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,890
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (972)
1,918
III.
2,627
77
2,704
Income taxes in the income statement comprise:
Financial year
2005
2004
EUR (thousands)
Current taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In respect of previous years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
648
550
—
921
615
13
1,198
1,549
Financial year
2005
2004
EUR (thousands)
Tax calculated at the regular rate (2005: 31.5%; 2004: 34.5%). . . . . . . . . . . . . . . . . . . . . . .
Adjustment for reduced tax rate in foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of tax losses utilised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income exempt from taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealised exchange rate differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes in respect of previous years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,842
(221)
115
360
(2,608)
—
—
710
2,292
(455)
166
502
(2,089)
1,742
13
(622)
Actual tax charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,198
1,549
Note 27 — Related party transactions
Related parties
1.
2.
3.
of their families.
4.
F-128
Note 27 — Related party transactions (continued)
a.
Income (expenses):
Financial year
2005
2004
EUR (thousands)
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Rental fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (610)
Management services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
392
43
(965)
117
b.
above properties aggregate to EUR 278,000 (USD 392,000). These leases were assigned to IT-2004, a
100% subsidiary of the Company, as part of the reorganisation.
c.
its Chief Operating Officer (“Managing Directors”), signed originally with ITIT in 1998, were assigned
to the Company. The fulfilment of the Company’s obligation under the agreements will be performed by
Directors amounts to EUR 27,000 (USD 37,000) per month (not linked), which, together with related
employee benefits, will amount to EUR 32,000 (USD 44,000) per month.
Company’s consolidated profits before tax for any fiscal year. The above mentioned Managing
Directors undertook to be employed by the Company for an indefinite period, with 6 month notice
of termination, and to refrain from competing with the Company’s business for a period of 12 months
following termination of their employment with the Company.
above mentioned bonuses that relate to its own revenues.
The Managing Directors of the Company received remuneration totalling EUR 1,178,000 (2004: EUR
854,000). The members of the Supervisory Board received fees totalling EUR 51,500 (2004: EUR
48,500). The total remuneration is included in general and administrative expenses.
d.
e.
CPI.
F-129
f.
The minority interests mainly represent a 50% indirect share in the equity of Forum Film Ltd. by related
parties. Pursuant to Forum Film Ltd’s Articles of Association, the Company has the right to appoint
three of Forum Film Ltd’s five directors, and accordingly, maintains control over all major company
decisions.
g.
h.
Note 28 — Financial instruments
The Group’s principal financial instruments, other than derivatives, comprise bank loans, loans from the
shareholder, operating leases and short-term bank credits. The main purpose of these financial instruments is to
raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors
and trade creditors, which arise directly from its operations. The Group also enters into derivative transactions,
principally forward currency contracts. The purpose is to manage the currency risks arising from the Group’s
operations and its sources of finance. It is, and has been throughout the financial year 2005 and 2004, the Group’s
policy that no trading in financial instruments shall be undertaken.
currency risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are
summarised below. The Group also monitors the market price risk arising from all financial instruments. The
Group’s accounting policies in relation to derivatives are set out in Note 2.
Credit risk
Interest rate risk
The Group adopts a policy of a mixture of flat and floating interest rates (see Notes 18 and 19). At 31 December
2005, the Group has no borrowings at fixed rates of interest.
of its long-term loans into euros during 2003.
During the financial year 2005, the Company had hedged some of its US dollar investment and expenses in
respect of its Hungarian and Polish theatre operations, against the Hungarian forint and the Polish zloty,
respectively. In connection with these obligations, the Company had entered into forward foreign exchange
F-130
Note 28 — Financial instruments (continued)
Foreign currency risk (continued)
contracts. These forward foreign exchange contracts were valued in the consolidated balance sheet at 31 December
2005 at their fair value.
Fair values
a.
Cash and cash equivalents, short-term bank deposit and short-term bank credit.
The carrying amounts approximate their fair value because of the short maturity of these instruments.
b.
The carrying amounts approximate their fair value.
c.
Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities.
The carrying amounts approximate their fair value because of the short-term nature of these instruments.
d.
Investment in non-marketable securities.
See Note 11.
e.
Debt - as of 31 December 2005, the aggregate fair value of the Company’s long-term debt obligations is
similar to its carrying value of EUR 87 million. As of 31 December 2004, the aggregate fair value of the
Company’s long-term debt obligation was approximately EUR 95 million compared to the carrying
value of EUR 95 million. The above fair values have been based on terms for debts with conditions and
maturities similar to those of the Company’s debts as prevailing in the market at balance sheet date.
Note 29 — Write-off of IPO costs in 2004
During 2004, the Company started a process aiming to list the Company’s shares on the Warsaw stock
exchange, with the plan to issue 20% of new shares to the public. After having filed a prospectus with the Polish
Security and Exchange Commission (‘Polish SEC’), in November 2004, the Company was granted admission to the
Warsaw Stock Exchange. Following the clearance by the Polish SEC, the Company started a road show, aiming at
issuing the new shares through an Initial Public Offering (‘IPO’). At the end of the road show, after consulting with
its broker, Management concluded that the demand for the new shares was not strong enough to ensure successful
future trading of the Company’s shares. The Company therefore decided to delay the IPO without setting a new date
and to write off an amount of EUR 1,765,000 against the Company’s net income for 2004, representing the total
investment regarding the IPO process. The expenditures include mainly legal and accounting fees, public relations
and marketing costs.
The Company is planning to try and list its shares again on the Warsaw Stock Exchange as early as market
conditions look favourable to the Company.
F-131
Note 30 — Linkage terms of monetary items
31 December 2005
In or linked
to euro
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Trade accounts receivable . . . . . . . . . . . . . . . . . . .
Other accounts receivable. . . . . . . . . . . . . . . . . . . .
Related parties receivable . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . .
Due to related parties . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans (including current - maturities) . . .
Accrued employee rights upon retirement . . . . . . . .
In or linked
to US
In or linked
dollar
to foreign currencies
EUR (thousands)
Total
1,568
—
2,958
1,445
—
197
—
—
54
—
3,402
7,083
11,805
203
55
5,167
7,083
14,763
1,702
55
5,971
251
22,548
28,770
—
54
—
1,648
5
55,562
—
57,269
—
806
—
—
—
71
—
877
8,322
9,063
1,312
11,253
432
28,232
907
59,521
8,322
9,923
1,312
12,901
437
83,865
907
117,667
31 December 2004
In or linked
to euro
In or
linked
to US
dollar
In or linked
to foreign
currencies
Total
EUR (thousands)
Assets
Cash and cash equivalents . . . . . . . . . . . . . .
Short-term bank deposits . . . . . . . . . . . . . . .
Trade account receivable . . . . . . . . . . . . . . .
Other accounts receivable. . . . . . . . . . . . . . .
Related parties receivable . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . .
Loans to unconsolidated subsidiaries . . . . . .
.............
.............
.............
.............
.............
.............
.............
Liabilities
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans (including current - maturities) . . . . . . . . . . .
Accrued employee rights upon retirement . . . . . . . . . . . . . . . .
719
294
1
479
12
—
—
317
—
—
34
—
—
13,790
3,501
421
5,706
8,581
604
173
—
4,537
715
5,707
9,094
616
173
13,790
1,505
14,141
18,986
34,632
—
122
4
2,648
5
63,122
—
65,901
—
84
—
3,249
—
15,073
—
18,406
4,299
9,217
1,280
5,677
845
9,023
794
31,135
4,299
9,423
1,284
11,574
850
87,218
794
115,442
Note 31 — Segment reporting
F-132
Note 31 — Segment reporting (continued)
segments:
•
Theatre operations.
•
Distribution — Distribution of movies.
•
Video + DVD — Rental and sale of video cassettes and DVD.
Business segments:
Financial year 2005
Theatre
Operations
Distribution
Revenues
External sales . . . . . . . . . . . . . . . .
Inter-segment sales . . . . . . . . . . . .
73,641
—
15,138
3,778
4,877
325
Total revenues . . . . . . . . . . . . . . . .
73,641
18,916
12,867
Results
Segment results before
depreciation, amortisation and
impairment write downs . . . . . .
impairment write downs . . . . . .
Segment results . . . . . . . . . . . . . . .
Net financial expense . . . . . . . . . .
Gain and loss on disposals. . . . . . .
IPO cost write-off . . . . . . . . . . . . .
Net loss from associates . . . . . . . .
Income taxes. . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . .
Video &
DVD
Other
EUR (thousands)
Eliminations
Consolidated
14,525
—
—
(4,103)
108,181
—
5,202
14,525
(4,103)
108,181
2,048
1,012
8,096
—
24,023
9,787
137
1,720
452
—
12,096
3,080
1,911
7,644
—
11,927
(2,753)
(151)
—
(103)
(1,198)
188
(708)
Net income . . . . . . . . . . . . . . . . . .
7,910
31 December 2005
Theatre
operations
Distribution
Video &
DVD
Other
Unallocated
Consolidated
EUR (thousands)
Assets
Segment assets . . . . . . . . . . . . . . . .
172,923
7,280
3,016
17,745
1,057
202,021
Liabilities
28,867
2,584
1,851
1,497
94,105
128,904
Other information
Capital expenditure . . . . . . . . . . . . .
29,795
1,011
1,292
3,168
—
35,266
F-133
Financial year 2004
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . .
75,313
—
15,991
5,095
5,664
—
1,970
—
—
(5,095)
98,938
—
Total revenues. . . . . . . . . . . . . . . . .
75,313
21,086
5,664
1,970
(5,095)
98,938
16,355
2,861
1,746
435
—
21,397
8,426
99
1,600*
534
—
10,659*
7,929
2,762
146*
(99)
—
10,738*
(1,127)
(1,204)*
(1,765)
(1,549)
247
Results
write-downs . . . . . . . . . . . . . . . .
impairment write-downs . . . . . . .
Segment results. . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . .
5,340
31 December 2004
Theatre
Operations
Distribution
Assets
Segment assets . . . . . . . . . . . . . . . .
153,545
6,763
3,634
23,021
2,516
189,479
Liabilities
26,874
4,916
1,995
1,398
94,222
129,405
Other information
18,084
120
1,479
5,869
—
25,552
*
Video &
DVD
Other
EUR (thousands)
Unallocated
Consolidated
reclassified for comparison purposes
31 December 2005
Central Europe
Israel
Unallocated
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,116
31,065
—
108,181
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,075
25,889
1,057
202,021
31,289
3,977
—
35,266
F-134
31 December 2004
Central Europe
Israel
Unallocated
EUR (thousands)
Consolidated
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,235
36,703
—
98,938
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,011
24,952
2,516
189,479
23,484
2,068
—
25,552
31 December
2005
2004
EUR (thousands)
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,703
Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
349
Other social charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,780
10,560
303
1,828
Total personnel costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,832
12,691
For 2005 and 2004, the pension costs comprise defined contribution expenses only.
The average number of personnel, in full-time equivalents, employed by the Company and its subsidiaries
during the year 2005 were 1,450 (financial year 2004: 1,269), of which 7 employees (2004: 1 employee) were
employed by the 50% consolidated joint venture. A geographical allocation of the average number of personnel is
as follows:
31 December
2005
2004
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
546
903
1
560
708
1
1,269
Note 33 — Events after the balance sheet date
Towards the beginning of 2006, the Company signed an agreement with a major European private equity
financing company to sell its remaining holdings in the mall development project in Sofia Bulgaria, immediately
following the opening of the Mall.
Such transaction is expected to close after the opening and therefore has no effect on the 2005 financial results.
As part of this new agreement the Sellers (including the Company) will remain responsible for the completion
of the office building, part of the project, which is expected to be completed about three months later. In addition,
the Company will continue to lease the multiplex and IMAX» theatre in the mall.
F-135
31 December 2005
I.T. International Theatres 2004
Ltd. . . . . . . . . . . . . . . . . . . .
I.T. Magyar Cinemas Kft . . . . .
Kino 2005 a.s. . . . . . . . . . . . . .
I.T. Sadyba B.V.. . . . . . . . . . . .
Cinema City Poland Sp.Z.oo . .
IT Development 2003. . . . . . . .
I.T. Czech Cinemas S.R.O. . . . .
I.T. Sofia B.V. . . . . . . . . . . . . .
MO Sofia EAD . . . . . . . . . . . .
New Age Media Sp.Zoo . . . . . .
Forum Film Poland Sp.Zoo . . .
All Job Poland Sp. Zoo . . . . . .
Norma Film Ltd. . . . . . . . . . . .
Forum Film Ltd. . . . . . . . . . . .
Ya’af — Giant Video Library
Network Ltd. . . . . . . . . . . . .
Ya’af — Automatic Video
Machines Ltd. . . . . . . . . . . .
Mabat Ltd. . . . . . . . . . . . . . . .
Teleticket Ltd. . . . . . . . . . . . . .
Cinema Plus Ltd. . . . . . . . . . .
I.T. Bulgaria EOOD . . . . . . . . .
Direct/indirect
voting right
of the
Company
%
The Company’s
equity share
in subsidiary
%
100%
100%
100%
100%
100%
100%
100%
100%
25%
100%
100%
100%
60%
60%
100%
100%
100%
100%
100%
100%
100%
100%
25%
100%
100%
100%
50%
50%
60%
30%
60%
100%
100%
100%
100%
50%
100%
100%
100%
100%
(1)
(2)
Czech corporation.
(3)
(4)
Polish corporation.
(5)
(6)
Consolidation
%
Currency
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
Net equity value
FULL
FULL
FULL
FULL
FULL
(6)
FULL
(6)
FULL
FULL
FULL
FULL
Unconsolidated — Not
operational
(6)
(2)
(3)
(1)
(4)
(4)
(3)
(1)
(5)
(4)
(4)
(4)
(6)
(6)
(6)
(6)
(6)
(5)
The details of corporation during 2004 were similar to the details of corporation in 2005 as shown above,
except for the changes in consolidation disclosed in Note 3.
F-136
(before appropriation of the result)
Note
31 December
2005
2004
EUR (thousands)
ASSETS
FIXED ASSETS
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
1,755
5,098
4
5
62,685
2,944
39,153
69,815
67,384
114,066
—
7,863
56
445
13,790
1,581
20
116
..
1,436
390
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,800
15,897
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,184
129,963
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT ASSETS
Receivables
Short-term loans to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts receivable and prepaid items . . . . . . . . . . . . . . . . . . . . .
Liquid funds
..
..
..
..
6
F-137
(before appropriation of the result)
Note
31 December
2005
2004
EUR (thousands)
SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium on share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG-TERM LIABILITIES
Long-term loans, net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
407
43,553
17,089
7,910
4,158
73,117
—
—
58,225
58,225
..
..
..
..
..
—
77
3,990
—
—
5,000
104
6,244
4
312
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,067
11,664
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES . . . . . . . . . . . . . . .
77,184
129,963
CURRENT LIABILITIES
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
407
43,553
11,749
5,340
(975)
60,074
F-138
31 December
Note
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IPO costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..
..
..
..
..
..
..
Result before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Result after taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Result from subsidiaries after taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
10
11
4
F-139
2005
2004
EUR (thousands)
834
(431)
403
482
(2,025)
773
—
208
(415)
(207)
2,965
(2,054)
1,144
(1,765)
(367)
—
83
—
(367)
8,277
7,910
83
5,257
5,340
Note 1 — General
Cinema City International N.V. (“the Company”) was incorporated on 12 April 1994, and has its statutory seat
in Amsterdam, the Netherlands, and its corporate office in Rotterdam, the Netherlands. The Company is a
subsidiary of I.T. International Theatres Ltd. (“ITIT”), incorporated in Israel.
The Company holds and owns various companies in Europe and Israel that are active in the entertainment
business in various countries, including Poland, the Czech Republic, Hungary, Bulgaria and Israel. The Company is
also engaged in managing and establishing its own entertainment real estate projects for rental purposes, in which
the Company operates motion picture theatres. In addition, the Company is involved in short-term and long-term
real estate trading in Central Europe. The Company’s business is dependent both upon the availability of suitable
motion pictures from third parties for exhibition in its theatres, and the performance of such films in the Company’s
markets.
principles in the Netherlands (“Dutch GAAP”), whereas the Consolidated Financial Statements have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU and Dutch GAAP as
described in Note 2 to the Consolidated Financial Statements.
Note 3 — Property and equipment
Composition:
Balance at
beginning of the
year
For the year ended
31 December 2005
Additions
Sales and
during the
disposals during
year
the year
Balance at
year-end
EUR (thousands)
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,083
15
5,098
547
3
550
(3,893)
—
(3,893)
1,737
18
1,755
5,098
550
(3,893)
1,755
Balance at
beginning of the
year
Cost
Cinema equipment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
For the year ended
31 December 2004
Sales and
Additions
disposals
during the
during the
year
year
EUR (thousands)
5,400
12
2,172
3
(2,489)
—
5,083
15
5,412
2,175
(2,489)
5,098
5,412
2,175
(2,489)
5,098
Consists of prepayments on account of IMAX» systems not operated yet. Therefore, no depreciation has been incurred.
F-140
Balance at
year end
The subsidiaries of the Company are valued at their net equity value.
The movements in subsidiaries are as follows:
For the year ended
31 December
2005
2004
EUR (thousands)
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,153
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,315
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,940
34,840
(977)
33
5,257
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,685
39,153
December
2005
2004
EUR (thousands)
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,815
Loans added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Loans redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Loan assigned to subsidiary company* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,871)
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,944
*
59,883
13,608
(3,676)
—
69,815
As of 1 January 2005 all loans to subsidiaries were assigned by the Company to a fully-owned subsidiary
company.
Note 6 — Short-term loans to subsidiaries
Note 7 — Shareholders’ equity
Share
capital
Share
Premium
Retained
earnings
Net profit
for
the year
Accumulated
currency
translation
adjustments
Total
EUR (thousands)
Balance as of 1 January 2004 . . . . . . . . . .
New shares issued. . . . . . . . . . . . . . . . . . .
18
—
—
—
389
40,100
—
—
—
3,453
8,592
3,157
—
—
—
3,157
(3,157)
5,340
—
—
2
—
—
(977)
—
51,869
—
5,340
(977)
3,842
407
—
—
—
43,553
—
—
—
11,749
5,340
—
—
5,340
(5,340)
7,910
—
(975)
—
—
5,133
60,074
—
7,191
5,133
407
43,553
17,089
7,910
4,158
73,117
As of 31 December 2005 and as of 31 December 2004, the authorised share capital of the Company consisted
of 175,000,000 ordinary shares with a par value of EUR 0.01 each. For details on shares issued during 2004,
reference is made to Note 14 of the Consolidated Financial Statements.
F-141
A.
Composition:
Interest rate as
of 31 December
2004
%
In euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
current portion . . . . . . . . . . . . . . . . . . . . . . . .
(1)
In euros, bearing interest at the rate of EURIBOR + 1.5%-2.25%.
(2)
B.
(1)
(2)
31 December
2005
EUR (thousands)
31 December
2004
EUR (thousands)
—
—
—
48,281
14,944
63,225
—
—
(5,000)
58,225
The movements of long-term loans are as follows:
December
2005
2004
EUR (thousands)
Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,225
Loans added . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Loans redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Currency exchange difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Loan assigned to subsidiary company*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (63,225)
Balance at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
*
60,374
11,606
(7,522)
(1,233)
—
63,225
As of 1 January 2005 all long term-loans were assigned by the Company to a fully-owned subsidiary company.
Note 9 — Financial income
Financial income for the years 2005 and 2004 mainly consisted of interest income on inter-company loans and
receivables.
Note 10 — Financial expenses
The financial expenses for the year 2004 related to the interest paid on the long-term bank and shareholder
loans that were transferred to the Company at 31 December 2003 as part of the restructuring and that were fully
redeemed during 2004.
No Dutch income taxes have been recorded primarily because of available tax losses carried forward from
prior years. Realisation of this deferred income tax asset is dependent upon generating sufficient taxable income in
the period that deferred income tax asset is realised. Based on all available information, it is not probable that the
deferred income tax asset is realisable and therefore the deferred tax asset is valued at nil.
The Company employed two members of staff during the year (2004: two employees).
F-142
The Board of Managing Directors of the Company consists of 3 members; the board members are entitled to a
total remuneration of EUR 1,178,000 during the year 2005. The amount of remuneration also includes fees, salaries
and bonuses paid and has been paid through the Company’s subsidiaries. The Supervisory Board of the Company
consists of 5 members; the supervisory directors are entitled to an annual fee of EUR 8,500 plus an amount of EUR
1,500 per board meeting. The total amount due in respect of supervisory board fees during 2005 is EUR 51,500.
Rotterdam,
6 June 2006
The Management Board
Moshe Greidinger
Amos Weltsch
Israel Greidinger
Carrie Twist
Frank Pierce
Supervisory Board
Scott Rosenblum
Peter Weishut
F-143
Interim Report
for the half year ended
30 June 2006
unaudited
F-144
GENERAL INFORMATION
Management Board
Moshe Greidinger
Amos Weltsch
Israel Greidinger
Supervisory Board
Carrie Twist
Frank Pierce
Scott Rosenblum
Peter Weishut
Registered office
Weena 210 - 212
3012 NJ Rotterdam
The Netherlands
Auditors
KPMG Accountants N.V.
Burg. Rijnderslaan 10-20
1185 MC Amstelveen
The Netherlands
F-145
Interim Report for the half year ended 30 June 2006
Contents
Page
Auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interim Consolidated Financial Statements for the half year ended 30 June 2006
Interim Consolidated Balance Sheet as of 30 June 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interim Consolidated Income Statement for the half year ended 30 June 2006 . . . . . . . . . . . . . . . . . . .
Interim Consolidated Statement of Changes in Shareholders’ Equity for the half year ended 30 June
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statement of Recognised Income and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interim Consolidated Statement of Cash Flows for the half year ended 30 June 2006 . . . . . . . . . . . . . .
Notes to the Interim Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-146
F-147
F-148
F-150
F-151
F-152
F-153
F-154
Auditors’ Report
Introduction
We have reviewed the accompanying consolidated balance sheet of Cinema City International N.V., Amsterdam as at 30 June 2006, and the related consolidated statements of income, changes in shareholders’ equity and
cash flows for the six month period then ended as set out on pages F-148 to F-185 (“the consolidated interim
financial information”). This consolidated interim financial information is the responsibility of the Company’s
management. Our responsibility is to issue a report on this consolidated interim financial information based on our
review.
Scope
We conducted our review in accordance with International Standards on Review Engagements 2400 that are
also accepted in the Netherlands. These standards require that we plan and perform the review to obtain moderate
assurance about whether the consolidated interim financial information is free of material misstatement. A review
is limited primarily to inquiries of Company personnel and analytical procedures applied to financial data and
therefore provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express
an audit opinion.
Opinion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying
consolidated interim financial information is not prepared, in all material respects, in accordance with IAS 34,
“Interim Financial Reporting” as adopted by the EU.
Amstelveen, 18 October 2006
P. Mizrachy RA
F-147
Interim Consolidated Balance Sheet
Note
30 June
2006
(unaudited)
31 December
2005
(audited)
EUR (thousands)
30 June
2005 *)
(unaudited)
4
5
23
6
312
164,715
771
—
198
166,610
1,057
2,283
249
153,857
2,141
2,550
165,798
170,148
158,797
7
3,224
2,998
2,944
8
24
6,037
325
163
11,535
18,060
7,083
1,702
105
14,763
23,653
5,822
1,722
227
17,029
24,800
52
55
46
52
55
46
5,764
5,167
5,069
Total liquid funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,764
5,167
5,069
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,100
192,898
31,873
202,021
32,859
191,656
ASSETS
FIXED ASSETS
Intangible fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in associates . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CURRENT ASSETS
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . .
Receivable from related parties . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . .
Other amounts receivable and prepaid expenses . . . . .
Total receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
Securities
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquid funds
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
*)
10
Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B).
See accompanying Notes to the Interim Consolidated Financial Statements.
F-148
City Cinema International N.V.
Interim Consolidated Balance Sheet
Note
EQUITY AND LIABILITIES EQUITY
Shareholders’ equity
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated currency translation adjustment . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans, net of current portion . . . . . . . . . . . .
Accrued employee retirement rights, net . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Provision related to onerous lease contracts . . . . . . . . .
Other long-term payables . . . . . . . . . . . . . . . . . . . . . .
Income received in advance . . . . . . . . . . . . . . . . . . . . .
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . .
CURRENT LIABILITIES
Short-term bank credit and current portion of long
term-loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . .
Payable to related parties. . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . .
TOTAL EQUITY AND LIABILITIES . . . . . . . . . . . . . . .
*)
11
30 June
2006
(unaudited)
31 December
2005
(audited)
EUR (thousands)
30 June
2005*)
(unaudited)
407
43,553
32,797
(1,237)
407
43,553
24,999
4,158
407
43,553
21,534
524
75,520
(671)
74,849
73,117
(411)
72,706
66,018
(239)
65,779
15
13
23
14
18(1)h
65,282
700
1,676
5,977
2,462
100
76,197
73,888
907
1,918
6,781
2,767
182
86,443
75,912
893
2,373
7,585
2,995
144
89,902
16
21,694
7,702
358
1,154
10,944
18,299
9,923
437
1,312
12,901
16,390
8,467
108
1,357
9,653
41,852
192,898
42,872
202,021
35,975
191,656
12
24
17
F-149
Interim Consolidated Income Statement
Note
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain/(loss) on disposals and write-off on other
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
20
For the
6 months
ended
30 June
2006
For the
12 months
ended
31 December
2005
For the
6 months
ended
30 June
2005*)
(unaudited)
(audited)
EUR (thousands)
(unaudited)
75,501
62,333
13,168
3,302
108,181
90,867
17,314
5,387
51,058
42,209
8,849
2,520
21
21
9,866
251
(2,360)
11,927
2,198
(4,951)
22
(1)
(151)
23
7,756
—
7,756
(231)
9,023
(103)
8,920
(1,198)
4,610
—
4,610
(198)
7,525
7,722
4,412
7,798
(273)
7,910
(188)
4,445
(33)
Net income before minority interests . . . . . . . . . . . . . . . .
7,525
7,722
4,412
Number of average equivalent shares . . . . . . . . . . . . . . . . . .
Net earnings per ordinary share (basic and diluted of
EUR 0.01 each) **) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,724,000
40,724,000
40,724,000
0.19
0.19
0.11
Income before result from associates . . . . . . . . . . . . . . . .
Net result from associates . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income before minority interests . . . . . . . . . . . . . . . .
Attributable to:
Shareholders of the parent company . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
11
6,329
1,423
(3,146)
4
*)
**)
The net earnings per share is calculated based on the number of average equivalent shares during the period.
F-150
Interim Consolidated Statement of Changes in Shareholders’ Equity
Number of
Shares
Share
capital
Share
premium
Retained
earnings
Accumulated
currency
translation
adjustments
Total
Balance as of 31 December 2004
(audited) . . . . . . . . . . . . . . . . . . . . . .
Net income for the year 2005 . . . . . . . .
adjustment . . . . . . . . . . . . . . . . . . . .
40,724,000
—
407
—
43,553
—
17,089
7,910
—
—
—
—
(audited) . . . . . . . . . . . . . . . . . . . . . .
Net income first half year 2006 . . . . . .
Currency translation adjustment . . . .
40,724,000
—
—
407
—
—
43,553
—
—
Balance as of 30 June 2006
(unaudited) . . . . . . . . . . . . . . . . . . .
40,724,000
407
43,553
(975)
—
60,074
7,910
5,133
5,133
24,999
7,798
—
4,158
—
(5,395)
73,117
7,798
(5,395)
32,797
(1,237)
75,520
Changes in shareholders’ equity during the 6 months ended 30 June 2005*)
(audited) . . . . . . . . . . . . . . . . . . . . . . 40,724,000
407
43,553
17,089
Net income first half year 2005 . . . . . . .
—
—
—
4,445
Currency translation adjustment . . . . . . .
—
—
—
—
Balance as of 30 June 2005
(unaudited) . . . . . . . . . . . . . . . . . . . . 40,724,000
407
43,553
21,534
(975)
—
1,499
60,074
4,445
1,499
524
66,018
*)
F-151
Statement of Recognized Income and Expenses
For the
6 months ended
30 June 2006
(unaudited)
For the
12 months ended
31 December 2005
(audited)
EUR (thousands)
For the
6 months ended
30 June 2005*)
(unaudited)
Foreign exchange translation differences before minority
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,382)
5,084
1,465
Net income recognised directly in equity . . . . . . . . . . . .
(5,382)
5,084
1,465
Net income before minority interest . . . . . . . . . . . . . . . . .
7,525
7,722
4,412
Total recognised income and expense for the period . . .
2,143
12,806
5,877
Attributable to:
Shareholders of the Company . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,403
(260)
13,043
(237)
5,944
(67)
Total recognised income and expense for the period . . .
2,143
12,806
5,877
*)
F-152
For the
6 months ended
30 June 2006
(unaudited)
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in value of other assets (including write offs) . . . . . . . . .
Decrease in provision related to onerous lease contracts . . . . . . . .
(Decrease)/increase in accrued employee rights upon retirement . .
Effect of foreign currency exchange . . . . . . . . . . . . . . . . . . . . . .
Interest received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income before working capital . . . . . . . . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in accounts receivable . . . . . . . . . . . . . . . . . .
Increase in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease/(increase) in governmental institutions . . . . . . . . . . . . . .
Increase in long-term film distribution costs . . . . . . . . . . . . . . . . .
Increase/(decrease) in accounts payable . . . . . . . . . . . . . . . . . . . .
(Decrease)/increase in employee and payroll accruals . . . . . . . . . .
Increase/(decrease) in related parties . . . . . . . . . . . . . . . . . . . . . .
Increase in income received in advance . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . .
Purchase of property and equipment and other assets . . . . . . . . . .
Investment in development of video vending machines . . . . . . . . .
Investment in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposition of property and equipment . . . . . . . . . .
Increase in long-term receivables . . . . . . . . . . . . . . . . . . . . . . . .
Short-term bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans to unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Loans to third party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from disposition of marketable securities . . . . . . . . . . . .
Proceeds from disposition of other assets . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease)/increase in long-term payables . . . . . . . . . . . . . . . . . .
Short-term bank credit, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in)/provided by financing activities . . . . . . . . . .
Effect of changes in consolidation . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange differences on cash . . . . . . . . . . . . . .
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . .
*)
For the
12 months ended
31 December 2005
(audited)
EUR (thousands)
For the
6 months ended
30 June 2005*)
(unaudited)
9,866
11,927
6,329
6,546
80
(804)
(175)
(23)
215
(2,463)
(240)
13,002
(207)
2,397
(8)
1,436
(311)
1,868
(103)
1,306
(76)
19,304
12,096
367
(1,608)
50
1
670
(3,492)
(306)
19,705
(309)
(1,012)
(2,004)
(693)
(683)
(204)
(47)
(133)
(4)
14,616
5,515
180
(804)
49
(235)
533
(2,662)
(31)
8,874
(198)
(4,507)
(373)
500
(972)
(450)
27
(478)
(40)
2,383
(16,909)
(40)
2,239
309
—
—
—
—
2
—
(14,399)
(33,614)
(198)
164
6,542
(2,054)
678
14,599
164
132
117
(13,470)
(21,759)
(208)
—
227
—
565
14,599
164
138
117
(6,157)
13,934
(21,345)
(182)
3,476
(4,117)
—
(191)
597
5,167
5,764
36,623
(40,927)
(265)
3,945
(624)
(69)
177
630
4,537
5,167
29,942
(29,363)
123
3,604
4,306
(69)
69
532
4,537
5,069
F-153
Notes to the Interim Consolidated Financial Statements
The accompanying Interim Consolidated Financial Statements present the financial position, results of
operations, changes in shareholders’ equity, and cash flows of Cinema City International N.V. (“the Company”, or
“the Group”). These financial statements were authorised for issue by the directors on 18 October 2006.
Cinema City International N.V., incorporated in the Netherlands, is a subsidiary of I.T. International Theatres
Ltd. (“ITIT” or “parent company”), incorporated in Israel. The Group is principally engaged in the operation of
entertainment activities in various countries, including Poland, Hungary, Czech Republic, Bulgaria and Israel. The
Company is also engaged in managing and establishing its own entertainment real estate projects for rental
into Central Europe, and the increasing significance of Central Europe operations to the Group, during 2003, ITIT
restructured its operations in Israel to be included within the Company (the ‘Restructuring’). Upon completion of
the Restructuring, the Company became owner and holder of all the operations of the Group in both Europe and
Israel.
A.
The Interim Consolidated Balance Sheets as of 30 June 2006 and 30 June 2005, the Interim Consolidated
Income Statements for the 6 months ended 30 June 2006 and 30 June 2005, the Interim Consolidated Statements of
Changes in Shareholders’ Equity, the Statements of Recognised Income and Expenses for the 6 months ended
30 June 2006 and 30 June 2005 and the Interim Consolidated Statements of Cash Flows for the 6 months ended
30 June 2006 and 30 June 2005 are unaudited. The results of the interim periods are not necessarily indicative of the
results for the entire year.
The Consolidated Balance Sheet as at 31 December 2005, the Consolidated Income Statement for the year
ended 31 December 2005, the Consolidated Statement of Cash Flows for the year ended 31 December 2005, and the
Statement of Shareholders’ Equity for the year ended 31 December 2005 are extracted from the 2005 Annual
Accounts.
The Interim Consolidated Financial Statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) and interpretations
issued by the International Financial Interpretations Committee of the IASB, as endorsed by the European Union. In
the preparation of these financial statements, the Company has followed the same accounting policies used in the
Company’s 2005 Annual Accounts.
B.
(1)
Measurement basis
The financial statements are presented in euro, rounded to the nearest thousand. They are prepared on
the historical cost basis. Unless otherwise stated, monetary assets and liabilities are presented at nominal
value. Marketable securities are presented at fair value.
(2)
Functional and presentational currency
Up to and including the financial year ended 31 December 2004, the functional currency of the
operations in Central Europe was the euro. Management was of the opinion, at that time, that the euro
better reflected the economic substance of the underlying events and circumstances and thus the euro
was considered to be the relevant currency for the Central European subsidiaries. In 2005 management
considered that with the growth of the size of the operations and activities of the Company in Central
Europe, the local Central European currencies increasingly showed a more significant impact on the
F-154
B.
Company in comparison to the euro. In addition, a transition from local currencies into the euro by the
relevant Central European countries was expected less likely to happen in the near future. Therefore,
starting the financial year ended 31 December 2005, the functional currencies of those Central European
countries are the respective local currencies rather than the euro.
The financial statements of all foreign operations are translated from the functional currency into euros
(presentation currency) as follows: assets and liabilities, both monetary and non-monetary are translated
at the closing exchange rate. Income statement items are translated at the average exchange rate for the
year. Foreign exchange differences arising on translation are recognised directly in equity.
Since this change of functional currency was not reflected in the Interim Report for the Half Year ended
30 June 2005, the comparative figures relating to the 6 months ended 30 June 2005 as derived from the
Interim Report for the Half Year ended 30 June 2005 have been restated to reflect the above described
change of functional currency for the operations in Central Europe. The total effect of this restatement is
an increase of EUR 1,175 thousands in total assets (mainly property and equipment), EUR 350
thousands in net income attributable to Shareholders of the parent company and an increase of EUR 825
thousands in foreign currency translation adjustment (recognised directly into Shareholders’ equity).
C.
Exchange rates
Information relating to the relevant euro exchange rates (at end of (half) year and averages for the relevant
periods):
As of
Czech
crown
(CZK)
30 June 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 June 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.49
29.00
30.11
Change during the period
2006 (6 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 (12 months). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 (6 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange
Hungarian
forint
(HUF)
282.42
252.62
247.93
rate of euro
Polish
US
zloty
dollar
(PLN)
(USD)
Israeli
shekel
(NIS)
4.04
3.86
4.04
1.26
1.18
1.21
5.64
5.45
5.53
%
%
%
%
%
(1.76)
(4.95)
(1.31)
11.8
2.61
0.71
4.66
(5.62)
(1.22)
6.78
(13.24)
(11.03)
3.49
(7.3)
(5.95)
Average for the period
Czech
crown
(CZK)
Hungarian
forint
(HUF)
Polish
zloty
(PLN)
US
dollar
(USD)
Israeli
shekel
(NIS)
2006 (6 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 (12 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 (6 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.52
29.80
30.12
260.99
248.54
247.85
3.89
4.03
4.08
1.23
1.25
1.28
5.64
5.58
5.64
%
%
%
%
%
(4.30)
(6.73)
(5.73)
5.01
(1.42)
(1.69)
(3.47)
(11.03)
(9.93)
(1.60)
0.81
3.23
1.08
0.00
1.08
2006 (6 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 (12 months). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 (6 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D.
The Interim Consolidated Financial Statements include the accounts of the Company, its subsidiaries, and
jointly controlled entities.
F-155
D.
Principles of consolidation (continued)
from its activities. The financial statements of subsidiaries are included in the Interim Consolidated Financial
Statements from the date that control effectively commences until the date that control effectively ceases.
established by contractual agreements. The Interim Consolidated Financial Statements include the Company’s
proportionate share of the enterprises’ assets, liabilities, revenues and expenses with items of similar nature on a
All intercompany accounts and transactions are eliminated when preparing the Interim Consolidated Financial
Statements.
A list of the companies whose financial statements are included in the Interim Consolidated Financial
Statements and the extent of ownership and control appears in Note 29 to these financial statements.
E.
Use of estimates
F.
Intangible assets
Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation, calculated
over the estimated useful life of the assets, and impairment losses, if any.
The amortization is calculated mainly by means of the straight-line method over the estimated useful lives of
the assets (annual amortisation rates vary from 10% to 25%).
Intangible assets that are related to video machines are amortised as soon as these machines are marketed and
the sale of the video machines has commenced.
The recoverable amount is estimated at least at each balance sheet date. Under IAS 36, the carrying amount of
the intangible assets mentioned above is reviewed at each balance sheet date to determine whether there is any
indication of impairment. If any such indication exists, the recoverable amount is estimated as the higher of net
selling price and value in use.
G. Investment in associates
The investment in associates comprises minority interests held by the Group and is accounted for using the
equity method.
H. Property and equipment
(1)
(2)
assets.
F-156
H. Property and equipment (continued)
%
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movie cassettes and DVDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I.
..........
2-3
. . . . . . . . . . Mainly 10
. . . . . . . . . . Mainly 5
..........
6-33
..........
15-20
..........
50
..........
20
(3)
(4)
(5)
According to IAS 36, the carrying amount of assets mentioned above is reviewed at each balance sheet
(6)
with IAS 23.
Inventories
J.
Trade accounts receivable
Trade accounts receivable are stated at cost less allowance for doubtful accounts. The allowance for doubtful
accounts is determined based upon management’s evaluation of receivables doubtful for collection on a
case-by-case basis.
K. Marketable securities
earned.
L.
Cash and cash equivalents
F-157
M. Employee benefits — defined contribution plans
N.
Employee benefits — severance pay
In certain countries in which the Group operates, employees are entitled to a severance pay at the end of their
the deposited funds is principally based on the cash value of these policies. The unfunded portion of the Group’s
liability is taken up in the balance sheet as a provision under the heading “Accrued employee retirement rights, net”.
The provision is stated at nominal value.
O. Provision related to onerous lease contracts
also Note 14).
P.
Long-term loans
All long-term loans and borrowings are initially recognised at the fair value of the consideration received net
of issue costs associated with the borrowing.
For information regarding the fair value of long-term liabilities reference is made to Note 25.
Q. Revenue recognition
(1)
(2)
(3)
(4)
(5)
Revenues from video cassette and DVD rentals are recognised as the rental services are provided.
(6)
contract.
(7)
F-158
Q. Revenue recognition (continued)
(8)
R.
S.
Operating costs
(1)
Cost of theatre sales — Include direct concession product and joint theatre facility costs such as
operations.
(2)
(3)
Net financing cost
recognised on hedging instruments are recognised in the income statement. Interest income is recognised in the
income statement as it accrues, taking into account the effective yield on the asset.
T.
exchange rates at balance sheet date.
recognised monetary asset or liability, no hedge accounting is applied and any gain or loss due to the change in the
fair value of the hedging instrument is recognised in the income statement.
U.
Income taxes
V.
Earnings per share
Earnings per share are computed according to IAS 33. The computation is determined on the basis of the
weighted average number of ordinary shares issued and outstanding during the year.
F-159
X.
New accounting pronouncements
New Accounting Standards, amendments to Standards and Interpretations which are not yet effective as at
30 June 2006, have not been applied in preparing these consolidated financial statements. These new pronouncements (see below) concern disclosers and consequently will not have an impact on the Group’s reported financial
position or results.
IFRS 7 — Financial Instruments: Disclosures, is effective for the annual periods beginning on or after
1 January 2007 and requires increased disclosure in respect of financial instruments.
Amendment to IAS 1 Presentation of Financial Statements — Capital Disclosures is effective from 1 January
2007 and are complementary amendments arising from IFRS 7. The amendment will require increased disclosure
in respect of a company’s capital structure.
(I) Changes in consolidated and associated entities during the first half of 2006:
(a)
In May 2006, the Israeli government anti-monopoly office approved the merger of the Company’s video
retail operations in Israel, which operate under the name Video Giant Ltd., with its main competitor,
Blockbuster. Under the agreement signed between the parties, Video Giant Ltd. and Kafan Video
Libraries Ltd. (operator of the Blockbuster video libraries in Israel) formed a 50/50 joint venture to
operate the combined video chain under the brand name Blockbuster. The Company will provide the
MD (chief executive officer) for the new JV, while Kafan will provide the chairman of the board. The JV
will be jointly controlled between Kafan and the Company and the Company will consolidate the results
of operations of this entity proportionally (50%).
(b)
During the first half of 2006, the Company sold its remaining 25% interest in the MO Sofia EAD, for
which the Company has received EUR 13.1 million (see also Notes 3 II (b) and 6). The Company will
continue to be responsible to cover its part (50%) for the completion of the project, which consists
primarily of finishing the public areas of the office building related to the Mall, which has not yet
opened. The Company believes these obligations will be substantially completed before the end of the
year. The Company has made accrual to cover these obligations.
(a) Forum Hungary Film Distribution KFT — 100% shares. New subsidiary, incorporated in Hungary. This
company commenced operation in February 2005 and specialises in distribution of films in Hungary.
(b)
During the first half of 2005, the Company, through a subsidiary, sold 25% of the shares in MO Sofia
EAD after which the Company still held a further 25% interest in this company. The remaining 25%
interest was sold during the first half of 2006 (see Note 3 I (b)).
The 25% interest in MO Sofia EAD owned by the Company during the remainder of 2005 has been
included in the consolidated balance sheets per 30 June 2005 and per 31 December 2005 as “Investments
in associate” under “Financial fixed assets”. In previous years, the 50% interest was proportionally
consolidated in the Company’s financial statements.
(c)
All Job Poland S.p.Z.oo — 100% shares. New subsidiary, incorporated in Poland. This company
commenced operation in November 2005 and specialises in recruitment and employment of the
company staff in Poland.
F-160
The intangible fixed assets mainly comprise investments in the development of video vending and renting
Composition:
First half year 2006 (unaudited)
Balance at
beginning of
the period
Additions
during
the period
Foreign
currency
translation
adjustments
Balance at
30 June
EUR (thousands)
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . .
966
768
204
79
(36)
(25)
1,134
822
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
198
125
(11)
312
Balance at
beginning of
the year
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
708
539
169
Financial year 2005 (audited)
Foreign
Additions
currency
during
translation
Balance at
the year
adjustments
31 December
EUR (thousands)
198
181
17
60
48
12
966
768
198
First half year 2005 (unaudited)
Balance at
beginning of
the period
Additions
during
the period
Foreign
currency
translation
adjustments
Balance at
30 June
EUR (thousands)
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . .
708
539
208
137
50
41
966
717
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
169
71
9
249
F-161
Composition
First half year 2006
Balance at
beginning of
the period
Additions
during the
period
Foreign
currency
translation
adjustments
Sales and
disposals
during
the period
Balance at
30 June
(unaudited)
EUR (thousands)
Cost
Land and buildings(1) . . . . . . . . . . . . . . . . . . .
Cinema equipment(1) . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . .
Computers, furniture and office equipment . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . .
(1)
67,666
68,450
77,494
10,029
1,187
9,520
1,138
126
5,017
5,546
723
59
697
35
(1,967)
(2,968)
(3,672)
(396)
(52)
(353)
(40)
—
(367)
(480)
(772)
(135)
(3,897)
(549)
65,825
70,132
78,888
9,584
1,059
5,967
584
235,484
12,203
(9,448)
(6,200)
232,039
9,674
30,684
12,478
7,129
579
7,263
1,067
1,604
2,735
1,086
313
80
511
22
(357)
(1,602)
(603)
(284)
(23)
(224)
(37)
—
(187)
(271)
(493)
(62)
(3,243)
(515)
10,921
31,630
12,690
6,665
574
4,307
537
68,874
6,351
(3,130)
(4,771)
67,324
166,610
5,852
(6,318)
(1,429)
164,715
Includes EUR 680,000 construction in progress for entertainment purposes and EUR 8,284,000 cinema equipment not operated yet (see
also Note 18 (1) b and c).
F-162
Financial year 2005
Balance at
beginning
of the year
Additions
during
the year
Foreign
currency
translation
adjustments
Sales and
disposals
during the year(2)
Balance at
end of
the year
(audited)
EUR (thousands)
Cost
Land and buildings(1) . . . . . . . . . . . . . . . .
Cinema equipment(1) . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . .
equipment . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . .
equipment . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . . . . .
Video machine . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . .
68,064
58,466
57,184
8,456
8,102
16,639
3,320
2,682
3,854
(12,174)
(800)
(183)
67,666
68,450
77,494
9,173
1,033
7,733
1,046
494
179
1,189
9
654
68
598
83
(292)
(93)
—
—
10,029
1,187
9,520
1,138
202,699
35,068
11,259
(13,542)
235,484
6,516
24,157
10,082
2,711
5,208
1,875
447
1,321
626
—
(2)
(105)
9,674
30,684
12,478
6,431
451
5,457
811
446
147
1,341
187
463
29
465
69
(211)
(48)
—
—
7,129
579
7,263
1,067
53,905
148,794
11,915
23,153
3,420
7,839
(366)
(13,176)
68,874
166,610
(1)
operational yet (see also Note 18 (1) b and c).
(2)
Includes EUR 10,939,000 property and equipment of a subsidiary which was no longer consolidated starting from 30 June 2005 (see
Note 3 II (b)).
F-163
Balance at
beginning of the
period
Additions
during
the period
Foreign currency
translation
adjustments
Sales and
disposals
during the
period(2)
Balance at
30 June
(unaudited)
EUR (thousands)
Cost
Land and buildings(1) . . . . . . . . . . . . .
Cinema equipment(1) . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . .
equipment . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . .
Land and buildings . . . . . . . . . . . . . . .
Cinema equipment . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . .
equipment . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . .
Video movies . . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . .
68,064
58,466
57,184
3,071
1,539
14,832
583
1,103
1,368
(12,174)
—
—
59,544
61,108
73,384
9,173
1,033
7,733
1,046
169
136
711
8
526
51
404
66
(23)
(77)
—
—
9,845
1,143
8,848
1,120
202,699
20,466
4,101
(12,274)
214,992
6,516
24,157
10,082
1,184
2,392
882
73
724
309
—
—
—
7,773
27,273
11,273
6,431
451
5,457
811
238
73
515
94
371
22
356
55
(8)
(50)
—
—
7,032
496
6,328
960
53,905
148,794
5,378
15,088
1,910
2,191
(58)
(12,216)
61,135
153,857
(1)
Includes EUR 2,386,000 construction in progress for entertainment purposes and EUR 6,827,000 cinema equipment not operated yet (see
also Note 18(1)b and c).
(2)
Includes EUR 10,939,000 property and equipment of a subsidiary which was no longer consolidated as of 30 June 2005 (see Note 3 II(b)).
Note 6 — Investment in associates
As at 31 December 2005, the Group held a 25% interest in MO Sofia EAD, which is involved in the
development of a shopping mall in Sofia, Bulgaria. During the first half of 2006, the Group reached an agreement to
sell the 25% interest in MO Sofia EAD, for which the Group has received EUR 13.1 million.
As at 31 December 2004, the Group held a 50% interest in this company and therefore the investment was
treated as a joint venture and as such was proportionally included in the Group’s consolidated financial statements.
Towards the end of June 2005, the Group reached an agreement to sell half of its interest in MO Sofia EAD. The
joint venture results up to the date of sale (June 2005) of half of the Group’s interest in MO Sofia EAD are included
in the Group’s consolidated income statement. In the consolidated balance sheet as at 31 December 2005, the
remaining 25% interest in MO Sofia EAD was no longer proportionally consolidated, and presented under
“Investment in associates” in accordance with the net equity method (until the date of the disposition in 2006).
MO Sofia EAD is a private entity that is not listed on any public exchange and therefore there is no quotation
price for the fair value of this investment. The reporting date and reporting year of MO Sofia EAD is identical to the
Group’s.
F-164
Note 6 — Investment in associates (continued)
The following table illustrates summarised information of the investment in MO Sofia EAD and represents the
Company’s interests in the assets and liabilities of MO Sofia EAD as at 31 December 2005:
EUR
(thousands)
Current assets . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . .
Current liabilities . . . . . . . . . . . .
Non-current liabilities . . . . . . . . .
.................................................
.................................................
.................................................
.................................................
Net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
683
9,983
(2,888)
(5,495)
2,283
Composition:
Concession products . . . . . . . . . . . . . . . . . . . .
Video cassettes and DVDs . . . . . . . . . . . . . . . .
IMAX films inventories . . . . . . . . . . . . . . . . . .
Video machines . . . . . . . . . . . . . . . . . . . . . . . .
Spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . .
..................
..................
..................
..................
..................
30 June
2006
(unaudited)
31 December
2005
(audited)
EUR (thousands)
30 June
2005
(unaudited)
844
719
1,497
12
152
758
459
1,512
94
175
704
585
1,370
91
194
3,224
2,998
2,944
30 June
2006
31 December
2005
30 June
2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
6,061
(24)
6,037
7,111
(28)
7,083
5,836
(14)
5,822
All inventories included above are valued at cost.
Note 8 — Trade accounts receivable
Composition:
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-165
Note 9 — Other amounts receivable and prepaid expenses
Composition:
30 June
2006
(unaudited)
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid cinema film and video film distribution costs(1) . . . . . . . . . . . .
Receivable in respect of sale of interest in joint venture (see Note 6) . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
31 December
2005
(audited)
EUR (thousands)
30 June
2005
(unaudited)
1,869
588
5,248
2,376
—
1,454
3,426
568
5,432
2,141
—
3,196
2,143
522
4,505
2,464
6,875
520
11,535
14,763
17,029
recoverability — see also Note 18(1)f.
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits freely available for the
Group. The short-term deposits have an original maturity varying from one day to three months.
30 June
2006
(unaudited)
31 December
2005
(audited)
EUR (thousands)
30 June
2005
(unaudited)
Cash at bank and at hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,619
3,145
2,915
2,252
2,073
2,996
Cash at bank and at hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,764
5,167
5,069
equivalents is EUR 5,764,000 (31 December 2005: EUR 5,167,000; 30 June 2005: EUR 5,069,000).
Note 11 — Share capital
The authorised share capital of the Company consists of 175,000,000 shares of EUR 0.01 par value each.
The number of issued and outstanding ordinary shares as at 1 January 2005 amounted 40,724,000 and
remained unchanged during the financial year 2005 and the first six months of the financial year 2006.
Note 12 — Minority interests
First half
year 2006
(unaudited)
Financial
year 2005
First half
year 2005
(audited)
(unaudited)
EUR (thousands)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests in (losses)/earnings of consolidated subsidiaries . . . . . . .
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(411)
(273)
13
(174)
(188)
(49)
(174)
(33)
(32)
Balance at closing date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(671)
(411)
(239)
F-166
Note 13 — Accrued employee retirement rights, net
a.
According to the relevant laws, the Company’s subsidiaries in Europe are not required to deposit amounts, on a
b.
recognised pension and severance pay funds in the employees names and by purchase of insurance policies and
are accounted for as if they were a defined contribution plan. The amounts funded as above are netted against
the related liabilities and are not reflected in the balance sheets, since they are not under the control and
c.
The amounts of the liability for severance pay presented in the balance sheets (see (d) below) reflect that part
of the liability not covered by the funds and the insurance policies mentioned in (b) above, as well as the
liability that is funded by deposits with recognised central severance pay funds held under the name of the
Company’s subsidiaries.
d.
e.
30 June
2006
31 December
2005
30 June
2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
Provision for severance pay . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amounts deposited with recognised central severance
pay funds, including earnings thereon and other
deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,670
1,896
1,851
(970)
(989)
(958)
Net amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
700
907
893
The movements in the provision for accrued employee rights upon retirement during the financial year are as
follows:
Balance beginning of the period. . . . . . . . . . . . . . . . .
Translation difference . . . . . . . . . . . . . . . . . . . . . . . .
Monthly payments to deposit . . . . . . . . . . . . . . . . . . .
Net movement in provision (credited)/charged to net
profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at 30 June . . . . . . . . . . . . . . . . . . . . . . . . . .
F-167
Gross amount
Amount deposited
(unaudited)
EUR (thousands)
Net amount
1,896
(67)
—
(989)
35
(16)
907
(32)
(16)
(159)
1,670
—
(970)
(159)
700
Note 13 — Accrued employee retirement rights, net (continued)
Financial year 2005
Gross amount
Amount deposited
(audited)
EUR (thousands)
Net amount
Balance beginning of the year . . . . . . . . . . . . . . . . . .
Translation difference . . . . . . . . . . . . . . . . . . . . . . . .
Monthly payments to deposit . . . . . . . . . . . . . . . . . . .
Net movement in provision (credited)/charged to net
profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,662
132
—
(868)
(69)
(52)
794
63
(52)
—
102
Balance at 31 December . . . . . . . . . . . . . . . . . . . . . .
1,896
(989)
907
102
Gross amount
Amount deposited
Net amount
(unaudited)
EUR (thousands)
Balance beginning of the period . . . . . . . . . . . . . . . . . . . . . . . .
Translation differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly payments to deposit . . . . . . . . . . . . . . . . . . . . . . . . . .
Net movement in provision (credited)/charged to net profit . . . .
1,662
105
—
84
(868)
(55)
(35)
—
794
50
(35)
84
Balance at 30 June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,851
(958)
893
In July 2002 the Group purchased four multiplex cinemas in Poland from Ster Century Europe Limited. The
acquired all of the shares of Ster Century Europe’s Polish subsidiaries and purchased shareholder loans provided to
these subsidiaries, for a total consideration of approximately EUR 19 million (USD 20 million as per July 2002).
The acquisition also involved the assumption of certain long-term lease contracts with onerous terms, expiring in
2009 to 2010. A provision of EUR 12,731,000 (USD 13,369,000 as per July 2002) relating to these onerous lease
contracts, which the acquired subsidiaries were party to prior to the acquisition, has been recorded as part of the
acquisition.
The provision is amortised over the non-cancellable periods of the lease contracts. Amortisation in the
6 months ended 30 June 2006 amounted to EUR 804,000 (for the year ended 31 December 2005: EUR 1,608,000)
and was credited to the lease expenses under operating expenses.
Movements:
First half
year 2006
(unaudited)
Financial
First half
year 2005
year 2005
(audited)
(unaudited)
EUR (thousands)
Balance at beginning of year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortisation during the year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,781
(804)
8,389
(1,608)
8,389
(804)
Balance at end of year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,977
6,781
7,585
F-168
Note 15 — Long-term loans
A.
Composition
Interest
rates
%
In Czech crowns. . . . . . . . . . . . . . . . . .
In EUR . . . . . . . . . . . . . . . . . . . . . . . .
In PLN . . . . . . . . . . . . . . . . . . . . . . . .
In US dollars . . . . . . . . . . . . . . . . . . . .
In NIS . . . . . . . . . . . . . . . . . . . . . . . . .
Loan from minority interest holder . . . .
30 June
2006
31 December
2005
(unaudited)
(audited)
EUR (thousands)
(1)
(2)(6)
(3)
(4)
(5)
(6)
Less —
current portion . . . . . . . . . . . . . . . . . .
8,134
45,372
21,661
39
263
—
75,469
8,452
55,563
19,377
29
402
42
83,865
30 June
2005
(unaudited)
8,269
62,033
13,366
95
517
—
84,280
10,187
9,977
8,368
65,282
73,888
75,912
(1)
Linked to the Czech crowns bearing interest at the rate of PRIBOR +2%.
(2)
(3)
In Polish zloty, bearing an interest rate of 7.1%.
(4)
Linked to the US Dollar bearing interest at the rate of LIBOR + 1.0 ⫺ 1.75%.
(5)
In NIS, linked to the Israeli CPI and bearing interest at the rate of 5.7%.
(6)
In US dollar bearing no interest.
In 2004 the Company, through a subsidiary, signed a loan agreement with a Polish bank under which agreement the
Company can borrow up, in trenches, to a maximum of PLN 77 million. The loan is intended for the financing of
new cinema projects in Poland. As at 30 June 2006 and as at 31 December 2005, the whole amount of PLN
77,000,000 has been drawn down under this agreement (as at 30 June 2005: PLN 54,009,000).
The interest rates showed concern the rates per the end of the financial period.
B.
First year — current maturities . . . . . . . . . . . . . . . . . . . . . . .
Second year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fifth year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sixth year and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Undefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C.
Liens — see Note 18(2).
F-169
30 June
2006
31 December
2005
30 June
2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
10,187
10,066
11,425
9,271
10,120
11,949
12,451
9,977
9,986
11,834
9,286
9,536
24,607
8,639
8,368
9,767
9,753
11,178
9,100
12,307
23,807
75,469
83,865
84,280
Note 16 — Short-term bank credit and current portion of long-term loans
Composition:
Interest rates
30 June
2006
31 December
2005
30 June
2005
%
(unaudited)
(audited)
EUR (thousands)
(unaudited)
10,187
9,977
8,368
11,507
8,322
8,022
21,694
18,299
16,390
Current portion of long term loans . . . . . . . . . . . . . . (see Note 15)
(1)
Unlinked (NIS) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.4%
(1)
Variable
The interest rates shown concern the rates per 30 June 2006.
Note 17 — Other accounts payable
Composition:
Investment creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable in respect of sale of associate . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances and income received in advance(1) . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
30 June
2006
31 December
2005
30 June
2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
1,533
3,169
3,550
1,559
97
165
871
7,411
2,986
—
—
323
2,075
106
4,288
2,386
—
—
163
2,708
108
10,944
12,901
9,653
Note 18 — Commitments, contingent liabilities and liens
(1) Commitments
a.
after 30 June 2006. Many leases have renewal options. Most of the leases provide for contingent rentals
based on the revenues of the underlying cinema or video library stores, while certain leases contain
escalating minimum rental provisions. Most of the leases require the tenant to pay city taxes, insurance,
and other costs applicable to the leased premises.
F-170
Note 18 — Commitments, contingent liabilities and liens (continued)
Future minimum lease payments under non-cancellable operating leases from third parties for the
coming 5 years, are as follows:
EUR
(thousands)*
2006 (second half year) / 2007 (first half year) . . . . . . . . .
After 30 June 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.....................
.....................
.....................
.....................
.....................
.....................
15,962
14,787
14,761
14,388
14,298
49,521
123,717
* Does not include contingent rental, which is subject to the Company’s decision to exercise the option to extend the operating lease period.
First half
year 2006
(unaudited)
Minimum rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,510
—
7,510
Financial
year 2005
First half
year 2005
(audited)
(unaudited)
EUR (thousands)
12,514
31
12,545
6,136
17
6,153
b.
c.
As at 30 June 2006, the Group has unpaid commitments to invest in the development of properties of
approximately EUR 7.7 million and further commitments to acquire equipment of approximately EUR
9.6 million in connection with the development of new systems and movie theatres. In addition, the
Group is committed to pay a percentage of its revenues from some of these new systems, subject to a
d.
determined.
e.
CPI or to the US dollar, or as a percentage of the turnover. Semi-annual rent expenses for 2006 amounts
to EUR 304,000.
f.
Israeli, Polish and Hungarian television for specific movies. These rights are for various periods and will
end during the years 2006-2008.
g.
F-171
h.
Lease contracts of certain cinema equipment of IMAX»systems are classified as finance lease and as
such, the equipment is included in Tangible fixed assets under Cinema equipment. The total of the lease
obligation at 30 June 2006 amounted to EUR 2,462,000 (31 December 2005: EUR 2,767,000; 30 June
2005: EUR 2,995,000) and is classified as other long-term payables. The lease term expires on
31 December 2020, after which the ownership will be transferred to the Company.
(2) Liens
a.
As part of the Restructuring (see Note 1), the Company has assumed the majority of the Group’s bank
debt, provided originally via ITIT. Based on the agreement between the Company and ITIT of December
2003, the bank will provide the Company with loans, which will be used to pay back ITIT’s loans to the
bank. In order to secure the Company’s liabilities for such bank credits and loans in the amount of
approximately EUR 33 million, the Company has provided the bank the following: (i) a registered first
degree fixed lien on IT-2004’s (the Israeli subsidiary) outstanding share capital and goodwill; (ii) a first
degree floating lien on IT-2004’s assets, including insurance benefits in respect of the assets and rights
of any kind which the ITIT has or will have in the future; (iii) that the assets of IT-2004 will not be
pledged and the lien cannot be transferred without the agreement of the bank; (iv) ITIT has agreed to
guarantee the debt of the Company, and ITIT has provided the bank with a fixed lien on 70% of the
Company’s issued share capital; (v) that certain financial covenants will be fulfilled and maintained.
b.
policies of the projects. As 30 June 2006, the Company had issued a guarantee for EUR 12 million to a
Polish bank in connection with a loan provided to a subsidiary. In addition, the Company has issued a
guarantee for a total amount of EUR 40.8 million (165 million) to a Polish bank in order to secure
several loan agreements with this bank
Certain financial covenants should be fulfilled and maintained in relation to the loans from the Polish
bank as mentioned above.
c.
In order to secure an outstanding loan from a central European bank of approximately EUR 4 million, a
From time to time, the Group is involved in routine litigation and proceedings during the normal course of
business. As of balance sheet date, the Group is not involved in any litigations or proceedings except for the
following: in August 2005 a Polish institute for copy right protection and collection filed a claim against the
Company’s Polish subsidiary demanding payments of copy right fees for screening movies in Polish cinemas
during the period 2001-2005 to an amount of approximately PLN 8.5 million (EUR 2.1 million). Based on similar
law cases by the same Polish institute against two major competitors of the Company in Poland both of which have
F-172
failed, and based on the advice by the Company’s Counsel that it is not probable that the action will succeed, no
provision for any liability has been made in these financial statements following this claim.
Theatre sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the
6 months ended
30 June 2006
(unaudited)
For the
12 months ended
31 December 2005
(audited)
EUR (thousands)
For the
6 months ended
30 June 2005
(unaudited)
47,452
11,668
2,056
14,325
75,501
73,641
15,138
4,877
14,525
108,181
32,726
5,439
2,452
10,441
51,058
For the
6 months ended
30 June 2006
For the
12 months ended
31 December 2005
For the
6 months ended
30 June 2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
35,080
11,062
1,579
8,182
6,430
62,333
58,077
12,349
3,454
4,891
12,096
90,867
26,301
4,682
1,768
3,943
5,515
42,209
Cost of theatre sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Video operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortisation. . . . . . . . . . . . . . . . . . . . . .
Cost of inventories recognised as an expense is included in Cost of sales for an amount of EUR 2,814,000
(2005 (12 months): EUR 3,781,000; 2005 (6 months): EUR 1,137,000).
Note 21 — Financial income/(expenses)
A.
Financial income
For the
6 months ended
30 June 2006
(unaudited)
For the
12 months ended
31 December 2005
(audited)
EUR (thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Currency exchange gains . . . . . . . . . . . . . . . . . .
231
20
769
1,429
533
890
Total financial income . . . . . . . . . . . . . . . . . . . .
251
2,198
1,423
F-173
For the
6 months ended
30 June 2005
(unaudited)
Note 21 — Financial income/(expenses) (continued)
B.
Financial expenses
For the
6 months ended
30 June 2006
For the
12 months ended
31 December 2005
For the
6 months ended
30 June 2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
(2,494)
212
(78)
(2,360)
(4,472)
999
(1,478)
(4,951)
(2,585)
419
(980)
(3,146)
Interest expenses incurred . . . . . . . . . . . . . . . . .
Interest cost capitalised(1) . . . . . . . . . . . . . . . . . .
Currency exchange losses . . . . . . . . . . . . . . . . .
Total financial expenses . . . . . . . . . . . . . . . . . . .
(1)
The Company has capitalised interest expenses to the cost of buildings in progress as well as to other fixed asset components before being
This item comprises a net capital loss on the disposal of property, equipment and other assets (financial year
2006: a net capital loss; first half of 2006: a net capital gain).
I.
1.
2.
Tax rates applicable in 2006 to the Company and its subsidiaries are as follows:
3.
The subsidiary
Tax rate
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.6%
16%
24%
19%
31%
15%
subsidiaries.
1.
F-174
2.
Accrued employee rights . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating tax loss carry-forwards . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
30 June
2006
(unaudited)
31 December
2005
(audited)
EUR (thousands)
30 June
2005
(unaudited)
6
(91)
23
—
37
(79)
(282)
(2,146)
1,353
574
14
(218)
333
—
(142)
(25)
(580)
(13)
Accrued employee rights . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating tax loss carry-forwards . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 June
2006
(unaudited)
31 December
2005
(audited)
EUR (thousands)
30 June
2005
(unaudited)
71
(309)
927
82
771
66
17
667
307
1,057
85
76
2,236
(256)
2,141
30 June
2006
31 December
2005
30 June
2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
2,503
(827)
2,890
(972)
2,835
(461)
1,676
1,918
2,374
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the
6 months ended
30 June 2006
For the
12 months ended
31 December 2005
For the
6 months ended
30 June 2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
Current taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
233
(2)
231
F-175
648
550
1,198
214
(16)
198
Tax calculated at the regular rate (2006: 29.6%; 2005:
31.5%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment for reduced tax rate in foreign subsidiaries . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of tax losses utilized. . . . . . . . . . . . . . . . . . . . . . . .
Income exempt from taxes . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized exchange rate differences . . . . . . . . . . . . . . . .
Taxes in respect of previous years. . . . . . . . . . . . . . . . . . .
Other differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual tax charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the
6 months ended
30 June 2006
For the
12 months ended
31 December 2005
For the
6 months ended
30 June 2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
2,296
(398)
460
(504)
(2,242)
(12)
—
631
231
2,842
(221)
115
360
(2,608)
—
—
710
1,198
1,452
65
(18)
374
(2,271)
162
—
434
198
Note 24 — Related party transactions
Related parties
the other party in making financial and reporting decisions. Such relationships include:
1.
2.
3.
of their families.
4.
a.
b.
Income (expenses):
For the
6 months ended
30 June 2006
For the
12 months ended
31 December 2005
For the
6 months ended
30 June 2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
Rental fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
(151)
(610)
(358)
Management services . . . . . . . . . . . . . . . . . . . .
157
392
2
above properties aggregate to EUR 278, 000.
These leases were assigned to IT-2004, a 100% subsidiary of the Company, as part of the restructuring in
2003.
c.
F-176
Transactions with related parties: (continued)
its Chief Operating Officer (Managing Directors), signed originally with ITIT in 1998, were assigned to
the Company. The fulfilment of the Company’s obligation under the agreements will be performed by
Directors amounts to EUR 27,000 per month (not linked), which, together with related employee
benefits, will amount to EUR 32,000 per month.
Company’s consolidated profits before tax for any fiscal year. The above Managing Directors undertook
to be employed by the Company for an indefinite period, with 6 month notice of termination, and to
refrain from competing with the Company’s business for a period of 12 months following termination of
their employment with the Company.
Forum Film Ltd., a 50% subsidiary, will participate in the aforementioned remunerations to Mr Moshe
Greidinger and Mr Israel Greidinger at the rate of 33% thereof and will fully cover the portion of the
above mentioned bonuses that relate to its own revenues.
The Managing Directors of the Company are entitled to remuneration totalling EUR 975,000 during the
first half of 2006 (2005 (12 months): EUR 1,178,000). For the first 6 months of 2006, the members of the
Supervisory Board are entitled to fees totalling EUR 25,750 (2005 (12 months): EUR 51,500). The total
remuneration is included in general and administrative expenses.
d.
e.
CPI.
f.
g.
them in their official capacity. The Company had obtained a directors and officers liability insurance.
h.
Note 25 — Financial instruments
The Group’s principal financial instruments, other than derivatives, comprise bank loans, operating leases and
short-term bank credits. The main purpose of these financial instruments is to raise finance for the Group’s
F-177
operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise
directly from its operations.
The Group also enters into derivative transactions, principally forward currency contracts. The purpose is to
manage the currency risks arising from the Group’s operations and its sources of finance. It is, and has been
throughout the financial year 2005 and the first half year 2006, the Group’s policy that no trading in financial
instruments shall be undertaken.
currency risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are
summarised below. The Group also monitors the market price risk arising from all financial instruments.
The Group’s accounting policies in relation to derivatives are set out in Note 2.
Credit risk
Interest rate risk
The Group adopts a policy of a mixture of flat and floating interest rates (see Note 15 and 16). The Group’s
policy is to manage its interest cost using a mix of fixed and variable rate debt. At 30 June 2006, the Group had no
borrowings at fixed rates of interest.
of its long-term loans into EUR during 2003.
As at 30 June 2006, the Company has hedged some of its USD and EUR expenses through June 2006 in respect
of its Polish theatre operations, against the Polish Zloty. In connection with these obligations, the Company has
entered into forward foreign exchange contracts comprising a commitment to buy USD 400,000 at the beginning of
each month during the second quarter of 2006 and until December 2008 at fixed prices denominated in Polish Zloty.
The Company has also entered into forward foreign exchange contracts comprising a commitment to buy EUR
350,000 at the beginning of each month during the second quarter of 2006 and until December 2008 at fixed prices
denominated in Polish Zloty.
These forward foreign exchange contracts have been valued in the consolidated balance sheet at 30 June 2006
at their fair value.
Fair values
a.
Cash and cash equivalents, short-term bank deposit and short-term bank credit.
The carrying amounts approximate fair value because of the short maturity of these instruments.
b.
The carrying amounts approximate fair value.
F-178
Fair values (continued)
c.
Trade accounts receivable, other accounts receivable, accounts payable and accrued liabilities.
The carrying amounts approximate fair value because of the short-term nature of these instruments.
d.
Debt — as of 30 June 2006, the aggregate fair value of the Company’s long-term debt obligations is
similar to its carrying value of EUR 75 million. As of 31 December 2005, the aggregate fair value of the
Company’s long-term debt obligation was similar to its carrying value of EUR 84 million (30 June 2005:
fair value of EUR 84 million compared to carrying value of EUR 84 million). The above fair values have
been based on terms for debts with conditions and maturities similar to those of the Company’s debts as
prevailing in the market at balance sheet date.
Note 26 — Linkage terms of monetary items
In or linked
to euros
30 June 2006
In or linked
to foreign
currencies
Total
(unaudited)
EUR (thousands)
Assets:
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related parties receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans (including current maturities) . . . . . . . . . . . . . . . . . . . .
Accrued employee rights upon retirement . . . . . . . . . . . . . . . . . . . . . . .
F-179
3,294
—
885
71
—
2,470
6,037
10,650
254
52
5,764
6,037
11,535
325
52
4,250
19,463
23,713
—
471
7
5,816
5
45,372
—
51,671
11,507
7,231
1,147
5,128
353
30,097
700
56,163
11,507
7,702
1,154
10,944
358
75,469
700
107,834
Note 26 — Linkage terms of monetary items (continued)
31 December 2005
In or linked
to euros
In or linked
to foreign
currencies
Total
EUR (thousands)
Assets
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related parties receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans (including current maturities) . . . . . . . . . . . . . . . . . . . .
Accrued employee rights upon retirement . . . . . . . . . . . . . . . . . . . . . . .
1,568
—
2,958
1,445
—
3,599
7,083
11,805
257
55
5,167
7,083
14,763
1,702
55
5,971
22,799
28,770
—
54
—
1,648
5
55,562
—
8,322
9,869
1,312
11,253
432
28,303
907
8,322
9,923
1,312
12,901
437
83,865
907
57,269
60,398
117,667
30 June 2005
In or linked
to euros
Assets:
Cash and cash equivalents . . . . . . . . . . . . . .
Short-term bank deposits . . . . . . . . . . . . . . .
Trade accounts receivable . . . . . . . . . . . . . . .
Other accounts receivable . . . . . . . . . . . . . . .
Related parties receivable . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . .
Loans to unconsolidated subsidiaries . . . . . . .
...............
...............
...............
...............
...............
...............
...............
Liabilities:
Short-term bank credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and payroll accruals . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term loans (including current maturities) . . . . . . . . . . . . . .
Accrued employee rights upon retirement . . . . . . . . . . . . . . . . . .
In or linked
to foreign currencies
(unaudited)
EUR (thousands)
Total
2,206
—
—
7,335
1,377
—
—
2,863
—
5,822
9,694
345
46
—
5,069
—
5,822
17,029
1,722
46
—
10,918
18,770
29,688
—
222
5
1,730
5
62,034*
—
63,996
8,021
8,245
1,352
7,923
103
22,246*
893
48,783
8,021
8,467
1,357
9,653
108
84,280
893
112,779
* Restated for comparison reasons.
Note 27 — Segment reporting
F-180
segments:
Business segments:
Theatre
Operations
Distribution
Video &
DVD
Other
(unaudited)
EUR (thousands)
Eliminations
Consolidated
Revenues
External sales . . . . . . . . . . . . . . . .
47,452
—
11,668
1,206
2,056
—
14,325
—
—
(1,206)
75,501
—
Total revenues . . . . . . . . . . . . . . . .
47,452
12,874
2,056
14,325
(1,206)
75,501
11,130
181
213
4,772
—
16,296
5,590
66
585
189
—
6,430
5,540
115
(372)
4,583
—
9,866
Results
impairment write-downs . . . . . .
Segment results . . . . . . . . . . . . . . .
Income taxes. . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . .
(2,109)
(1)
(231)
273
7,798
Assets
Segment assets . . . . . . . . . . . . . . .
166,479
7,383
3,214
15,051
771
192,898
Liabilities
18,737
3,533
937
5,519
88,652
117,378
Other information
11,030
6
1,293
78
—
12,407
F-181
Financial year 2005
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . .
73,641
—
15,138
3,778
4,877
325
14,525
—
—
(4,103)
108,181
—
Total revenues . . . . . . . . . . . . . . . .
73,641
18,916
5,202
14,525
(4,103)
108,181
12,867
2,048
1,012
8,096
—
24,023
9,787
137
1,720
452
—
12,096
3,080
1,911
7,644
—
11,927
Results
Segment results . . . . . . . . . . . . . . .
(708)
IPO cost write-off . . . . . . . . . . . . .
Net loss from associates . . . . . . . .
Income taxes. . . . . . . . . . . . . . . . .
(2,753)
(151)
—
(103)
(1,198)
188
Net income . . . . . . . . . . . . . . . . . .
7,910
31 December 2005
Theatre
operations
Distribution
Video &
DVD
Other
Unallocated
Consolidated
EUR (thousands)
Assets
Segment assets . . . . . . . . . . . . . . . .
172,923
7,280
3,016
17,745
1,057
202,021
Liabilities
28,867
2,584
1,851
1,497
94,105
128,904
Other information
Capital expenditure . . . . . . . . . . . . .
29,795
1,011
1,292
3,168
—
35,266
F-182
Theatre
Operations
Distribution
Video &
DVD
Other
Eliminations
Consolidated
(unaudited)*)
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . .
32,726
—
5,439
1,707
2,452
214
10,441
—
—
(1,921)
51,058
—
Total revenues* . . . . . . . . . . . . . . .
32,726
7,146
2,666
10,441
(1,921)
51,058
Results
Segment results* . . . . . . . . . . . . . .
4,920
482
505
5,938
—
11,845
4,444
476
129
353
702
(197)
241
5,697
—
—
5,516
6,329
Income taxes. . . . . . . . . . . . . . . . .
(1,723)
4
(198)
33
Net income . . . . . . . . . . . . . . . . . .
4,445
Assets
Segment assets* . . . . . . . . . . . . . .
157,910
5,610
3,706
22,288
2,142
191,656
Liabilities
Segment liabilities* . . . . . . . . . . . .
24,190
4,246
2,005
522
94,675
125,638
Other information
Capital expenditure* . . . . . . . . . . .
16,496
255
803
3,120
—
20,674
*)
30 June 2006
Central Europe
Israel
Unallocated
(unaudited)
EUR (thousands)
Consolidated
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,024
13,477
—
75,501
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
165,568
26,559
771
192,898
8,299
4,108
—
12,407
F-183
31 December 2005
Central Europe
Israel
Unallocated
(unaudited)
EUR (thousands)
Consolidated
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,116
31,065
—
108,181
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,075
25,889
1,057
202,021
31,289
3,977
—
35,266
Central Europe
30 June 2005
Israel
Unallocated
Consolidated
(unaudited)
EUR (thousands)
Revenues
External sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,333
14,725
Assets
Segment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162,339*
27,175*
17,720*
2,954
*)
—
51,058
2,142*
191,656*
20,674*
—
Restated to reflect the change of functional currencies for operations in Central Europe as of the year 2005 (see Note 2 B)
For the
6 months ended
30 June 2006
For the
12 months ended
31 December 2005
For the
6 months ended
30 June 2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other social charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,105
164
887
12,703
349
1,780
6,073
178
1,029
Total personnel costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,156
14,832
7,280
For 2006 (6 months) and 2005, the pension costs comprise defined contribution expenses only.
during the first half year 2006 was 1,484 (2005 (12 months): 1,450; 2005 (6 months): 1,376). A geographical
allocation of the average number of personnel is as follows:
For the
6 months ended
30 June 2006
For the
12 months ended
31 December 2005
For the
6 months ended
30 June 2005
(unaudited)
(audited)
EUR (thousands)
(unaudited)
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Central Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
528
955
1
546
903
1
560
814
2
Total average number of personnel . . . . . . . . . . . . . . . . . .
1,484
1,450
1,376
F-184
Direct/indirect
Voting right
By the Company
%
30 June 2006
The Company’s
equity share
in subsidiary
Consolidation
%
Currency
%
(unaudited)
I.T. International Theatres 2004 Ltd. . . . .
I.T. Magyar Cinemas Kft . . . . . . . . . . . . .
Kino 2005 a.s. . . . . . . . . . . . . . . . . . . . . .
I.T. Sadyba, B.V. . . . . . . . . . . . . . . . . . . .
Cinema City Poland Sp.Z.oo . . . . . . . . . . .
IT Development 2003 . . . . . . . . . . . . . . . .
I.T. Czech Cinemas S.R.O. . . . . . . . . . . . .
I.T. Sofia B.V. . . . . . . . . . . . . . . . . . . . . .
New Age Media Sp.Zoo . . . . . . . . . . . . . .
Forum Film Poland Sp.Zoo . . . . . . . . . . . .
Norma Film Ltd. . . . . . . . . . . . . . . . . . . .
Forum Film Ltd. . . . . . . . . . . . . . . . . . . .
Ya’af — Giant Video Library Network
Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ya’af — Automatic Video Machines
Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mabat Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Teleticket Ltd. . . . . . . . . . . . . . . . . . . . . .
Mercaz Ltd. . . . . . . . . . . . . . . . . . . . . . .
Cinema Plus Ltd. . . . . . . . . . . . . . . . . . . .
I.T. Bulgaria EOOD . . . . . . . . . . . . . . . . .
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
60%
60%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
50%
50%
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
FULL
(6)
60%
30%
FULL
(6)
60%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
FULL
FULL
FULL
FULL
FULL
Unconsolidated —
Not operational
(6)
MO Sofia EAD . . . . . . . . . . . . . . . . . . . .
—
—
(1)
(2)
(3)
Czech corporation.
(4)
Polish corporation.
(5)
(6)
(7)
Sold in 2006 (see note 6).
(2)
(3)
(1)
(4)
(4)
(3)
(1)
(4)
(4)
(6)
(6)
(6)
(6)
(6)
(6)
(5)
(7)
Note 30 — Subsequent events
The Company is seeking to have its shares listed on the Polish Stock exchange towards the end of 2006. The
Company applied for the Dutch Authority for the Financial Markets (“AFM”) to issue a passport for admission of its
shares for listing and trading on the Polish Stock exchange.
F-185
ANNEX I
DEFINITIONS
The following definitions apply throughout this document, unless the context otherwise requires:
“Act on Offerings”
The Polish Act on Public Offerings, Conditions Governing the Introduction of Financial Instruments to Organised Trading System and on
Public Companies
“Act on Trading in Financial
Instruments”
The Polish Act on Trading in Financial Instruments
“Admission”
Admission of the Shares to trading on the WSE
“Affiliated Shareholder”
Israel Theatres Limited, the parent company of the Principal
Shareholder
“AFM”
The Netherlands Authority for the Financial Markets
“All Job (Poland)”
All Job Poland sp.z.o.o
“Allotment Date”
4 December 2006, the date on which the Offer Shares will be allotted
to investors that have placed their subscription orders in the Offering
“Allotment List”
allotment list prepared by the Issuer and the Affiliated Shareholder
based upon the recommendation and with the agreement of the Lead
Manager
“Annual Audited Financial
Statements”
The audited consolidated financial statements as at and for the years
ended 31 December 2005, 2004 and 2003
“Appointment Committee”
The selection and appointment committee of the Company
“Articles of Association”
The Company’s Articles of Association
“Audit Committee”
The audit committee of the Company
“Authorised Shares”
Authorised but unissued shares of the Company
“Buena Vista”
Buena Vista International, Inc.
“B.V.”
A private (besloten vennootschap) limited liability company under
Dutch law
“Cinema City”
“Cinema City Bulgaria (Bulgaria)”
Cinema City Bulgaria International EOOD
“Cinema City Finance (Holland)”
Cinema City Finance B.V.
“Cinema City International (Poland)”
Cinema City International Poland sp.z.o.o
“Cinema City (Poland)”
Cinema City Poland sp.z.o.o
“Cinema Plus (Israel)”
IT Cinema Plus Limited
“Code”
The Dutch Corporate Governance Code
“Company”
Cinema City International N.V. and its subsidiaries
“Current Report”
The official electronic information dissemination service as defined in
article 56.1 of the Polish Act on Public Offerings.
“Customer Service Points”
Meaning “Punkty Obsługi Klienta” of Centralny Dom Maklerski
Pekao S.A. and ,,Punkty Przyjmowania Zleceń” of Biuro Maklerskie
Banku BPH S.A.
“DEM”
German Mark
“Disney”
The Walt Disney Company
A-1
“Dodona”
Dodona Research, a specialist research organisation for the cinema
industry
“Dutch Securities Act”
The Dutch Securities Act 1995 (Wet toezicht effectenverkeer 1995)
“Employee Stock Incentive Plan”
The Company’s incentive-based stock plan as approved by the
shareholders on 7 November 2006.
“ES Media”
The company that maintains the website www.boxoffice.pl
“EURIBOR”
Euro InterBank Offered Rate
“European Union”
An economic union of 25 European countries
“Euros”, “EUR” or E”
Lawful currency of the European Economic and Monetary Union
“Firm Shares”
New Shares together with the Sale Shares
“Forint” or “HUF”
Lawful currency of the Republic of Hungary
“Forum Film (Hungary)”
Forum Film Distribution Kft
“Forum Film (Israel)”
Forum Film Israel Limited
“Forum Film (Poland)”
Forum Film Poland sp.z o.o
“Forum Home Entertainment
(Hungary)”
Forum Film Home Entertainment Kft
“FSC”
The Polish Financial Supervisory Commission
“FSMA”
The Financial Services and Markets Act 2000
“General Meeting of Shareholders”
General Meeting of the Shareholders of the Cinema City
“IFRS”
International Financial Reporting Standards
“IFRS Financial Statements”
Financial statements prepared in accordance with International Financial Reporting Standards
“Institutional Investors”
Corporate entities (legal persons) and non-corporate entities other
than individuals, to whom the Offering is addressed and who have
received from the Managers the invitation to submit a subscription for
Firm Shares, or the Managers or the entity selected by the Managers.
For the avoidance of doubt, the term shall exclude US persons (as
defined by Regulation S)
“Interim Financial Statements”
Unaudited consolidated financial statements as at and for the sixmonth periods ended 30 June 2006 and 30 June 2005
“Investors”
Institutional Investors and Retail Investors
“IPO”
Initial public offering
“Issuer”
“IT Czech Cinemas (Czech)”
IT Czech Cinemas S.R.O
“ITIT”
I.T. International Theatres Limited
“IT Magyar Cinemas (Hungary)”
IT Magyar Cinema Kft
“IT Poland Development 2003
(Poland)”
IT Poland Development 2003 sp.z o.o.
“IT Sofia (Holland)”
IT Sofia B.V.
“Kafan”
Kafan Video Libraries Limited
“Kino 2005 (Czech)”
Kino 2005 a.s.
“Koruna” or “CZK”
Lawful currency of the Czech Republic
“KPMG Netherlands”
KPMG Accountants N.V., the Netherlands
A-2
“Lead Manager”
Bank Austria Creditanstalt AG
“Lev” or “BGN”
Lawful currency of the Republic of Bulgaria
“LIBOR”
London InterBank Offered Rate
“Listing Date”
The date on which trading of the Firm Shares and any Overallotment
Shares, issued in connection with full or partial exercise of the
Overallotment Option on the Allotment Date, on the WSE will
commence
“Lock-up Period”
The period of 180 days after the Allotment Date
“Mall of Sofia”
The first modern shopping mall in Bulgaria
“Management Board”
The management board of the Company
“Managers”
Bank Austria Creditanstalt AG and ING Bank N.V., London Branch
“Maximum Price”
The maximum price per Offer Share offered for subscription to Retail
Investors
“Media Salles”
An initiative of the European Union’s Media Programme with the
support of the Italian Government
“Member State”
A member country of the European Union
“MPA”
Motion Picture Association of Israel
“MPAA”
Motion Picture Association of America
“NATO”
US National Association of Theatre Owners
“NDS”
Polish National Depository for Securities
“New Age Media”
New Age Media Sp. Z.o.o
“New Israeli Shekel” or “NIS”
Lawful currency of the State of Israel
“New Shares”
10,000,000 newly issued shares to be offered in the Offering
“Norma Film (Israel)”
Norma Film Limited
“N.V.”
A public limited liability (naamloze vennootschap) company under
Dutch law
“Offering”
The offering of 15,664,352 Shares with a nominal value of A0.01 per
Share based on this Prospectus
“Offeror”
CA IB Securities S.A.
“Offer Price”
The offer price per Offer Share determined on the Pricing Date
“Offer Shares”
Firm Shares together with the Overallotment Shares
“Overallotment Option”
The option that the Principal Shareholder has granted to the Managers,
exercisable for up to 30 days following the Allotment Date, to
purchase up to 2,349,652 Shares, the maximum number of which
is equal to 15% of the Firm Shares, solely to cover overallotments, if
any, made in connection with the Offering and short positions resulting from stabilisation transactions
“Overallotment Shares”
The number of additional shares representing 15% of the Firm Shares
under the Overallotment Option
“PAP”
Polish Press Agency
“Plaza Centres”
Plaza Centres (Europe) B.V.
“Pre-Meeting”
Preliminary meeting with shareholders to be held not more than 10
business days and not less than one business day prior to the date of
each general meeting of shareholders of Cinema City
A-3
“Pricing Date”
30 November 2006, the date on which the Offer Price and the final
number of the Offer Shares to be offered in the Offering are
determined
“Principal Shareholder”
The Issuer’s direct majority shareholder, I.T. International Theatres
Limited
“Prospectus Directive”
Directive 2003/71/EC of the European Parliament and the Council of
the European Union
“Relevant Member State”
A member state of the European Economic Area which has implemented the Prospective Directive
“Remuneration Committee”
The remuneration committee of the Company
“Retail Investors”
Individuals, corporate entities (legal persons) and non-corporate entities other than individuals, except for US persons, as defined in
Regulation S, to whom the Offering within the territory of Poland
is addressed
“Sale Shares”
5,664,352 existing ordinary shares in the Issuer included in the
Offering to be sold by the Selling Shareholders
“Screen Digest”
A specialist in business intelligence, research and analysis on global
audiovisual media
“Selected Annual Financial
Information”
“Selected Interim Financial
Information”
Selected consolidated financial and operating information for the
Company as at and for the three years ended 31 December 2005
Selected consolidated financial and operating information for the
Company as at and for each of the six-month periods ended 30 June
2005 and 30 June 2006
“Selling Shareholders”
The Affiliated Shareholder, a senior member of management of the
Company and an affiliated person who holds the Sale Shares included
in the Offering
“Settlement Date”
Date of delivery of the Firm Shares to the securities accounts held by
Retail Investors and Institutional Investors that have been allotted
such Shares
“Shareholders”
Shareholders of the Company
“Shares”
The Issuer’s shares
“Summary Annual Financial
Information”
“Summary Interim Financial
Information”
Summary consolidated financial and operating data for the Company
as at and for the three years ended 31 December 2005
Summary consolidated financial and operating data for the Company
as at and for each of the six-month periods ended 30 June 2005 and
30 June 2006
“Supervisory Board”
The supervisory board of the Company
“Supervisory Director”
Member of the Supervisory Board
“Underwriting Agreement”
The underwriting agreement to be entered into by the Issuer, the
Selling Shareholders, the Managers and the Offeror in connection
with the Offering on or about the Pricing Date
“US Dollars”, “USDs”, “US$”, “$” or
“U.S. Dollars”
Lawful currency of the United States
“US Securities Act”
United States Securities Act of 1933
A-4
“VAT”
Value-added tax
“WIBOR”
Warsaw Interbank Offer Rate
“WSE Corporate Governance Rules”
The Polish corporate governance rules contained in the “Best Practices in Public Companies in 2005” adopted by the WSE
“WSE”
The Warsaw Stock Exchange
“Yaaf Video Machines (Israel)”
Ya’af Automatic Video Machines Limited
“ZAIKS”
The Polish Association of the Authors and Composers (Zwiazek
Autorów ZAIKS)
“Zloty” or “PLN”
Lawful currency of the Republic of Poland
A-5
ANNEX II
ARTICLES OF ASSOCIATION
UNOFFICIAL ENGLISH TRANSLATION OF THE DEED OF AMENDMENT OF THE
ARTICLES OF ASSOCIATION OF CINEMA CITY INTERNATIONAL N.V.
AS AMENDED ON 31 OCTOBER 2006
In this translation, an attempt has been made to be as literal as possible without jeopardising the overall
continuity. Inevitably, differences may occur in the translation and if so, the Netherlands text of the Articles
of Association will prevail.
CHAPTER I
Definitions
Article 1
In these articles of association, the following terms shall mean:
a.
general meeting: the general meeting of shareholders;
b.
shares: registered shares and bearer shares, unless the opposite is explicitly mentioned;
c.
shareholders: holders of registered shares and holders of bearer shares, unless the opposite is explicitly
mentioned;
d.
depositary receipts: depositary receipts for shares in the company. Unless the context proves otherwise,
such receipts include depositary receipts issued with or without the company’s co-operation;
e.
depositary receipt holders: holders of depositary receipts issued with the company’s co-operation.
Unless otherwise shown such holders include persons who, as a result of any right of usufruct or right of
pledge created on any share, have the rights conferred by law upon the holders of depositary receipts
issued with the company’s co-operation;
f.
annual accounts: the balance sheet and profit and loss account plus explanatory notes;
g.
subsidiary:
— a legal entity in respect whereof the company or any of its subsidiaries have, whether or not pursuant
to an agreement with other persons entitled to vote, can exercise either individually or collectively,
more than one-half of the voting rights at the general meeting;
— a legal entity of which the company or any of its subsidiaries are members or shareholders, and in
respect of which the company or any of its subsidiaries have, either individually or collectively, the
right to appoint or dismiss more than half of such legal entity’s managing directors or supervisory
directors, whether or not pursuant to any agreement with other persons having voting rights, and
even if all persons having voting rights in fact cast their vote;
h.
auditor: a registered accountant or any such other accountant as referred to in article 2:393 of the
Netherlands Civil Code, or any organization in which such accountants co-operate;
i.
regulated stock exchange: the securities exchange, as referred to in article 1.13 of the directive with
number 93/22/EC of the European Council dated March 15, 1993 on investment services in the
securities field;
j.
affiliate:
— a subsidiary;
— a shareholder holding majority of votes at the general meeting;
— a subsidiary of a shareholder holding majority of votes at the general meeting;
k.
ICC: an industrial central custodian being an entity authorized to keep in custody a global share
certificate or global share certificates in accordance with the respective laws and regulations of the
jurisdiction where the regulated stock exchange, where the shares are or shall be listed, is located.
B-1
CHAPTER II
Name. Corporate seat. Objects
Article 2. Name and corporate seat
2.1
The name of the company is Cinema City International N.V.
2.2
The company has its corporate seat at Amsterdam.
Article 3. Objects
The objects of the company are:
a.
to show, distribute, sell and rent films, to build and develop shopping centers, amusement centers, movie
theatre complexes, video clubs and to enter into other real property transactions;
b.
to incorporate, participate in, conduct the management of and take any other financial interest in other
companies and enterprises;
c.
to acquire, dispose of, manage and exploit real and personal property, including patents, marks, licenses,
permits and other industrial property rights;
d.
to render administrative, technical, financial, economic or managerial services to other companies,
persons or enterprises;
e.
to borrow and/or lend moneys, act as surety or guarantor in any other manner, and bind itself jointly and
severally or otherwise in addition to or on behalf of others,
the foregoing whether or not in collaboration with third parties and inclusive of the performance and promotion of
all activities which directly and indirectly relate to those objects, all this in the broadest sense of the terms.
CHAPTER III
Capital and shares. Register of shareholders
Article 4. Authorized capital
4.1
The authorized capital amounts to one million seven hundred and fifty thousand euro
(EUR 1,750,000.—) and is divided into one hundred and seventy-five million (175,000,000) shares,
each with a nominal value of one eurocent (EUR 0.01).
4.2.
All shares shall be in bearer form or in registered form.
4.3
The shares are non-divisible.
4.4
The bearer shares shall be embodied in one or more global share certificates. Each global share
certificate shall be kept in custody by the ICC to be appointed by the board of managing directors.
4.5
The administration of a global share certificate shall irrevocably be placed in charge of the ICC in its
capacity as custodian of the global share certificate. The resolution by the board of managing directors
to deposit and register shares with the ICC, shall be subject to the approval of the general meeting.
The ICC shall be irrevocably authorized to do anything required thereto on behalf of all participants,
including the acceptance, transfers, debiting and inclusion of shares in the global share certificate as
kept in custody all in accordance with the applicable laws and regulations of the country in which the
shares of the company have been admitted to an official listing on a regulated stock exchange.
4.6
4.7
A participant in a global share certificate as kept in custody may request the company to exchange such
participation up to a maximum of the amount of shares to which he is entitled, for registered shares. To
effectuate such exchange of shares:
i.
the ICC shall transfer the shares by private deed;
ii.
the ICC shall enable the company to debit the relevant shares to the global share certificate as kept
in custody;
iii.
the company shall register the shareholder in the register of shareholders.
A holder of a registered share may exchange such share into a bearer share. To effectuate such exchange
of shares:
i.
the shareholder shall transfer the shares to the ICC;
B-2
4.8
ii.
the ICC shall enable the company to include the shares in the global share certificate as kept in
custody;
iii.
the company shall register the exchange in the register of shareholders.
No share certificates shall be issued for registered shares.
Article 5. Register of shareholders
5.1
The board of managing directors shall keep a register in which the names and addresses of all holders of
registered shares shall be recorded, specifying the date on which they acquired their shares, the date of
acknowledgment by or service upon the company, as well as the amount paid up on each share. The
register shall also contain the names and addresses of all owners of a right of usufruct or pledge on
registered shares, specifying the date on which they acquired such right, the date of acknowledgment by
or service upon the company and what rights they have been granted attached to the shares under articles
12 and 13.
5.2
The register shall furthermore be governed by the relevant statutory provisions.
5.3
Part of the register may be kept abroad in compliance with applicable laws or pursuant to the regulations
of a stock exchange to which shares are listed.
CHAPTER IV
Issue of shares. Own shares
Article 6. Issue of shares. Authorized corporate body
6.1
The company shall only issue shares pursuant to a resolution of the general meeting or of another
corporate body designated to do so by a resolution of the general meeting for a fixed period not
exceeding five years. The designation must be accompanied by a stipulation as to the number of shares
that may be issued.
The designation may each time be extended for a period of up to five years. The designation may not be
cancelled, unless the designation provides otherwise.
6.2
A decision by the general meeting to issue shares or to designate another body to issue shares can only
be taken upon the proposal of the board of managing directors. The proposal is subject to the approval of
the board of supervisory directors.
6.3
Within eight days after the resolution of the general meeting to issue shares or to designate a corporate
body, the company shall deposit a full text thereof at the trade register where the company is registered.
6.4
Within eight days after each issue of shares, the company shall notify the trade register referred to in the
preceding paragraph of this article of such issue, stating the number.
6.5
The provisions of paragraph 1 up to and including paragraph 4 of this article shall apply accordingly to
the granting of rights to subscribe to shares, but does not apply to the issue of shares to someone who
exercises a previously acquired right to subscribe to shares.
6.6
The issue of a registered share, not being a share as mentioned in article 2:86c Netherlands Civil Code,
shall require a notarial deed, executed before a civil law notary authorized to practice in the Netherlands,
and to which those involved are party.
Article 7. Terms and conditions of issue. Pre-emptive rights
7.1
If a resolution to issue shares is adopted, the issue price of the shares and the other conditions of the issue
shall also be determined.
7.2
Each shareholder shall have a pre-emptive right with respect to any further share issue in proportion to
the aggregate amount of his shares, except if shares are issued for a non-cash consideration or if shares
are issued to employees of the company or/of a group company.
7.3
The company shall announce the issue of shares which are subject to pre-emptive rights and the period
of time during which such rights may be exercised, in the “Staatscourant” (Official Gazette), as well as
by publication thereof in accordance with the provisions of article 35.7.
The previous sentence does not apply if all shares are registered shares and all shareholders are notified
in writing at the address indicated by each of them.
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7.4
Pre-emptive rights may be exercised within at least two weeks after the day when the announcement in
the “Staatscourant” (Official Gazette) was published or after the notification was sent to the
shareholders.
7.5
Pre-emptive rights may be restricted or excluded by a resolution of the general meeting. A decision by
the general meeting to restrict or to exclude pre-emptive rights can only be taken upon the proposal of
the board of managing directors. The proposal is subject to the approval of the board of supervisory
directors. The reasons for such proposal and the issue price of the shares must be given in writing in the
proposal thereto. Pre-emptive rights may also be excluded or restricted by the authorized corporate body
referred to in article 6.1 if such corporate body is authorized by the resolution of the general meeting for
a fixed period, not exceeding five years, to restrict or exclude the pre-emptive rights. The designation
may each time be extended for a period of up to five years.
Unless determined otherwise, the designation can not be cancelled.
Upon termination of the authority of the corporate body to issue shares, its authority to restrict or
exclude pre-emptive rights shall also terminate.
7.6
A resolution of the general meeting to restrict or exclude pre-emptive rights or to authorize a corporate
body for that purpose shall require a majority of at least two-thirds of the votes cast if less than one-half
of the issued capital is represented at the general meeting.
Within eight days after the resolution, the company shall deposit the full text thereof at the trade register.
7.7
If, on the issue of shares, an announcement is made as to the amount to be issued and only a lesser
amount can be placed, such lower amount shall be placed only if the conditions of issue explicitly
provide therefore.
7.8
At the granting of rights to subscribe to shares, the shareholders shall have a preemptive right. The
provisions of the previous paragraphs of this article shall apply accordingly at the granting of rights to
subscribe to shares.
Shareholders shall have no pre-emptive rights in respect to shares issued to a person who exercises right
to acquire shares granted to him at an earlier date.
Article 8. Payment for shares. Payment in cash. Non-cash Contribution
8.1
Upon the issue of each share, the nominal value must be fully paid up, and, in addition, if the share is
subscribed at a higher amount, the difference between such amounts. It may be stipulated that a part, not
exceeding three quarters of the nominal value needs only be paid after such part is called up by the
company.
8.2
Persons who are professionally engaged in the placing of shares for their own account may be permitted,
by agreement, to pay less than the nominal value for the shares subscribed by them, provided that no less
than ninety-four percent of such amount is paid in cash not later than on the subscription for the shares.
8.3
Payment for shares shall be made in cash unless a non-cash contribution has been agreed. Payment in
foreign currency may only be made with the company’s approval. If payment is made in foreign
currency, the payment obligation shall be considered fulfilled up to the Netherlands currency amount
into which the foreign currency can be freely converted. The basis for determination shall be the rate of
exchange on the day of payment. If the shares or depositary receipts will without delay, upon issue, be
quoted on the price list of an stock exchange outside the Netherlands, the company may demand that
payment is made at the rate of exchange on a fixed day within two months before the last day on which
payment must be made.
If payment is made in foreign currency, a banker’s statement as referred to in article 2:93a paragraph 2 of
the Netherlands Civil Code shall be deposited at the trade register within two weeks after payment.
8.4
The board of managing directors is authorized to enter into a agreement relating to payment for shares
other than in cash.
A non-cash contribution shall occur without delay after acceptance of the share or following the day on
which an additional payment is called up or agreed upon. In accordance with article 2:94b paragraph 1
of the Netherlands Civil Code, a description shall be drawn up of the contribution to be made. The
description shall relate to the situation on a day no less than five months prior to the day the shares are
subscribed for or the additional payment is called up or agreed upon. The managing directors shall sign
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the description; if the signature of any of them is lacking, this fact shall be recorded and the reasons
therefore so noted.
8.5
An auditor as mentioned in article 2:393 paragraph 1 of the Netherlands Civil Code shall issue a
statement on the description of the contribution to be made.
8.6
The provisions set out in this article relating to the description and auditor’s statement shall not apply to
the cases referred to in article 2:94b paragraph 3 or paragraph 5 of the Netherlands Civil Code.
Article 9. Own shares
9.1
The company may not subscribe for its own shares upon the issue thereof.
9.2
Any acquisition by the company of shares which are not fully paid up in its capital, or depositary
receipts, shall be null and void.
Any acquisition by the company of fully paid up registered shares in its capital, in violation of
paragraph 3 of this article shall be null and void.
Fully paid up bearer shares or depositary receipts which the company acquired in violation of
paragraph 3 of this article shall, simultaneously with the acquisition, devolve on the managing directors
jointly.
9.3
9.4
The company may only acquire its own fully-paid shares or depositary receipts without consideration,
or if:
a.
the equity decreased by the acquisition price is not less than the paid and called up part of the
capital increased with the reserves which must be maintained by law;
b.
the nominal amount of the shares or depositary receipts for shares in the company’s capital to be
acquired, and all such shares or depositary receipts in its capital already held by the company and
its subsidiaries collectively does not exceed one/tenth of the issued capital; and
c.
authorization to the acquisition has been granted to the board of managing directors by the general
meeting. Such authorization shall be valid for a period of no longer than eighteen months. The
general meeting must state in the authorization the number of shares that may be acquired, how
the shares may by acquired and the limits within which the price of the shares must be set. No
authorization shall be required in case the company acquires shares in its capital, which are
officially listed on a regulated stock exchange, for the purpose of transferring such shares to
employees of the company or of a group company, under a scheme applicable to such employees.
Definitive for the validity of the acquisition shall be the value of the company’s equity according to the
most recently adopted balance sheet decreased with the acquisition price of shares in the company’s
capital or depositary receipts, and any distributions to others out of profits or reserves which became
payable by the company and its subsidiaries after the date of the balance sheet.
If more than six months have lapsed since the expiration of a financial year without adoption of the
annual accounts, an acquisition in accordance with the provisions in paragraph 3 of this article is
permitted.
9.5
The provisions of paragraphs 2 up to and including 4 of this article do not apply to shares or depositary
receipts acquired by the company under universal succession of title (‘onder algemene titel’) without
prejudice of the provisions in article 2:98a paragraph 3 and paragraph 4 of the Netherlands Civil Code.
9.6
A decision of the board of managing directors to obtain fully paid shares or, as the case may be,
depositary receipts of shares under onerous title with due observance of the provisions of paragraph 1 of
this article requires the prior approval of the board of supervisory directors.
9.7
The company may not with a view to any other party subscribing to or acquiring the company’s shares or
depositary receipts, grant loans, provide security or any price guarantee, act as surety in any other
manner, or bind itself jointly and severally or otherwise in addition to or on behalf of others. This
prohibition shall also apply to its subsidiaries.
This prohibition shall not apply if shares or depository receipts are subscribed for or acquired by
employees of the company or a group company.
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9.8
Shares in the company’s capital may, upon issue, not be subscribed for by or on behalf of any of its
subsidiaries. The subsidiaries may acquire or order to acquire such shares or depositary receipts and for
their own account only insofar as the company is permitted to acquire own shares or depositary receipts
pursuant to paragraphs 2 up to and including 4 of this article.
9.9
Disposal of any own shares or depositary receipts held by the company shall require a resolution of the
general meeting provided that the general meeting has not granted this authority to another corporate
body.
9.10
The company may not cast votes in respect of own shares held by the company or own shares on which
the company has a right of usufruct or pledge. Nor may any votes be cast by the pledgee or usufructuary
of own shares held by the company if the right has been created by the company. No votes may be cast
in respect of the shares whereof depositary receipts are held by the company. The provisions of this
paragraph shall also apply to shares or depositary receipts held by any subsidiary or in respect of which
any subsidiary owns a right of usufruct or pledge.
9.11 When determining to what extent the company’s capital is represented, or whether a majority represents
a certain part of the capital, the capital shall be reduced by the amount of the shares for which no votes
can be cast.
Article 10. Capital reduction
10.1 At the proposal of the board of supervisory directors the general meeting may, with due observance of
the relevant statutory provisions, resolve to reduce the issued capital by a cancellation of shares or by a
reduction of the nominal amount of the shares by amendment of the articles of association.
10.2 For a resolution to reduce the capital, a majority of at least two-thirds of the votes cast shall be required if
less than one-half of the issued capital is represented at the meeting.
10.3 The convening notice calling a general meeting at which a motion for capital reduction shall be tabled,
shall specify the purpose of the capital reduction as well as the method of reduction.
CHAPTER V
Transfer of shares. Usufruct. Pledge
Article 11. Transfer of shares
11.1 The following articles 11.2 and 11.3 shall apply to the transfer of registered shares or of restricted rights
thereto only in case the company is a company whose shares or depositary receipts issued for its shares
are admitted to official listing on a regulated securities exchange, which is subject to supervision by the
government or by a public recognized authority or institution, or whose shares or the depositary receipts
issued for its shares may reasonably be expected at the time of the legal act to be shortly admitted
thereto.
11.2 The transfer of a registered share or of a restricted right thereto shall require an instrument intended for
such purpose and, save when the company itself is a party to such legal act, the written acknowledgement by the company of the transfer. The acknowledgement shall be made in the instrument or by a
dated statement on the instrument or on a copy or extract thereof mentioning the acknowledgement
signed as a true copy by the notary or the transferor. Service of such instrument or such copy or extract
on the company shall be considered to have the same effect as an acknowledgement. In the case of a
transfer of shares not paid up in full, the acknowledgement may be made only if the instrument has a
recorded, or otherwise fixed date.
11.3 A pledge may also be established without an acknowledgement by or service on the company. In that
case article 3:239 of the Netherlands Civil Code shall similarly apply, whereby the acknowledgement by
or service on the company shall take the place of the notification referred to in paragraph 3 of that article.
11.4 The transfer of registered shares or any restricted rights thereon to shares to which article 11.1 does not
apply shall require a notarial deed, executed before a civil law notary authorized to practice in the
Netherlands, to which those involved are party.
11.5 The transfer of registered shares or any restricted rights thereon as referred to in article 11.4 — including
the creation and relinquishment of restricted rights — shall, by operation of law, also be valid vis-à-vis
the company.
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The rights attached to shares cannot be exercised until the company either acknowledges the juristic act
or is officially served with the notarial deed in accordance with the relevant statutory provisions, except
in case the company is party to the juristic act.
11.6 The provisions of article 11.2. 11.4 and 11.5 shall also apply to the allotment of registered shares or any
restricted rights thereon in case of any division of any joint interest.
Article 12. Usufruct
12.1 A shareholder may freely create a right of usufruct on one or more of his shares.
12.2 The shareholder shall have the voting rights attached to the shares on which the usufruct has been
established.
12.3 In deviation of the previous paragraph of this article, the voting rights shall be vested in the usufructuary
if such is determined upon the creation of the right of usufruct.
12.4 The shareholder without voting rights and the usufructuary with voting rights shall have the rights
conferred by law upon depositary receipt holders. The usufructuary without voting rights shall also have
such rights unless these are withheld from him upon the creation or transfer of the usufruct.
12.5 Any rights arising from the share to acquire other shares, shall vest in the shareholder on the
understanding that he must compensate the usufructuary for the value thereof to the extent the
usufructuary is entitled thereto pursuant to his right of usufruct.
Article 13. Pledge
13.1 A shareholder may create a right of pledge on one or more of his shares.
13.2 The shareholder shall have the voting rights attached to the shares on which the pledge has been
established.
13.3 In deviation of the previous paragraph of this article, the voting rights shall be vested in the pledgee if
such is provided upon the creation of the pledge.
13.4 The shareholder without voting rights and the pledgee with voting rights shall have the rights conferred
by law upon depositary receipt holders. Pledgees without voting rights shall also have such rights unless
these are withheld from him upon the creation or transfer of the pledge.
13.5 A pledge may also be created without acknowledgement by or service on the company. In that case
article 3:239 of the Netherlands Civil Code shall apply accordingly, whereby the acknowledgement by
or service on the company shall take the place of the notification referred to in paragraph 3 of that article.
13.6 If a pledge is created without acknowledgement by or service on the company, the rights pursuant to the
provisions of this article shall vest in the pledgee only after the pledge has been acknowledged by or has
been served on the company.
CHAPTER VI
Board of managing directors
Article 14. Board of managing directors
The board of managing directors shall be in charge of managing the company, subject to the restrictions set
forth in these articles of association.
Article 15. Appointment
15.1 The board of managing directors shall consist of one or more managing directors. The general meeting
shall determine the precise number of managing directors.
15.2 The managing directors shall be appointed by the general meeting.
15.3 Unless the general meeting explicitly resolves otherwise a managing director is appointed for a period of
four years, it being understood that this period of appointment expires no later than at the end of the
following general meeting of to be held in the fourth year after the year of his appointment, or if
applicable on a later pension or other contractual termination date in that year. A resolution by the
general meeting to deviate from the four year term shall require a majority of at least two-thirds of the
votes cast.
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15.4 Reappointment is possible on each occasion for a period determined in accordance with paragraph 3 of
this article.
15.5 The general meeting shall grant to one of the managing directors the title of “Chief Executive Officer”,
who will be the chairman of the board of managing directors. The general meeting may also grant a title
to the other managing directors.
Article 16. Suspension and dismissal
16.1 The general meeting shall at all times have the power to suspend or dismiss each managing director.
16.2 Each managing director may at all times be suspended by the board of supervisory directors. The
suspension may at all times be canceled by the general meeting.
16.3 Any such suspension may be extended several times but the total term of the suspension may not exceed
three months. The suspension shall expire on lapse of this period if no resolution has been adopted either
to lift the suspension or to dismiss the managing director.
Article 17. Remuneration
17.1 The company has a policy regarding the remuneration of the board of managing directors. The
remuneration policy is adopted by the general meeting upon the proposal of the board of supervisory
directors. The remuneration policy contains at least the items as set forth in article 383c up to and
including article 383e of Book 2 Netherlands Civil Code.
17.2 The company is under the obligation to present for information to the works council, if installed
pursuant to law, the remuneration policy in written form and simultaneously with the presentation to the
general meeting.
17.3 The remuneration and the other terms and conditions of employment of each member of the board of
managing directors are determined by the board of supervisory directors, with due observance of the
remuneration policy.
17.4 Schemes providing for remuneration for managing directors in the form of shares or rights to acquire
shares shall be submitted by the board of supervisory directors to the general meeting for approval. The
proposal shall at least state the number of shares or rights to acquire shares that may be granted to the
board of managing directors and the criteria for granting them or changes therein.
17.5 The board of supervisory directors shall annually prepare a remuneration report which shall contain an
overview of the application of the remuneration policy during the preceding financial year and an
overview of the remuneration policy planned by the board of supervisory directors for the next financial
years and the subsequent years.
Article 18. Decision-making. Division of duties
18.1 The board of managing directors shall meet as often as a managing director may deem necessary.
18.2 In the meeting of the board of managing directors each managing director has a right to cast one vote. All
resolutions by the board of managing directors shall be adopted by an absolute majority of the votes cast.
18.3 A managing director may grant another managing director a written proxy to represent him at the
meeting.
18.4 The board of managing directors may adopt resolutions without holding a meeting, provided that the
resolution is adopted in writing and all managing directors have expressed themselves.
18.5 With approval of the board of supervisory directors the board of managing directors may adopt rules and
regulations governing its decision-making process.
18.6 The board of managing directors may make a division of duties, specifying the individual duties of every
managing director. Such division of duties shall require the approval of the board of supervisory
directors.
18.7 Without prejudice to article 20.5, a managing director shall not take part in any discussion or decisionmaking that involves a subject or transaction in relation to which he has a conflict of interest with the
company.
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Article 19. Representative authority
19.1 The board of managing directors shall represent the company. The authority to represent the company
shall also be vested in two managing directors acting jointly.
19.2 The board of managing directors may appoint officers and grant them a general or special power of
attorney. Every attorney in fact shall represent the company within the bounds of his authorization.
Their title shall be determined by the board of managing directors.
19.3 In the event that the company has a conflict of interest with a managing director, in the sense that the
managing director in private enters into an agreement with, or is party in a (legal) proceeding between
him and the company, the company shall be represented by one of the other managing directors and
without prejudice of the provisions in article 19.1. If there are no such other managing directors, the
board of supervisory directors shall appoint a person to that effect. Such person may be the managing
director in relation to whom the conflict of interest exists.
In all other cases of a conflict of interest between the company and a managing director, the company
can also be represented by that managing director without prejudice to the provisions in article 19.1.
The general meeting shall at all times be authorized to appoint one or more other persons to that effect.
Article 20. Approval of board resolutions
20.1 At least once per year the board of managing directors shall submit to the board of supervisory directors
for approval the strategy designed to achieve the company’s operational and financial objectives and, if
necessary, the parameters to be applied in relation to that strategy.
20.2 The general meeting may resolve that specific resolutions by the board of managing directors shall be
subject to approval of the board of supervisory directors. All such resolutions shall be clearly described
and reported to the board of managing directors in writing. The absence of approval as meant in this
paragraph does not affect the representative authority of the board of managing directors or the
managing directors.
20.3 The board of managing directors must comply with any such instructions outlining the company’s
general financial, social, economic (including strategic policy, the general and financial risks and the
management and control system) and staffing policy as may be given by the board of supervisory
directors.
20.4 Without prejudice to the other provisions in these articles of association, the approval of the general
meeting shall be required for decisions by the board of managing directors leading to an important
change in the company’s or its business enterprise’s identity or character, including in any case:
a.
the transfer of the business of the company or almost the entire business of the company to a third
party;
b.
the entering into or termination of any long-term co-operation of the company or any subsidiary
of the company with another legal entity or company or as a fully liable partner in a limited or
general partnership, if such co-operation or termination is of far-reaching significance for the
company; or
c.
the acquisition or disposal of a participation in the capital of a company with a value of at least one
third of the amount of the assets according to the balance sheet with explanatory notes, or in case
the company prepares a consolidated balance sheet, according to the consolidated balance sheet
with explanatory notes, forming part of the most recently adopted annual accounts of the
company.
20.5 Decisions to enter into transactions in which there are conflicts of interest with supervisory directors
and/or managing directors that are of material significance to the company and/or to the relevant
managing director or supervisory director require the approval of the board of supervisory directors.
Article 21. Absence or inability to act
If a managing director is absent or unable to act, the remaining managing director(s) shall be temporarily
charged with the management of the company. If the sole managing director is or all managing directors are absent
or unable to act, a person appointed by the board of supervisory directors shall be temporarily charged with the
management of the company.
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CHAPTER VII
Board of supervisory directors
Article 22. Number of members
22.1 The company shall have a board of supervisory directors, consisting of at least three (3) and at most six
(6) natural persons of which at least two (2) supervisory directors shall be independent.
22.2 A supervisory director shall be deemed independent if the following criteria of dependence do not apply
to him. The said criteria of dependence are that the supervisory director concerned or his spouse,
registered partner or other life companion, foster child or relative by blood or marriage up to the second
degree:
a.
is or has been an employee or member of the management board of the company (including an
affiliate) in the five years prior to the appointment;
b.
receives personal financial compensation from the company, or a company associated with it,
other than the compensation received for the work performed as a supervisory director and in so
far as this is not in keeping with the normal course of business;
c.
has had an important business relationship with the company, or a company associated with it, in
the year prior to the appointment. This includes the case where the supervisory director, or the
firm of which he is a shareholder, partner, associate or adviser, has acted as adviser to the
company (consultant, external advisor, civil law notary and lawyer) and the case where the
supervisory director is a management board member or an employee of any bank with which the
company has a lasting and significant relationship;
d.
is a member of the management board of a company in which a member of the managing board of
the company which he supervises is a supervisory board member;
e.
holds at least five percent of the shares in the company (including the shares held by natural
persons or legal entities which cooperate with him under an express or tacit, oral or written
agreement);
f.
is a member of the management board or supervisory board — or is a representative in some other
way — or employee of a legal entity which holds at least five percent of the shares in the
company;
g.
has temporarily managed the company during the previous twelve months where managing
directors have been absent or unable to discharge their duties
Article 23. Appointment
23.1 The supervisory directors shall be appointed by the general meeting.
23.2 The board of supervisory directors shall prepare a profile of its size and composition, taking account of
the nature of the business, its activities and the desired expertise and background of the supervisory
directors.
23.3 Unless the general meeting explicitly resolves otherwise a supervisory director is appointed for a period
of four years, it being understood that this period of appointment expires no later than at the end of the
following general meeting to be held in the fourth year after the year of his appointment, or if applicable
on a later pension or other contractual termination date in that year. A resolution by the general meeting
to appoint for a period exceeding the four years term as described in the previous sentence shall require a
majority of at least two-thirds of the votes cast.
23.4. After held office for the first period of four years, supervisory directors are eligible for re-election only
twice for a full period of four years, as referred to in article 23.3.
23.5 In case a recommendation is made for the appointment of a supervisory director, the following
information will be provided of a candidate: his age, his profession, the amount of shares in the
capital of the company held by him and his current or past occupations in so far as they are of interest for
the fulfillment of a supervisory director’s duties. Legal persons of which he is already a supervisory
director shall also be mentioned; if these include legal persons belonging to the same group, it is
sufficient to name the group. Motivation must be given with regard to the recommendation for the
appointment or reappointment. Upon reappointment the past functioning of the candidate as supervisory
director will be taken into account.
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23.6 The board of supervisory directors may appoint one of its members to be a delegated director and in
doing so determine the period of such appointment. The appointment shall be of a temporary nature
only. The delegated director remains a director of the board of supervisory directors.
23.7 Without prejudice to the duties and responsibilities of the board of supervisory directors and of its
individual members, the delegated director shall, on behalf of the board of supervisory directors,
maintain more frequent contact with the board of managing directors with regard to the general course
of affairs. In doing so, the delegated director shall assist the board of managing directors with advice.
23.8 The board of supervisory directors may, without prejudice to its responsibilities, designate one or more
committees from among its directors, who shall be entrusted with the tasks specified by the board of
supervisory directors.
23.9 The board of supervisory directors shall appoint from their members a chairman and may appoint a vicechairman.
23.10 The company secretary shall, whether or not on the initiative of the board of supervisory directors or
otherwise, be appointed and dismissed by the board of managing directors, after the approval of the
board of supervisory directors has been obtained.
Article 24. Suspension and dismissal. Retirement
24.1 A supervisory director can at any time be suspended and dismissed by the general meeting.
24.2. The supervisory directors shall periodically retire in accordance with a schedule drawn up by the
general meeting. A retiring supervisory director can be reappointed.
Article 25. Remuneration
25.1 Upon a proposal made by the board of supervisory directors, the general meeting shall determine the
remuneration of the supervisory directors. The remuneration of the supervisory directors shall not
depend on the results of the company, and shall not consist of shares or rights to acquire shares.
25.2 The general meeting may choose to additionally remunerate the members of the committee(s) for their
services.
Article 26. Duties and powers
26.1 The duty of the board of supervisory directors shall be to supervise the policies of the board of managing
directors and the general course of affairs of the company and its affiliated business.
It shall give advice to the board of managing directors. When performing their duties, the supervisory
directors shall be guided by the interests of the company and its affiliated business.
26.2 The board of supervisory directors shall be assisted by the company secretary. The company secretary
shall see to it that correct procedures are followed and that actions are taken in accordance with statutory
obligations and obligations under the articles of association. He shall assist the chairman of the board of
supervisory directors in the actual organization of the affairs of the board of supervisory directors
(information, agenda, evaluation, training program, et cetera).
26.3 The board of supervisory directors may make a division of duties, specifying the individual duties of
every supervisory director.
26.4 The board of managing directors shall timely provide the board of supervisory directors with any such
information as may be necessary for the board of supervisory directors to perform its duties.
26.5 At least once per year the board of managing directors shall inform the board of supervisory directors in
writing of the outline of the company’s general financial, social, economic (including strategic policy,
the general and financial risks and the management and control system) and staffing policy.
26.6 The board of supervisory directors shall have access to the buildings and grounds of the company and be
authorized to inspect the books, records and other carriers of data of the company. The board of
supervisory directors may appoint one or more persons from their midst or any expert to exercise such
powers. The board of supervisory directors may also seek assistance of experts in other cases.
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Article 27. Decision-making
27.1 The board of supervisory directors shall meet as often as a supervisory director or the board of managing
directors may deem necessary.
27.2 In the meeting of the board of supervisory directors each supervisory director has a right to cast one vote.
All resolutions by the board of supervisory directors shall be adopted by an absolute majority of the
votes cast.
In case the votes are equally divided the chairman does not have a decisive vote.
27.3 Without prejudice to article 20.5 a supervisory director shall not take part in any discussion or decisionmaking that involves a subject or transaction in relation to which he has a conflict of interest with the
company.
27.4 A supervisory director may grant another supervisory director a written proxy to represent him at the
meeting.
27.5 The board of supervisory directors may pass resolutions outside a meeting, provided that the resolution
is adopted in writing and all supervisory directors have expressed themselves.
27.6 The board of supervisory directors may adopt rules and regulations governing its decision-making
process.
27.7 The board of supervisory directors shall have a meeting with the board of managing directors as often as
the board of supervisory directors or the board of managing directors deems necessary.
27.8 The meetings of the board of supervisory directors shall be chaired by the chairman of the board of
supervisory directors.
CHAPTER VIII
Annual accounts. Profits
Article 28. Financial year. Drawing up the annual accounts
28.1 The company’s financial year shall correspond with the calendar year.
28.2 Within five months of the end of the company’s financial year, the board of managing directors shall
draw up the annual accounts unless, in special circumstances, an extension of this term by not more than
six months is approved by the general meeting.
28.3 The annual accounts shall be signed by all the managing directors and supervisory directors; if the
signature of any of them is missing, this fact and the reason for such omission shall be stated.
28.4 The board of supervisory directors may submit to the general meeting a preliminary advice on the
annual accounts.
Article 29. Auditor
29.1 The external auditor is appointed by the general meeting. If the general meeting fails to do so, the board
of supervisory directors is authorized, or if the board of supervisory directors fails to do so, the board of
managing directors.
29.2 The board of supervisory directors shall nominate a candidate for this appointment, for which purpose
the board of managing directors and the audit committee, if installed, advise the board of supervisory
directors.
29.3 The remuneration of the external auditor, and instructions to the external auditor to provide non-audit
services, shall be approved by the board of supervisory directors on the recommendation of the audit
committee, if installed, and after consultation with the board of managing directors.
29.4 The auditor shall report his findings to the board of supervisory directors and the board of managing
directors.
29.5 The auditor shall record his findings in a report commenting on the true and fair nature of the annual
accounts.
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29.6 The external auditor may be questioned by the general meeting in relation to his statement on the
fairness of the annual accounts. The external auditor shall therefore attend and be entitled to address this
meeting.
Article 30. Presentation to the shareholders. Availability. Adoption
30.1 The annual accounts shall be deposited at the company’s office for inspection by the shareholders and
depositary receipt holders within the period of time specified in article 28.2. The board of managing
directors shall also submit the annual report within the same term.
30.2 The company shall ensure that the annual accounts, the annual report, the preliminary advice of the
board of supervisory directors, if any, and the additional data to be added pursuant to article 2:392
paragraph 1 of the Netherlands Civil Code shall be available at its office from the day notice is sent out
of the annual meeting. Shareholders and depositary receipt holders may inspect these documents at the
company’s office and may obtain a complimentary copy thereof.
30.3 In case of bearer shares or bearer depositary receipts or if the company has bearer debt instruments
outstanding, the documents, insofar as the same must be published after adoption, may also be inspected
by any third party who may obtain a copy thereof at no more than cost. This right shall lapse as soon as
the said documents have been deposited with the trade register.
30.4 The general meeting shall adopt the annual accounts. The annual accounts cannot be adopted if the
general meeting has not been able to examine the auditor’s report referred to in article 29.4, unless under
the additional data a lawful ground has been stated for the absence of the auditor’s report.
30.5 The provisions set out in these articles of association regarding the annual report and the additional data
to be added under article 2:392 paragraph 1 of the Netherlands Civil Code shall not apply if the company
is a member of a group and article 2:396 paragraph 6, first sentence or article 2:403 of the Netherlands
Civil Code applies to the company.
Article 31. Publication
31.1 The company shall be required to publish its annual accounts within eight days of their adoption.
Publication shall be accomplished by depositing the Netherlands text of the accounts, or if no
Netherlands text has been drawn up, a French, German or an English version, at the trade register.
The date of adoption must be indicated on the accounts so deposited. Publication is also required in each
country in which the shares of the company have been admitted to an official listing on a regulated stock
exchange.
31.2 If the annual accounts are not adopted within two months after the end of the requisite term in
conformity with the statutory requirements, the board of managing directors shall immediately publish
the annual accounts in the manner prescribed in paragraph 1 of this article; the annual accounts must
state that they have not yet been adopted.
31.3 A copy of the annual report and the additional data required to be added under article 2:392 of the
Netherlands Civil Code shall also be published, along with and in the same manner and language as the
annual accounts. This shall, except for the information referred to in article 2:392 paragraph 1 under (a),
(c), (f) and (g) of the Netherlands Civil Code, not apply if the documents are deposited at the company’s
registered office for public inspection and full or partial copies shall be supplied upon request at cost; the
company shall file this fact with the trade register.
Article 32. Profits
32.1 The board of managing directors, with prior approval of the board of supervisory directors, shall
determine which portion of the profits — the positive balance of the profit and loss account — shall be
reserved. The profit remaining after application of the previous sentence, if any, shall be at the disposal
of the general meeting. The general meeting may resolve to partially or totally reserve such remaining
profit. A resolution to pay a dividend shall be dealt with as a separate agenda item at the general meeting.
32.2 The company can only make profit distributions to the extent its equity exceeds the paid and called up
part of the capital increased with the reserves which must be maintained pursuant to the law.
32.3 Dividends shall be paid after the adoption of the annual accounts evidencing that the payment of
dividends is lawful. The general meeting shall, upon a proposal of the board of managing directors,
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which proposal must be approved by the board of supervisory directors, at least determine (i) the method
of payment in case payments are made in cash (ii) the date and (iii) the address or addresses on which the
dividends shall be payable.
32.4 The board of managing directors may resolve to pay interim dividends, upon prior approval of the board
of supervisory directors, and if the requirement of paragraph 2 of this article has been met as evidenced
by an interim statement of assets and liabilities.
Such interim statement shall relate to the condition of such assets and liabilities on a date no earlier than
the first day of the third month preceding the month in which the resolution to distribute is published.
It shall be prepared on the basis of generally acceptable valuation methods. The amounts to be reserved
under law shall be included in such statement of assets and liabilities. The interim statement of assets
and liabilities shall be signed by the managing directors, if the signature of one of them is missing, this
fact and the reason for such omission shall be stated.
The company shall deposit the statement of assets and liabilities with the trade register within eight days
after the day on which the resolution to distribute is published.
32.5 The general meeting may, with due observance of paragraph 2 of this article and upon a proposal of the
board of managing directors, which proposal has been approved by the board of supervisory directors,
resolve to make distributions out of a reserve which need not be kept by law.
32.6 Cash payments in relation to bearer shares if and in as far as the distributions are payable outside the
Netherlands, shall be made in the currency of the country where the shares are listed and in accordance
with the applicable

Cinema City International N.V.

Transcription

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