##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
 WASHINGTON, D.C. 20549
 FORM 20-F
 (Mark One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the fiscal year endedDecember 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number 0-28996
 
 ELBIT MEDICAL IMAGING LTD.
  ISRAEL
 2 Weizman St., TEL-AVIV 64239, ISRAEL
  Title of each class:
    
    Name of each exchange on which registered:ORDINARY SHARES, NIS 1.0
PAR VALUE PER SHARE
    
    NASDAQ GLOBAL MARKET
 NONE
 
 NONE
 
  YES o NO þ
 YES o NO þ
 : YES þ NO o
  o þ o
 ITEM 17 o ITEM 18 þ
 YES o NO þ
   1




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##### 



TABLE OF CONTENTS
 ITEM
    
    DESCRIPTION
    
    Page1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    42.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    43.
    
    KEY INFORMATION
    
    
    44.
    
    INFORMATION ON THE COMPANY
    
    
    274A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    635.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    636.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    1117.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    1278.
    
    FINANCIAL INFORMATION
    
    
    1359.
    
    THE OFFER AND LISTING
    
    
    13510.
    
    ADDITIONAL INFORMATION
    
    
    13711.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    15512.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    16313.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    16314.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    16315.
    
    CONTROLS AND PROCEDURES
    
    
    16315T.
    
    CONTROLS AND PROCEDURES
    
    
    16316.
    
    RESERVED
    
    
    16416A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    16416B.
    
    CODE OF ETHICS
    
    
    16416C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    16416D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    16516E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
    
    
    16517.
    
    FINANCIAL STATEMENTS
    
    
    16618.
    
    FINANCIAL STATEMENTS
    
    
    16619.
    
    EXHIBITS
    
    
    166
 2




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##### 



FORWARD LOOKING STATEMENTS
  CURRENCY TRANSLATION
  December 31, 2006Currency
    
    $1 NIS
    
    
    0.2361 Euro 
    
    
    1.3171 GBP
    
    
    1.961 HUF
    
    
    0.00521 CZK
    
    
    0.0481 LEI (RON)
    
    
    0.000041 PLN
    
    
    0.341 INR
    
    
    0.0221 Crores
(10 million INR)
    
    
    220,000
  EXCHANGE RATES
  3




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##### 



MONTH
    
    HIGH
    
    
    LOW1 U.S. dollar =
    
    
    1 U.S. dollar =NIS
    
    
    NISDecember 2006
    
    
    4.234
    
    
    
    4.176January 2007
    
    
    4.26
    
    
    
    4.187February 2007
    
    
    4.254
    
    
    
    4.183March 2007
    
    
    4.222
    
    
    
    4.155April 2007
    
    
    4.135
    
    
    
    4.014May 2007
    
    
    4.065
    
    
    
    3.932
  PERIOD
    
    EXCHANGE RATEJanuary 1, 2002 - December 31, 2002
    
    4.738 NIS/$1January 1, 2003 - December 31, 2003
    
    4.544 NIS/$1January 1, 2004 - December 31, 2004
    
    4.483 NIS/$1January 1, 2005 - December 31, 2005
    
    4.488 NIS/$1January 1, 2006 - December 31, 2006
    
    4.442 NIS/$1
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. SELECTED FINANCIAL DATA
   4




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##### 



CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share amounts)
 FOR THE YEAR ENDED DECEMBER 312006
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Reported
    
    
    Reported
    
    
    Reported
    
    
    Reported
    
    
    Adjusted
    
    
    AdjustedConvenienceTranslation$000
    
    
    
    
    
    
    
    
    
    
    NIS 000REVENUESSale of real estate assets and investments, net
    
    
    18,986
    
    
    
    80,218
    
    
    
    281,661
    
    
    
    131,921
    
    
    
    
    
    
    
    Sale of trading property
    
    
    67,842
    
    
    
    286,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial centers operations
    
    
    26,243
    
    
    
    110,875
    
    
    
    142,957
    
    
    
    311,893
    
    
    
    347,056
    
    
    
    279,776Hotels operations and management
    
    
    83,221
    
    
    
    351,610
    
    
    
    270,057
    
    
    
    218,365
    
    
    
    189,205
    
    
    
    206,679Sale of medical systems
    
    
    20,313
    
    
    
    85,824
    
    
    
    75,713
    
    
    
    44,049
    
    
    
    
    
    
    
    Realization of investments
    
    
    165,055
    
    
    
    697,358
    
    
    
    1,958
    
    
    
    (***) 28,793
    
    
    
    45,129
    
    
    
    (***) 55,470Other operational income
    
    
    13,736
    
    
    
    58,035
    
    
    
    44,409
    
    
    
    13,238
    
    
    
    13,495
    
    
    
    1,509395,396
    
    
    
    1,670,553
    
    
    
    816,755
    
    
    
    748,259
    
    
    
    594,885
    
    
    
    543,434COSTS OF EXPENSESCost of trading property sold
    
    
    59,283
    
    
    
    250,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial centers operations
    
    
    34,216
    
    
    
    144,562
    
    
    
    157,640
    
    
    
    271,392
    
    
    
    257,913
    
    
    
    218,673Hotels operations and management
    
    
    72,517
    
    
    
    306,384
    
    
    
    259,293
    
    
    
    207,152
    
    
    
    188,672
    
    
    
    205,635Cost and expenses of medical systems operation
    
    
    17,163
    
    
    
    72,515
    
    
    
    (*) 50,374
    
    
    
    26,039
    
    
    
    8,720
    
    
    
    8,015Other operational expenses
    
    
    16,627
    
    
    
    70,251
    
    
    
    46,793
    
    
    
    3,655
    
    
    
    3,510
    
    
    
    1,392Research and development expenses, net
    
    
    14,809
    
    
    
    62,566
    
    
    
    (*) 59,796
    
    
    
    38,158
    
    
    
    43,719
    
    
    
    28,454General and administrative expenses
    
    
    15,896
    
    
    
    67,161
    
    
    
    36,939
    
    
    
    43,627
    
    
    
    42,144
    
    
    
    44,070Share in losses of associated companies, net
    
    
    2,288
    
    
    
    9,665
    
    
    
    12,028
    
    
    
    15,968
    
    
    
    20,951
    
    
    
    2,906Financial expenses, net
    
    
    30,563
    
    
    
    129,127
    
    
    
    122,321
    
    
    
    53,569
    
    
    
    211,821
    
    
    
    5,440Other expenses, net
    
    
    8,719
    
    
    
    36,836
    
    
    
    57,106
    
    
    
    (***) 63,806
    
    
    
    10,477
    
    
    
    45,965272,081
    
    
    
    1,149,542
    
    
    
    802,290
    
    
    
    723,366
    
    
    
    787,927
    
    
    
    560,551PROFIT (LOSS) BEFORE INCOME TAXES
    
    
    123,315
    
    
    
    521,011
    
    
    
    14,465
    
    
    
    24,893
    
    
    
    (193,042
    )
    
    
    (17,117
    )Income taxes (tax benefits)
    
    
    1,235
    
    
    
    5,222
    
    
    
    7,798
    
    
    
    15,804
    
    
    
    (20,217
    )
    
    
    21,711PROFIT (LOSS) AFTER INCOME TAXES
    
    
    122,080
    
    
    
    515,789
    
    
    
    6,667
    
    
    
    9,089
    
    
    
    (172,825
    )
    
    
    (38,828
    )Minority-interest in results of subsidiaries, net
    
    
    2,294
    
    
    
    9,691
    
    
    
    (*) 73,795
    
    
    
    27,448
    
    
    
    48,671
    
    
    
    24,490PROFIT (LOSS) FROM CONTINUING OPERATIONS
    
    
    124,374
    
    
    
    525,480
    
    
    
    80,462
    
    
    
    36,537
    
    
    
    (124,154
    )
    
    
    (14,338
    )Profit from discontinued operations, net
    
    
    8,441
    
    
    
    35,664
    
    
    
    5,917
    
    
    
    6,810
    
    
    
    12,073
    
    
    
    54,752Cumulative effect of accounting change at the
beginning of the year
    
    
    
    
    
    
    
    
    
    
    (622
    )
    
    
    
    
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    
    132,815
    
    
    
    561,144
    
    
    
    85,757
    
    
    
    43,347
    
    
    
    (112,081
    )
    
    
    40,414EARNINGS (LOSS) PER SHARE (**)From continuing operations
    
    
    4.93
    
    
    
    20.83
    
    
    
    3.70
    
    
    
    1.56
    
    
    
    (5.56
    )
    
    
    (0.64
    )From discontinued operations
    
    
    0.33
    
    
    
    1.41
    
    
    
    0.27
    
    
    
    0.29
    
    
    
    0.54
    
    
    
    2.45Cumulative effect of accounting change at the
beginning of the year
    
    
    
    
    
    
    
    
    
    
    (0.03
    )
    
    
    
    
    
    
    
    
    
    
    Basic earnings (loss) per share
    
    
    5.26
    
    
    
    22.24
    
    
    
    3.94
    
    
    
    1.85
    
    
    
    (5.02
    )
    
    
    1.81Dividend declared per share
    
    
    0
    
    
    
    0
    
    
    
    (****) 12.39
    
    
    
    
    
    
    
    
    
    
    
    
 
 (*)
    
    Retrospective implementation of new Accounting Standard  see Item 18 Note 2V.(**)
    
    Retrospective implementation of new Accounting Standard  see Item 18 Note 2W.(***)
    
    Reclassified.(****)
    
    We declared distribution of dividends twice during 2005, see Item 4. Information on the
Company  A. History and Development of the Company  Recent Developments below. 5




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##### 



INCOME STATEMENT DATA
    
    YEAR ENDED DECEMBER 31,AS PER U.S. GAAP (*):ConvenienceTranslation
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Reported
    
    Reported
    
    Adjusted
    
    Adjusted$000
    
    (In thousand NIS)A) NET INCOME (LOSS) AND COMPREHENSIVE
INCOME:Net income (loss) according to U.S. GAAP
    
    
    122,822
    
    
    
    518,932
    
    
    
    100,344
    
    
    
    (92,447
    )
    
    
    (19,251
    )
    
    
    (27,747
    )Total comprehensive income (loss)
according to U.S. GAAP
    
    
    144,322
    
    
    
    609,761
    
    
    
    123,429
    
    
    
    (149,916
    )
    
    
    35,545
    
    
    
    143,360Basic earning (loss) per ordinary share
as per U.S. GAAP (NIS)
    
    
    4.86
    
    
    
    20.56
    
    
    
    3.98
    
    
    
    (3.67
    )
    
    
    (0.86
    )
    
    
    (1.24
    )Diluted earning (loss) per ordinary
share as per U.S. GAAP (NIS)
    
    
    4.86
    
    
    
    20.56
    
    
    
    4.53
    
    
    
    (4.02
    )
    
    
    (0.86
    )
    
    
    (1.35
    )Weighted average of number of shares
and share equivalents under U.S. GAAP
(thousands)
    
    
    
    
    
    
    25,232
    
    
    
    21,743
    
    
    
    23,463
    
    
    
    22,337
    
    
    
    22,337
 
 (*)
    
    For further information as to the differences between Israeli and U.S. GAAP, as applicable to
the Companys financial statements, see Note 25 to our consolidated financial statements,
included in Item 18 below. SELECTED BALANCE SHEET DATA
 (Including as per U.S. GAAP)
 DECEMBER 312006
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Reported
    
    Reported
    
    Reported
    
    Reported
    
    Adjusted
    
    AdjustedConvenienceTranslation$000
    
    (In Thousand NIS)Current Assets
    
    
    837,555
    
    
    
    3,538,668
    
    
    
    (*) 1,448,733
    
    
    
    736,339
    
    
    
    577,687
    
    
    
    1,006,237Long term investments and receivables
    
    
    62,290
    
    
    
    263,173
    
    
    
    118,937
    
    
    
    185,393
    
    
    
    218,407
    
    
    
    453,839Hotels, commercial centers and other fixed
assets
    
    
    549,143
    
    
    
    2,320,127
    
    
    
    (*) 2,175,364
    
    
    
    3,527,988
    
    
    
    4,629,675
    
    
    
    4,090,936Other assets and deferred expenses
    
    
    5,834
    
    
    
    24,650
    
    
    
    30,476
    
    
    
    55,859
    
    
    
    85,798
    
    
    
    73,024Assets related to discontinued operations
    
    
    2,954
    
    
    
    12,483
    
    
    
    12,607
    
    
    
    14,700
    
    
    
    16,228
    
    
    
    111,984Total
    
    
    1,457,776
    
    
    
    6,159,101
    
    
    
    3,786,117
    
    
    
    4,520,279
    
    
    
    5,527,795
    
    
    
    5,736,020Current Liabilities
    
    
    193,346
    
    
    
    816,888
    
    
    
    887,415
    
    
    
    794,741
    
    
    
    1,178,415
    
    
    
    1,901,506Long-term liabilities
    
    
    721,289
    
    
    
    3,047,446
    
    
    
    1,707,254
    
    
    
    2,418,897
    
    
    
    2,841,326
    
    
    
    2,176,301Liabilities related to discontinued operations
    
    
    9,589
    
    
    
    40,513
    
    
    
    62,430
    
    
    
    71,986
    
    
    
    82,802
    
    
    
    110,007Convertible debentures
    
    
    
    
    
    
    
    
    
    
    62,159
    
    
    
    
    
    
    
    
    
    
    
    Minority interest
    
    
    149,157
    
    
    
    630,187
    
    
    
    11,449
    
    
    
    430,687
    
    
    
    471,606
    
    
    
    486,670Options Issued by Subsidiaries
    
    
    5,274
    
    
    
    22,280
    
    
    
    (*)        1,186Shareholders equity
    
    
    379,121
    
    
    
    1,601,787
    
    
    
    (*) 1,054,224
    
    
    
    803,968
    
    
    
    953,646
    
    
    
    1,061,536Total
    
    
    1,457,776
    
    
    
    6,159,101
    
    
    
    3,786,117
    
    
    
    4,520,279
    
    
    
    5,527,795
    
    
    
    5,736,020Total assets according to U.S. GAAP
    
    
    1,514,889
    
    
    
    6,400,408
    
    
    
    3,846,427
    
    
    
    4,676,008
    
    
    
    5,917,917
    
    
    
    6,007,937Total liabilities according to U.S. GAAP
    
    
    1,130,684
    
    
    
    4,777,139
    
    
    
    2,801,532
    
    
    
    3,905,673
    
    
    
    4,891,985
    
    
    
    5,040,903Total shareholders equity according to U.S.
GAAP
    
    
    384,206
    
    
    
    1,623,269
    
    
    
    1,044,894
    
    
    
    770,335
    
    
    
    1,025,932
    
    
    
    967,034
 
 (*)
    
    Retrospective implementation of new Accounting Standard  see Item 18 Note 2V. 6




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##### 



B. CAPITALIZATION AND INDEBTEDNESS
  C. REASONS FOR THE OFFER AND USE OF PROCEEDS
  D. RISK FACTORS
     RISKS RELATING TO THE SHOPPING AND ENTERTAINMENT CENTERS BUSINESS
 Suitable locations are critical to the success of a shopping and entertainment center
  Zoning restriction and local opposition can delay or preclude construction of a center.
  7




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##### 



We depend on contractors and subcontractors to construct our centers.
  Delays in the completion of construction projects could affect our success.
   v
    
    delays in obtaining zoning and other approvals;v
    
    the unavailability of materials and labor;v
    
    the abilities of sub-contractors to complete work competently and on schedule;v
    
    the surface and subsurface condition of the land underlying the project;v
    
    environmental uncertainties;v
    
    extraordinary circumstances or acts of god; andv
    
    ordinary risks of construction that may hinder or delay the
successful completion of a particular project.
  We are dependent on attracting third parties to enter into lease agreements.
  8




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##### 



Our results of operations may be affected by retail climates and tenant bankruptcies.
  General economic conditions in a region will affect our tenants.
  We are dependent on the presence of anchor tenants.
  Competition is becoming more aggressive in certain Eastern European countries.
  RISKS RELATING TO THE HOTEL BUSINESS
 The hotels industry may be affected by economic conditions, oversupply, travel patterns, weather
and other conditions beyond our control which may adversely affect our business and results of
operations.
  9




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##### 



Competition in the hotels industry could have a material adverse effect on our business and results
of operations.
  
    
    convenience of location and accessibility to business centers;
    
    room rates;
    
    quality of accommodations;
    
    name recognition;
    
    quality and nature of service and guest facilities provided;
    
    reputation;
    
    convenience and ease of reservation systems; and
    
    the supply and availability of alternative lodging.
  Acquiring, developing and renovating hotels involves substantial risks, and we cannot be certain of
the success of any future projects.
  
    
    costs exceeding budget or amounts agreed to with contractors, because of several factors, including delays in
completion of construction;
    
    competition for acquisition of suitable development sites from competitors, who may have greater financial resources;
    
    the failure to obtain zoning and construction permits;
    
    unavailability of financing on favorable terms, if at all;
 
 10




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##### 




    
    the failure of hotels to earn profits sufficient to service debt incurred in construction or renovation, or at all;
    
    the failure to comply with labor and workers union legal requirements;
    
    relationships with and quality and timely performance by contractors; and
    
    compliance with changes in governmental rules, regulations, planning and interpretations.
  Continuous delays with respect to renovations of the physical environment near the Astrid Park
Plaza Hotel in Belgium may continue to have an adverse effect on its operations.
 .
 We depend on partners in our joint ventures and collaborative arrangements.
  We rely on management agreements with Park Plaza which may not provide the intended benefits, and
may be terminated.
  11




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##### 



Our agreements with Park Plaza and the Rezidor Hotel Group impose obligations on us that may force
us to incur significant costs.
  The value of our investment in our hotel properties is subject to various risks related to
ownership and operation of real property.
  v
    
    changes in global and national economic conditions,
including global or national recession;v
    
    a general or local slowdown in the real property, market
which may make it difficult to sell a property;v
    
    political events that may have a material adverse effect on
the hotel industry;v
    
    competition from other lodging facilities, and oversupply
of hotel rooms in a specific location;v
    
    material changes in operating expenses, including as a
result of changes in real property tax systems or rates;v
    
    changes in the availability, cost and terms of financing;v
    
    the effect of present or future environmental laws;v
    
    our ongoing need for capital improvements and refurbishments; andv
    
    material changes in governmental rules and policies.
 Our ownership rights in the Bucuresti Hotel have been challenged.
  12




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##### 



RISKS RELATING TO BOTH THE SHOPPING AND ENTERTAINMENT CENTERS BUSINESS AND TO THE HOTEL BUSINESS
 The failure to comply with government regulation may adversely affect our business and results of
operations
  We may be held liable for design or construction defects of third-party contractors.
  We may be affected by shortages in raw materials and employees.
  We may experience fluctuations in our annual and quarterly results as a result of our opening new
centers, entering into new businesses and disposing of other centers, hotels or other businesses.
  Factors that affect the value of our real-estate assets and our investments may adversely change
and therefore we will need to charge an impairment loss not previously recorded.
  (i)
    
    Absence of or modifications to permits or approvals. A construction permit may
be revoked as a result of unauthorized delays in commencing construction; a construction
 13




---



##### 



permit may be cancelled altogether under certain circumstances, such as where the use of
land does not correspond to the permitted usage; a need for a revised construction permit
arises by reasons of governmental or other instructions to carry out modifications to our
original architectural plans so as to comply, among other things, with environmental and
traffic impact plan or obtain archeological clearance; new laws and regulations are
enacted which limit the use of our land for structures other than centers or hotels;
voluntary modifications to original plans where we encounter opportunities to
substantially upgrade our project by acquisitions of adjacent land plots or expansion of
original project or otherwise, may trigger the need for a revision to or modification of
the issued construction permit if the permit becomes inapplicable; a revised construction
permit may be required where changes occur to zoning plans which indirectly affect our
proposed commercial center; a new, revised permit, when required, may nevertheless be
denied for reasons beyond our control or following our failure to fulfill preconditions
or otherwise;(ii)
    
    Strategy in respect of long term lease commitments. In commercial centers,
where a significant part of the rental areas is subject to long term leases with a small
group of retailers which is distinguished (from other lessees) by a direct correlation
between the rental fees paid by such retailer and the revenues from their respective rental
areas, we may be exposed to a risk of rental fees rates being significantly lower than
originally anticipated. A material decline in the long run in the business operations of
such retailers may therefore, have an adverse affect on the results of operations of these
commercial centers as well as on their recoverable amount. Other commercial centers, the
rental areas of which have not been fully rented or which we have designated for an interim
period as free of charge public areas, may be required to alter their original designation
of use so as to serve, in the best optimal manner, our strategy for the center. Should
these areas remain vacant or public, for a period longer than originally anticipated, our
long-term cash flows may be negatively impacted and, as a result, the value of the center
may decrease;(iii)
    
    External Interruptions. Circumstances having significant impact on our real
estate may include extensive and continuous infrastructure works carried out by
municipalities or other legal authorities. Delays in completion of such works, beyond the
anticipated target, may cause harm and damages to the results of operations of the real
estate; and(iv)
    
    Legal Issues and Other Uncertainties. Lawsuits that are pending, whether or not
we are a party thereto, may have a significant impact on our real estate assets and/or on
certain of our shareholding rights in the companies owning such assets. Certain laws and
regulations, applicable to our business in certain countries where the legislation process
undergoes constant changes, may be subject to frequent and substantially different
interpretations; agreements which may be interpreted by governmental authorities so as to
shorten term of use of real estate, and which may be accompanied with a demand to demolish
the construction thereon erected, be that with or without compensation, may significantly
affect the value of such real estate asset.
  RISKS RELATING TO THE IMAGE GUIDED TREATMENT BUSINESS
 InSightec is currently dependent on sales of the ExAblate 2000 for the treatment of uterine
fibroids and the sale of research systems for its clinical research.
 14
        If the ExAblate 2000 does not achieve broad market acceptance for the treatment of uterine
fibroids, InSightec will not be able to generate sufficient sales to support its business.
  If physicians, hospitals and other healthcare providers are unable to obtain coverage and
sufficient reimbursement from third party healthcare payors for treatment procedures using the
ExAblate 2000, InSightec may be unable to generate sufficient sales to support its business.
   15




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InSightecs future growth substantially depends on its ability to develop and obtain regulatory
clearance for additional treatment applications for the ExAblate 2000.
    InSightec is dependent on General Electric.
  16




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If InSightec is unable to protect its intellectual property rights, its competitive position could
be harmed. Third-party claims of infringement could require InSightec to redesign its products,
seek licenses, or engage in future costly intellectual property litigation, which could impact
InSightecs future business and financial performance.
   17




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RISKS RELATING TO OUR OTHER ACTIVITIES
 Our Mango business is dependent on a single franchise and supplier which could cause delays or
disruptions in the delivery of our Mango products, which could harm our business and results of
operations.
  A rise in wage levels in Israel could adversely affect Mangos financial results.
  The apparel industry is subject to changes in fashion preferences. If the manufacturer of Mango
products misjudges fashion trends, or if we fail to choose from the Mango International inventory
design products that appeal to our customers, our sales could decline and our results of operations
could be adversely affected.
  A change in customs rates and custom and harbor strikes could adversely affect Mangos financial
results.
  18




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Mango may be unable to compete favorably in the highly competitive womens apparel industry, and
Mangos competitors may have greater financial, geographic and other resources.
   Mango has no control over fluctuations in the cost of the raw materials it uses and a rise in costs
could harm Mangos profitability.
  A devaluation of the NIS against the Euro could harm Mangos profitability.
  Our venture capital investments are made in development stage companies and involve high risks.
  Our venture capital investments are speculative in nature and we may never realize any revenues or
profits from these investments.
  19




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RISKS RELATING TO ISRAEL
 Security and economic conditions in Israel may affect our operations.
  Many of our directors, officers and employees are obligated to perform annual military reserve duty
in Israel. We cannot assess the potential impact of these obligations on our business.
  An income tax reform in Israel may adversely affect us.
  Israeli courts might not enforce judgments rendered outside of Israel, which may make it difficult
to collect on judgments rendered against us.
 20




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Anti-takeover provisions could negatively impact our shareholders.
     The violation of certain conditions under the Israeli Tax Ordinance and/or the pre-ruling
 21




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issued by the Israeli tax authorities in connection with the merger by way of exchange of shares
between EMI and its subsidiary, Elscint may result in the merger not being treated as tax exempt
by the Israeli tax authorities and the imposition of capital gains tax on the exchange of shares.
  RISKS RELATING TO OPERATIONS IN EASTERN EUROPE AND ASIA
 We are subject to various risks related to our operations in Eastern Europe, including economic and
political instability, political and criminal corruption.
   Environmental issues are becoming of increasing significance in Eastern Europe which may result in
delays in construction and increased costs.
  22




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We are subject to various risks related to our operations in Romania including the unpredictability
of the civil justice system.
  Acquiring Sites in India And other Countries in Asia
  Hostilities in India and other Countries in Asia
  Changes in the Policies of the Government of India or Political Instability
   GENERAL
 If we are characterized as a passive foreign investment company for U.S. federal income tax
purpose, holders of ordinary shares may suffer adverse tax consequences.
  23




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We are subject to various legal proceedings that may have a material adverse effect on our results
of operations.
  We have significant capital needs and additional financing may not be available.
  Our high leverage could adversely affect our ability to operate our business.
   
    
    we could be more vulnerable to general adverse economic and industry conditions;
    
    we may find it more difficult to obtain additional financing to fund future working capital, capital expenditures and
other general corporate requirements;
 
 24




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
    
    we will be required to dedicate a substantial portion of our cash flow from operations to the payment of principal and
interest on our debt, reducing the available cash flow to fund other projects;
    
    we may have limited flexibility in planning for, or reacting to, changes in our business and in the industry; and
    
    we may have a competitive disadvantage relative to other companies in our business segments with less debt.
  RISKS RELATED TO THE DEBENTURES (NOTES)
 The Notes that we are listing for trade on the TASE are unsecured. As a result, there may be
circumstances in which our secured indebtedness will be paid from assets that secure that
indebtedness before payment is made on the Notes.
  We may not be able to make our debt payments in the future.
  
 
 
   25




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Our results of operations fluctuate due to the seasonality of our various businesses.
  One of our shareholders beneficially owns a substantial amount of our ordinary shares and,
therefore, effectively controls our affairs.
  A loss of the services of members of the senior management of EMI, including in particular that of
Mr. Mordechay Zisser, could materially adversely affect our business and results of operations
  Our annual and quarterly results may vary which may cause the market price of our ordinary shares
to decline.
  26




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ITEM 4. INFORMATION ON THE COMPANY
 A. HISTORY AND DEVELOPMENT OF THE COMPANY
   
    
    Initiation, construction, operation, management and sale of shopping and
entertainment centers in Israel, in Central and Eastern Europe and in India.
    
    Hotels ownership, primarily in major European cities, as well as
operation, management and sale of same.
    
    Investments in the research and development, production and marketing of
magnetic resonance imaging guided focused ultrasound treatment equipment.
    
    Other activities consisting of the distribution and marketing of
womens fashion and accessories and venture-capital investments.
  The following are the highlights of our main business activities and investments during 2006
and through the date of this filing
 General
  Initial Public Offering of shares of PC on the London Stock Exchange
   Issuance of unsecured non-convertible debentures
    27




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Real Estate
 

    Approval of the zoning plan (KSZT) of the Dream Island
project on the Obuda Island in the Danube River and signing of a
Framework City Regulation Agreement with the Budapest Capital 3rd
district and Budapest Capital Municipality
   Purchase of the Casa Radio Project in Romania
   Sales of shopping Centers In Europe
  
  
  Agreement for the sale of the Arena Shopping and Entertainment Center in Israel
   Investments in India
 
  28




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 Strategic tie-up for development of a Pan-India world class standard hospital chain
   Acquisition of a building in Amsterdam
 
  Sale of the Ballet Building
 
  Agreement on the Sale of the Duna Plaza Offices
 
 Other
  Investment in Insightec Ltd.
   Governmental Approvals of Insightecs Exablate® 2000
   29




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
    
    Receipt of special protocol assessment from the FDA to Gamida Cells StemEx®
registration study
  PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES
  Fiscal Year 2004
 The Shopping and Entertainment Centers Business
    
    Continuing investments in shopping and entertainment centers projects- During 2004, we
were in the process of constructing, through subsidiaries, ten shopping and entertainment
centers (Poznan, Rybnik, Sosnoweic, Bestes, Pilsen, Lublin, Riga, Lodz, Helios and Arena)
as well as an extension to another center (Duna extension). The total additional amount
invested in these projects was approximately $36 million. These amounts were expended
principally on construction. We financed the construction of the centers through long term
bank facilities and shareholder loans provided to certain subsidiaries.The Hotel Business
    
    Riverbank Park Plaza Hotel- The total additional amount invested by our jointly
controlled subsidiary in this project during 2004 was £34 million of which our share is
50%. These amounts were expended principally on construction. We financed the construction
of the hotel through long term bank facilities and shareholder loans provided to the
subsidiary.
    
    Apartment Hotel Bucuresti Complex (Centerville)- The total amount invested by our
subsidiary in the renovation of the hotel apartment in the Bucuresti complex during 2004
was 2 million. We financed these costs through a short-term credit facility and
available free cash flow from the operations of the Centreville apartment hotel.The Image Guided Treatment Business
    
    In 2004, InSightec signed an agreement for an internal round of financing totaling $21
million from its existing shareholders in which our share totaled $7.5 million. The
convertible notes may be converted in whole or in part at any time into ordinary shares of
InSightec at a conversion rate of $7.30 per share.
 Fiscal Year 2005
 The Shopping and Entertainment Centers Business
    
    Continuing investments in shopping and entertainment centers projects- During 2005, we
were in the process of constructing, through subsidiaries, ten shopping and entertainment
centers (Poznan, Rybnik, Sosnoweic, Bestes, Pilsen, Lublin, Riga, Lodz Kerepesi and
Helios). The total additional amount invested in these projects was approximately $ 63
million. These amounts were expended principally on construction. We financed the
construction of the centers through long term bank facilities and shareholder loans
provided to certain subsidiaries.
    
    Kerepesi Budapest project In November 2005, we purchased a large area of land situated
on Kerepesi Street in central Budapest, the former site of the Hypodrome. The purchase
price of the entire equity rights represents a site value of 21 million, out of which
3.9 million is the quota purchase price and the remaining are assumed liabilities.
 
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
    
    Acquisition of the Remaining 50% of Sadyba Best-Mall- In May 2005 PC completed the
acquisition of the 50% not owned by it in the Sadyba commercial and entertainment center in
Warsaw, Poland, for a purchase price of approximately $19.5 million. This acquisition was
financed through a bank facility.The Hotel Business
    
    Construction and renovation of the Centerville apartment hotels- The total amount
invested in this project during 2005 was 7.0 million. Such investments are in
connection with the renovation of an additional 60 apartments as well as other facilities
in the hotel. We financed this project through a bank facility and cash from operations.
    
    Riverbank hotel- The total amount invested by one of our subsidiaries in this project
was £18.6 million in which our share is 50%. We financed this project through a bank loan
and shareholder loans to the subsidiary.
    
    Aquotopia project- During 2005 we invested 3.0 million in the refurbishment of the
Aquotopia project within the Astrid Plaza facility. We financed this project through
shareholder loans to the subsidiary.Other Activities
    
    Mango In May 2005, we completed the acquisition of the entire equity and voting rights
of Mango for approximately 2.6 million as well as working capital adjustments.
 Fiscal Year 2006
 The Shopping and Entertainment Centers Business
    
    Continuing investments in shopping and entertainment centers projects- During 2006, we
continued the development of our shopping and entertainment projects. Total approximate
cost of such development was 99 million (approximately $130 million). These amounts
were expended principally on construction. We financed the construction of the centers
through long term bank facilities and shareholder loans provided to certain subsidiaries.
    
    Acquisition of 75% interest in the Casa-Radio project in Central Bucharest (Romania) -
Total cost of acquisition amounted to $40 million, which PC financed through proceeds of
IPO.The Hotel Business
    
    Construction and renovation of the Bucuresti Hotel Complex- The total amount invested
in this project during 2006 was 14.7 million (approximately $19.2 million). We financed
this project through a bank facility and cash resulted from operational activities.
    
    Acquisition of a building in Amsterdam- In December 2006, we invested 7 million
(approximately $9.2 million) out of a total of 14 million, for the acquisition of a
historical office building located next to the Victoria Hotel in Amsterdam. Our share of
the purchase price was financed in full through a bank loan.The Image Guided Treatment Business
    
    Investment in Insightec In August 2006, we invested $9.8 million in convertible
debentures of Insightec. We have financed our investment through equity means.Other Activities
    
    Gamida- On September 14, 2006, we participated in a round of investment in Gamida, in
the amount of approximately $2.5 million.
    
    Varcode- In September 2006, we incorporated Varcode Ltd., together with an unrelated
third
 
 31




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party.
    
    To date we have invested in Varcode an amount of $1.6 million.
 PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES CURRENTLY IN PROGRESS
  Shopping and Entertainment Centers Business
    
    During 2007, we expect to make additional investments in our projects which are
currently under development or in construction stages in an aggregate
amount of 250
million (approximately $330 million). We expect to finance these
 projects thorough both bank
financing and equity means. In addition thereto, PC is actively assessing other cities
within Eastern and Central European countries as well as in India, where there is a
realistic prospect of developing real estate projects.
    
    The total cost of PCs acquisition of 50% interest in the company owning the land located in
the Koregaon Park was Crores 44 (approximately $9.9 million), of which PC has
paid approximately Crores 30 (approximately $6.6 million) and of which Crores
14 (approximately $3.08 million) remains to be paid. The total amount expected to
be invested in this project during 2007, in addition to the cost of acquisition, is
approximately $15 million to be financed both through bank financing and equity
means.Hotel Business
    
    Bucuresti Hotel Complex, Romania- The total amount expected to be invested in this
project during 2007 is
33 million (approximately $43 million) to be financed both
through bank financing and equity means.Other Businesses
    
    Acquisition of Kharadi, India -Total cost of acquisition of 50% interest in the company
owning the land located in Kharadi, amounted to approximately Crores
99 (approximately $22.3 million). The total amount expected to
be invested in this project during 2007 in addition to cost of
acquisition is approximately $2 million to be financed both
through bank financing and equity means.
    
    Acquisition of Cochin, India- EMI has invested in 2007 approximately Crores 26.5
(approximately $6 million) in this project.
    
    Acquisition of the Bangalore Project, India an
amount of $50 million was paid by us
as a refundable advance payment in respect of this project.
    
    Dream Island project, Budapest- In September 2006, a final formal approval was issued
by the Municipality of Budapest for the zoning plan of the Dream Island project, which
allows the application for the receipt of a building permit. PC expects to invest a total
of approximately 1.06 billion (approximately 1.39 billion) in the Dream Island project
which is anticipated to be financed by bank facilities as well as equity investments of all
partners.
    
    The Casa-Radio project in Central Bucharest- Estimated expected additional project
costs of this project is 1 billion (approximately $1.31 billion).
    
    Arena Plaza Extension, Budapest- PC contemplates the development of a retail and
residential addition to the Arena Plaza (Kerepesi). Estimated costs of such development
totals 24.7 million (approximately $32.4 million).
    
    Duna Plaza Extension, Budapest- PC has agreed with Klepierre to develop an extension to
the Duna Plaza shopping and entertainment center. Estimated cost of the development amounts
to 20 million (approximately 26.2 million).
 
 32




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B. BUSINESS OVERVIEW
  Shopping and Entertainment Centers
 General
    
 Sourcing Agreement
     33




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Relationship Agreement
  Guarantee Agreement
  Transitional services Agreement
  Project Consultancy and Supervision
  Business Concept and Strategy
   34




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Development
 Acquisitions
 Pre-sale
    Particulars
 Lublin Plaza
    35




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ApproximateLand Area
    
    Leaseable
    
    ParkingName of Project
    
    Opening
    
    Title
    
    (sq. ft.)
    
    Area (sq. ft.)(1)
    
    Spaces(1)
    
    Permits
    
    MiscellaneousARENA, (*)Herzeliya Marina, Israel(Operating Mall)
    
    2003
    
    Leasehold
    
    269,000
    
    Retail: 274,000
Offices & Storage:
45,000
    
    1,250
    
    N/A  Operating Mall
    
    Capitalized lease rights for 49 years until 2037 with an
option to extend the lease for additional 49 years which
expires in 2086. 
Lease may be terminated if Arena does not meet the terms of
the lease.Arena Plaza (Kerepesi)
Budapest, Hungary
    
    Scheduled: 2007
    
    Freehold
    
    1.32 million
    
    713,000
    
    2,800
    
    All required permits
were issued.Lublin Plaza
Lublin, Poland (2) (3) (4)
    
    Scheduled: 2007
    
    99 year lease
    
    182,812
    
    277,000
    
    690
    
    All required permits
were issued with respect
to the first stage
(congress and commercial
areas).
No permits were issued
with respect to the
second stage (hotel and
office building). We are
currently not
considering the
development of the
second stage.
    
    Perpetual usufruct for 99 years until 2097. The perpetual
usufruct may be terminated if the use of the land does not
correspond to the approved usage, or in the occurrence of
unauthorized delays. We undertook to complete the first stage
of the project by August 31, 2006 and to commence the second
stage by September 30, 2009 and ending it by the end of 2011.
Failure to meet these dates requires the payment of a penalty
in the amount of $0.8 million. If the perpetual usufruct is
terminated, we will be entitled to reimbursement of our
investment in the construction of the complex until the date
of termination. We have the right to acquire the land upon
completion of construction in consideration for up to
approximately $2.6 million. If we choose not to conduct the
second stage of the transaction we are required to pay a
penalty of approximately PLN 2.5 million (approximately $0.9
million)Pilzen Plaza
Pilzen, Czech Republic (5)
    
    Scheduled: 2007
    
    Leasehold
    
    370,600 + 561,000
as a park
    
    220,000
    
    600
    
    Building permits pending.
    
    Leasehold rights for 99 years (and 97 years for a land area
of approximately 89,523 square leased for the construction of
a parking building) until 2102.Riga Plaza
Riga, Latvia (3)
    
    Scheduled: 2008
    
    Freehold
    
    856,000
    
    479,000
    
    1,500
    
    City approval for the
plans was received in
May 2006.Lodz Plaza
Lodz, Poland (4)
    
    Not yet determined
    
    Freehold
Perpetual Usufruct
tenancy
    
    44,589
311,964
2,636
    
    319,000
    
    
    
    Demolition permits were
issued.
    
    Perpetual usufruct right until December 5, 2089.
Tenancy for 30 years until August 29, 2031, with two options
to extend for additional 30 years which expires in 2061 and
for 20 years which expires in 2081. 
This project is in the preliminary planning and development
stage Due to strong competition, we are currently assessing
the scope and nature of this project.
 36




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ApproximateLand Area
    
    Leaseable
    
    ParkingName of Project
    
    Opening
    
    Title
    
    (sq.ft.)
    
    Area (sq.ft.)(1)
    
    Spaces(1)
    
    Permits
    
    MiscellaneousLiberec Plaza.Czech Rep.
    
    Scheduled: 2008
    
    Lease after which
opportunity for
freehold
    
    115,263
    
    231,000
    
    490
    
    Demolition permit and
building permit for
preparation works
obtained
    
    This project is in preliminary planning and development stage.Opava Plaza, Czech Rep.
    
    Scheduled: 2009
    
    Lease after which
opportunity for
freehold
    
    92,777
    
    154,000
    
    Not yet determined
    
    Not yet determined
    
    This project is in preliminary planning and development stage.Suwalki Plaza, Czech Rep.
    
    Scheduled: 2008
    
    Freehold
    
    139,655
    
    154,000
    
    Not yet determined
    
    Building permit pending
    
    This project is in preliminary planning and development stage.Koregaon Park,
Pune, India (3)
    
    Not yet determined
    
    Freehold
    
    451,000 + 182,600
office space
    
    
    
    
    
    
    
    PC and its partner plan to develop a three-floor shopping and
entertainment center and office spacesTimisoara Plaza, Romania
    
    Not yet determined
    
    Freehold
    
    
    
    330,000
    
    Not yet determined
    
    Not yet determined
    
    PC has also secured an option to develop on the site
approximately 20,000m2 (approximately 220,000 square feet) of
new mixed retail, office and residential space adjacent to
the shopping and entertainment centre.Zgorzelec Plaza, Poland
    
    Not yet determined
    
    Freehold
    
    225,597
    
    Not yet determined
    
    Not yet determined
    
    Not yet determined
    
    This project is in preliminary planning and development stage.Torun Plaza, Poland
    
    Not yet determined
    
    Freehold
    
    675,995
    
    Not yet determined
    
    Not yet determined
    
    Not yet determined
    
    This project is in preliminary planning and development stage.
 
 (*)
    
    As to the agreement for the sale of our operating shopping and entertainment center in Israel,
see Highlights above.(1)
    
    Details provided in these items are presented according to the plans and designs of each
respective center and may subsequently differ.(2)
    
    Details provided in these items are presented according to the plans and designs of each
respective center and may subsequently differ.(3)
    
    PC has 50% interest in this project.(4)
    
    This center is the subject of a purchase option awarded to Klepierre, see below.(5)
    
    A pre-sale agreement with Klepierre has been signed in respect of this project.  37




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Koregaon Park
   Lublin Plaza
      38




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Riga Plaza
  Helios Plaza
   39




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Other Real Estate Properties and Mixed-Use Projects
 The Dream Island Project
 2
    Casa Radio
  Kharadi
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Cochin
   Bangalore Project
      41




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Arena Plaza Extension
 2 2 2
 David House Building
  Duna Plaza offices
   Duna Plaza Extension
  The Praha Plaza Commercial Complex
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Hotels
      43




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Operating Hotels
 Approximate
    
    
    
    AverageConstructed Area
    
    
    
    Occupancy RatesName and Rate of Hotel
    
    Title
    
    (Sq. Ft.)
    
    Total Rooms
    
    During 2006 (%)
    
    Other InformationVictoria Hotel (50%), Amsterdam, The Netherlands Four Star
    
    Freehold
    
    220,000
    
    306 including Executive rooms and Business and deluxe Suites
    
    95
    
     business center health centerUtrecht Park Plaza Hotel (50%),Utrecht, the Netherlands Four Star
    
    Leasehold
    
    55,880
    
    120 superior and executive rooms
    
    83
    
     11 conference roomsAstrid Park Plaza Hotel (100%),Antwerp, Belgium Four Star
    
    Freehold
    
    223,300
    
    229 including executive rooms and Suites
    
    70
    
     includes an oceanarium attraction (Aquatopia)  12 boardrooms  18 conference roomsCentervilleHotel Apartments (73%)1Bucaresti, Romania
    
    Freehold
    
    462,000
    
    293
    
    87
    
     Apartment hotel mainly for long-term occupation  Bistro, SpaSherlock Holmes Park Plaza Hotel (45% equity and 50% voting),London, UK Four Star Deluxe
    
    Leasehold
    
    67,460
    
    119
    
    86
    
     boutique-style hotel fitness and wellness center executive lounge main meeting room for 600 people 6 board roomsVictoria Park Plaza Hotel (50%),London, the United Kingdom Four Star Deluxe
    
    Freehold
    
    242,000
    
    299 consisting of 287 air guestrooms and suites plus 12 serviced studio and one & two bedroom apartments
    
    88
    
     Executive lounge  health center  main conference room for up to 750 people  13 additional conference rooms underground parking facilitiesRiverbank Park Plaza Hotel 
(45% equity and 50% voting),
London, the United Kingdom Four Star Deluxe2
    
    Leasehold
    
    337,100
    
    460 consisting of 394 deluxe guestrooms including superior and executive rooms and suites
and 66 luxury residential suites
    
    Guestrooms 76%
Luxury suites 72%
    
     full leisure center  two main conference rooms, each with capacity of up to 650 people 20 additional conference rooms Restaurant, Brasserie, Bar and Lounge
 
 (1)
    
    See also  Hotels under Development or Renovation  below. 44




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Hotels under Development or Renovation
  Agreements with Respect to Ownership of the Hotels
      Construction and development of Hotels
  45




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Management of Hotels
 Management agreement with Park Plaza
   
    
    Payment to Park Plaza of an annual incentive fee of 7% of the gross
operating profit (as defined in the applicable agreement) of the hotel (Incentive
Fee).
    
    Payment to Park Plaza of an annual base fee of 2% of the gross hotel room
revenues (Annual Base Fee)
    
    Reimbursement of reasonable out-of-pocket expenses, including advertising
expenses, office expenses (at a fixed amount) and other expenses incurred by Park Plaza
in carrying out its duties of up to 3% of the aforementioned gross operating profit.
    
    In consideration for monthly royalties (Franchise Fee), our hotels may
use the brand name Park Plaza, certain Park Plaza trademarks, Park Plazas
international marketing network and international booking center, Park Plazas
marketing and advertising material, Park Plazas international hotel conferences, Park
Plazas assistance in planning, developing and applying its methods with respect to the
hotels, training of staff and senior management of the hotels, and inclusion in the
list of Park Plaza hotels worldwide. We design and refurbish our hotels in order to
comply with Park Plazas operational standards.
    
    Each management agreement is valid for an initial fifteen-year period,
and renewable automatically for an additional period of ten years, subject to the right
of either party to terminate the agreement by giving six months advance written notice.
If any of the hotel-owning companies should decide on early termination of the
management agreement, then it would be required to pay to Park Plaza an amount equal to
the Incentive Fee, the Annual Base Fee and the Franchise Fee for the year immediately
preceding the date of the termination. In the event the company holding the Victoria
hotel (Amsterdam) sells the hotel or should the control of the hotel be transferred to
third party, we are also required to pay 2.5% of any gain derived from the sale of the
hotel.
    
    No formal agreement has been signed with Park Plaza in respect of the
management of the Sandton Hotel in South Africa, which has recently been sold although
Park Plaza had provided management service to the hotel on a de-facto
 46




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basis on the same terms and conditions as the remaining operational hotels, up to the
sale thereof.
    
    Park Plaza has been awarded the following non-voting equity rights in
certain hotel holding companies: Riverbank  10%, Sherlock Holmes -10% and Victoria
London 5%.
 Additional transactions with Park Plaza
  Management Agreement with the Rezidor Hotel Group
    Business Concept and Strategy
  47




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Location
 Service
 Customer base
 Management
 Strategy
 The Image Guided Treatment Business
     48




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Business description
    49




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Distribution and Marketing
  
    
    In June 2005, InSightec entered into a worldwide distribution and sale
representation agreement with GE granting GE the exclusive worldwide distribution
rights to market and promote InSightecs product subject to the achievement of a
minimum sales targets, except in territories where InSightec already has existing
distributors and representatives (Russia and Japan as described below). Subject to the
terms of the agreement, in consideration of the services rendered, InSightec shall pay
GE a commission on the net sales invoiced and actual payments received by InSightec for
each order for the sale of products from an end-user resulting from GE Healthcares
activities. InSightec undertook not to enter into any new arrangements with third
parties for so long as GE maintains its exclusive rights as described herein.
Nevertheless, InSightec retains the right to promote, market and sell its products to
end-users directly, through its employees. In case GE desires to market or sell any
competing MRgFUS product in a territory, which InSightec holds all authorizations
required to market its product in, then GE will notify InSightec of such intention. If
despite InSightecs objection, GE chooses to market such competing product, then its
rights in such country, for InSightecs product will automatically become
non-exclusive. The agreement is for a five-year term ending in June 2010, unless
earlier terminated in accordance with the terms of the agreement. Thereafter, the
agreement will automatically renew, each time, for an additional year, unless either
party provides a written notice of its intent to terminate the
agreement. In May 2007, in light of the experience accumulated during
the first two years, InSightecs board of directors renegotiated
with GE and resolved to re-new the distribution agreement with GE on
a non-exclusive basis. A new agreement has not been signed yet.
    
    InSightec retains an exclusive distributor in Russia and a non-exclusive
distributor in Japan. Each of these distributors undertook not to distribute any other
systems, which compete or may compete with InSightecs FUS system for specific periods
determined in the agreements.
    
    In addition, since September 2002, InSightec has been a party to an
agreement with MTA, as amended, pursuant to which InSightec received advisory and
consultation activities as well as marketing activities from MTA in consideration for a
fixed monthly amount and a success fee commission of 2% of the value of any signed
purchase order, for which MTA was involved. The agreement was terminated on April 1,
2006.
 Business Concept and Strategy
  50




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Other Activities
 The Neotia Elbit Healthcare in India
   Mango
    
    
    Increase sales to existing and new customers by adjusting our pricing strategy
and market behavior. Mango believes its customer service and reliability as a
franchisee of a leading international brand provide it with a competitive
advantage.
 51




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
    
    Localization and enhancing the Mango brand in Israel by improving its marketing
and branding strategy.
    
    Open new stores in strategic locations across Israel with emphasis on opening
smaller shops of 250-300 square meters rather than stores of larger square meters,
which are currently in operation, as well as by reducing the size of the stores
currently in operation.
    
    Reduce the percentage of outlet stores out of the total Mango stores in Israel,
and relocate the outlet stores to the suburbs.
 Venture Capital Investments
  Gamida Cell Ltd
    Olive Software Inc.
  52




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##### 



Easyrun Ltd.
  Varcode Ltd.
    Revenues classified by business segments and by geographical markets
  ConvenienceFiscal Year Ended
    
    Translation inDecember 31,
    
    U.S. Dollars For2006
    
    2005
    
    2004
    
    2006Israel
    
    
    118,558
    
    
    
    92,226
    
    
    
    71,678
    
    
    
    28,061Western Europe
    
    
    371,879
    
    
    
    304,731
    
    
    
    215,993
    
    
    
    88,019Eastern and Central Europe
    
    
    1,120,054
    
    
    
    359,420
    
    
    
    414,457
    
    
    
    265,100Others
    
    
    60,062
    
    
    
    60,378
    
    
    
    46,131
    
    
    
    14,216Total Revenues
    
    
    1,670,553
    
    
    
    816,755
    
    
    
    748,259
    
    
    
    395,396
 53




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##### 



ConvenienceFiscal Year Ended
    
    Translation inDecember 31,
    
    U.S. Dollars For2006
    
    2005
    
    2004
    
    2006Shopping and
Entertainment centers
    
    
    1,140,074
    
    
    
    366,237
    
    
    
    443,814
    
    
    
    269,840Hotels
    
    
    386,620
    
    
    
    270,057
    
    
    
    218,365
    
    
    
    91,508Image Guided Treatment
    
    
    85,824
    
    
    
    75,713
    
    
    
    57,052
    
    
    
    20,313Lease of assets
    
    
    
    
    
    
    71,000
    
    
    
    13,238
    
    
    
    Other Activities
    
    
    58,035
    
    
    
    33,748
    
    
    
    3,412
    
    
    
    13,736Total Revenues
    
    
    1,670,553
    
    
    
    816,755
    
    
    
    735,881
    
    
    
    395,397
 Seasonality
 Hotels
    Other activities
  54




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Patents and Proprietary Rights; Licenses
     Competition
 Shopping and entertainment centers
  ad hoc
  55




---



##### 



Hotels
    The Image Guided Treatment Business
   56




---



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Other Activities
 Mango
  57




---



##### 



Venture Capital Investments
  Governmental Regulation
 Shopping and entertainment centers
   i.e
  58




---



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59




---



##### 



Hotels
    60




---



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The Image Guided Treatment Business
    61




---



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Other Activities
   C. ORGANIZATIONAL STRUCTURE
 (1)
 EMISDIRECT/INDIRECTOWNERSHIPABBREVIATED
    
    COUNTRY OF
    
    PERCENTAGENAME OF COMPANY
    
    NAME
    
    ORGANIZATION
    
    EQUITYElscint Ltd.
    
    Elscint
    
    Israel
    
100%BEA Hotels NV
    
    BEA
    
    The Netherlands
    
100%S.L.S. Sails Ltd. (**)
    
    SLS
    
    Israel
    
100%Elbit Ultrasound (Netherlands) BV
    
    EUBV
    
    The Netherlands
    
100%InSightec Ltd.
    
    InSightec
    
    Israel
    
69.27%
    (*)Plaza Centers N.V.
    
    PC
    
    The Netherlands
    
68.4%Mango Israel Clothing and Footwear Ltd.
    
    Mango
    
    Israel
    
100%
 
 (1)
    
    See Item 6  Directors,
Senior Management and Employees  E. Share ownership, below.(*)
    
    51.28% on a fully diluted basis.(**)
    
    As to the agreement for the sale of S.L.S. Sails Ltd. see Item 4  Information on the
Company  A. History and development of the Company above. D. PROPERTY, PLANTS AND EQUIPMENT
   62




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##### 



ITEM 4A. UNRESOLVED STAFF COMMENTS.
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
 Overview
   63




---



##### 



Critical Accounting Policies and Estimates
 General
    64




---



##### 



WE are currently examining the effects of the transition to IFRS but at this point we are
unable to evaluate the effect on our financial statements.
     65




---



##### 



Equity securities
   66




---



##### 



Business combinations
  67




---



##### 



Litigation, other contingent liabilities
    Functional currency of investee companies
  68




---



##### 



Revenue recognition
 Revenue recognition in the image guided treatment segment:
   69




---



##### 



Revenue recognition from sales of real estate asset investments and trading property:
  a.
    
    the sale has been consummated;b.
    
    the enterprise has transferred to the buyer the significant risks and rewards
of ownership of the goods;c.
    
    the enterprise retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;d.
    
    the amount of revenue can be measured reliably;e.
    
    it is probable that the economic benefits associated with the transaction will
flow to the enterprise (including the fact that the buyers initial and continuing
investment is adequate to demonstrate commitment to pay); andf.
    
    the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
 70




---



##### 



Share based payment arrangements
   71




---



##### 



(i)
    
    Price per share as of the grant date. Determination of the price per share as at the
grant date in respect of options plans adopted by InSightec  which is privately held
company and has no quoted market price- is highly complex to determine. InSightec generally
uses the price per share determined at the last financing or investment round prior to the
grant date. Nevertheless, there is no assurance that such price reflects the accurate price
per share as of the grant date.(ii)
    
    Expected stock price volatility over the term of the plan. The expected volatility for
share based transactions adopted by the Company are determined base on the market price of
the share in the past years. Non traded companies (such as PC prior becoming public company
and InSightec), used excepted volatility of public traded companies with similar operations
since they have no historical data. We believe that this volatility properly reflect the
operations of PC and InSightech although under different assumptions or conditions the fair
value of these options plans may yield a different result; and(iii)
    
    Actual and projected employee stock option exercise behaviors  The assumption in
respect of (i) determining the forfeitures rate of options; (ii) the exercise coefficient
(i.e.: the price per share in which it is expected that an employee will exercise the
options); (iii) the expected estimated term the options would be held by the employees; are
subjective in nature and have considerable degree of judgment.
  72




---



##### 



Accounting for income taxes
   73




---



##### 



Capitalization of Costs (Tangible and intangible)
     74




---



##### 



Critical accounting policies which effect our U.S GAAP reconciliation Note
 Derivative financial instruments
    75




---



##### 



Recently issued accounting standards
   A. Operating Results
 Presentation method of financial statements
  76




---



##### 



77




---



##### 



78




---



##### 



Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation$000(in thousand NIS)(Except for per-share data)RevenuesSale of real estate assets and investments, net
    
    
    80,218
    
    
    
    281,661
    
    
    
    131,921
    
    
    
    18,986Sale of trading property
    
    
    286,633
    
    
    
    
    
    
    
    
    
    
    
    67,842Commercial centers operations
    
    
    110,875
    
    
    
    142,957
    
    
    
    311,893
    
    
    
    26,243Hotels operations and management
    
    
    351,610
    
    
    
    270,057
    
    
    
    218,365
    
    
    
    83,221Sale of medical systems
    
    
    85,824
    
    
    
    75,713
    
    
    
    44,049
    
    
    
    20,313Realization of investments
    
    
    697,358
    
    
    
    1,958
    
    
    
    (**) 28,793
    
    
    
    165,055Other operational income
    
    
    58,035
    
    
    
    44,409
    
    
    
    13,238
    
    
    
    13,7361,670,553
    
    
    
    816,755
    
    
    
    748,259
    
    
    
    395,396Costs and expensesCost of trading property sold
    
    
    250,475
    
    
    
    
    
    
    
    
    
    
    
    59,283Commercial centers operations
    
    
    144,562
    
    
    
    157,640
    
    
    
    271,392
    
    
    
    34,216Hotels operations and management
    
    
    306,384
    
    
    
    259,293
    
    
    
    207,152
    
    
    
    72,517Cost and expenses of medical systems operation
    
    
    72,515
    
    
    
    (*)50,374
    
    
    
    26,039
    
    
    
    17,163Other operational expenses
    
    
    70,251
    
    
    
    46,793
    
    
    
    3,655
    
    
    
    16,627Research and development expenses, net
    
    
    62,566
    
    
    
    (*)59,796
    
    
    
    38,158
    
    
    
    14,809General and administrative expenses
    
    
    67,161
    
    
    
    36,939
    
    
    
    43,627
    
    
    
    15,896Share in losses of associated companies, net
    
    
    9,665
    
    
    
    12,028
    
    
    
    15,968
    
    
    
    2,288Financial expenses, net
    
    
    129,127
    
    
    
    122,321
    
    
    
    53,569
    
    
    
    30,563Other expenses, net
    
    
    36,836
    
    
    
    57,106
    
    
    
    (**)63,806
    
    
    
    8,7191,149,542
    
    
    
    802,290
    
    
    
    723,366
    
    
    
    272,081Profit before income taxes
    
    
    521,011
    
    
    
    14,465
    
    
    
    24,893
    
    
    
    123,315Income taxes
    
    
    5,222
    
    
    
    7,798
    
    
    
    15,804
    
    
    
    1,235Profit after income taxes
    
    
    515,789
    
    
    
    6,667
    
    
    
    9,089
    
    
    
    122,080Minority interest in results of subsidiaries, net
    
    
    9,691
    
    
    
    (*)73,795
    
    
    
    27,448
    
    
    
    2,294Profit from continuing operation
    
    
    525,480
    
    
    
    80,462
    
    
    
    36,537
    
    
    
    124,374Profit from discontinuing operation, net
    
    
    35,664
    
    
    
    5,917
    
    
    
    6,810
    
    
    
    8,441cumulative effect of accounting change at the
beginning of the year
    
    
    
    
    
    
    (622
    )
    
    
    
    
    
    
    Net income
    
    
    561,144
    
    
    
    85,757
    
    
    
    43,347
    
    
    
    132,815
 
 (*)
    
    Retrospective implementation of new Accounting Standard  see Note 2V to our consolidated
financial statements included in Item 18 below.(**)
    
    Reclassified. 79




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##### 



Fiscal 2006 compared to Fiscal 2005
  Revenues
     For further elaboration of these transactions see Item 10. Additional Information  Material
Contracts  Shopping and Entertainment Centers below.
   80




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Profits before Income Taxes
 Set forth is an analysis of our profits before income taxes and the analysis of the increase
in our profits before income taxes from NIS 14.5 million in 2005 to NIS 521.0 million ($123.3
million) in 2006:
    (i)
    
    Implementation of Accounting Standard No. 24 (Standard 24) of the Israel
Accounting Standards Board which is effective commencing January 1, 2006. Standard 24
provides to measure share based payments arrangements at their fair
 81




---



##### 



value and to include an expenses in the statement of operation over their vesting
period. In previous years the Company did not record expenses in respect of share based
payments arrangements. As a result of the implementation of Standard 24, PC recorded
stock-based compensation expenses in the amount of NIS 6.6 million ($1.6 million) in
2006 while no stock-based compensation expense was recorded in 2005;(ii)
    
    a decrease in the revenues from the commercial and entertainment centers as a
result of the sales of commercial and entertainment described above. The decrease in
revenues was not followed by a matching decrease in other operational expenses related
to the commercial and entertainment centers operations since we are currently in a
period in which we are developing our commercial centers real estate assets and we do
not record revenues yet from these assets, although our operating expenses (i.e.:
initiation, selling & marketing as well as general and administrative expenses) which
are not qualified for capitalization under Israeli GAAP to the cost of these assets are
expensed into the statements of operations as incurred;(iii)
    
    Increase in the administrative costs mainly as result of hiring new employees
and higher use of legal and professional consultants after PC became a public company.
     82




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##### 




    
    In 2006, we incurred interest expenses from bank loans and debentures of NIS 164.7
million ($39.0 million) as compared to NIS 127.3 million in 2005, which was attributable to
the following:
 (i)
    
    From February through August 2006 we issued 3 series of debentures (Series A, B
and C). The interest expenses derived from these debentures amounted to NIS 38.8
million ($9.2 million) in year 2006 compared to no such expenses in 2005.(ii)
    
    Corporate loans interest decreased to NIS 17.9 million ($4.2 million) in 2006
compared to NIS 41.1 million in 2005. This decrease is attributable mainly to repayment
of two loans by Elscint (full repayment of loan linked to British pound and partial
repayment of loans linked to the Euro) and a decrease in the scope of loans by EMI. In
addition the interest on our corporate loans decreased in 2006 compared to 2005.(iii)
    
    Our hotels segment recorded interest expenses of NIS 75 million ($17.7
million) compared to NIS 52.7 million in 2005, which is attributable mainly to increase
in the scope of loans and interest rate of a refinancing loan granted in March 2006 to
our three UK hotels ; and(iv)
    
    In 2006, our commercial and entertainment centers segment recorded interest
expenses of NIS 30.7 million ($7.3 million), compared to NIS 32.3 million in 2005
mainly due to a decrease in the scope of loans following the sale of the commercial and
entertainment centers by PC offset by, increase in interest rate of the commercial
centers loans.
 83




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##### 




    
    In 2006, we incurred interest income from bank deposits and marketable securities of NIS
49.5 million ($11.7 million) as compared to NIS 10.5 million in 2005, an increase of NIS
39.0 million as result of funds received from PCs IPO and funds raised from issuance of
debentures in 2006 which were deposited in such deposits.
    
    Gain from forward transactions amounted to NIS 4.5 million ($1.0 million) in 2006
compared to NIS 14.7 in 2005. Such forward transactions were designed in order to hedge
payments or proceeds that should have been paid or received in other currencies and which
for accounting purposes do not constitute hedge transactions and therefore, their results
were recorded in the statement of operations;
    
    In 2006, we had an exchange rate differences (including change in the Israeli CPI) loss
of NIS 18.4 million ($4.35 million) as compared to NIS 20.2 million in 2005. The exchange
rate differences in 2006 are attributable mainly to revaluation of the US Dollar against
the NIS which effected our net liquid assets (i.e.: deposits less bank loans and
debentures). The exchange differences in 2005 are attributed mainly to devaluation of the
US Dollar against the NIS which effected the loss from loans of the commercial and
entertainment segment and from loans of the Hotel segment.
  (i)
    
    Impairment loss in the amount of NIS 16.1 million ($3.8 million) in respect of
Aquatopia (an attraction within the Astrid Plaza hotel in Antwerp, Belgium) due to
significant decrease in the number of visitors in the Aquatopia as compared to the
Companys forecasts.(ii)
    
    loss from disposal of fixed assets in the amount of NIS 17.4 million ($4.1
million) attributable to abandonment of leasehold improvements of our previous
headquarter as well as renovation and refurbishment of Mangos fashion stores.
   a)
    
    income taxes in 2006 totaled NIS 5.2 million ($1.2 million) compared to
NIS 7.8 million in 2005;b)
    
    minority interest in results of subsidiaries, net, totaled NIS 9.7
million ($2.3 million) compared to NIS 73.8 million in 2005. The minority interest
is attributable mainly to the share of minority in Insightec loss amounted to NIS
17.7 million ($4.2 million) offset by the share of minority in PC profit (starting
October 2006) amounted to NIS 5.7 million ($1.3 million) in 2006 compared to
minority share in Insightec loss in the amount of NIS 19.5 million add by minority
interest in Elscint loss in the amount of NIS 47.4 million in 2005.
   84




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##### 



a)
    
    profit from discontinued operations, net, totaled NIS 35.7 million
($8.4 million) in 2006, compared to NIS 5.9 million in 2005. Our discontinued
operation is attributable mainly to the medical imaging area and the sub-assemblies
and component segment which were sold in previous years. This profit resulted
mainly from the collection of receivables previously written off, income from
royalties on patents rights and to exchange rate differences income attributable to
monetary assets pertaining to discontinued operationsb)
    
    cumulative effect from the application of a new accounting standard,
resulted in loss of NIS 0.6 million in 2005;
  Fiscal 2005 compared to Fiscal 2004
 Revenues
        85




---



##### 



Profits before Income Taxes
 Set forth is an analysis of our profits before income taxes and the analysis of the decrease
in our profits before income taxes from NIS 24.9 million in 2004 to NIS 14.4 million in 2005:
    86




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87




---



##### 




    
    In 2005, EMI had an exchange rate differences loss of NIS 20.2 million as compared to an
exchange rate differences gain of NIS 87.8 million in 2004 which was attributable to:
 (i)
    
    In 2004, our commercial and entertainment centers segment recorded an exchange
rate differences gain of NIS 76.8 million, generated mainly by the significant
re-valuation (5%) of the Hungarian Forint in Hungary (which until April 1, 2004 was the
functional currency of the operations in that country), in relation to the Euro, which
is the currency used in financing these activities. This compares to PCs exchange rate
differences losses in 2005 which amounted to NIS 2.1 million, since the Euro is both
the functional currency of PCs subsidiaries and the currency of its monetary net
assets. In addition, in 2005, we had an exchange rate differences loss of NIS 12.6
million which resulted mainly from the Arena commercial and entertainment center in
Israel as a result of an evaluation of the US dollar against the NIS which constitute
Arenas functional currency;(ii)
    
    Our hotel segment (mainly its Romanian subsidiary) accrued exchange rate
differences loss amounting to NIS 6.0 million in 2005 compared to exchange rate
differences gain of NIS 17.4 million in 2004, attributed to the fluctuations of the US
dollar against the Romanian Lei, being the subsidiarys functional currency;(iii)
    
    In 2005, we recorded an exchange rate differences loss of NIS 10.3 million,
which is attributable to corporate loans provided to us in foreign currencies (mainly
the US dollar) against the NIS. This compares to an exchange rate differences gain of
NIS 13.0 million in 2004; and(iv)
    
    An increase in our exchange rate differences gain from cash and bank deposits
to NIS 10.8 million in 2005, compared to an exchange rate differences loss of NIS 19.4
million in 2004.
 
    
    In fiscal 2005, we incurred interest expenses and a gain/loss from forward transactions
of NIS 102.1 million as compared to NIS 141.4 million in 2004, which was attributable to
the following:
 (i)
    
    In 2005, we recorded a gain from a forward transaction of NIS 14.7 million
compared to a loss from such transaction of NIS 14.9 million in 2004; Such forward
transactions were designed in order to hedge payments or proceeds that should have been
paid or received in other currencies and which for accounting purposes do not
constitute hedge transactions and therefore, their results were recorded in the
statement of operations;(ii)
    
    In 2005, our commercial and entertainment centers segment recorded interest
expenses of NIS 27.3 million, compared to NIS 66.4 million in 2004 mainly due to a
decrease in the scope of loans following the sale of the commercial and entertainment
centers;(iii)
    
    Our hotels segment recorded interest expenses of NIS 52.7 million compared to
NIS 35.7 million in 2004, mainly due to the commencement of operations of the Riverbank
Park Plaza hotel; and(iv)
    
    Interest expenses in respect of our corporate loans less interest income on our
deposits increased to NIS 35.5 million compared to NIS 24.4 million in 2004. This
increase is mainly attributable to an increase in our scope of loans and an increase in
the basic LIBOR rates for all currencies.
 88




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(a)
    
    income taxes in 2005 totaled NIS 7.8 million compared to NIS 15.8 million in 2004;(b)
    
    minority interest in results of subsidiaries, net, totaled NIS 73.8 million
compared to NIS 27.4 million in 2004, mainly resulting from an increase in EMIs share in
Elscints and InSightecs losses;
  (c)
    
    profit from discontinuing operations, net, totaled NIS 5.9 million in 2005,
compared to NIS 6.8 million in 2004; this profit resulted mainly from the collection of
receivables previously written off and to exchange rate differences income attributable
to monetary assets pertaining to discontinuing operations;(d)
    
    cumulative effect from the application of a new accounting standard, resulted in
loss of NIS 0.6 million in 2005;
  B. Liquidity and Capital Resources
 General
  (i)
    
    equity investments in our commercial and entertainment centers and hotels
constructed by our wholly owned and jointly controlled subsidiaries (special purpose
entities that are formed for the construction of the various centers and hotels
(Projects Companies)). We generally finance approximately 25%-30% of such projects
through equity investments in the Project Companies, while the remaining 70%-75% is
financed through a credit facility secured by a mortgage of the project constructed by
the respective Project Company, registered in favor of the financial institution that
provides such financing. The equity investments in the Project Companies are typically
provided by us through shareholder loans that are subordinated to the credit
facilities as therein provided;
 89




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(ii)
    
    additional investments in InSightec if necessary. InSightecs capital
resources are obtained primarily from additional investments in equity or in
convertible notes by its shareholders and from its revenues from sale of medical
systems. Such amounts are used for research and development activities aimed at
obtaining FDA approvals for further treatments and other general corporate expenses
such as cost of revenues, marketing and selling and general and administrative
expenses;(iii)
    
    additional investment in our investees (mainly venture capital investments);
and(iv)
    
    other investments such as project initiation (mainly in India).
 1. Liquidity
   
    
    Between February and July 2006, we raised NIS 516.0 million ($122.1 million) and NIS
59.0 million ($14.0 million) aggregate principal amounts of unsecured non-convertible
debentures Series A and B, respectively, from institutional investors in Israel. In August
2006 we filed prospectus for the registration of Series A and Series B for trade on the
TASE. On the same date we filed an offering prospectus for the offering to the public in
Israel of Series C, Series B and Series A debentures in a principal amount of NIS 459.0
million ($108.6 million), NIS 10.0 million ($2.4 million) and NIS 51.0 million ($12.0
million) respectively.Series A, B and C were rated By Midroog Ltd. (Midroog) at an A1 rating and by Maalot at
an A rating, on a local scale.
    
    In March 2007 Midroog had approved an additional series of debentures (Series D) of up
to NIS 620.0 million ($146.7 million). Series D were rated at an A1 on local scale. In
addition, Midroog had approved an upgrade to its rating to the existing Series A, B and C
from A2 to A1 on a local scaleIn April and May 2007, we raised NIS 514 million ($121.6 million) aggregate principal
amount of unsecured non-convertible Series D debentures from institutional investors in
Israel.
    
    In October 2006 PC announced the successful pricing of the Initial Public Offering of
its ordinary shares (IPO or Offer) on the Official List of the London Stock Exchange.
The Offer consisted of 92,346,087 ordinary shares (including over allotment options to UBS
investment Bank) constituting approx 32% of PC share capital at a price of £1.8 per share.
The total amount raised by PC (including the exercised over allotment options and net of
the IPOs related expenses) amounted to 234.5 million ($303.0 million).
    
    During 2006, PC received net cash consideration in the amount of 9.2 million ($12.0
million) from Klepierre in respect of purchase price adjustment regarding the commercial
and entertainment centers sold in July 2005 (Stage A).
    
    In June 2006 PC completed the construction of one of Czech commercial centers (The
 90




---



##### 



Novo Plaza) which was sold to Klepierre in July 2005 (Stage B) and in accordance with the
terms of the agreement it was delivered to klepierre. The cash consideration paid to PC
for Novo Plaza amounted to 5.0 million ($6.5 million).
    
    In March 2006, through our jointly controlled subsidiaries, which hold three hotels in
the United Kingdom (Holding Companies), we executed a refinance loan agreement together
with Park Plaza. The Holding Companies and Park Plaza are jointly and severally borrowers
under the agreement, while our share in the loan amounted to £97.5 million ($168 million)
(Refinancing Loan).The Refinancing Loan proceeds were first used for the repayment of
outstanding loans previously granted to the Holding Companies, in which our share amounted
to £60 million ($104 million). The Holding Companies have transferred to us the surplus of
the credit-received totaling £30.6 million ($52.7 million) out of which, £16.7 million
($28.7 million) was used to repay bank loans that financed our equity investments in the
Holding Companies.
    
    In May 2006, Elscint sold through a private transaction, 524,187 dormant shares of EMI
in consideration for NIS 115 per share, generating net cash consideration of NIS 60.2
million ($14.2 million).
    
    In April 2007 PC received a net cash consideration amounted to 12.5 million ($16.5
million) and  19.6 million ($25.8 million) for the sale of Rybnik Plaza and Sosnowiec
Plaza commercial and entertainment centers, respectively which were sold to Klepierre in
July 2005 (Stage B).
    
    In May 2007, Maalot, the Israel Securities Rating Company Ltd. (Maalot) has approved a
rating of A+/Positive, for PC to raise new debt up to the amount of $400 million.
    
    In June 2007, Maalot had approved an additional series of debentures (Series E) of up to
NIS 530.0 million ($125.4 million). Series E were rated at an A+/stable on local scale.
As of the date of this filling we did not raised any funds from this Series.
  
    
    In January 2006, we distributed to our shareholders a dividend in the amount of NIS
130.0 million ($30.8 million). Out of that amount: (i) NIS 3.1 million was paid to
employees in respect of their holdings of EMI shares granted to them against non- recourse
loans and therefore was recorded as compensation costs in these financial statements; and
(ii) NIS 2.7 million was paid to Elscint in respect of its shareholding in the Companys
stock.
    
    In April 2007, we distributed to our shareholders a dividend in the amount of NIS 160.4
million ($38.0 million).
  91




---



##### 



Year ended December 31,2006
    
    2006
    
    2005
    
    2004Convenience
    
    NIS
    
    NIS
    
    NISTranslation $
    
    Thousands
    
    Thousands
    
    ThousandsNet cash used in
operating
activities
    
    
    (123,870
    )
    
    
    (523,367
    )
    
    
    (99,108
    )
    
    
    (21,562
    )Net cash provided
by (used in)
investing
activities
    
    
    (46,580
    )
    
    
    (196,787
    )
    
    
    5,496
    
    
    
    128,481Net cash provided
by financing
activities
    
    
    555,019
    
    
    
    2,344,956
    
    
    
    243,727
    
    
    
    75,872Net effect on cash
due to changes in
currency exchange
rates
    
    
    8,692
    
    
    
    36,724
    
    
    
    (6,516
    )
    
    
    (522
    )Increase (decrease)
in cash and cash
equivalents
    
    
    393,261
    
    
    
    1,661,527
    
    
    
    143,599
    
    
    
    182,269
 Cash flow from operating activities
    (i)
    
    In 2006 cash flow from operating activities included the cost of
construction/acquisitions of several properties in the amount of NIS 572.7 million
($135.5 million) and NIS 133.2 million attributed to payments on the account of
purchase of trading property and land inventories in Romania and in India. This
negative cash flow was offset by proceeds from sale of the Novo Plaza in the amount of
NIS 286.8 ($67.9 million).(ii)
    
    Operating activities in 2006 and 2005 also include cash expenses attributable
to finance expenses in respect of our long term loans as well as other operating
expenses including among others research and development expenses, sales and marketing
and general and administrative expenses.
   92




---



##### 



(i)
    
    a decrease in the purchase of fixed assets to NIS 176.1 million in 2006 from
NIS 435.8 million in 2005 mainly in respect of classifying the construction of our
commercial and entertainment centers in Poland and the Czech Republic to trading
property as part of the cash flow from operation activities offset by construction
costs of the Bucaresti Hotel in Romania and the purchase of Victoria Monument hotel in
Amsterdam.(ii)
    
    A decrease in the proceeds from realization of investments in subsidiaries to
NIS 74.5 million ($17.6 million) in 2006 from NIS 524.5 million in 2005 as a result of
classifying these proceeds from cash flow from investing activities to cash flow from
operating activity as part of sale of trading property.
 Cash flow from financing activities
  (i)
    
    Proceeds from the IPO of PCs shares in October 2006 in the amount of NIS
1,280.1 million ($303.0 million) with no such cash flow in 2005.(ii)
    
    Receipt of long term loans net of payment of long term loans in 2006 amounted
of NIS 1,111 million ($263 million) compared to NIS 365 million in 2005. Such increase
is attributable to issuance of non convertible debentures in the amount of NIS 1,107.8
million ($262.2 million) with no such issuance in 2005. In addition in 2006 we
received other loans from banks and financial institutions in the amount of NIS 884
million ($209 million) mainly in respect of refinancing loan to our UK hotels compared
to NIS 437 million in 2005. Furthermore, in 2006 we repaid long terms loans in the
amount of NIS 882 million ($209 million) mainly as a result of the refinance loans
mentioned above compared to NIS 72 million in 2005.(iii)
    
    a dividend payment in 2006 of NIS 124.2 million ($23.4 million) compared to
NIS 153.9 million in 2005.(iv)
    
    the issuance of convertible debentures by InSightec of NIS 22.8 million in
2006 with no such issuance in 2005.
 Major balance sheet changes
  93




---



##### 



2006
    
    2005NIS
    
    
    
    
    
    NISmillion
    
    %
    
    million
    
    %Current assets
    
    
    3,539
    
    
    
    57
    %
    
    
    1,449
    
    
    
    38
    %Current liabilities
    
    
    817
    
    
    
    13
    %
    
    
    887
    
    
    
    23
    %Long-term Investments and fixed assets
    
    
    2,583
    
    
    
    42
    %
    
    
    2,206
    
    
    
    58
    %Long-term liabilities
    
    
    3,047
    
    
    
    49
    %
    
    
    1,707
    
    
    
    45
    %Minority Interest
    
    
    630
    
    
    
    10
    %
    
    
    11
    
    
    
    0.3
    %Shareholders equity
    
    
    1,602
    
    
    
    26
    %
    
    
    1,054
    
    
    
    28
    %
 (i)
    
    The increase in current assets of NIS 2,090 million ($494.7
million), or 19% of the item from total assets, was mainly as a
result of funds raised from issuance of debentures and as result of
funds received from PCs IPO in October 2006.(ii)
    
    The increase in Long-Term liabilities of NIS 1,340 million
($317.1 million) or 4% of the item from total assets, was mainly as a
result of issuance of debentures by us in 2006.
 Concentration of Credit Risk
    Derivative Instruments
  94




---



##### 



Other Loans
  95




---



##### 



AmountOriginal
    
    
    Outstanding onBorrower
    
    
    Lender
    
    
    Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsEMI
    
    
    Debentures  A
held by the public
    
    
    
    
    
    NIS 575.15 million
(approximately
$136.13 million)
    
    
    CPI + 6%
    
    
    10 semi annual
installments
commencing 2009
through 2014
Interest payable by
semi annual
installments
commencing 2006
through 2014Principal
Securities and
Covenants
    
    
    Unsecured DebenturesOther Information
    
    
    The debentures are not registered under the U.S. Securities Act of 1933, as amended.
Events of default include, among others, the cross default with other series of debentures and delisting from both the
TASE and Nasdaq Global Market.
  AmountOriginal
    
    
    Outstanding onBorrower
    
    
    Lender
    
    
    Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsEMI
    
    
    Debentures  B
held by the public
    
    
    
    
    
    NIS 69.04 million
(approximately
$16.34 million)
    
    
    Libor + 2.65%
    
    
    10 semi annual
installments
commencing 2009
through 2014
Interest payable by
semi
annual installments
commencing 2006
through 2014Principal
Securities and
Covenants
    
    
    Unsecured DebenturesOther Information
    
    
    The debentures are not registered under the U.S. Securities Act of 1933, as amended.
Events of default include, among others, the cross default with other series of debentures and delisting from both the
TASE and Nasdaq Global Market.
 96




---



##### 



AmountOriginal
    
    
    Outstanding onBorrower
    
    
    Lender
    
    
    Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsEMI
    
    
    Debentures  C
held by the public
    
    
    
    
    
    NIS 458.6 million
(approximately
$108.54 million)
    
    
    CPI + 5.3%
    
    
    10 annual
installments
commencing 2009
through 2018
Interest payable by
semi
annual installments
commencing 2007
through 2014Principal
Securities and
Covenants
    
    
    Unsecured DebenturesOther Information
    
    
    The debentures are not registered under the U.S. Securities Act of 1933, as amended.
Events of default include, among others, the cross default with other series of debentures and delisting from both the
TASE and Nasdaq Global Market.
  Amount OutstandingBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    on Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsEMI
(executed in 2007)
    
    
    Debentures  D held
by institutional
investors
    
    
    
    
    
    NIS 105.52 million
(approximately
$24.9 million)
    
    
    CPI + 5%
(for additional
interest payable
prior to
registration for
trade  see below)
    
    
    10 annual
installments
commencing 2013
through 2020
Interest payable by
semi annual
installments
commencing 2007
through 2020Principal
Securities and
Covenants
    
    
    So long as Series D Notes are not registered for trade on the Tel Aviv Stock Exchange EMI undertook: (i) to pay an
additional interest at an annual rate of 0.5% until a prospectus is published for the registration of Series D Notes for
trade on the Tel Aviv Stock Exchange; (ii) not to make any distribution (as defined in the Israeli Companies Law of 1999)
to its shareholders which does not comply with the profit and solvency tests provided in section 302(a) of the Israeli
Companies Law of 1999, unless such distribution is approved at the general meeting of holders of Series D Notes by a
unanimous vote of all holders participating in the vote; (iii) to prepay the Series D Notes at the option of the trustee
or the holders of the Series D Notes, upon the occurrence of certain specified events. Such undertakings will be
terminated upon the registration for trade of Series D Notes on the Tel Aviv Stock Exchange.
Following registration, events of default include, among others, the cross default with other series of debentures and
delisting from both the TASE and Nasdaq Global Market.Other Information
    
    
    The debentures will not be registered under the U.S. Securities Act of 1933, as amended.
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsEMI /EUBV
    
    
    Bank Hapoalim B.M.
    
    
    $57.5 million
$25 million
    
    
    $20 million 33
million
    
    
    Libor + 1.75%
    
    
    Loan for 10 years
to be repaid by
2013. Repayment is
affected by
semi-annual
installments of
principal and
interestPrincipal
Securities and
Covenants
    
    
    Principal Securities:
Principal Financial Covenants:
Adjusted Shareholders Equity shall represent at least 20% of the Adjusted Balance Sheet Value.
Net Operating Profit (before deductions for depreciation and amortization relating to net operating profit)
shall be at each June 30 of every year no less than NIS 120 million.
In the event of (i) the net loan amount is $30 million; (ii) the total amount outstanding under the Europe
Israel loan agreement is less than $30 million; and (iii) there has been no event of default under the loan
agreement, the above financial covenants shall not apply.Other Information
    
    
    The bank furnished EMI with a waiver, as at December 31, 2006, in respect of all financial covenants, save
for the Adjusted Shareholders Equity over Adjusted Balance Sheet Value.
 97




---



##### 



AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsEMI
    
    
    Bank Leumi
Le-Israel B.M.
    
    
    $19.1 million
    
    
    $13 million
    
    
    Libor + 1.75%
    
    
    Short term
revolving credit
facilityPrincipal
Securities and
CovenantsOther Information
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsInsightec
    
    
    Bank Hapoalim B.M.
    
    
    $5 million
    
    
    $5 million
    
    
    Libor + 2.5% / or
prime + 1.1%Principal
Securities and
Covenants
    
    
    EMI
guarantee for up to $5 million;
Liens on InSightecs MRI system and ExAblate 2000 system installed at Sheba Medical Center.Other Information
    
    
    Renewal every 6 months subject to EMIs guarantee
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsInsightec
    
    
    Bank Leumi
Le-Israel B.M. Bank
Hapoalim B.M.
    
    
    $5 million
$10 million
    
    
    $0.7 million
$2.5 million
    
    
    Libor + 3% / or
prime + 1.65%
    
    
    June 30, 2006Principal
Securities and
Covenants
    
    
    First ranking
pledge over the entire assets of InSightec.
First ranking pledge and assignment on all rights in the ExAblate 2000 installed in the Shiba hospital.Other Information
 98




---



##### 



AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsPC
    
    
    Bank Winter & Co. AG
    
    
    5.6 million
    
    
    
    
    
    
    3.35
    %
    
    
    Short term
revolving credit
facilityPrincipal
Securities and
Covenants
    
    
    Cash depositOther Information
    
    
    This loan has since been repaid in full.
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsKerepesi 2 Kft.
& Kerepesi 3 Kft.
    
    
    MKB Bank Rt. & OTP
Bank Rt
    
    
    115.5 million
    
    
    19 million
    
    
    Euribor + 1.65%
    
    
    Currently only
interestPrincipal
Securities and
Covenants
    
    
    First
ranking mortgage on land.
On demand guarantee of kerepesi 4 and kerepesi 5 (our companies that own adjacent plots).Other Information
    
    
    PC hasnt utilized the rest of the loan yet.
 99




---



##### 



AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsErcorner
    
    
    Alom Sziget 2004
Ingatianfejleszto
KFT.
    
    
    13.8 million
    
    
    13.8 million
    
    
    Euribor + 2.05%Principal
Securities and
Covenants
    
    
    First ranking mortgage on land.
Negative pledge over the borrowers assets.
On demand guarantee of kerepesi 4 and kerepesi 5 (our companies that own adjacent plots).Other Information
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsMovement Poland
S.A.
    
    
    Kredytbank S.A.
    
    
     43.2 million
    
    
    15.08 million
    
    
    Euribor + margin
ranging from 1.5%
to 1.9%
    
    
    60 % of the
principal to be
repaid in 40
quarterly payments.
40% of the
principal to be
repaid in one
installment at
final repayment
date (no later than
March 31, 2017).
The first repayment
date shall occur
after a nine-month
period commencing
on the completion
date. During the
availability period
the interest will
be paid on a
monthly basis and
thereafter in
quarterly
installmentsPrincipal
Securities and
Covenants
    
    
    First ranking mortgage on the shopping and entertainment center.
First ranking pledge on shares of Borrower, on all of its accounts and on all present and future assets
Assignment of securities (insurance, lease, hedging agreement, management agreements, project documents,
accounts etc.) to lender.
Cost Overruns Guarantee by PC and Sol-or Holding Management Ltd. (shareholders of Borrower).
Corporate guarantees by PC and Sol-or which maybe revoked upon certain terms.
Principal Financial Covenants:
Debt Service Cover Ratio is not less than 1.15.
The Loan to the Propertys Value Ratio shall not be less than 80%. Such percentage decreases over the years up
to 50%.
Loan to Equity Contributions ratio shall not be higher than 80:20.Other Information
    
    
    Full amounts presented. PCs share is 50%.
 100




---



##### 



AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsMovement Poland
S.A.
    
    
    Kredytbank S.A.
    
    
     8.5 million
    
    
    1.16 million
    
    
    Euribor + 1.4%
    
    
    Either: on each
interest payment
date by any VAT
refund amount
standing on that
day; or one day
after the date when
relevant VAT refund
is received from
the tax officePrincipal
Securities and
Covenants
    
    
    Second ranking
mortgage on the center.
Assignment of VAT refunds Pledge on bank accountsOther Information
    
    
    Full amounts presented. PCs share is 50%.
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsPraha Plaza s.r.o
    
    
    Erste Bank AG
    
    
    7.5 million
    
    
    6.4 million
    
    
    Euribor + 1.75%
    
    
    Quarterly payments
of 117,200,
beginning on
December
31st, 2004. The
remaining amount
will be paid in one
installment on
December
31st, 2016.Principal Securities
and Covenants
    
    
    First ranking pre-emption right regarding the property.
Pledge on shares of Borrower, on accounts, on receivables from the lease agreements.
Assignment of insurance.Other Information
    
    
    Maintenance of Debt Service Cover Ratio of 1.15 or higher.
 101




---



##### 



AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsSzombately 2002
Kft.
Tatabanya
    
    
    MKB Bank Rt.
MKB Bank Rt.
    
    
    
    
    
    1.45 million
5.57 millionPrincipal
Securities and
CovenantsOther Information
    
    
    This loans have since been repaid in full.
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsElscint Ltd.
    
    
    Bank Hapoalim B.M.
    
    
    A:20 million
B:9.6 million +
£16.7 million
C:2.4 million
D:1.4 million
(stand-by letter of
credit) + NIS 10.2
million
    
    
    A: 20 million
B: 9.6 million
    
    
    Libor + 1.75%
    
    
    A:50% will be paid
in semi-annual
installments
starting June 30
2006 until December
31, 2015 while
remaining 50% upon
last payment date;
B:50% to be paid
on December 31,
2010 and 50% on
December 31, 2015.Principal
Securities and
Covenants
    
    
    Principal Securities:
First and second ranking pledges over certain shares of some of Elscints subsidiaries, within its hotel
operations and Mango.
The ratio of shareholders equity to balance sheet value is greater than 1:4.
The ratio of Operating Profit of Astrid Plaza to the Debt Service of Tranche A for a period should be greater
than 1.2.
Revenue per available room of Astrid Plaza should be no less than:52 for FY 200656 for FY 200760 for FY 2008 and thereafterOther Information
 102




---



##### 



AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsS.L.S. Sails Ltd.
    
    
    Bank Discount
Le-Israel B.M.
    
    
    NIS 2.02 million
    
    
    NIS 2.02 million
    
    
    Prime + 0.75%
    
    
    Quarterly interest
payments with the
principal to be
repaid on April 1,
2008Principal Securities
and Covenants
    
    
    First ranking pledge on the land and the shopping center
First ranking fixed lien on shares of the subsidiary that owns the rights to the land
Floating lien on the assets of the subsidiary that owns the rights to the land
Fixed and floating lien on the assets of the owning subsidiary, on the land, the Arena project and on rights with
respect to current and future tenants and debtors in connection with the Arena project
Lien on the bank account of the Arena project
A corporate guarantee by Elscint
Negative pledge with regard to the assets relating to the project.Other Information
  AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsS.L.S. Sails Ltd.
    
    
    Bank Mizrahi Ltd.
    
    
    NIS 3.3 million
    
    
    NIS 3.3 million
    
    
    Prime + 1.9%
    
    
    By September 7, 2007Principal Securities
and CovenantsOther Information
 103




---



##### 



AmountOutstanding onBorrower
    
    
    Lender
    
    
    Original Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsBEA Hotels
Eastern Europe B.V.
    
    
    Bank Leumi Le
Israel Ltd.
    
    
    A: $13 million
B: $13 million
    
    
    A: $11 million
    
    
    A: Libor + 1.75%
    
    
    Short term
revolving credit
facility; Interest
paid every three
months;Principal
Securities and
Covenants
    
    
    Pledge on Domino and Bucuresti Turism SA shares.
Lien on BEA Hotel Eastern Europe shares and a floating lien on its assets.
Pledge on Dominos present and future movable assets.
Unlimited guarantee by Elscint.Other Information
  AmountOutstanding onOriginal Amount
    
    
    Dec. 31, 2006Borrower
    
    
    Lender
    
    
    (**)
    
    
    (**)
    
    
    Interest
    
    
    Payment TermsRiverbank Hotel
Holding BV;
Victoria Hotel
holding BV; Grandis
Hotel Holding BV;
PPHE Holding BV (*)
    
    
    Goldman Sachs
International
    
    
    £195 million
    
    
    £194.6 million
    
    
    Libor + 3% The
interest was fixed
under a swap
transaction at a
rate of 7.72% per
annum
    
    
    0.375% of the
principal is
payable in
quarterly
installments
commencing one year
as of the draw-down
for a period of 5
years and the
remaining principal
is due after five
years. The
borrowers have an
option to extend
the term by two
years, subject to
certain terms.Principal
Securities and
Covenants
    
    
    First ranking mortgage over the properties;
First ranking pledges over the entire share capital of the borrowers;
First ranking pledges over any companies owned by the borrowers;
An assignment of rent, insurance proceeds and the hedging agreements, as well as a fixed charge over
specified bank accounts.
Undertaking to maintain net operating income to debt service over 1.05.
Prohibition of dividend distribution.Other Information
    
    
    In the event of any cash distribution deriving from the sale, disposal or refinancing of the hotels, or upon
repayment of the loan at the end of term, (transactions), the borrowers shall pay to the financing bank an
amount equivalent to 15% of the difference between the market value of the hotels as determined in such
transaction and the value of the hotels as agreed upon, as at the grant of the current loan;
(*) The loan was granted in respect of the Riverbank Park Plaza, the Victoria Park Plaza and the Sherlock
Holmes Park Plaza hotels. PPHE Holding BV is a party related to the hotel management company Park Plaza.
Elscint undertook to indemnify Park Plaza for 50% of any amount paid by the latter pursuant to the loan
agreement.
(**) EMIs respective share in the such amount is 50%
 104




---



##### 



AmountOriginal
    
    
    Outstanding onBorrower
    
    
    Lender
    
    
    Amount (**)
    
    
    Dec. 31, 2006 (**)
    
    
    Interest
    
    
    Payment TermsVictoria Hotel
C.V. and Utrecht
Victoria Hotel B.V.
Mandarin Hotel BV
    
    
    Merrill Lynch
International
    
    
    Victoria: 57.8
million
Utrecht: 14
million (*)
    
    
    Victoria: 57
million
Utrecht: 13.8
million
    
    
    The Interest on the
loan is hedged by a
swap transaction,
accordingly the
fixed interest rate
is 5.11% per annum
    
    
    Quarterly principal
repayment of
112,000 ending on
March 30, 2007;
337,000 to be paid
at the end of each
quarter commencing
June 30, 2007 and
ending on June 30,
2009; 67,664,000
to be paid at the
end of the term
(September 30,
2009); Interest is
payable on a
quarterly basis.Principal
Securities and
Covenants
    
    
    Mortgage on both hotels.
First ranking pledge on moveable assets, bank accounts (operating income and debt service reserve), rights of the
borrowers under their management agreements and insurance proceeds.
First ranking pledge on shares of borrowers.
Borrowers shall not create or permit to subsist any pledges and mortgages over the whole or any part of their assets.
Negative pledge on borrowers assets.
Principal Financial Covenants: the amount of loans shall not exceed 75% of the total value of the hotel; and on each
interest payment date net operating income for each of the previous four financial quarters shall not be less than
135% of the interest service costs for the same period.Other Information
    
    
    (*) Mandarin Hotel is wholly owned by the Red Sea Group. Total amount of the loan granted to all three parties was
80 million. The parties have executed an internal reimbursement agreement for liabilities born by the joint hotels
in respect of that part of the loans attributed to Mandarin, and vice versa;
(**) EMIs respective share in the such amounts is 50%
  AmountOriginal
    
    
    Outstanding onBorrower
    
    
    Lender
    
    
    Amount
    
    
    Dec. 31, 2006
    
    
    Interest
    
    
    Payment TermsVictoria 
Monument BV
    
    
    Bank Hapoalim B.M.
    
    
    14 million
    
    
    14 million
    
    
    Euribor + 1.5%
    
    
    December 2007
principal and
accrued interestPrincipal
Securities and
Covenants
    
    
    Charge
over account; Charge over the property; Charge over Purchase Agreement of the property; and
owners guarantee provided by EMI (in respect of its share in the property)Other Information
 105




---



##### 



2. Financial Instruments
  3. Material Commitments for Capital Expenditure
  C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
    Conveniencetranslation toUS $
    
    Year Ended December 31,2006
    
    2006
    
    2005
    
    2004Thousands
    
    % of net
    
    Thousands
    
    % of net
    
    Thousands
    
    % of netThousands of $
    
    of NIS
    
    revenues
    
    of NIS
    
    revenues
    
    of NIS
    
    revenuesTotal expenditures for R&D
    
    
    17,032
    
    
    
    71,961
    
    
    
    4.3
    
    
    
    62,825
    
    
    
    7.7
    
    
    
    45,842
    
    
    
    6.2Royalty -bearing
participation from the
Government of Israel
    
    
    2,223
    
    
    
    9,394
    
    
    
    0.6
    
    
    
    3,926
    
    
    
    0.5
    
    
    
    7,684
    
    
    
    1.0Net R&D expenses funded by EMI
    
    
    14,809
    
    
    
    62,567
    
    
    
    3.4
    
    
    
    58,849
    
    
    
    7.2
    
    
    
    38,158
    
    
    
    5.2
  D. TREND INFORMATION
 Shopping and Entertainment Centers Business
 Czech Rep
 106




---



##### 



Hungary.
 Poland.
 Latvia.
 Greece.
 Hotel Business
    107




---



##### 



108




---



##### 



E. OFF-BALANCE SHEET ARRANGEMENTS
    
 
 F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
 
 109




---



##### 



Payments due by Period(NIS in million)Contractual Obligations
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    After 5as of December 31, 2006
    
    Total
    
    1 Year
    
    2-3 Years
    
    4-5 Years
    
    YearsLong-Term Debt (1)
    
    
    3,900
    
    
    
    257
    
    
    
    1,366
    
    
    
    1,427
    
    
    
    850Capital (Finance) Leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases (2)
    
    
    826
    
    
    
    24
    
    
    
    48
    
    
    
    42
    
    
    
    712Purchase Obligations
and Commitments (3) (4)
    
    
    581
    
    
    
    581
    
    
    
    
    
    
    
    
    
    
    
    Other Long Term
Liabilities Reflected
on Balance Sheet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5,307
    
    
    
    862
    
    
    
    1,414
    
    
    
    1,469
    
    
    
    1,562
 
 (1)
    
    Long term debt includes interest that we will pay from January 1, 2007 through the loan
maturity dates. The majority of our loans bear variable interest rates and the interest presented
in this table is based on the Libor rates known as of December 31, 2006. Actual payments of such
interest (as will be presented in the financial statements of the Company) are significantly
dependent upon the Libor rate prevailing as of payment date of payment of such interest. For
additional information in respect of the long term loans, see Note 14 to our consolidated
financial statements included in Item 18 of this report and in Item 5 Operating and Financial
Review and Prospects  Loans above.(2)
    
    Our operating lease obligations are subject to periodic adjustment of the lease payments
as stipulated in the agreements. In this table we included the lease obligation based on the most
recent available information. For additional information in respect of our operating lease
obligations see Note 10B to our consolidated financial statements included in Item 18 of this
report.(3)
    
    Excludes royalty payments that InSightec may have to pay to the OCS. InSightec partially
finances its research and development expenditures under programs sponsored by the OCS for the
support of research and development activities conducted in Israel. In exchange for OCS
participation in the programs, InSightec agreed to pay 3% of total sales of products developed
within the framework of these programs. At the time the OCS participations were received,
successful development of the related projects was not assured. The obligation to pay these
royalties is contingent on actual sales of the products and therefore cannot be estimated.(4)
    
    This refers to contracts with supplier and subcontractors in respect of the construction
of our projects. 110




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##### 



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. DIRECTORS AND SENIOR MANAGEMENT
  NAME
    
    AGE
    
    POSITIONMordechay Zisser (1) (3)
    
    
    52
    
    
    Executive Chairman of the Board of DirectorsShimon Yitzhaki (1)
    
    
    52
    
    
    President and DirectorAbraham (Rami) Goren
    
    
    47
    
    
    Vice Chairman of the Board of Directors and DirectorRachel Lavine
    
    
    42
    
    
    DirectorYehoshua (Shuki) Forer (2) (3)
    
    
    63
    
    
    DirectorDavid Rubner (2)
    
    
    67
    
    
    DirectorYosef Apter (2)
    
    
    52
    
    
    External DirectorZvi Tropp (1) (2) (3)
    
    
    67
    
    
    External DirectorMoshe Lion
    
    
    46
    
    
    DirectorShmuel Peretz
    
    
    67
    
    
    DirectorDudi Machluf (3)
    
    
    35
    
    
    Chief Financial OfficerMarc Lavine
    
    
    54
    
    
    General Counsel and Corporate Secretary
 
 (1)
    
    Member of the Donation Committee(2)
    
    Member of the Audit Committee(3)
    
    Member of the Investment Committee MORDECHAY ZISSER
 ABRAHAM (RAMI) GOREN
 111




---



##### 



SHIMON YITZHAKI
 RACHEL LAVINE
 YEHOSHUA (SHUKI) FORER
 DAVID RUBNER
 YOSEF APTER
 112




---



##### 



ZVI TROPP
 MOSHE LION
 SHMUEL PERETS
 DUDI MACHLUF
 113




---



##### 



MARC LAVINE
 B. COMPENSATION OF DIRECTORS AND OFFICERS
   t
    
    Salaries;t
    
    accrued amount in respect of pensions and retirement benefits;t
    
    Directors compensation fees paid to independent directors
of the Company;t
    
    annual bonus for the year 2006 due to two Officers,
calculated, as per the following mechanism: (i) 0.75% of the first NIS 125 million of the Companys pre-tax annual profits
as disclosed on our annual audited consolidated financial
statements (Profits); (ii) 0.875% of Profits between NIS 125
million and NIS 150 million; and (iii) 1% of Profits exceeding
NIS 150 million;t
    
    annual bonus due to two Officers, at a fixed amount ;t
    
    Payment to a management company in respect of the provision
to the Company of Executive Chairman services;t
    
    Payment of dividend, in respect of shares granted to
directors against a non-recourse loan, pursuant to EMIs 2001
Employees, Directors and Officers Incentive Plan and Elscints
2001 Employees, Directors and Officers Incentive Plan, which
is considered as a salary compensation under Israeli GAAP.
    114




---



##### 



Insurance
     Exemption of directors and officers.
  Indemnification of directors and officers.
  1.
    
    The aggregate indemnification amount, paid to directors and
officers of EMI pursuant to prospective undertake to
indemnify a director and an officer of EMI, or a Director of
the Other Company, shall not exceed the lower of (i) 25% of
the shareholders equity of EMI as of the date of actual
payment by EMI of the indemnification amount (as set forth
in EMIs most recent consolidated financial statements prior
to such payment); and (ii) US$40 million, in excess of any
amounts paid (if paid) by insurance companies pursuant to
insurance policies maintained by EMI, with respect to
matters covered by such indemnification.2.
    
    The undertaking to prospectively indemnify shall apply
(subject to any limitations or restrictions under law) to
the following events that, in the opinion of EMI board of
 115




---



##### 



directors, are foreseeable at the date of the board of
directors resolution on the grant of prospective
undertaking to indemnify:
 a.
    
    Any issuance of securities,
including without limitation, a public
offering pursuant to a prospectus, a private
offering, the issuance of bonus shares or
any offer of securities in any other manner;b.
    
    A Transaction within the meaning
of Section 1 of the Companies Law, including
without limitation a transfer, sale or
purchase of assets
or liabilities, including securities, or
the grant or receipt of a right to any of
the foregoing, and any act directly or
indirectly involved in such
Transaction;c.
    
    Report or notice filed in
accordance with the Companies Law or the
Israeli Securities Law of 1968, including
regulations promulgated thereunder, or in
accordance with rules or instructions
prevailing on an Israeli stock exchange or a
stock exchange outside of Israel, or any law
of another country regulating similar
matters and/or the omission to act
accordingly;d.
    
    Amendment to EMIs structure or its
reorganization or any resolution with
respect to such matters, including without
limitation, a merger, split, change in EMIs
capital structure, incorporation of
subsidiaries, dissolution or sale thereof,
issuance or distribution;e.
    
    The making of any statement,
including a bona fide statement or opinion
made by an officer of EMI in such capacity,
including during meetings of the Board of
Directors or any committee thereof;f.
    
    An act in contradiction to the
articles or memorandum of association of
EMI; andg.
    
    Any of the foregoing events
relating to the capacity of such officer as
an officer of a corporation controlled by
EMI or otherwise affiliated therewith.
   116




---



##### 



C. BOARD PRACTICES
 Election of Directors
  Substitute Directors
  External Directors; Independent Directors
   117




---



##### 



(i)
    
    the director holds an academic degree in one of these areas: economics,
business administration, accounting, law or public administration;(ii)
    
    the director holds an academic degree or has other higher education, all in
the main business sector of the company or in a relevant area for the board position;
or(iii)
    
    the director has at least five years experience in one or more of the
following (or a combined five years experience in at least two or more of these: (a)
senior management position in a corporation of significant business scope; (b) senior
public office or senior position in the public sector; or (c) senior position in the
main business sector of the company.
 among other things
 118




---



##### 



(i)
    
    accounting issues and accounting control issues
characteristic to the segment in which the company operates and to
companies of the size and complexity of the company;(ii)
    
    the functions of the external auditor and the obligations
imposed on such auditor;(iii)
    
    preparation of financial reports and their approval in
accordance with the companies law and the securities law.
         119




---



##### 



3. Board Committees
  Audit committee
   de minimis
  120




---



##### 



Donation committee
 Investment committee.
 D. EMPLOYEES
    E. SHARE OWNERSHIP
 2006 Employees, Directors and Officers Incentive Plan
  i.e. i.e.
 121




---



##### 



Elscints 2003 Employees, Directors and Officers Incentive Plan
  2001 Employees, Directors and Officers Incentive Plan
    122




---



##### 



Elscints 2001 Employees, Directors and Officers Incentive Plan
 i.e.
  Issuance of Options to our Executive Chairman of the Board
  InSightec Equity Plans
    123




---



##### 



PC
Employee Share Scheme
   124




---



##### 



(A x B) - (A x C)
 A =
    The number of Options which a grantee wishes to exercise that is specified in
the Exercise NoticeB =
    The opening price in £ of the Ordinary Shares on the London Stock Exchange on
the Exercise Day, provided that if the opening price exceeds 180% of the Exercise Price
(without adjustments for the distribution of cash dividend) the opening price shall be
set as 180% of the Exercise PriceC =
    Exercise Price in £ per OptionD =
    The opening price in £ of the Companys Share on the Stock Exchange on the
Exercise Day
    125




---



##### 



NAME
    
    NUMBER OF SHARES

    %*
    
    ENTITYMordechay Zisser
    
    12,753,634
    **

    49.42
    
    EMIAbraham (Rami) Goren
    
    47,700
    

    ***
    
    EMIAbraham (Rami) Goren
    
    6,627
    ****

    ***
    
    EMIShimon Yitzhaki
    
    67,265
    

    ***
    
    EMIShimon Yitzhaki
    
    11,928
    ****

    ***
    
    EMIShimon Yitzhaki
    
    100,000
    

    ***
    
    InsightecRachel Lavine
    
    9,940
    ****

    ***
    
    EMIYehoshua (Shuki) Forer
    
    4,000
    

    ***
    
    EMIYehoshua (Shuki) Forer
    
    1,988
    ****

    ***
    
    EMIDavid Rubner
    
    3,976
    ****

    ***
    
    EMIYosef Apter
    
    3,976
    ****

    ***
    
    EMIZvi Tropp
    
    3,976****
    

    ***
    
    EMIMoshe Lion
    
    2,220
    ****

    ***
    
    EMIShmuel Peretz
    
    2,220
    ****

    ***
    
    EMITwo EMI officers
    
    15,834
    ****

    ***
    
    EMIEMI officer
    
    7,500
    

    ***
    
    Insightec
 
 *
    
    The Number of shares and percentage ownership are based on Shares outstanding as of June 20,
2007. Such number excludes 2,800,000 Shares repurchased by the Company in a self tender offer with
respect to which the Company does not have any voting or equity rights. Beneficial ownership is
determined in accordance with the rules of the U.S. Securities and Exchange Commission (the SEC)
based on voting and investment power with respect to such Shares. Shares subject to options that
are currently exercisable or exercisable within 60 days of June 20, 2007 are deemed to be
outstanding and to be beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person, but are not deemed to be outstanding and to be
beneficially owned for the purpose of computing the percentage ownership of any other person.**
    
    Includes 12,053,634 shares of EMI held by Europe-Israel, which may be deemed indirectly
beneficially owned by Mr. Mordechay Zisser by virtue of his control of Europe-Israel through his
control of Control Centers, see Item 7. Major Shareholders and Related Party Transactions  Major
Shareholders below. Also includes 350,000 options granted on September 9, 2001 that were exercised
to 350,000 shares of EMI. Also includes 350,000 options to purchase 350,000 ordinary shares of EMI
at an exercise price of NIS 137.44 per option which have fully vested as of November 15, 2006 held
directly by Mr. Zisser.***
    
    Less than 1% of the outstanding ordinary shares of the respective entity.****
    
    Options granted under the Companys 2006 Plan, which are deemed vested (i.e. extricable
within 60 days following June 20, 2007) granted to, among others, directors and officers of the
Company. 126




---



##### 



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. MAJOR SHAREHOLDERS
  Percent of Shares BeneficiallyName and Address
    
    Number of Shares
    
    Owned(1)Mordechay Zisser (2)
    
    
    12,753,634
    (3)
    
    
    49.42
    %Europe Israel (M.M.S.) Ltd. (4)
    
    
    12,053,634
    
    
    
    47.35
    %Clal Insurance Enterprises Holdings Ltd.
    
    
    1,509,165
    (5)
    
    
    5.9
    %IDB Development Corporation Ltd.
    
    
    1,509,165
    (5)
    
    
    5.9
    %IDB Holding Corporation Ltd.
    
    
    1,509,165
    (5)
    
    
    5.9
    %Nochi Dankner
    
    
    1,509,165
    (5)
    
    
    5.9
    %Shelly Bergman
    
    
    1,509,165
    (5)
    
    
    5.9
    %Ruth Manor
    
    
    1,511,286
    (5)
    
    
    5.9
    %Avraham Livnat
    
    
    1,509,165
    (5)
    
    
    5.9
    %All officers and directors of the Company
as a group (12 persons)
    
    
    12,935,282
    (6)
    
    
    50.01
    %
 
 (1)
    
    The Number of shares and percentage ownership are based on Shares outstanding as of June
20, 2007. Such number excludes 2,800,000 Shares repurchased by the Company in a self tender
offer with respect to which the Company does not have any voting or equity rights. Beneficial
ownership is determined in accordance with the rules of the U.S. Securities and Exchange
Commission (the SEC) based on voting and investment power with respect to such Shares.
Shares subject to options that are currently exercisable or exercisable within 60 days of
June 20, 2007 are deemed to be outstanding and to be beneficially owned by the person holding
such options for the purpose of computing the percentage ownership of such person, but are
not deemed to be outstanding and to be beneficially owned for the purpose of computing the
percentage ownership of any other person. All information with respect to the beneficial
ownership of any principal shareholder has been furnished by such shareholder or is based on
the most recent Schedule 13D or 13G filed with the SEC and, unless otherwise indicated below,
the Company believes that persons named in the table have sole voting and sole investment
power with respect to all the shares shown as beneficially owned, subject to community
property laws, where applicable. The shares beneficially owned by our directors include the
Shares owned by their family members as to which such directors disclaim beneficial
ownership.(2)
    
    Mr. Zisser is the indirect controlling shareholder of the Company, by virtue of his control
of Europe-Israel and serves as the Companys Executive Chairman of the Board of Directors.
See footnote 4 below.(3)
    
    Includes 12,053,634 Shares held by Europe-Israel, which may be deemed to be beneficially
owned by Mr. Mordechay Zisser, the Companys Executive Chairman of the Board of Directors, by
virtue of his control of Europe-Israel. See footnote 4 below. Also includes Mr. Zissers
350,000 options granted on September 9, 2001 that were exercised to 350,000 shares of EMI
held directly by Mr. Zisser. Also includes 350,000 options to purchase 350,000 Shares at an
exercise price of NIS 137.44 per Share held by Mr. Zisser
directly, are fully vested, as of November 15, 2006.(4)
    
    Europe-Israel is an Israeli corporation wholly-owned by Control Centers Ltd., a private
company controlled by Mr. Mordechay Zisser.(5)
    
    Based solely on Schedule 13G filed by Clal Insurance Enterprises Holdings Ltd., IDB
Development Corporation Ltd., IDB Holding Corporation Ltd., Nochi Dankner, Shelly Bergman,
Ruth Manor and Avraham Livnat (collectively, the Reporting Persons) on February 5, 2007.
The 1,509,165 Shares reported on such Schedule 13G as beneficially owned by the Reporting
Persons are held for members of the public through, among others, provident funds, mutual
funds, pension funds and insurance policies, which are managed by subsidiaries of Clal
Insurance Enterprises Holdings Ltd. Each of these subsidiaries operates under independent
management and makes independent voting and investment decisions. Each of the Reporting
Persons disclaims beneficial ownership of all such Shares. The 1,509,165 Shares (and in
respect of Ms. Manor 1,511,286) excluded 11,622 127




---



##### 



Shares which are held for members of the
public, through, among others, provident funds and mutual funds, which are managed by
companies controlled by Epsilon Investment House Ltd., an in direct subsidiary of IDB
Development.(6)
    
    Includes: (i) 12,053,634 shares held by Europe-Israel, which may be deemed to be
beneficially owned by Mr. Mordechay Zisser, (see footnote 4 above); (ii) Mr. Zissers 350,000
options granted on September 9, 2001 that were exercised to 350,000 shares of EMI held
directly by Mr. Zisser; and (iii) Mr. Zissers 350,000 options to purchase 350,000 Shares at
an exercise price of NIS 137.44 per Share, which are fully vested; (iv) 118,965 Shares issued
to other directors and officers of the Company pursuant to the Companys 2001 employees and
officers incentive plan; and (v) 62,683 deemed vested options (i.e. extricable within 60
days following June 20, 2007) granted to other directors and officers of the Company pursuant
to the Companys 2006 Plan. Changes in Major Shareholders Holdings during the Last Three Years
       128




---



##### 



B. RELATED PARTY TRANSACTIONS
 Lease
 t
    
    Until October 2006, EMI leased office space from Control Centers,
on customary terms. As to the new lease agreements between (i) EMI
and Europe Israel; and (ii) Mango and Europe Israel, see Item 4 -
Information on the Company  D. Property Plant and Equipment
above. The lease agreements were approved by our audit committee
and board of directors as a non-extraordinary transaction within
the meaning of the Israeli Companies Law.t
    
    In 2005, Elscints Audit Committee and Board of Directors approved
lease agreements between a company  25% of which are held by
Elscints then director  as a lessee in the Arena commercial and
entertainment center. The approval related also to a loan and a
grant awarded to such lessee within a framework of the lease
agreement. The transactions were approved as non-extraordinary
transaction within the meaning of the Israeli Companies Law.Allocation of Costs Agreementt
    
    Through December 2005, we were a party to an allocation of costs
and expenses agreement, together with Europe Israel and Elscint.
Allocation of costs related to those costs incurred in connection
with services rendered to those companies by their in-house legal,
economic and taxation and accounting departments. The allocation
carried out so that Europe-Israel bore 35%, while Elscint and EMI
each bore 32.5% of such costs. The parties executed set off in
those years where actual services provided deviated by more than
10% from estimation.
 Agreement for the purchase of coordination, planning and supervision services over
construction projects
 t
    
    Companies controlled by our Executive Chairman are parties to
various agreements with subsidiaries of PC, pursuant to which such
entities have agreed to provide services of coordination,
planning, execution and supervision over construction projects, to
PCs subsidiaries, in consideration for 5% of the actual
construction costs of each such project (excluding land
acquisition cost, financing costs and general and administrative
costs), plus VAT. In addition, PCs subsidiaries will reimburse
such companies, for all reasonable
 129




---



##### 



t
    
    Following the termination of the above framework agreement
pursuant to its terms, a similar agreement for the receipt of such
services for real estate projects, subject to certain amendments,
and the receipt of aviation service was approved by our
shareholders on May 31, 2006. Under the agreement entered into
between us and Control Centers we will receive from Control
Centers (either directly or through its subsidiaries or
affiliates, other than the Company) coordination, planning,
execution and supervision services over our real estate projects
and/or real estate projects of our subsidiaries and/or affiliates
in consideration for a fee equal to 5% of the actual execution
costs (excluding land acquisition costs, financing cost and the
consideration for Control Centers under the agreement) of each
such project. The agreement will apply to real estate projects
initiated following the approval of the agreement by the Companys
shareholders and to the following projects: (i) a shopping and
entertainment center in Liberec, Czech Republic; (ii) a shopping
and entertainment
center in Kerepesi, Hungary; and (iii) a complex of shopping and
entertainment center, hotels, congressional centers and other facilities
in Obuda, Hungary, which were at that time in early stage of development.Such fee will be paid in installments upon the meeting of milestones as stipulated in the
agreement. In addition, the Company will reimburse Control Centers for all reasonable costs
incurred in connection with the services rendered thereby, not to exceed a total of 75,000
($98,000) per real estate project.If the purpose of a real estate project is changed for any reason prior to the completion of
the project or if the development of the real estate project is terminated for any reason
(including the sale of the real estate project), the payment to Control Centers will be
calculated as a percentage of the budget for the project, provided that such percentage shall
not exceed the percentage determined for the next milestone of the project had it had
continued as planned. The calculation of such payments to Control Centers will be subject to
the approval of an external accountant and the approval of the audit committee and board of
directors.In addition, the Company and/or its subsidiaries and/or affiliates may also purchase from
Control Centers through Jet Link up to 125 flight hours per calendar year in consideration
for payments to Jet Link in accordance with its price list to unaffiliated companies less a
5% discount. This Agreement does not derogate from a previous agreement entered into between
us and Jet Link for the purchase of aviation services which was approved by our shareholders
on September 10, 2000, see - Agreement for aviation service below.The agreement with Control Centers has a five-year term commencing May 31, 2006.Agreement for aviation servicest
    
    Pursuant to an agreement between us and Jet Link Ltd. (Jet Link), an aviation company a wholly-owned subsidiary of
Control Centers, which was approved by our shareholders on September 10, 2000, we, or our subsidiaries, may purchase
aviation services from Jet Link for our operations in the shopping and entertainment centers business for up to 150
 130




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##### 



t
    
    Due to our increasing business needs, we and our subsidiaries purchased during, 2004, 2005 and 2006 approximately 70,
200 and 43 additional flight hours from Jet Link, under same terms and conditions. The purchase of the additional
flight hours was approved by our audit committee and board of directors as a non-extraordinary transaction within the
meaning of the Israeli Companies Law.
 Agreement for the purchase of coordination, planning and supervision services over the
Bucuresti hotel complex
 t
    
    In October 2001, an engagement between Bucuresti and Control
Centers (through its wholly owned subsidiary) was approved at an
Elscint shareholders meeting. In accordance with such engagement,
Control Centers provides coordination, planning and supervision
services with respect to the renovation works of the Bucuresti
Hotel complex, for a fee equal to the lower of (i) 5% of total
actual costs of the renovation works (excluding general and
administrative as well as financing costs); and (ii) 5% of $30
million. A definitive agreement has not been executed in respect
of such engagement although the parties perform their duties and
obligations thereunder.
 The Arena center
 t
    
    In May 2002, Elscints shareholders approved a turn-key agreement
for the completion of the construction of the Arena Center in
Herzliya, Israel, by the Control Centers group. Total
consideration paid to Control centers Group under such agreement,
was NIS 161.8 million.t
    
    We furnished the local municipality with a bank guarantee to
secure payment of certain land betterment tax, in an amount of
approximately $1.0 million. Arbitration is currently being held as
to this tax liability between Marina Herzliya Limited Partnership
Ltd. (a company controlled by Control Centers) and the local
municipality. We estimate, based on professional opinion that no
significant costs will be borne thereby, in respect of this
guarantee.
 Tax Arrangement
 t
    
    During 2004, we, Europe-Israel and Elscint finalized an
arrangement with the Israeli Tax Authority, with effect from
December 31, 2002, whereby a new tax basis has been determined for
our investments (on consolidated basis) in foreign subsidiaries
(regulated revaluation and regulated assets). The arrangement
provides for no additional tax to be imposed in Israel on gains
generated from the realization of regulated assets, and on
dividends distributed therefrom, and all up to the amount of the
regulated revaluation
 Loan Agreement with Bank Hapoalim B.M.
 t
    
    Within the framework of our loan agreements with Bank Hapoalim
B.M. we undertook to maintain financial covenants for so long as
the credit provided by the bank to us or to Europe Israel exceeds
$30 million. See Item 5. Operating and Financial Review and
Prospects  B. Liquidity and Capital Resources  Other Loans
above.
 131




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##### 



Compensation to Directors and Officers
 t
    
    For details regarding compensation granted to our directors and
officers, including securities issued to our directors and
officers under different incentive plans, see Item 6. Directors,
Senior Management and Key Employees  B. Compensation and E. -
Share Ownership above.t
    
    Our employees, who serve as officers of EMI, receive salaries and
related benefits customary to their respective positions. All such
agreements have been approved by the respective EMI organs.t
    
    In October 2000, Elscints shareholders approved the annual cost
of the employment of Mr. Abraham Goren, the then Executive
Chairman of the Board of Directors of Elscint as $250,000, linked
to the Israeli Consumer Price Index, plus reimbursement of Mr.
Gorens expenses incurred in connection with his services to the
Company in the foregoing capacity. There has been no change to Mr.
Gorens employment terms following his election to the Board of
Directors of EMI and his nomination as Vice Chairman.t
    
    In September 2001, we granted to Mr. Mordechay Zisser, the
Executive Chairman of our board of directors, options to purchase
up to 350,000 of our ordinary shares. The exercise price of the
options, originally set at NIS 35.7 per share, was later amended
to reflect changes in the exchange rate between the NIS and the
U.S. dollar and in December 2002, our shareholders approved a
further amendment of the exercise price to unlinked NIS 44 per
option. In September 2004, our shareholders approved a one-year
extension of the exercise period until September 8, 2005 and
amended the exercise price to NIS 45.7 per share. These options
were exercised by Mr. Zisser on February 27, 2005, in
consideration for approximately NIS 16.0 million (approximately
$3.6 million).t
    
    In December 2002, our shareholders approved the monthly cost of
employment of Mr. Shimon Yitzhaki, our President and Director, as
$33,750 linked to the Israeli Consumer Price Index. Such cost
includes customary social benefits and the use of a car fully
maintained by the Company. In addition, Mr. Yitzhaki is entitled
to reimbursement of expenses incurred in connection with his
services in the foregoing capacities. Mr. Yitzhaki will devote at
least 90% of his working time to EMI.t
    
    In August 2003, Elscints shareholders approved the annual cost of
the employment of Ms. Lavine in her capacity as Director and
President of Elscint as $390,000, linked to the
Israeli Consumer Price Index, plus reimbursement of Ms. Lavines expenses
incurred in connection with her services to Elscint in the foregoing
capacities. Ms. Lavine will devote at least 90% of her working time to EMI.t
    
    In March 2005. our shareholders approved an amendment
to the terms of employment of Mr. Mordechay Zisser,
the Executive Chairman of our board of directors, so
that the monthly cost of employment of Mr. Mordechay
Zisser will be increased to NIS 220,000, with effect
as from January 1, 2005.t
    
    On May 31, 2006 EMIs shareholders meeting approved
an agreement for the receipt of executive chairman
services between EMI and a management company (the
Management Company) controlled by Mr. Mordechay
Zisser, our Executive Chairman. Under the agreement,
the Management Company will provide us with Executive
Chairman services (Services). The Management
Company may provide the Services to private
subsidiaries and/or affiliates of the Company. The
Services will be provided by Mr. Zisser only, as an
employee of the Management Company. Mr. Zisser will
devote at
 132




---



##### 



t
    
    On May 31, 2006 our shareholders approved the grant of 350,000
non-marketable options to Mr. Mordechay Zisser, the Executive Chairman of
our board of directors. The options are exercisable into 350,000 shares of
EMI for an exercise price equal to 125% of the average closing price in
NIS of Emis shares on the TASE during the 30-trading day period preceding the
date of grant of the options which is equal to NIS 137.4 per share. The options
are exercisable upon grant and will remain exercisable for a period of three
years thereafter.t
    
    On May 31, 2006, our shareholders have approved the
payment of an annual bonus to Mr. Shimon Yitzhaki,
the Companys President, the then Chief Financial
Officer and a director, and to Ms. Rachel Lavine, a
director of the Company who also served at that time
as the President of Elscint and the then Acting Chief
Executive Officer of Plaza Centers, as follows:The Company will pay each a bonus of $100,000 for the fiscal year 2004 and a bonus of
$175,000 for the fiscal year 2005. For each fiscal year after 2005, the Company will pay each
an annual bonus within 30 days following the approval by the Board of Directors of each
years audited consolidated financial statements of the Company which will be calculated, as
follows: (i) 0.75% of the first NIS 125 million ($29.6 million) of Profits (as defined
below); (ii) 0.875% of Profits between NIS 125 million ($29.6 million) and NIS 150 million
($35.5 million); and (iii) 1% of Profits exceeding NIS 150 million ($35.5 million).For the purposes of determining the annual bonus, Profits means profits of the Company
before taxes as disclosed on the Companys annual audited consolidated financial statements.The annual bonus will be paid to the above, for so long as they (each) serve as a director or
officer of the Company or of any of the Companys subsidiaries.t
    
    On May 31, 2006, our shareholders approved bonus payments for the
fiscal years commencing January 1, 2006 to our Chairman which will be paid
following the approval
 133




---



##### 



t
    
    Within a service agreement dated October 26, 2006, between PC and our
executive chairman, Mr. Zisser will serve as the executive chairman of the
board of directors of PC in consideration for an annual salary of
$300,000. No amounts are set aside by PC or the Company to provide
pension,
retirement or similar benefits to Mr. Zisser. This agreement requires approval
of EMIs organs. Each party may terminate the agreement by a 12 months prior
notice.t
    
    On 27 October 2006 PC had entered into an agreement
with our Vice-Chairman, Mr. Abraham (Rami) Goren,
under which he will be entitled to receive options
(the ''Options) to acquire 5% of the holding
company through which PC will carry on its operations
in India. Where considered appropriate, and by
agreement, Mr. Goren will be entitled to take up a 5%
interest in specific projects, in which case
necessary adjustments will be made at the holding
company level. The Options will be subject to vesting
over a three-year period, with an initial vesting of
2% on award of the Options following commencement of
the relevant project. This will rise by 1% on the
following dates: 31 March 2007; 31 March 2008; and 31
March 2009. Therefore, this will reach a maximum
amount of 5% after the three-year period. If Mr.
Goren elects to take up Options in a specific project
which commences after any of the vesting dates
specified above, an immediate vesting will be allowed
in respect of Options which would have vested as of
the above dates. The Options may be exercised at any
time, at a price calculated in accordance with an
agreed upon formula.
    t
    
    On November 8, 2006, our audit committee approved the grant of PCs options to EMIs directors. Such grant is subject
to the approval of EMIs Board of Directors and shareholders meeting. For details regarding a share option scheme
adopted by PC, see
 134




---



##### 



t
    
    In December 2006, our Audit Committee and
Board of Directors approved a fixed bonus to our Vice Chairman for the
year 2006. Award of such bonus is subject to the approval of EMIs
shareholders.
 Indemnification, Insurance and Exemption
  Inter-company guarantees
  
 ITEM 8. FINANCIAL INFORMATION
 A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
 See our consolidated financial statements included in Item 18 below.
 B. SIGNIFICANT CHANGES
  
 ITEM 9. THE OFFER AND LISTING
 A. OFFER AND LISTING DETAILS
  Information regarding the price history of the stock listed:
  135




---



##### 



Nasdaq
    
    TASEYear Ended December 31,
    
    High ($)
    
    Low ($)
    
    High ($)
    
    Low ($)2006
    
    
    34.54
    
    
    
    15.28
    
    
    
    34.82
    
    
    
    15.372005
    
    
    19.54
    
    
    
    8.9
    
    
    
    19.18
    
    
    
    9.012004
    
    
    10
    
    
    
    6.92
    
    
    
    9.97
    
    
    
    7.212003
    
    
    7.14
    
    
    
    3.70
    
    
    
    6.91
    
    
    
    3.802002
    
    
    7.71
    
    
    
    4.50
    
    
    
    7.40
    
    
    
    4.50
  Nasdaq
    
    TASEFinancial Quarter
    
    High ($)
    
    Low ($)
    
    High ($)
    
    Low ($)2007Q1
    
    
    42.94
    
    
    
    33.65
    
    
    
    43.03
    
    
    
    33.152006Q1
    
    
    20.04
    
    
    
    15.28
    
    
    
    20.05
    
    
    
    15.37Q2
    
    
    26.2
    
    
    
    19.03
    
    
    
    26.13
    
    
    
    18.4Q3
    
    
    26.1
    
    
    
    19.84
    
    
    
    26.25
    
    
    
    20.52Q4
    
    
    34.54
    
    
    
    25.9
    
    
    
    34.82
    
    
    
    26.622005Q1
    
    
    16.21
    
    
    
    8.9
    
    
    
    16.00
    
    
    
    9.01Q2
    
    
    19.54
    
    
    
    14.38
    
    
    
    19.37
    
    
    
    14.40Q3
    
    
    19.32
    
    
    
    15.74
    
    
    
    19.18
    
    
    
    15.70Q4
    
    
    16.99
    
    
    
    14.75
    
    
    
    16.78
    
    
    
    14.84
  Nasdaq
    
    TASEMonth
    
    High ($)
    
    Low ($)
    
    High ($)
    
    Low ($)May 2007
    
    
    47.59
    
    
    
    42.26
    
    
    
    47.41
    
    
    
    42.31April 2007
    
    
    47.14
    
    
    
    42.87
    
    
    
    45.91
    
    
    
    44.47March 2007
    
    
    42.9
    
    
    
    36.44
    
    
    
    42.90
    
    
    
    37.32February 2007
    
    
    42.94
    
    
    
    37.9
    
    
    
    43.03
    
    
    
    38.49January 2007
    
    
    39.93
    
    
    
    33.65
    
    
    
    39.8
    
    
    
    33.15December 2006
    
    
    34.54
    
    
    
    31.1
    
    
    
    34.8
    
    
    
    30.34
  136




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##### 



B. PLAN OF DISTRIBUTION
  C. MARKETS
  D. SELLING SHAREHOLDERS
  E. DILUTION
  F. EXPENSES OF THE ISSUE
  
 ITEM 10. ADDITIONAL INFORMATION
 A. SHARE CAPITAL
  B. MEMORANDUM AND ARTICLES OF ASSOCIATION AND GENERAL PROVISIONS OF ISRAELI LAW
 Transfer Agent
  Purposes and Objects of the Company
   137




---



##### 



Approval of Certain Transactions
       i.e.
 138




---



##### 



Fiduciary Duty and Duty of Care of Directors and Officers
  w
    
    the avoidance of any conflict of interest between the directors or officers position with the company and any other
position he fulfills or with his personal affairs;w
    
    the avoidance of any act in competition with the companys business;w
    
    the avoidance of exploiting any of the companys business opportunities in order to gain a personal advantage for
himself or for others; andw
    
    the disclosure to the company of any information and documentation relating to the companys affairs obtained by the
director or officer due to his position with the company.
  Duty of a Shareholder
  Board of Directors
  139




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##### 



Indemnification, exemption and insurance of Directors and Officers
 General
 Exemption
 Insurance
 (i)
    
    Breach by the director and/or officer of such directors and/or officers duty of care to EMI
or to any other person;
 (ii)
    
    Breach of the directors and/or officers fiduciary duty to EMI, provided that the director
and/or officer acted in good faith and had reasonable grounds to believe that the act would
not prejudice the interest of EMI;(iii)
    
    Monetary liability imposed upon a director and/or officer in favor of a third party;
 (iv)
    
    Any other event in respect of which an insurance of a director and/or officer is and/or may
be permitted.
 Indemnification
 140




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##### 



(i)
    
    Monetary liability imposed upon an officer in favor of a third party by a judgment, including
a settlement judgment approved by court or an arbitrators award approved by court;
 (ii)
    
    Reasonable litigation expenses, including attorneys fees, incurred by or charged to a
director and/or officer by court, in proceedings brought against the director and/or officer
by EMI or on its behalf or by a third party, or a criminal charge from which the director
and/or officer was acquitted or for a criminal charge in which such officer was convicted of
an offense not requiring proof of criminal intent;
 (iii)
    
    Other liability or expense for which it is or may be permissible to indemnify a director
and/or officer.
   Prohibition on the grant of exemption, insurance and indemnification
 (i)
    
    a breach of the fiduciary duty vis-a-vis the company, except in relation to indemnification
and insurance due to a breach of fiduciary duty towards the Company if the director or
officer acted in good faith and had a reasonable basis to believe that the act would not harm
the Company;
 (ii)
    
    an intentional or reckless breach of the duty of care, except if such breach of duty of care
was made in negligence only;(iii)
    
    an act done with the intention of unduly deriving a personal profit; or(iv)
    
    a fine imposed on the officer or director.
 141




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##### 



Rights Attached to Shares
   Dividend Rights
     Voting Rights
  142




---



##### 



Rights to the Companys Profits
  Rights in the Event of Liquidation and Winding Up
  Changing Rights Attached to Shares
 mutatis mutandis
 Annual and Special Meetings
  143




---



##### 



Limitations on the Rights to own Securities
  Changes to our Capital
  Anti Takeover Provisions
  Amendment of Articles of Association
  C. MATERIAL CONTRACTS
  Shopping and Entertainment Centers
 Agreement for the sale of the Arena Shopping and Entertainment Center in Israel
  Sale of four Operational Shopping and Entertainment Centers in Poland and four Shopping and
Entertainment Centers Under Development in Poland and the Czech Republic to Klepierre
  144




---



##### 



  
 
  
 
  145




---



##### 



Sale of four Operational Shopping and Entertainment Centers In Hungary
   
 
 Hotels Business
 Management agreement with Park Plaza
  Sale of One of Our Hotels in the United Kingdom
  General
 Issuance of non-convertible debentures
   146




---



##### 



Merger and consummation of the merger with Elscint
  Loan Agreements
   D. EXCHANGE CONTROLS
   E. TAXATION
   Taxation in Israel
  147




---



##### 



Capital Gains Tax on Sales of Our Ordinary Shares
      148




---



##### 



Foreign Exchange Regulations
  Taxation of dividends Distributions
    149




---



##### 



U.S. Federal Income Tax Considerations
  
    
    an individual citizen or resident of the U.S. for U.S. federal income tax purposes;
    
    a corporation (or another entity taxable as a corporation for U.S. federal income tax
purposes) created or organized under the laws of the United States, any political
subdivision thereof or the District of Columbia;
    
    an estate, the income of which may be included in the gross income for U.S. federal
income tax purposes regardless of its source; or
    
    a trust (i) if, in general, a U.S. court is able to exercise primary supervision over
its administration and one or more U.S. persons have the authority to control all of its
substantial decisions or (ii) that has in effect a valid election under applicable U.S.
Treasury Regulations to be treated as a U.S. person.
   Each holder of our ordinary shares is advised to consult his or her tax advisor with respect
to the specific U.S. federal, state, local and foreign income tax consequences to him or her of
purchasing, holding or disposing of our ordinary shares.
 150




---



##### 



Distributions
    151




---



##### 



Disposition of Ordinary Shares
  Tax Consequences If We are a Passive Foreign Investment Company
   152




---



##### 



153




---



##### 



Non-U.S. Holders
  Information Reporting and Backup Withholding
   154




---



##### 



F. DIVIDENDS AND PAYING AGENTS
  G. STATEMENT BY EXPERTS
  H. DOCUMENTS ON DISPLAY
  I. SUBSIDIARY INFORMATION
 .
 
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
 Exchange Rate Exposure
 Operations
 
 
 155




---



##### 



Monetary assets (liabilities), net
  
 Net investment value of foreign investees
     Rate of Inflation
  Interest Rate Risks
  156




---



##### 




  Credit Risks
     Marketable and Equity Securities
   157




---



##### 



Venture Capital Investments
  Rent Income from commercial And Entertainment Centers
   Land and Real Estate Rates
  Financial Instruments
    Fair Value of Financial Instruments
  158




---



##### 



Carrying amount
    
    Market valueDecember 31, 2006NIS (in millions)Elbit  treasury stock (see Note
18A. to our consolidated
financial statements)
    
    
    138.6
    
    
    
    374.6
    (1)Bucuresti shares (See Note
9.B(4), to our consolidated
financial statements.)
    
    
    279.7
    
    
    
    107.2
    (2)Plaza Centers shares
    
    
    1,356
    
    
    
    3176
    (3)
 
 (1)
    
    Includes 2,800,000 shares held by EMI. Shares are traded on the Tel Aviv
Stock Exchange and in the NASDAQ.(2)
    
    Shares are traded on the Bucharest stock exchange, in Romania (RASDAQ).(3)
    
    Shares are traded on the London Stock Exchange (LSE)  Carrying amount
    
    Market valueDecember 31, 2006NIS (in millions)Debentures Series A,B and C
    
    
    1,100.5
    
    
    
    1,163.0
    (1)Loan linked to GBP
    
    
    815.5
    
    
    
    787.5
    (2)Loan linked to Euro
    
    
    197.0
    
    
    
    193.5
    (2)
 
 (1)
    
    The fair value is based on quoted prices in an active market as of the
balance sheet date.(2)
    
    The fair value is based on a calculation of the present value of cash flows
at the customary interest rate for a similar loan with similar characteristics. 159




---



##### 



Other
    
    
    Adjustments toIsraeli NIS
    
    
    Euro
    
    
    GBP
    
    
    US Dollar
    
    
    Currencies
    
    
    Consolidation
    
    
    TotalUnlinked
    
    
    Linkedin NIS MillionsCurrent AssetsCash and cash equivalents
    
    
    665
    
    
    
    
    
    
    
    1,200
    
    
    
    20
    
    
    
    244
    
    
    
    22
    
    
    
    
    
    
    
    2,151Short-term deposits and investments
    
    
    133
    
    
    
    
    
    
    
    22
    
    
    
    19
    
    
    
    74
    
    
    
    15
    
    
    
    16
    
    
    
    279Trade accounts receivable
    
    
    4
    
    
    
    
    
    
    
    18
    
    
    
    17
    
    
    
    4
    
    
    
    8
    
    
    
    
    
    
    
    51Receivables and other debit balances
    
    
    7
    
    
    
    
    
    
    
    38
    
    
    
    4
    
    
    
    9
    
    
    
    64
    
    
    
    
    
    
    
    122Long-Term Investments and ReceivablesDeposits, loans and other long-term balances
    
    
    5
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    122
    
    
    
    2
    
    
    
    (16
    )
    
    
    172Investments in investees and other companies
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    17Assets Related to Discontinuing Operation
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Total assets
    
    
    814
    
    
    
    
    
    
    
    1,360
    
    
    
    60
    
    
    
    459
    
    
    
    111
    
    
    
    
    
    
    
    2,804Current LiabilitiesShort-term credits
    
    
    17
    
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    125
    
    
    
    19
    
    
    
    58
    
    
    
    494Suppliers and service providers
    
    
    12
    
    
    
    
    
    
    
    27
    
    
    
    22
    
    
    
    8
    
    
    
    38
    
    
    
    
    
    
    
    107Payables and other credit balances
    
    
    80
    
    
    
    
    
    
    
    31
    
    
    
    42
    
    
    
    48
    
    
    
    28
    
    
    
    
    
    
    
    229Long-Term Liabilities
    
    
    216
    
    
    
    1,029
    
    
    
    794
    
    
    
    807
    
    
    
    246
    
    
    
    
    
    
    
    (58
    )
    
    
    3,034Liabilities Related to Discontinuing
Operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    41Total liabilities
    
    
    325
    
    
    
    1,029
    
    
    
    1,127
    
    
    
    870
    
    
    
    469
    
    
    
    85
    
    
    
    
    
    
    
    3,905Excess assets over liabilities (liabilities
over assets)
    
    
    489
    
    
    
    (1,029
    )
    
    
    233
    
    
    
    (810
    )
    
    
    (10
    )
    
    
    26
    
    
    
    
    
    
    
    (1,101
    )
 160




---



##### 



Rate of exchange of NIS, in effect, in relation to foreign currency (in NIS)
 Year ended December 312006
    
    2005
    
    May 31, 2007US Dollar ($)
    
    
    4.225
    
    
    
    4.603
    
    
    
    4.053Euro ()
    
    
    5.564
    
    
    
    5.446
    
    
    
    5.447British Pound (£)
    
    
    8.228
    
    
    
    7.940
    
    
    
    8.018Romanian New Lei (RON)
    
    
    1.645
    
    
    
    1.480
    
    
    
    1.670Indian Rupee (INR)
    
    
    0.095
    
    
    
    0.101
    
    
    
    0.099
 Scope of change in the exchange rate, in effect, of the NIS in relation to the foreign currency
(%)
 Year ended December 312006
    
    2005
    
    May 31, 2007US Dollar ($)
    
    
    (8.21
    )
    
    
    6.84
    
    
    
    (4.07
    )Euro ()
    
    
    2.16
    
    
    
    (7.32
    )
    
    
    (2.10
    )British Pound (£)
    
    
    3.62
    
    
    
    (4.42
    )
    
    
    (2.55
    )Romanian New Lei (RON)
    
    
    11.10
    
    
    
    (0.03
    )
    
    
    1.52Indian Rupee (INR)
    
    
    (5.94
    )
    
    
    2.21
    
    
    
    4.21
 TABLE II  DERIVATIVE CONTRACTS ON FOREIGN EXCHANGE RATES
  TABLE III  INTEREST RISKS
  161




---



##### 



1. Long Term Deposits And Awarded Loans  (In millions NIS)
 Functional
    
    
    
    
    

    Repayment yearsCurrency
    
    Linkage Currency
    
    Interest Rate %
    
    1
    
    2
    
    3
    
    4
    
    5 and thereafter
    
    Not yet determined
    
    Total
    
    US Dollar
    
    Libor - 0.25-1
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108
    
    
    
    122
    
    
    
    Libor + 2
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    26
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1ROL
    
    
    
    2
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    PLN
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    CZK
    
    0
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2NIS
    
    NIS
    
    Prime + 2.1-2.9
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    37
    
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    129
    
    
    
    187
 2. Long term loans and debentures  (in millions NIS)
 Average
    

    Repayment YearsFunctional
    
    Linkage
    
    Interest
    
    Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6 andCurrency
    
    Currency
    
    Rate %
    
    Rate
    
    1
    
    2
    
    3
    
    4
    
    5
    
    thereafter
    
    Total
    
    
    
    5.1 (i)
    
    
    5.1
    
    
    
    3
    
    
    
    4
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197USD
    
    USD
    
    Libor +3
    
    
    8.2
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    78
    
    
    
    Euribor + 1.5-2
    
    
    4.5
    
    
    
    41
    
    
    
    17
    
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    22
    
    
    
    89GBP
    
    GBP
    
    7.3 (i)
    
    
    7.7
    
    
    
    9
    
    
    
    12
    
    
    
    12
    
    
    
    12
    
    
    
    762
    
    
    
    
    
    
    
    807NIS
    
    US Dollar
    
    Libor + 1.75
    
    
    7.5
    
    
    
    
    
    
    
    85
    (ii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85NIS
    
    
    
    Euribor + 1.75
    
    
    5.5
    
    
    
    5
    
    
    
    341
    (ii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    346NIS
    
    US Dollar
    
    Libor + 2.65
    
    
    8.1
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    12
    
    
    
    12
    
    
    
    31
    
    
    
    62NIS
    
    NIS (linked to CPI)
    
    5.36-6
    
    
    6.0
    
    
    
    
    
    
    


    
    
    102
    
    
    
    160
    
    
    
    160
    
    
    
    607
    
    
    
    1029RON
    
    
    
    Euribor + 4.25
    
    
    7.2
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19
    
    
    
    19
    
    
    
    75
    
    
    
    132NIS
    
    NIS
    
    Prime +2.25
    
    
    7.2
    
    
    
    
    
    
    
    211
    (iii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21158
    
    
    
    670
    
    
    
    390
    
    
    
    206
    
    
    
    977
    
    
    
    735
    
    
    
    3036
 
 (i)
    
    The interest rates on this loan have been fixed by swap transactions.(ii)
    
    See Note 14D,E&F to our consolidated financial statements. 3. Short term cash and deposits
 4. Short term loans
 162




---



##### 



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
  ITEM 15T. CONTROLS AND PROCEDURES
 (a) Disclosure Controls and Procedures.
  (b) Internal Control Over Financial Reporting.
  163




---



##### 



ITEM 16. [RESERVED]
 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  (a) Audit Fees
  (b) Audit Related Fees
  (c) Tax Fees
 164




---



##### 



(d) All Other Fees
  (e) Pre-Approval Policies And Procedures
   (f) Percentage
  
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 .
 
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND AFFILIATED PURCHASERS
 (c) Total number of
    
    (d) Maximum number (or(a) Total
    
    
    
    
    
    shares purchased
    
    approximately dollar value) ofnumber of
    
    (b) Average
    
    as part of publicly
    
    shares that may yet beshares
    
    price paid per
    
    announced plans or
    
    purchased under the plans orPeriod
    
    purchased
    
    share
    
    programs
    
    programsFebruary 2006
    
    287,259 (2)
    
    $
    16.35
    
    
    
    
    March 2006
    
    22,757 (2)
    
    $
    19.05
    
    
    
    
    May 2006
    
    14,517 (2)
    
    $
    24.96
    
    
    
    
    
 
 (2)
    
    Between February 2006 and May 2006 Europe-Israel purchased a total of 324,533 shares of
EMI in consideration for $5,492,382. 165




---



##### 



ITEM 17. FINANCIAL STATEMENTS.
  
 ITEM 18. FINANCIAL STATEMENTS.
  PART III
 
 ITEM 19. EXHIBITS
  1.1(1)
    
    Memorandum of Association of the Company.1.2(1)
    
    Articles of Association of the Company.1.3(2)^
    
    Notice dated March 4, 2001, sent by the Registrant to
the Israeli Companies Registrar with respect to an
amendment to the Articles of Association.4.1(3)^
    
    Unofficial Translation of Deed of Trust dated February
21, 2006, entered into between the Company and Orora
Fidelity Trust Company Ltd. for the issuance of series
A debentures.4.2(3)^
    
    Unofficial Translation of Deed of Trust, dated February
21, 2006, entered into between the Company and Orora
Fidelity Trust Company Ltd. for the issuance of series
B debentures.4.3*^
    
    Unofficial Translation of Deed of Trust, dated August
23, 2006, entered into between the Company and Aurora
Fidelity Trust Company Ltd. for the issuance of series
C debentures.4.4*^
    
    Unofficial Translation of Deed of Trust, dated March
29, 2007, entered into between the Company and Hermetic
Trust (1975) Ltd. for the issuance of series D
debentures.4.5*
    
    Loan facility agreement dated March 2, 2006, Riverbank
Hotel Holding BV, Victoria London Hotel Holding BV,
Grandis Hotel Holding BV and Park Plaza Hotels Europe
Holdings BV, with Goldman Sachs International, in an
aggregate amount of £195 million
 166




---



##### 



4.6(3)^
    
    Amended and Restated Loan Agreement dated July 9, 2003 between Elbit Ultrasound (Netherlands) B.V. and
Bank of Hapoalim B.M.4.7(3)^
    
    Amended and Restated Loan Agreement, Multicurrency Term Credit Facility, dated December 5, 2005,
between Elscint and Bank Hapoalim B.M.4.8(4)^
    
    Loan facility agreement dated October 23, 2000 between Elscint and Bank Hapoalim BM with respect to a
$110 million line of credit.4.9(3)
    
    Transaction Agreement, dated January 31, 2005, Plantridge Limited, as Purchaser, PC (Europe) B.V.,
Elbit Ultrasound Netherlands B.V., and Amanati Limited, as Vendors.4.10(3)
    
    Framework Transaction Agreement, dated of July 29, 2005, by and among Klepierre S.A., Klépierre Sadyba
Sp.z.o.o. Klépierre Krakow Sp.z.o.o., Klépierre Poznan Sp.z.o.o, LP7 S.A.S. and Segece S.C.S, as
Buyers, and PC (Europe) B.V. as Vendor.4.11(3)
    
    Share Sale And Purchase Agreement relating to the shares in Shaw Hotel Holding B.V. dated 19 December
2005 by and between Euro Sea Hotel N.V., B.E.A. Hotels N.V. and Shawpark Investments B.V. as Sellers
and WG Mitchell (Scotland) Ltd as Purchaser4.12(3)
    
    Agreement and Plan of Merger dated August 21, 2005 between the Company and Elscint.4.13*^
    
    Unofficial Translation of Agreement for the provision of consultancy services for the development of
real estate projects, signed on May 31, 2006 by and between EMI and Control Centers.4.14*^
    
    Unofficial Translation of Summary
of a Share Sale Agreement by ELS Trust Ltd.
and Elscint Ltd. with
Manofim Finances for Israel (Mapal) Ltd., dated June 14, 2007, for the sale of the Arena commercial and
entertainment centre in Israel.4.15(3)
    
    A form of Hotel Management Agreement entered into with Park Plaza.11.1(3)
    
    Code of Ethics and Business Conduct for Directors, Officers and Other Employees12.1*
    
    Certificate of the Principal Executive Officer12.2*
    
    Certificate of the Principal Financial Officer13.1*
    
    Certificate of the Principal Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 200213.2*
    
    Certificate of the Principal Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 200215.1*
    
    Consent of Brightman Almagor & Co.15.2*
    
    Consent of KPMG Hungaria kft.
 
 (1)
    
    Previously filed as an Exhibit to EMIs Annual Report on Form 20-F, File No. 0-28996, filed
with the Securities and Exchange Commission on November 22, 1996 and incorporated by reference
herein.(2)
    
    Previously filed as an exhibit to EMIs Annual Report on Form 20-F for the year ended
December 31, 2000, File No. 0-28996, filed with the Securities and Exchange Commission on July
16, 2001 and incorporated by reference herein.(3)
    
    Previously filed as an exhibit to EMIs Annual Report on Form 20-F for the year ended
December 31, 2005, File No. 0-28996, filed with the Securities and Exchange Commission on June
30, 2006, and incorporated by reference herein.(4)
    
    Previously filed as an Exhibit to Elscints Annual Report on Form 20-F for the year ended
December 31, 2000, File No. 2-44872, filed with the Securities and Exchange Commission on July
10, 2001 and incorporated by reference herein.(5)
    
    Previously filed as an exhibit to EMIs Annual Report on Form 20-F for the year ended
December 31, 2004, File No. 0-28996, filed with the Securities and Exchange Commission on June
30, 2005 and incorporated by reference herein.(6)
    
    Previously filed as an exhibit to Joint Proxy Statement/Prospectus filed with the Securities
and Exchange Commission on September 21, 2005 and incorporated by reference herein.*
    
    Filed herewith.^
    
    Translation from Hebrew. 167




---



##### 



SIGNATURES
  Elbit Medical Imaging Ltd.By:
    /s/ Shimon YitzhakiName:
    Shimon YitzhakiDate:  July 2, 2007
    
    Title:
    President




---



##### 



Elbit Medical Imaging Ltd.
 Consolidated Financial Statements
 As of December 31, 2006




---



##### 



ELBIT MEDICAL IMAGING LTD.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2006
 Contents
 PageReports of independent registered public accounting firm
    
    2 - 3Consolidated Financial Statements:Balance sheets
    
    4 - 5Statements of operations
    
    6Statements of changes in shareholders equity
    
    7 - 8Statements of cash flows
    
    9 - 11Notes to the consolidated financial statements
    
    12 - 153Appendix
    
    154




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE
SHAREHOLDERS AND THE BOARD OF DIRECTORS OF ELBIT MEDICAL IMAGING LTD.
TEL AVIV, ISRAEL
   - 2 -




---



##### 



Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu
   - 3 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
CONSOLIDATED BALANCE SHEETS
 December 312006
    
    2005
    
    2006ReportedConveniencetranslationNote
    
    (in thousand NIS)
    
    US$000Current AssetsCash and cash equivalents
    
    (3)
    
    
    2,150,871
    
    
    
    489,344
    
    
    
    509,082Short-term deposits and investments
    
    (4)
    
    
    279,112
    
    
    
    240,072
    
    
    
    66,062Trade accounts receivable
    
    (5)
    
    
    51,141
    
    
    
    35,404
    
    
    
    12,105Receivables and other debit balances
    
    (6)
    
    
    122,341
    
    
    
    76,680
    
    
    
    28,956Inventories
    
    (7)
    
    
    24,710
    
    
    
    24,132
    
    
    
    5,849Trading property
    
    (7A)
    
    
    910,493
    
    
    
    583,101
    
    
    
    215,5013,538,668
    
    
    
    1,448,733
    
    
    
    837,555Long-Term Investments and ReceivablesDeposits, loans and other long-term balances
    
    (8)
    
    
    201,493
    
    
    
    62,139
    
    
    
    47,691Investments in investees and other companies
    
    (9)
    
    
    61,680
    
    
    
    56,798
    
    
    
    14,599263,173
    
    
    
    118,937
    
    
    
    62,290Real Estate and other Fixed Assets
    
    (10)
    
    
    2,320,127
    
    
    
    2,175,364
    
    
    
    549,143Other Assets and Deferred Expenses
    
    (11)
    
    
    24,650
    
    
    
    30,476
    
    
    
    5,834Assets Related to Discontinuing Operation
    
    (22)
    
    
    12,483
    
    
    
    12,607
    
    
    
    2,9546,159,101
    
    
    
    3,786,117
    
    
    
    1,457,776
  - 4 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
CONSOLIDATED BALANCE SHEETS
 December 312006
    
    2005
    
    2006ReportedConveniencetranslationNote
    
    (in thousand NIS)
    
    US$000Current LiabilitiesShort-term credits
    
    (12)
    
    
    480,771
    
    
    
    655,407
    
    
    
    113,792Suppliers and service providers
    
    
    
    
    107,117
    
    
    
    82,013
    
    
    
    25,353Payables and other credit balances
    
    (13)
    
    
    229,000
    
    
    
    149,995
    
    
    
    54,201816,888
    
    
    
    887,415
    
    
    
    193,346Long-Term Liabilities
    
    (14)
    
    
    3,047,446
    
    
    
    1,707,254
    
    
    
    721,289Liabilities Related to Discontinuing Operation
    
    (22)
    
    
    40,513
    
    
    
    62,430
    
    
    
    9,589Convertible Debentures
    
    
    
    
    
    
    
    
    62,159
    
    
    
    Minority Interest
    
    
    
    
    630,187
    
    
    
    11,449
    
    
    
    149,157Commitments, Contingencies, Liens and
Collaterals
    
    (17)Options Issued by Subsidiaries
    
    
    
    
    22,280
    
    
    
    (*)1,186
    
    
    
    5,274Shareholders Equity
    
    (18)
    
    
    1,601,787
    
    
    
    (*)1,054,224
    
    
    
    379,1216,159,101
    
    
    
    3,786,117
    
    
    
    1,457,776
 
 (*)
    
    Retrospective implementation of new Accounting Standard  see Note 2V. Dudi Machluf 
Chief Financial Officer
    
    Shimon Yitzhaki
CEO, a member of the Board of Directors
 Approved by the Board of Directors on: June 25, 2007
  - 5 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
CONSOLIDATED STATEMENT OF OPERATIONS
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslationNote
    
    (in thousand NIS)
    
    US$000(Except for per-share data)RevenuesSale of real estate assets and
investments, net
    
    (19A)
    
    
    80,218
    
    
    
    281,661
    
    
    
    131,921
    
    
    
    18,986Sale of trading property
    
    
    
    
    286,633
    
    
    
    
    
    
    
    
    
    
    
    67,842Commercial centers operations
    
    
    
    
    110,875
    
    
    
    142,957
    
    
    
    311,893
    
    
    
    26,243Hotels operations and management
    
    (19B)
    
    
    351,610
    
    
    
    270,057
    
    
    
    218,365
    
    
    
    83,221Sale of medical systems
    
    
    
    
    85,824
    
    
    
    75,713
    
    
    
    44,049
    
    
    
    20,313Realization of investments
    
    (19C)
    
    
    697,358
    
    
    
    1,958
    
    
    
    (***) 28,793
    
    
    
    165,055Other operational income
    
    (19D)
    
    
    58,035
    
    
    
    44,409
    
    
    
    13,238
    
    
    
    13,7361,670,553
    
    
    
    816,755
    
    
    
    748,259
    
    
    
    395,396Costs and expensesCost of trading property sold
    
    
    
    
    250,475
    
    
    
    
    
    
    
    
    
    
    
    59,283Commercial centers operations
    
    (19E)
    
    
    144,562
    
    
    
    157,640
    
    
    
    271,392
    
    
    
    34,216Hotels operations and management
    
    (19F)
    
    
    306,384
    
    
    
    259,293
    
    
    
    207,152
    
    
    
    72,517Cost and expenses of medical systems
operation
    
    (19G)
    
    
    72,515
    
    
    
    (*)50,374
    
    
    
    26,039
    
    
    
    17,163Other operational expenses
    
    (19H)
    
    
    70,251
    
    
    
    46,793
    
    
    
    3,655
    
    
    
    16,627Research and development expenses, net
    
    (19I)
    
    
    62,566
    
    
    
    (*)59,796
    
    
    
    38,158
    
    
    
    14,809General and administrative expenses
    
    (19J)
    
    
    67,161
    
    
    
    36,939
    
    
    
    43,627
    
    
    
    15,896Share in losses of associated
companies, net
    
    
    
    
    9,665
    
    
    
    12,028
    
    
    
    15,968
    
    
    
    2,288Financial expenses, net
    
    (19K)
    
    
    129,127
    
    
    
    122,321
    
    
    
    53,569
    
    
    
    30,563Other expenses, net
    
    (19L)
    
    
    36,836
    
    
    
    57,106
    
    
    
    (***)63,806
    
    
    
    8,7191,149,542
    
    
    
    802,290
    
    
    
    723,366
    
    
    
    272,081Profit before income taxes
    
    
    
    
    521,011
    
    
    
    14,465
    
    
    
    24,893
    
    
    
    123,315Income taxes
    
    (16)
    
    
    5,222
    
    
    
    7,798
    
    
    
    15,804
    
    
    
    1,235Profit after income taxes
    
    
    
    
    515,789
    
    
    
    6,667
    
    
    
    9,089
    
    
    
    122,080Minority interest in results of
subsidiaries, net
    
    
    
    
    9,691
    
    
    
    (*)73,795
    
    
    
    27,448
    
    
    
    2,294Profit from continuing operation
    
    
    
    
    525,480
    
    
    
    80,462
    
    
    
    36,537
    
    
    
    124,374Profit from discontinuing operation, net
    
    (22)
    
    
    35,664
    
    
    
    5,917
    
    
    
    6,810
    
    
    
    8,441cumulative effect of accounting change
at the beginning of the year
    
    (2L)
    
    
    
    
    
    
    (622
    )
    
    
    
    
    
    
    Net income
    
    
    
    
    561,144
    
    
    
    85,757
    
    
    
    43,347
    
    
    
    132,815Earnings per share  (in NIS)(**)
    
    (19M)Basic earnings per share:From continuing operation
    
    
    
    
    20.83
    
    
    
    3.70
    
    
    
    1.56
    
    
    
    4.93From discontinuing operation
    
    
    
    
    1.41
    
    
    
    0.27
    
    
    
    0.29
    
    
    
    0.33Cumulative effect for the beginning
of the year due to a change in
accounting method
    
    
    
    
    
    
    
    
    (0.03
    )
    
    
    
    
    
    
    Basic earnings per share
    
    
    
    
    22.24
    
    
    
    3.94
    
    
    
    1.85
    
    
    
    5.26
 
 (*)
    
    Retrospective implementation of new Accounting Standard  see Note 2V.(**)
    
    Retrospective implementation of new Accounting Standard  see Note 2W.(***)
    
    Reclassified.  - 6 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 DividendCumulative
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans to
    
    declaredforeign
    
    
    
    
    
    
    
    
    
    
    
    
    
    employees
    
    aftercurrency
    
    
    
    
    
    
    
    
    
    
    
    
    
    to acquire
    
    balanceShare
    
    Capital
    
    translation
    
    Retained
    
    Gross
    
    Treasury
    
    Company
    
    sheetCapital
    
    reserves
    
    adjustments
    
    earnings
    
    Amount
    
    stock
    
    Shares
    
    date
    
    Total(In thousand NIS)ReportedBalance -
January 1, 2004
    
    
    33,028
    
    
    
    466,839
    
    
    
    139,939
    
    
    
    369,647
    
    
    
    1,009,453
    
    
    
    (40,291
    )
    
    
    (15,516
    )
    
    
    
    
    
    
    953,646Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,347
    
    
    
    43,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,347Issuance of shares
(Note 18B(ii))
    
    
    623
    
    
    
    18,283
    
    
    
    
    
    
    
    
    
    
    
    18,906
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,906Differences from
translation of
autonomous foreign
entities financial
statements (1)
    
    
    
    
    
    
    
    
    
    
    (89,321
    )
    
    
    
    
    
    
    (89,321
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89,321
    )Self-purchase of
Companys shares
(Note 18B(iv))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (138,519
    )
    
    
    
    
    
    
    
    
    
    
    (138,519
    )Sale of treasury stock
(Note 18B(iii))
    
    
    
    
    
    
    (2,725
    )
    
    
    
    
    
    
    
    
    
    
    (2,725
    )
    
    
    16,427
    
    
    
    
    
    
    
    
    
    
    
    13,702Employee shares premium
    
    
    
    
    
    
    1,821
    
    
    
    
    
    
    
    
    
    
    
    1,821
    
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    2,207Declared dividend in
respect of
shareholders outside
the group, other than
employees
(Note 18D(i))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153,938
    )
    
    
    (153,938
    )
    
    
    
    
    
    
    
    
    
    
    153,938
    
    
    
    Balance -
December 31, 2004
    
    
    33,651
    
    
    
    484,218
    
    
    
    50,618
    
    
    
    259,056
    
    
    
    827,543
    
    
    
    (162,383
    )
    
    
    (15,130
    )
    
    
    153,938
    
    
    
    803,968Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,757
    
    
    
    85,757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,757Issue of shares to the
minority shareholders
of Elscint (Note
9B(1))
    
    
    3,479
    
    
    
    288,728
    
    
    
    
    
    
    
    
    
    
    
    292,207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292,207Exercise of warrants
(Note 20A(4))
    
    
    350
    
    
    
    15,645
    
    
    
    
    
    
    
    
    
    
    
    15,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,995Differences from
translation of
autonomous foreign
entities financial
statements (1)
    
    
    
    
    
    
    
    
    
    
    23,806
    
    
    
    
    
    
    
    23,806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,806Dividend paid
(Note 18D(i))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153,938
    )
    
    
    (153,938
    )Repayment of loans as
a result of the
realization by
employees of rights to
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,781
    
    
    
    
    
    
    
    6,781Loans to employees of
Elscint in relation to
shares issued as part
of the merger
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,112
    )
    
    
    
    
    
    
    (10,112
    )Employee shares premium
    
    
    
    
    
    
    573
    
    
    
    
    
    
    
    
    
    
    
    573
    
    
    
    
    
    
    
    (573
    )
    
    
    
    
    
    
    Declared dividend in
respect of
shareholders outside
the group, other than
employees
(Note 18D(ii))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,160
    )
    
    
    (124,160
    )
    
    
    
    
    
    
    
    
    
    
    124,160
    
    
    
    37,480
    
    
    
    789,164
    
    
    
    74,424
    
    
    
    220,653
    
    
    
    1,121,721
    
    
    
    (162,383
    )
    
    
    (19,034
    )
    
    
    124,160
    
    
    
    1,064,464Cumulative effect of
accounting change at
the beginning of the
year (Note 2L)
    
    
    
    
    
    
    
    
    
    
    (6,552
    )
    
    
    (3,688
    )
    
    
    (10,240
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,240
    )Balance -
December 31, 2005
    
    
    37,480
    
    
    
    789,164
    
    
    
    67,872
    
    
    
    216,965
    
    
    
    1,111,481
    
    
    
    (162,383
    )
    
    
    (19,034
    )
    
    
    124,160
    
    
    
    1,054,224
 
 (1)
    
    Net, after realization of capital reserves (see Note 19A. and 19C. below).  - 7 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (CONT.)
 DividendCumulative
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans to
    
    declaredforeign
    
    
    
    
    
    
    
    
    
    
    
    
    
    employees
    
    aftercurrency
    
    
    
    
    
    
    
    
    
    
    
    
    
    to acquire
    
    balanceShare
    
    Capital
    
    translation
    
    Retained
    
    Gross
    
    Treasury
    
    Company
    
    sheetCapital
    
    reserves
    
    adjustments
    
    earnings
    
    Amount
    
    stock
    
    Shares
    
    date
    
    Total(In thousand NIS)ReportedBalance -
January 1, 2006
    
    
    37,480
    
    
    
    789,164
    
    
    
    67,872
    
    
    
    216,965
    
    
    
    1,111,481
    
    
    
    (162,383
    )
    
    
    (19,034
    )
    
    
    124,160
    
    
    
    1,054,224Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,144
    
    
    
    561,144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,144Exercise of warrants
(Note 18B(viii))
    
    
    28
    
    
    
    1,105
    
    
    
    
    
    
    
    
    
    
    
    1,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,133Differences from
translation of
autonomous foreign
entities financial
statements (1)
    
    
    
    
    
    
    
    
    
    
    31,553
    
    
    
    
    
    
    
    31,553
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,553Dividend paid
(Note 18D(ii))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,160
    )
    
    
    (124,160
    )Repayment of loans as
a result of the
realization by
employees of rights to
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,970
    
    
    
    
    
    
    
    16,970Sale of treasury stock
(Note 18B(vii))
    
    
    524
    
    
    
    23,055
    
    
    
    
    
    
    
    
    
    
    
    23,579
    
    
    
    23,864
    
    
    
    
    
    
    
    
    
    
    
    47,443Stock-base
compensation expenses
    
    
    
    
    
    
    13,480
    
    
    
    
    
    
    
    
    
    
    
    13,480
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,480Employees share premium
    
    
    
    
    
    
    1,789
    
    
    
    
    
    
    
    
    
    
    
    1,789
    
    
    
    
    
    
    
    (1,789
    )
    
    
    
    
    
    
    Declared dividend to
shareholders other
than employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159,767
    )
    
    
    (159,767
    )
    
    
    
    
    
    
    
    
    
    
    159,767
    
    
    
    Balance -
December 31, 2006
    
    
    38,032
    
    
    
    828,593
    
    
    
    99,425
    
    
    
    618,342
    
    
    
    1,584,392
    
    
    
    (138,519
    )
    
    
    (3,853
    )
    
    
    159,767
    
    
    
    1,601,787Convenience translation into US$000Balance -January 1, 2006
    
    
    8,871
    
    
    
    186,784
    
    
    
    16,064
    
    
    
    51,353
    
    
    
    263,072
    
    
    
    (38,434
    )
    
    
    (4,505
    )
    
    
    29,387
    
    
    
    249,520Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,815
    
    
    
    132,815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,815Exercise of warrants
(Note 18B(viii))
    
    
    7
    
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268Differences from
translation of
autonomous foreign
entities financial
statements (1)
    
    
    
    
    
    
    
    
    
    
    7,468
    
    
    
    
    
    
    
    7,468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,468Dividend paid
(Note 18D(ii))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,387
    )
    
    
    (29,387
    )Repayment of loans as
a result of the
realization by
employees of rights to
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,017
    
    
    
    
    
    
    
    4,017Sale of treasury stock
(Note 18B(vii))
    
    
    124
    
    
    
    5,457
    
    
    
    
    
    
    
    
    
    
    
    5,581
    
    
    
    5,648
    
    
    
    
    
    
    
    
    
    
    
    11,229Stock-base
compensation expenses
    
    
    
    
    
    
    3,191
    
    
    
    
    
    
    
    
    
    
    
    3,191
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,191Employees share premium
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    (423
    )
    
    
    
    
    
    
    Declared dividend to
shareholders other
than employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,814
    )
    
    
    (37,814
    )
    
    
    
    
    
    
    
    
    
    
    37,814
    
    
    
    Balance -
December 31, 2006
    
    
    9,002
    
    
    
    196,116
    
    
    
    23,532
    
    
    
    146,354
    
    
    
    375,004
    
    
    
    (32,786
    )
    
    
    (911
    )
    
    
    37,814
    
    
    
    379,121
 
 (1)
    
    Net, after realization of capital reserves (see Note 19A. and 19C. below).  - 8 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000CASH FLOWS FROM OPERATING ACTIVITIESNet income for the year
    
    
    561,144
    
    
    
    (*)85,757
    
    
    
    43,347
    
    
    
    132,815Adjustments required to present cash and cash
equivalents from continuing operating activities
(Appendix A)
    
    
    (1,098,383
    )
    
    
    (*)(188,454
    )
    
    
    (64,553
    )
    
    
    (259,968
    )Net cash used in continuing operating activities
    
    
    (537,239
    )
    
    
    (102,697
    )
    
    
    (21,206
    )
    
    
    (127,153
    )Net cash provided by (used in) discontinuing
operating activities
    
    
    13,872
    
    
    
    3,589
    
    
    
    (356
    )
    
    
    3,283Net cash used in operating activities
    
    
    (523,367
    )
    
    
    (99,108
    )
    
    
    (21,562
    )
    
    
    (123,870
    )CASH FLOWS FROM INVESTING ACTIVITIESInvestment in initially-consolidated subsidiaries
(Appendix C)
    
    
    
    
    
    
    (117,666
    )
    
    
    (35,546
    )
    
    
    Purchase of fixed assets and other assets
    
    
    (176,118
    )
    
    
    (435,810
    )
    
    
    (373,454
    )
    
    
    (41,685
    )Proceeds from realization of fixed assets,
investments and loans
    
    
    1,095
    
    
    
    7,811
    
    
    
    59,310
    
    
    
    260Proceeds from realization of investments in
subsidiaries (Appendix D)
    
    
    74,533
    
    
    
    524,482
    
    
    
    412,005
    
    
    
    17,641Investments (including by loans) in investee and
other companies
    
    
    (17,326
    )
    
    
    (10,815
    )
    
    
    (3,090
    )
    
    
    (4,100
    )Investment in long-term deposits, debentures and
long-term loans
    
    
    (35,000
    )
    
    
    
    
    
    
    
    
    
    
    (8,284
    )Proceeds from realization of long term deposits
    
    
    657
    
    
    
    18,579
    
    
    
    8,965
    
    
    
    157Purchase of minority shares in subsidiaries
    
    
    (446
    )
    
    
    
    
    
    
    
    
    
    
    (112
    )Short-term deposits and marketable securities, net
    
    
    (44,182
    )
    
    
    18,915
    
    
    
    58,147
    
    
    
    (10,457
    )Net cash provided by (used in) continuing
investing activities
    
    
    (196,787
    )
    
    
    5,496
    
    
    
    126,337
    
    
    
    (46,580
    )Net cash provided by discontinuing investing
activities
    
    
    
    
    
    
    
    
    
    
    2,144
    
    
    
    Net cash provided by (used in )investing
activities
    
    
    (196,787
    )
    
    
    5,496
    
    
    
    128,481
    
    
    
    (46,580
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of shares, by a subsidiary, to its
minority shareholders
    
    
    1,280,108
    
    
    
    
    
    
    
    13,492
    
    
    
    302,984Excercise of options into shares
    
    
    1,133
    
    
    
    15,995
    
    
    
    
    
    
    
    268Dividend Paid
    
    
    (124,160
    )
    
    
    (153,938
    )
    
    
    
    
    
    
    (29,387
    )Self-purchase of Companys shares
    
    
    
    
    
    
    
    
    
    
    (138,519
    )
    
    
    Issuance of convertible debentures by a
subsidiary to its minority shareholders
    
    
    22,979
    
    
    
    
    
    
    
    60,234
    
    
    
    5,439Receipt of long-term loans
    
    
    1,992,109
    
    
    
    437,407
    
    
    
    722,089
    
    
    
    471,505Repayment of long-term loans
    
    
    (881,616
    )
    
    
    (71,669
    )
    
    
    (503,706
    )
    
    
    (208,667
    )Proceeds from income of treasury stocks
    
    
    59,657
    
    
    
    
    
    
    
    
    
    
    
    14,120Proceeds from repayments of loans as a result of
realization by employees of rights to shares
    
    
    16,970
    
    
    
    
    
    
    
    
    
    
    
    4,017Short-term credit, net
    
    
    (22,224
    )
    
    
    15,932
    
    
    
    (77,718
    )
    
    
    (5,260
    )Net cash provided by financing activities
    
    
    2,344,956
    
    
    
    243,727
    
    
    
    75,872
    
    
    
    555,019Net effect on cash due to currency exchange rates
changes
    
    
    36,725
    
    
    
    (6,516
    )
    
    
    (522
    )
    
    
    8,692Increase in cash and cash equivalents
    
    
    1,661,527
    
    
    
    143,599
    
    
    
    182,269
    
    
    
    393,261Cash and cash equivalents at the beginning of the
year
    
    
    489,344
    
    
    
    345,745
    
    
    
    163,476
    
    
    
    115,821Cash and cash equivalents at the end of the year
    
    
    2,150,871
    
    
    
    489,344
    
    
    
    345,745
    
    
    
    509,082
 
 (*)
    
    Retrospective implementation of new Accounting Standard  see Note 2V.  - 9 -




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##### 



ELBIT MEDICAL IMAGING LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Appendix A -Adjustments required to present cash and cash
equivalents from continuing operating
activitiesIncome and expenses not involving cash flows:Discontinuing operation
    
    
    (35,664
    )
    
    
    (5,917
    )
    
    
    (6,810
    )
    
    
    (8,441
    )Depreciation and amortization (including
impairment of investments and assets)
    
    
    124,540
    
    
    
    129,356
    
    
    
    191,752
    
    
    
    29,477Share in losses of associated companies
    
    
    9,665
    
    
    
    12,028
    
    
    
    15,968
    
    
    
    2,288Minority interest in results of subsidiaries
    
    
    (9,691
    )
    
    
    (*)(73,795
    )
    
    
    (27,448
    )
    
    
    (2,294
    )Loss from realization of assets and liabilities
    
    
    11,970
    
    
    
    21,836
    
    
    
    12,201
    
    
    
    2,834Exchange-rate differences on loans and
deposits, net
    
    
    7,107
    
    
    
    25,677
    
    
    
    (104,679
    )
    
    
    1,682Stock base compensation expenses
    
    
    28,986
    
    
    
    (*)1,694
    
    
    
    
    
    
    
    6,861Profit from realization of investments
    
    
    (80,218
    )
    
    
    (283,619
    )
    
    
    (148,334
    )
    
    
    (18,986
    )Profit from decrease in holding in subsidiary
    
    
    (667,971
    )
    
    
    
    
    
    
    
    
    
    
    (158,099
    )Profit from realization of monetary balances
of a capital-nature in investee companies
    
    
    (29,387
    )
    
    
    
    
    
    
    (12,378
    )
    
    
    (6,955
    )Deferred taxes
    
    
    334
    
    
    
    2,682
    
    
    
    12,516
    
    
    
    79Others
    
    
    478
    
    
    
    3,761
    
    
    
    (274
    )
    
    
    113Changes in assets and liabilities:Trade accounts receivables
    
    
    (18,351
    )
    
    
    (24,140
    )
    
    
    (6,023
    )
    
    
    (4,342
    )Receivables and other debit balances
    
    
    206
    
    
    
    (10,142
    )
    
    
    15,102
    
    
    
    48Long-term receivables
    
    
    6,107
    
    
    
    (2,946
    )
    
    
    (5,354
    )
    
    
    1,445Inventories
    
    
    (2,105
    )
    
    
    (12,952
    )
    
    
    (2,646
    )
    
    
    (498
    )Trading property
    
    
    (321,992
    )
    
    
    
    
    
    
    
    
    
    
    (76,211
    )Payment on account of trading property
    
    
    (133,256
    )
    
    
    
    
    
    
    
    
    
    
    (31,539
    )Suppliers and service providers
    
    
    6,798
    
    
    
    13,502
    
    
    
    (1,997
    )
    
    
    1,609Payables and other credit balances
    
    
    4,061
    
    
    
    14,521
    
    
    
    3,851
    
    
    
    961(1,098,383
    )
    
    
    (188,454
    )
    
    
    (64,553
    )
    
    
    (259,968
    )Appendix B -Non-cash transactionsAcquisition of fixed assets and other assets
by credit
    
    
    5,078
    
    
    
    62,533
    
    
    
    18,570
    
    
    
    1,202
 
 (*)
    
    Retrospective implementation of new Accounting Standard  see Note 2V.  - 10 -




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##### 



ELBIT MEDICAL IMAGING LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Appendix C -Initially consolidated subsidiariesDeficit in working capital (excluding cash), net
    
    
    
    
    
    
    1,769
    
    
    
    28
    
    
    
    Long-term receivables, investments and deposits
    
    
    
    
    
    
    (387
    )
    
    
    
    
    
    
    Fixed assets and other assets
    
    
    
    
    
    
    (226,469
    )
    
    
    (35,706
    )
    
    
    Long-term liabilities
    
    
    
    
    
    
    107,421
    
    
    
    132
    
    
    
    
    
    
    
    (117,666
    )
    
    
    (35,546
    )
    
    
    Appendix D -Proceeds from realization of investments in
subsidiariesWorking capital (excluding cash), net
    
    
    (7,773
    )
    
    
    17,775
    
    
    
    1,347
    
    
    
    (1,840
    )Long-term receivables, investments and deposits
    
    
    753
    
    
    
    
    
    
    
    
    
    
    
    178Fixed assets and other assets
    
    
    2,052
    
    
    
    1,167,940
    
    
    
    1,585,181
    
    
    
    486Long term loans
    
    
    (3,382
    )
    
    
    (1,022,113
    )
    
    
    (1,091,661
    )
    
    
    (800
    )Other long term receivables
    
    
    
    
    
    
    39,563
    
    
    
    (61,452
    )
    
    
    Profit from realization of subsidiaries
    
    
    5,429
    
    
    
    228,258
    
    
    
    131,921
    
    
    
    1,285Realization of capital reserves from foreign
currency translation adjustments
    
    
    2,665
    
    
    
    39,656
    
    
    
    (153,331
    )
    
    
    631(256
    )
    
    
    471,079
    
    
    
    412,005
    
    
    
    (60
    )Profit from realization of subsidiaries which
were disposed of in previous years
    
    
    74,789
    
    
    
    53,403
    
    
    
    
    
    
    
    17,70174,533
    
    
    
    524,482
    
    
    
    412,005
    
    
    
    17,641
  - 11 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  GENERAL
 A.
    
    The Company engages, directly and through its investee companies, in Israel and abroad,
mainly in the following areas:
 
    
    Initiation, construction, operation, management and sale of commercial and
entertainment centers in Israel, in Central and Eastern Europe and in India.
    
    Hotels ownership, primarily in major European cities, as well as operation,
management and sale of same.
    
    Long term leases of real estate property.
    
    Investments in the research and development, production and marketing of magnetic
resonance imaging guided focused ultrasound treatment equipment.
    
    Distributing and marketing of womans fashion and accessories.
    
    Venture-capital investments.
 B.
    
    The Companys shares are registered for trade on the Tel Aviv Stock Exchange and in the
United States on NASDAQ.C.
    
    Definitions:
 The Company -
    
    Elbit Medical Imaging Ltd. (EMI).Subsidiaries (consolidated companies) -
    
    companies which over 50% of voting rights thereof or of rights to appoint directors therein
are vested with the Company.Proportionately consolidated companies -
    
    companies and joint ventures (including partnerships) which the Company holds, together with
other entities, among which there exists a contractual agreement for joint control, and the
decision making in areas vital to the joint venture is to be made jointly and with the
consent of all interest-holders, and which financial statements are consolidated with those
of the Company by the proportionate consolidation method.Associated companies -
    
    companies in which the Companys (direct or indirect) rights entitle it to exercise
significant influence on their financial and operational policies, which have been included
on the basis of the equity method in accordance with the principles established by Opinion
No. 68 of Institute of the Certified Public Accountants in Israel (ICPAI) and which are not
fully or proportionately consolidated.Investee companies -
    
    consolidated companies, proportionately consolidated companies and associated companies. For
a list of principal investee companies  see Appendix to these financial statements.Acquisition and/or holding 
and/or ownership 
and/or control -
    

whether directly or indirectly, through Israeli or foreign subsidiaries.Group -
    
    the Company and its investee companies.
 - 12 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1   GENERAL (CONT.)
 C.
    
    Definitions (cont.):
 Parent company -
    
    Europe Israel (M.M.S.) Ltd. (EIL).Europe Israel Group -
    
    Europe Israel (M.M.S.) Ltd. and its investee companies.Control Centers -
    
    Control Centers Ltd.  the controlling shareholder of Europe Israel
(M.M.S.) Ltd. (CC).Control Centers Group -
    
    Control Centers and its investee companies.Related parties -
    
    as defined in terms of Opinion No. 29 of the ICPAI.
 NOTE 2   SIGNIFICANT ACCOUNTING POLICIES
 A.
    
    Financial statements in reported amounts
 (1)
    
    GeneralOn January 1, 2004, Accounting Standard No. 12 of the Israel Accounting Standards Board
(IASB) (Standard 12) came into force and effect. In accordance with the provisions
of Standard 12, adjustment of financial statements to the inflation ceased commencing
January 1, 2004, with adjusted amounts of non-monetary items which were included in the
balance sheet as of December 31, 2003, used as basis for the nominal financial reporting
as and from January 1, 2004. Amounts presented in the financial statements for all
periods were, therefore, included in values to be hereinafter referred to as  Reported
amounts.The term cost in the financial statements indicates cost in reported amounts, unless
otherwise stated.Convenience translationThe financial statements as of December 31, 2006 and for the year then ended have been
translated into U.S. dollar using the representative exchange rate as of that date
(U.S.$1.0 = NIS 4.225). Such translation was made solely for the convenience of the U.S.
readers. The dollar amounts so presented in these financial statements should not be
construed as representing amounts receivable or payable in dollars or convertible into
dollars but rather a translation of reported amounts into U.S. dollars, unless otherwise
indicated.
 - 13 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 A.
    
    Financial statements in reported amounts (cont.)
 (2)
    
    Principles of adjustment of nominal value amounts to their respective reported
amountBalance sheetThe balance-sheet items have been included in the following manner:Non-monetary items (mainly fixed assets and other assets, depreciation thereof, and
share capital) have been adjusted according to the changes in the CPI from their
respective acquisition or formation date, as the case may be, through December 2003 and
from such date (or the acquisition or formation date, whichever be the later) through
the balance-sheet date  with no further adjustment (in nominal values).Monetary items (representing amounts receivable or payable at par value or which are
presented in realizable values) are included in their nominal values.The value of investments in investee companies and minority interest in subsidiaries
have been determined on the basis of the financial statements of those companies, in
reported values. As to foreign autonomous investee companies  see section (3)
below.Reported values of non-monetary assets do not necessarily represent realizable or actual
economic value, but rather the original values calculated in accordance with the above
stated principles.Statement of operationsStatement of operations items have been included in the following manner:Revenues and expenses, including financial expenses and excluding those generated from
non-monetary items, have been recorded in their nominal values.Income and expenses stemming from non-monetary items (mainly depreciation and
amortization) have been recorded on the basis of principles used for the inclusion in
the balance sheet, of the items to which they relate.The Companys share as well as minority interest in the results of investee companies
were determined on the basis of the financial statements thereof in reported amounts. As
to foreign autonomous investee companies  see section (3), below.
 - 14 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 A.
    
    Financial statements in reported amounts (cont.)
 (3)
    
    Foreign Investee Companies
 (i)
    
    Financial statements of autonomous foreign entities were prepared based
on principles detailed in section (2) above and were translated into the Companys
reporting currency as follow:
 
    
    Balance sheet items were translated using the exchange rate prevailing as
at the balance sheet date. Goodwill generated upon acquisition of an
autonomous foreign entity is regarded as an asset of such autonomous
foreign entity and is translated based on closing rates.
    
    Revenues and expenses were translated based on exchange rate as at the
date of transaction or for sake of practicality  using average exchange rate
for the period.
    
    Exchange rate differences resulting from such translation are charged to
the Capital reserve from foreign currency translation adjustments of
autonomous foreign entities financial statements within the shareholders
equity.
    
    Exchange rate differences resulting from (i) monetary balance of a
capital-nature provided to autonomous foreign entities; (ii) loans used to
finance investments in autonomous foreign entities in same currency have been
included also in that item of shareholders equity.
    
    Income taxes relating to such exchange differences have also been included
in that item of shareholders equity.
    
    Adjustment of financial statements of autonomous foreign entities prior
to translation thereof to the reporting currency of the reporting entity,
shall only be carried out when the autonomous foreign entity operates in a
hyper-inflationary environment. In such instances, translation of the entire
financial statements shall be carried out based on closing rates.
    
    Upon the realization of an autonomous foreign entity, in whole or in part
(including realization as a result of a decline in holding percentage arising
from the issuance of shares to a third party or through the repayment of
monetary balances of a capital-nature), such foreign currency translation
adjustments relating to the realized investment are charged to the statement
of operations as other income (expense).
 - 15 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 A.
    
    Financial statements in reported amounts (cont.)
 (3)
    
    Foreign Investee Companies (cont.)
 (ii)
    
    On May 1, 2004, several countries, among them Hungary, Poland and the
Czech Republic, joined the European Union. The joining countries undertook to
manage an economic policy that conforms to certain monetary and regulatory targets,
aiming at implementing required conditions for the adoption of the Euro as the
countrys legal currency. As a result, the PC Group companies that are incorporated
and operate in these countries (the Companies) deemed it necessary to reconsider
their settlement currency with lessees the nature and scope of protection of the
value of their financial assets and liabilities, their currency risk management
policy, etc. Following examination of the criteria stipulates in International
Accounting Standard No. 21 (as revised) (IAS- 21) and SIC19 (given the absence of
any specific standard in Israel as to the functional currency of autonomous
foreign entities) and according to the nature of the companies operations and
the changes in the economic environment in which they operate, PCs management is
of the opinion that as of April 1, 2004 and thereafter, the Euro, rather than the
local currency, reflects, more adequately, the business condition and the results
of operations of the companies. Accordingly, the Euro serves as the functional
currency of these companies starting from April 1, 2004.
 B.
    
    Consolidated financial statementsThe consolidated financial statements include the financial statements of the Company and its
subsidiaries. Results of operations of subsidiaries are included, as from the date of
incorporation or proximate to the date of acquisition thereof by the Company, as the case may
be, through each balance-sheet date, or a date proximate to sale thereof (or voluntary
liquidation), whichever be the earlier. As for an investment in a company in which control has
not been attained through December 31, 2006  see Note 9B.(3)l.Assets, liabilities and operations of jointly controlled companies and ventures have been
included in the consolidated financial statements, on the basis of the
proportionate-consolidation method, in accordance with principles established by Opinion no.
57 of the ICPAI.Data extracted from amounts included in financial statements of subsidiaries, have been
included within the consolidated financial statements following adjustments required for
compliance with unified accounting principles used by the Group.Material inter-company balances and transactions have been eliminated in the consolidated
financial statements.Profits generated from intercompany transactions, the results of which are attributable to
assets, which at the respective balance-sheet date had not been realized to third parties,
were eliminated in the consolidated financial statements.
 - 16 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 C.
    
    Presentation method of the financial statements and the change thereofSignificant recent global changes, particularly in the real estate business in which the
Company operates, enable it to utilize its relative advantage therein. Such changes include,
among others, decrease in commercial assets long-term yield rates, low short term interest
rates, rapid financial progress in developing markets and transformation thereof to more
readily accessible geographical targets. Concurrently with such changes and consequently
thereto, a significant increase was noted in the demand for real assets, both by private, as
well as by institutional investors, pension funds, REIT funds, and others. The above mentioned
global changes led the management to reexamine the Companys nature of activity while
attempting to strategically alter its business. The core of such change is expressed in
evolving the major part of the Companys business activities from the entrepreneurship,
development and operation of various commercial real estate assets in the medium to long term,
into the entrepreneurship and development of such assets supported by short term management
and operation activities with the principal objective of founding and stabilizing the assets
for the sale thereof, as closely as possible to completion of construction, and/or into the
construction of assets under pre-sale development agreements executed with third parties. The
reexamination resulted in redefinition of the Companys operations and business, such that
sales of its operational assets, are included therein.Following the consummation of the various exit transactions which commenced during 2004 and
continued in 2005 and 2006, and in consequence of the change to the Companys business model
as specified above, the Companys management believes that the presentation of its statement
of operations in Multiple  step form is no longer an appropriate method . The Companys
management believes that all costs and expenses (including selling and marketing, general and
administrative and financial expenses) should be considered as continuously contributing to
the generation of the overall income and profits, and attributing only part of the expenses
directly to revenues, would properly represent the Companys results of operations. Management
also believes that dividing those operational costs, which directly relate to identified
operations, to separate items such as cost of sales, selling and marketing expenses, and
general and administrative expenses, is no longer appropriate to the Company, (having a
wide range of different activities), and alternative classification should be applied which
recognizes two types of costs: (i) those directly related to revenues; and (ii) overhead
expenses which serve the business in general and are to be determined as general and
administrative expenses. Moreover, distinction between those costs, which are or are not taken
into account in determining the gross profit, requires significant discretion, often entailing
inconsistent and insufficiently reliable accounting classification. The Companys management
believes this new method of presentation reflects more appropriately and suitably the nature
of the Companys operations on a consolidated basis, in the light of the Companys modified
strategy and goals.Accordingly, from the third quarter of 2005, the Company has adopted a new method for the
presentation of its consolidated statement of operations reports, whereby all expenses are
presented in one group, which is deducted as a whole from the total revenues which are also,
in turn, represented in one group (Single  Step Form), as opposed to the former
presentation method (Multiple  Step Form).In addition part of the Companys real estate assets (mainly real estate assets under
construction which are designated to use as commercial centers) were reclassified from fixed
assets to trading property (inventories) within the currents assets (See Note 7A) and part of
the long term bank loans related to theses trading properties were also reclassified to short
term credits within the current liabilities.Furthermore, cash flow from operating activities in 2006 include the acquisition and/or
construction costs in respect of trading property as well as the proceed from the disposal of
same as opposed to inclusion of these items within cash flows from investing activities in
the cash flows of 2005 and 2004.
 - 17 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 D.
    
    Cash and cash equivalentsCash equivalents include unrestricted liquid deposits, maturity period of which, as at the
date of investments therein, does not exceed three months.E.
    
    Allowance for doubtful debtsThe allowance has been specifically determined in relation to debts, the collection of which,
in the opinion of management of the companies, is doubtful.F.
    
    Marketable securitiesInvestments in marketable securities, designated by management for sale in the short term, are
included in current assets at their market value as at the balance-sheet date. Changes in the
value of such securities are recorded in the statement of operations as incurred. Investments
in marketable securities not designated by management for sale in the short term and which are
not part of the Groups liquid resources are presented at cost excluding events when, in the
opinion of management, there exists a decline in value of other  than -temporary nature.G.
    
    Inventories and trading property
 1.
    
    InventoriesInventory is stated at the lower of cost or market value, with cost determined in the
following manner:Hotel inventory and merchandise  by the first-in, first-out method;Raw materials  by the weighted average method;Work-in-process and finished goods  by cost of material, labor and indirect
manufacturing costs.As for Accounting Standard No. 26, which is effective from January 1, 2007  see Note
2AA(i).2.
    
    Trading propertyProperties that are being constructed or developed for future sale (inventory) are
classified as trading properties and stated at the lower of cost and net realisable
value. Net realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs necessary to
make the sale.Financing costs in respect of credit used for acquisition or construction of trading
property as well as all costs directly associated with the purchase of trading
properties and all subsequent expenditures for the development of such properties are
capitalized to the cost of the trading property. As to borrowing costs capitalization
principles  see also item U. below. Cost of trading properties is determined on the
basis of specific identification of their individual costs.
 - 18 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 H.
    
    Investments in investee and other companiesInvestments in associated companies are presented by the equity method.In circumstances where the Companys ownership in an investee company (mainly, venture capital
investments) is in the form of preferred securities or other senior securities, the Company
records equity losses based on the ownership level of the specific investees securities or
loans extended by the Company to which the equity method losses are being applied.Through December 31, 2005, losses (if any) deriving from expected realization of convertible
securities or exercise of vested rights to shares issued by such investee companies (including
shares financed by loans, when such securities constitute the sole security for repayment of
loans), were taken into consideration, if such conversion or exercise is probable. In
accordance with the provision of Standard no. 22, which is effective from January 1, 2006, the
Company should recognize losses from decrease in holding in investee company, only when such
convertible securities or vested right of the investee were converted or exercised into the
invstees shares.The excess of the investments cost over the Companys share in the fair value of the investee
companies net identified assets at acquisition (or upon the change from the cost method to
the equity method, as applicable), is recorded as goodwill. Through December 31, 2005,
goodwill was amortized over its estimated economic benefit period, (generally 10 years). In
accordance with the provisions of accounting standard No. 20, which is effective from January
1, 2006, goodwill attributed to investment in subsidiaries, will not be amortized but will be
examined for impairment once a year or more frequently should there be an indications of
goodwill impairment. Impairment of goodwill, attributed to investment in associated companies,
will be examined in circumstances which may indicate goodwill impairment in respect of the
investment in the associated company, as a whole.Financing costs in respect of credit used for investment (shares and loans) in companies
engaged solely in the construction of projects, have been capitalized to cost of investment.Gain from issuance of shares to a third party by a research-and-development stage investee
company, has been recorded as deferred income and charged to the statements of operations as
other income, over three years or up to the holding entitys share in the losses of the
investee company, whichever is higher on a cumulative basis for each given year.I.
    
    Fixed assets
 (1)
    
    Fixed assets are stated at cost. Investment grants have been deducted from cost of
assets for which they have been granted.The cost of the land and building construction includes, among other things, costs in
respect of contractual obligations for the acquisition of land when the group companies
obligations thereunder are substantially finalized at the financial statement date
(i.e., all major conditions required for the conclusion of the transaction and its
implementation had been fulfilled) and the amounts thereof are determined. Amounts not
yet paid as at each respective balance-sheet date, are presented, accordingly, as a
liability.Improvements and renovations are charged to cost of assets. Maintenance and repair costs
are charged to the statement of operations as incurred.Consideration paid for multiple assets acquired at an aggregate amount (package) is
allocated to the cost of the assets on the basis of value estimation and relatively to
their fair value in that package.
 - 19 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 I.
    
    Fixed assets (cont.)
 (1)
    
    (Cont.)Financing costs in respect of credit used for acquisition or construction of buildings
(including acquisition of related land) as well as direct supervision and construction
costs incurred in the pre-operating period, have been capitalized to the cost of the
buildings. As to borrowing costs capitalization principles  see item U below.Fixed assets acquired from controlling shareholders of the Company are included
according to their reported book value in the controlling shareholders financial
statements immediately prior to acquisition thereof.(2)
    
    Depreciation is calculated by the straight-line method at annual rates deemed
sufficient to depreciate the assets over their estimated useful lives. Leasehold
improvements are amortized over the estimated useful period of use not exceeding the
lease period (including the period of renewal options that the company intends to
exercise).Annual depreciation rates are as follows:
 %Freehold land
    
    0Leasehold land
    
    Over lease periodHotels
    
    1.1 - 1.5Commercial centers
    
    2.0Other buildings
    
    2.0 - 2.5Building operating systems
    
    7.0   (average)Other fixed assets (*)
    
    6.0 - 33.0
 
 (*)
    
    Consists of motor vehicles, aircraft, office furniture and equipment,
machinery and equipment, electronic equipment, computers and peripheral equipment,
software, leasehold improvements, etc. (3)
    
    As for Accounting Standards No. 27 and No. 16, which are effective from January 1,
2007  see Note 2AA.(v) and 2AA.(ii).
 J.
    
    Other assets and deferred expenses
 (1)
    
    Acquired patent rights, technical know-how, intellectual property and distribution
rights  are stated at cost and amortized by the straight-line method over their
estimated benefit period (10 years).(2)
    
    Hotel and/or commercial center pre-opening costs mainly: employee training,
testing of systems and preparation of the hotel/center for opening, operation and
occupancy, are stated at cost and amortized over a three-year period from commencement of
full-scale operations.(3)
    
    Entertainment and leisure facilities operating rights are included at cost and
amortized by the straight line method over their estimated benefit period.
 - 20 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 J.
    
    Other assets and deferred expenses (cont.)
 (4)
    
    Costs of obtaining loans- Includes costs related to refinancing loans, which in
effect constitutes an extension of previous loans (including costs deriving from
prepayment of loans), are capitalized as incurred and are charged to the statement of
operations over the loans period of benefit and in relation to their balance. Through
December 31, 2005, such costs were presented in the balance sheet as Other assets and
deferred expenses. Commencing January 1, 2006, the Company prospectively applies the
provision set forth in standard No. 22 and accordingly such costs were offset from the
related long term loans and should be depreciated using the effective interest method.(5)
    
    Operating costs relating to initiation activities (prior to finalization of the
investment transaction or land acquisition, etc.) are capitalized as incurred, when an
investment or a property acquisition transaction is reasonably foreseeable, and are
charged to the cost of the investment or the real estate project cost upon the execution
of the investment or the acquisition. In circumstances where execution of investment or
transaction is not probable or the expected economic benefit is doubtful, these costs are
charged to the statement of operations.(6)
    
    Costs of obtaining long-term leases are capitalized as incurred and charged to
the statements of operations over the respective lease period or on an average basis, as
applicable. When a termination of a contract, or a group of contracts is reasonably
expected, or when the expected economic benefit of these costs is doubtful, these costs
are charged to the statement of operations.(7)
    
    Costs of a long-term service contract are stated at cost and amortized over the
service period (5 years).
 As for accounting standard No. 30 which is effective from January 1, 2007  see Note
2AA.(vi).K.
    
    Long-term receivables and liabilities
 (1)
    
    Long-term fixed period liabilities, which do not bear specified interest or that
bear interest, are stated at present value (discounted at market interest rates customary
for similar loans). The effective interest is charged to the statement of operations over
the term of the liability.(2)
    
    Suppliers credits and other short term liabilities, as well as short-term bank
borrowings used for construction of commercial centers and/or hotels and whose repayment
sources are funded by long-term financing agreements with financial institutions, have
been included as long-term liabilities. Repayment schedules of such loans are included in
accordance with the terms of the respective long-term credits, according to agreements
with the lenders.
 - 21 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 L.
    
    Income taxesDeferred taxes are calculated in respect of all temporary differences, including (i)
differences between the timing of record of income and expenses in the financial statements
and the recognition thereof for income tax purposes; (ii) differences between the reported
value of non-monetary assets (through December 31, 2004  excluding the adjustment component
for buildings  see below) and the amount deductible for income tax purposes other than for
temporary differences generated upon initial recognition of goodwill and/or asset or
liability, not in connection with a business combination and that which at the initial
recognition thereof had no effect on the accounting or tax net income; (iii) tax losses and
deductions that may be carried forward for future years or used against previous years; and
(iv) differences between fair value of identified assets and liabilities of subsidiaries upon
acquisition of the investment therein, and their value for tax purposes. Deferred taxes in
respect of assets depreciation of which is not tax deductable and which were acquired through
business combination occurred before January 1, 2005, were not provided. Deferred taxes have
also been calculated in respect of temporary differences generated from the measurement
currency in the financial statements being other than that according to which profit (loss) is
determined for tax purposes.The calculation of tax liabilities (current and deferred) does not include taxes that would
have arisen in the event of a realization of investments in investee companies (except those
that are to be liquidated), or upon receiving their retained earnings as dividends, since, in
respect of some, dividends from profits thereof and/or gains to be generated from their
realization, are tax exempt, and in respect of others, it is managements policy not to
realize and/or to declare dividend out of their retained earnings, or other form of profit
distributions, in the foreseeable future, in a manner which entails additional substantial tax
burden on the group, except for the effect of the Israeli tax laws that would apply to
undistributed profits of foreign investee companies as from January 1, 2003  See Note
16B(1)(b).A tax benefit is recorded as an asset, only when its realization against future taxable income
is probable, or when sufficient taxable temporary differences, the timing of reverse of which
does not precede the realization timing of the tax benefit, as aforestated, exist. Tax assets
and liabilities (current and deferred), are calculated according to the tax rates and relevant
laws expected to apply upon utilization thereof, as are in effect (or enactment thereof is
practically completed) as at the balance sheet date. Current and deferred taxes relating to
capital reserve from foreign currency translation adjustments or to other capital items are
charged directly to shareholders equity. Deferred taxes deriving from changes in the tax rate
(including those in respect of balances previously created on temporary differences within a
business combination) are charged to the income tax item in the statement of operations, or in
the capital reserve from foreign currency translation adjustments, as applicable.In accordance with the provision of Standard No. 19, as effective from January 1, 2005, the
Company initially included in its financial statement for the year ended December 31, 2005
deferred taxes mainly in respect of the adjustment component of land and buildings which was
recorded as cumulative effect for the beginning of the year due to a change in accounting
method in the statement of operations and in the statement of changes of shareholders
equity.Deferred taxes in respect of exempt profits of an approved enterprise  see Note 16B.(1).d.
 - 22 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 M.
    
    Exchange rates and linkage basesForeign currency balances or those linked thereto are included in the financial statements on
the basis of the exchange rate in effect as at the balance-sheet date.Balances linked to various indices or security rates, are included on the basis of the
relevant index or rate, as applicable to each linked asset or liability.Rate of exchange of NIS, in effect, in relation to foreign currency (in NIS)
 December 312006
    

2005US Dollar ($)
    
    
    4.225
    
    
    
    4.603EURO ()
    
    
    5.564
    
    
    
    5.446British Pound (£)
    
    
    8.228
    
    
    
    7.940Romanian New Lei (RON)
    
    
    1.645
    
    
    
    1.480Indian Rupee (INR)
    
    
    0.095
    
    
    
    0.101
 Scope of change in the exchange rate, in effect, of the NIS in relation to the foreign
currency (%)
 Year ended December 312006
    
    2005
    

2004US Dollar ($)
    
    
    (8.21
    )
    
    
    6.84
    
    
    
    (1.62
    )EURO ()
    
    
    2.16
    
    
    
    (7.32
    )
    
    
    6.21British Pound (£)
    
    
    3.62
    
    
    
    (4.42
    )
    
    
    5.85Romanian New Lei (RON)
    
    
    11.10
    
    
    
    (0.03
    )
    
    
    9.63Indian Rupee (INR)
    
    
    (5.94
    )
    
    
    2.21
    
    
    
    2.76
 N.
    
    Financial instruments
 (1)
    
    Financial instruments  see Note 23.(2)
    
    Results of derivatives and financial instruments designated for hedging purposes of
existing assets and liabilities, or against fluctuations in the exchange rates in which
firm commitments are denominated, as well as those designated as a hedge against
fluctuations of interest rates of variable-interest loans, are charged to the statement
of operations concurrently with the charging of the results from the hedged assets and
liabilities and/or the realization of the relevant transaction and/or the charging of the
interest according to the interest rate specified in the loan agreement, as applicable.Derivative financial instruments not designated for hedge purposes are presented at
their estimated fair value. Changes in their fair value during the reported period are
charged to the statement of operations.
 - 23 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 O.
    
    Impairment of long-lived assetsThe Company applies Standard No.15 of the IASB  Impairment of Assets, which sets forth the
accounting treatment and method of presentation required in the event of asset impairment
(including investments in associated companies), and provides for the assets of a corporation
not to be presented in amounts exceeding the higher of their net selling price or their value
in use based on future discounted cash flow expected to be generated from such an asset
(recoverable amount). Standard No. 15 stipulates that the recoverable amount must be
assessed whenever indicators point to a possible impairment of an asset. Any impairment of
assets is to be recorded as a loss in the statement of operations.P.
    
    Convertible debenturesThrough December 31, 2005, convertible debentures of a subsidiary were included based on
conversion probability tests, as set out in Opinion No. 53 of the ICPAI. Debentures, whose
conversion was not probable, were presented at their liability value. Debentures, whose
conversion were probable were included as a quasi-equity item between liabilities and
shareholders equity, at the higher of their monetary or non-monetary value. In accordance with
the provision of Standard No. 22, as effective from January 1, 2006, the liability component
and the conversion option component should be measured at the date of their issuance and
should be recognized separately in the balance sheet. The fair value of the liability
component is determined based on the interest rates customary to similar debentures having no
conversion rights. The difference between the convertible debentures proceeds and the fair
value of the liability component is attributed to the conversion option and is recognized in
the consolidated financial statements as quasi-equity item.Q.
    
    Share capitalCompany shares held (directly or through a subsidiary) by the Company (dormant shares), are
presented at cost and deducted from share capital of the Company according to the treasury
stock method.The sale of treasury stock or the issuance of Companys shares to third parties is recorded
based on the fair value of the assets or cash received in consideration thereof or the fair
market value of shares issued, as applicable. Income taxes resulting from sale of treasure
stock (if any) are charged directly to the shareholders equity.Loans granted to employees for purchasing the Companys shares which constitute the sole
security for the loans repayment, and which shall be repaid out of proceeds of the sale
thereof, are included in the balance sheet as a deduction from shareholders equity.R.
    
    Revenue recognition
 (i)
    
    Revenues from the leasing of property and management fees, as well as other revenue
relating to the operations of commercial and entertainment centers, are recorded pro rata
over the term of the lease and/or the service.(ii)
    
    Revenues from hotel operations are recorded upon performance of service.(iii)
    
    Revenues from operating leases (based on a long term firm commitment with a fixed
period), which increase gradually over the respected period of the lease, are charged to
the statement of operations by the straight-line method throughout the period of the
lease.
 - 24 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 R.
    
    Revenue recognition (cont.)
 (iv)
    
    The Company recognizes revenues on sales of real estate assets and trading
properties when all the following conditions are satisfied:
 a.
    
    the sale has been consummated;b.
    
    the enterprise has transferred to the buyer the significant risks and
rewards of ownership of the goods;c.
    
    the enterprise retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;d.
    
    the amount of revenue can be measured reliablye.
    
    it is probable that the economic benefits associated with the transaction will
flow to the enterprise (including the fact that the buyers initial and continuing
investment is adequate to demonstrate commitment to pay); andf.
    
    the costs incurred or to be incurred in respect of the transaction can
be measured reliably,
 For the company, these conditions are usually fulfilled upon the closing of a binding
sales contract.For sales transactions with a certain degree of continuing involvement (for example, in
a form of a guarantee to the buyer), revenues is reduced by the estimated exposure to
loss related to the continuing involvement.In circumstances, where the terms of the transaction provide for the Company to
participate in future profit from the property without risk of loss, and the transaction
otherwise qualifies for profit recognition under the full accrual method, the contingent
future profits are recognized when they are realized.(v)
    
    Revenues from sale of medical products are recognized in accordance with Standard
25 of the IASB, accordingly revenue is recognized when all the following conditions have
been satisfied: (a) the entity has transferred to the buyer the significant risks and
rewards of ownership of the goods; (b) the entity retains neither continuing managerial
involvement to the degree usually associated with ownership nor effective control over
the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable
that the economic benefits associated with the transaction will flow to the entity; and
(e) the costs incurred or to be incurred in respect of the transaction can be measured
reliably. For sale arrangements which include multiple deliverables such as system sales,
installation at the customers site and training, the revenue is recognized by reporting
the consideration to the deliverables. If there is objective and reliable evidence of
fair value for all units of accounting in an arrangement, the Company allocates the
arrangement consideration to the separate units of accounting based on their relative
fair value. In instances, which there is objective and reliable evidence of the fair
value of the undeliverable item in an arrangement but no such evidence for the delivered
item, the Company allocates the arrangement consideration to the deliverables using the
residual method.(vi)
    
    Service revenues from product support agreements are recognized ratably over the
service period.(vii)
    
    Revenues from the sale of goods in the retail industry are recognized upon delivery.
 S.
    
    Accrued warranty costsOne of the Companys subsidiaries provides a warranty, for a specified term, as to the quality
of its products sold thereby, for a limited period of time. In order to allow for the
fulfillment of this liability, a provision is included based on past experience and management
estimation.
 - 25 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 T.
    
    Research and development costsResearch and development costs, net of grants and third party participation (mainly the
Government of Israel  the OCS), are charged to the statement of operations, as incurred. The
accrual for grant receivable is determined based on the terms of the project, provided that
the criteria for entitlement have been met.As for accounting standard No. 30 which is effective from January 1, 2007  see Note
2AA.(vi).U.
    
    Capitalization of borrowing costsBorrowing costs are capitalized in accordance with the provisions of Standard No. 3 of the
IASB. Accordingly, both specific and non-specific borrowing costs are capitalized to qualified
assets (assets in preparation or under construction not yet in their designated use and whose
preparation for this purpose requires a prolonged period of time). Non-specific borrowing
costs are capitalized to qualified assets (or portion thereof) not financed by specific
borrowing, by using a rate constituting a weighted average of the costs in respect of the
Groups borrowings not specifically capitalized. Capitalization of borrowing to assets
continues, generally, until the completion of all the activities necessary to prepare the
asset for its designated use, except in events where capitalization is suspended as a result
of a prolonged interruption of the assets construction, as aforestated.V.
    
    Share-based paymentShare-based payment is calculated in accordance with the provisions of Standard No. 24 of the
IASB (Standard 24), the objective of which is to specify the principles of financial
reporting by an entity where it enters into a share-based payment transaction. For
equity-settled share-based payment transactions, the goods or services received, and the
corresponding increase in equity, are measured directly, at the fair value of the goods or
services received. If such fair value cannot reliably be estimated their value and
corresponding increase in equity are to be measured indirectly, by reference to the fair value
of the equity instruments granted based on market prices if available. If market prices are
not available, fair value of the equity instruments granted is estimated using a valuation
technique consistent with generally accepted valuation methodologies for pricing financial
instruments, taking into account the terms and conditions upon which those equity instruments
were granted. For transactions with employees and others providing similar services, the fair
value of the transaction is measured directly by reference to the fair value of the equity
instrument granted, at the date of grant.Share based payment transactions in which the terms of the arrangement provide the
counterparty with the choice of whether the transaction will be settled in cash (or other
assets) or by issuing equity instrument, the fair value is measured by the goods or services
acquired and the liability incurred at the fair value of the liability. Through the liability
settlement, the Company shall re-measure the fair value of the liability at each reporting
date and at the date of settlement, with any changes in the fair value is to be recognized in
profit or loss for the period.Standard 24 is effective for periods beginning on or after January 1, 2006 (effective date).
Pursuant to the transition provisions set forth in the Standard, the Company applied this
standard to grants of shares, stock options or other equity instruments that were granted
after March 15, 2005 and had not yet vested at the effective date.In accordance with the provision of Standard 24 the Company retrospectively applied its
guidance in the financial statements for the year ended December 31, 2005 and recorded an
additional expenses in the amount of NIS 1.7 million (net of minority interest NIS 1.2
million).
 - 26 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 W.
    
    Earnings (loss) per shareEarnings (loss) per share is calculated in accordance with the provisions of Standard No. 21,
Earnings per Share (Standard 21). Standard 21 establishes that an entity is to compute its
basic earnings (loss) per share in regard to income or loss attributable to its ordinary
shareholders, and that the entity shall compute its basic earnings per share with respect to
income or loss from continuing operations attributable to the ordinary shareholders of the
reported entity, should such be presented. Basic earnings per share is to be computed by
dividing income or loss attributed to holders of ordinary shares of the reporting entity
(numerator), by the weighted average of the outstanding ordinary shares (denominator) during
the period.In the computation of diluted earnings per share, the Company should adjust both its income or
loss attributable to its ordinary shareholders and the weighted average of the outstanding
shares for the effects of all the dilutive potential ordinary shares.The entering into effect of Standard 21 had terminated the provisions of Opinion No. 55 of the
ICPAI regarding Earnings Per Share.Following the implementation of Standard 21, the comparative data regarding the earnings
(loss) per share for prior periods were retrospectively adjusted. The effects of the initial
implementation of the Standard 21 amounted to a decrease in the earnings per share in the
amount of NIS 0.03 for the year ended December 31, 2005 and an increase of NIS 0.04 for the
year ended December 31, 2004.X.
    
    Offsetting of financial instrumentsFinancial assets and financial liabilities are presented in the balance sheet at their net
amount only when the Company is legally entitled to offset same, and it intends to dispose of
both asset and liability on a net basis or, alternatively intends to realize the asset
concurrently with the settlement of the liability.Y.
    
    ReclassificationCertain comparative figures for prior years have been reclassified so as to achieve conformity
with classifications used in the reported period.Z.
    
    Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires of Group companies managements to make estimates and rely upon
assumptions and assessments affecting the reported balance-sheet amounts of assets and
liabilities, the disclosure of contingent assets and liabilities as at the financial
statements date, and the amounts of revenues and expenses during the reporting periods. Actual
data and operating results may differ from these estimates.AA.
    
    Recently issued accounting standards
 (i)
    
    In August 2006 ISAB published Accounting Standard No. 26, Inventory (Standard
26). Standard 26 applies to all types of inventory, save the following: (i) inventory of
work in process which is subject to Accounting Standard No. 4 applies, work executed by
contract ; (ii) inventory of buildings held for sale which is subject to Accounting
Standard No. 2, construction of buildings for sale; and (iii) financial instruments.Standard 26 provides that inventory is to be measured at the lower of either cost or its
net realizable value. The cost of the inventory is to be determined on the basis of the
First-In  First-Out (FIFO) method or by using a weighted average of cost, while
maintaining consistency in terms of all inventory having a similar nature and use.
Standard 26 also provides guidelines regarding the allocation of conversion costs to
inventory and for determining impairment in value of inventory written down to net
realizable value of the inventory.
 - 27 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 AA.
    
    Recently issued accounting standards (cont.)
 (i)
    
    (cont.)Standard 26 will apply to financial statements for periods beginning on January 1, 2007
or thereafter and it should be implemented retroactively by restating the comparative
data relating to prior periods.In the opinion of the Company, implementation of the Standard 26 is not anticipated to
have a material effect on the Companys results of operations and financial position.(ii)
    
    In September 2006 the IASB published Accounting Standard No. 27, Fixed Assets
(Standard 27). Standard 27 stipulates rules for the presentation, measurement and
recognition of fixed assets and for the disclosure required in respect thereto. Standard
27 provides, inter alia, that upon the initial recognition of a fixed asset, the entity
should estimate and include in the cost of the item all the costs it expects to incur in
respect of a liability to dismantle and remove the item and to restore the site on which
it was located. Furthermore, the Standard provides that a group of similar fixed asset
items shall be measured at cost net of accumulated depreciation, and less impairment
losses, or alternatively, at its revalued amount less accumulated depreciation, whereas
an increase in the value of the asset to above its initial cost as a result of the
revaluation will be directly included in the shareholders equity under a revaluation
reserve.Any part of a fixed asset item with a cost that is significant in relation to the total
cost of the item shall be depreciated separately, including the costs of significant
periodic examinations. Standard 27 also provides that a fixed asset that was purchased
in consideration for another non-monetary item in a transaction having a commercial
substance shall be measured at fair value.Standard 27 shall apply to financial statements for reporting periods commencing January
1, 2007. An entity that on January 1, 2007 elects for the first time to implement the
revaluation method for measuring fixed assets, shall on this date recognize a
revaluation reserve in the amount of the difference between the revalued amount of the
asset on that date and its cost as recorded in the books. Furthermore, an entity that in
the past, upon the initial recognition of a fixed asset, had not included in its cost
the initial estimate of costs for dismantling and removing the asset and for restoring
the site on which it is located, is required to follow the below instructions:
 (a)
    
    To measure the aforementioned liabilities as at January 1, 2007 in
accordance with generally accepted accounting principles;(b)
    
    To calculate the amount that would have been included in the cost of
the relevant asset on the date on which the liability was initially incurred by
capitalizing the amount of the liability mentioned in item (a) above to the date on
which the liability was initially incurred (Capitalized Amount). The liability is
to be capitalized using the best estimate of the historical capitalization rates
suitable to the risk that was relevant to that liability during the period that has
passed; and(c)
    
    To calculate the accumulated depreciation on the Capitalized Amount as
at January 1, 2007 on the basis of the useful life of the asset as at that date;(d)
    
    The difference between the amount to be charged to the asset in
accordance with items (b) and (c) above, and the amount of the liability in
accordance with item (a) above, shall be included in retained earnings.
 Other than the aforementioned, Standard 27 will be adopted on a retroactive basis.
 - 28 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 AA.
    
    Recently issued accounting standards (cont.)
 (ii)
    
    (Cont.)In January 2008 IASB published a proposal of Accounting Standard No. 28(Standard 28)
which provides the transitional provisions to Standard 27. In accordance with the
provisions of Standard 28 an entity which intends to adopt, as and from January 1,
2008, one or more of the relieves stipulated in IFRS 1 regarding fixed assets, may adopt
the same relief in the financial statements for periods beginning as and from January 1,
2007.It was also determined that an entity that elects the relief of considering fair
value as deemed cost will not be required to restate comparative data, but shall
alternatively provide a disclosure as to such relief elected as well as to the fair
value of each item so treated, as at January 1, 2007.The Company is examining Standard 27 and Standard 28, however it can not, at this stage,
evaluate its effect on the Companys financial statements.(iii)
    
    In July 2006 IASB published Accounting Standard No. 29, Adoption of International
Financial Reporting Standards (IFRS) (Standard 29). The initial implementation of
IFRS will be effected along with the implementation of IFRS 1, First Time Adoption of
International Financial Reporting Standards, for purposes of the transition. In
accordance with Standard 29, the Company is required to include in its annual financial
statements for December 31, 2007, balance sheet data as at December 31, 2007 and
statement of operations data for the year then ended, that have been prepared according
to the recognition, measurement and presentation principles of IFRS.The Company is examining the effects of the transition to IFRS, including the
possibility of implementing IFRS earlier than required, but at this point is unable to
evaluate the effect on its financial statements of adopting IFRS.(iv)
    
    In December 2006 IASB published Accounting Standard No. 23, The Accounting
Treatment of Transactions between an Entity and its Controlling Shareholder (Standard
23). Standard 23 provides that assets and liabilities included in a transaction between
the entity and its controlling shareholder shall be measured on the date of the
transaction at fair value and that the difference between the fair value and the
consideration from the transaction shall be included in shareholders equity. A debit
difference is considered as an actual dividend and accordingly reduces the retained
earnings.Standard 23 shall apply to transactions between an entity and its controlling
shareholder that are executed after January 1, 2007, and to a loan that was granted to a
controlling shareholder or that was received from it before the date this Standard came
into effect as from the date of it coming into effect.The Companys management does not foresse implementation of the new standard as having a
material impact on the Companys results of operations and financial position.
 - 29 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 AA.
    
    Recently issued accounting standards (cont.)
 (v)
    
    In February 2007, IASB issued Accounting Standard No. 16, Investment Property
(hereinafter- the Standard), which determines the followings accounting treatment of
real estate assets held for investment and their respective disclosure requirements.Investment Property is defined as real estate (land and/or whole or part of building)
held (by the owners or by a lessee under a financing lease) for the purpose of
generating rental revenues and/or increasing such real estates value except where:
 
    
    The property is being used either for manufacturing, providing goods or
services, or for administrative purposes; or
    
    The property is held for sale in the ordinary course of business.
 The Standard permits entities to choose between:
 (1)
    
    The fair value model, according to which Investment Property will be
measured, after the initial recognition, at fair value, with the changes in fair
value being recognized in the statement of operations; or(2)
    
    The cost model, according to which Investment Property is measured,
after the initial recognition, at depreciated balance (less cumulative losses from
impairment in value). An entity that selects the cost model will give disclosure in
the notes as to the fair value of its Investment Property.
 The Standard allows a lessee under an operating lease to classify and treat its rights
in real estate assets as Investment Property, only in respect of real estates which
would otherwise have fallen under the definition of Investment Property and subject to
such lesees election to use the fair value model. This alternative classification
applies to each real estate property on an individual basis. The Standard requires an
entity to apply the elected model to all Investment Properties. The Standard applies to
annual financial statements as and from January 1, 2007.The Standard also provides for the following transitional provisions to each alternative
accounting model:
 (1)
    
    adoption of the fair value model shall be recorded as an adjustment of
the opening balance of the retained earnings for the period for which the Standard
was initially adopted;(2)
    
    adoption of cost model  an entity which intends to adopt, as and from
January 1, 2008, one or more of the relieves stipulated in IFRS 1 regarding
Investment Property, may adopt the same relief in the financial statements for
periods beginning as and from on January 1, 2007.It was also determined that an
entity that elects the relief of considering fair value as deemed cost will not
be required to restate comparative data, but shall alternatively provide a
disclosure as to such relief elected as well as to the fair value of each item so
treated, as at January 1, 2007.
 The Company intends to adopt the fair value model, commencing from January 1, 2007.The management of the Company estimates that, as the result of the initial
implementation of the Standard, the book value of its Investment Property will increase
by approximately NIS 25.4 million ($6.0 million), of which NIS 13.7 million ($3.2
million) will be recorded to retained
earnings, NIS 2.9 million ($0.7 million) as deferred taxes liability and NIS 8.7 million
($2.0 million) as minority interest.
 - 30 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 AA.
    
    Recently issued accounting standards (cont.)
 (vi)
    
    In March 2007, IASB issued Accounting Standard No. 30, Intangible Assets
(hereafter- the Standard), which prescribes the accounting treatment for intangible
assets that are not covered by other accounting standards, and also stipulated the
disclosure requirements for intangible assets in the financial statements.An intangible asset is a non- monetary asset, identifiable, and lacks physical
substance. The requirement for identification is intended for the purpose of
differentiation between it and goodwill. The criteria for recognition of an intangible
asset are complied when the asset:
 (1)
    
    May be separated, namely, it may be perceptively be separated from the
entity and it can be sold, transferred, grant a license for use, leased or
exchanged, separately or together with a connected contract, connected asset or
connected liability, or;(2)
    
    Is derived from contractual rights or from other legal rights, without
taking into account whether these rights are transferable or can be separate from
the entity or from other rights or liabilities.
 According to the Standard, an entity shall recognize an intangible asset if, and only
if, it is probable that the expected economic benefits in the future that may be
attributed to the asset will be derived by the entity and that the cost of the asset is
can be measured on a reliable basis. An intangible asset that is eligible for
recognition as an asset will be measured initially at cost.An intangible asset arising from research shall not be recognized. Any expenditure for
such research will be recognized as an expense when incurred. On the other hand, an
intangible asset arising from development shall only be recognized if the entity can
prove compliance with the criteria detailed in the Standard.

An expenditure related to an intangible item which was initially recognized as an
expense may not be recognized as part of the cost of an intangible asset at a later
date.Subsequent to initial recognition, the Standard permits the entity to select a
measurement method as follows:
 (1)
    
    Under the cost model, subsequent to initial recognition, an intangible
asset shall be carried at its cost, less any accumulated amortization and
accumulated impairment losses; or(2)
    
    An intangible asset which has an active market shall be carried at a
revalued amount, based upon its fair value at the date of revaluation, less any
subsequent accumulated amortization and any subsequent accumulated impairment
losses. The revaluation amount is to be recorded directly to shareholders equity
under the heading of revaluation reserve.
 The entity should estimate whether the period of the useful life of an intangible asset
is definite or indefinite. An intangible asset with a definite useful life will be
amortized over its useful life, subject to a review for impairment of value. An
intangible asset with an indefinite useful life shall not be amortized but rather be
tested for impairment at least once a year, or more frequently, in the presence of
circumstances indicating a possible impairment in the value of such asset.
 - 31 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2   SIGNIFICANT ACCOUNTING POLICIES (CONT.)
 AA.
    
    Recently issued accounting standards (cont.)
 (vi)
    
    (Cont.)This Standard is applicable to financial statements for annual periods commencing on
January 1, 2007 or thereafter, except as stated below:
 -
    
    An entity which intends to adopt one or more of the relieves stipulated
in International Accounting Standard No. 1 in its financial statements for periods
commencing on January 1, 2008, is permitted to adopt that relief or those relieves
for periods commencing on January 1, 2007. An entity which selects fair value as
deemed cost will not restate comparative data but will disclose this fact, as well
as the fair value as of January 1, 2007 of each item that was so treated.-
    
    A research and development project in progress, which was purchased in
the framework of a business combination executed prior to January 1, 2007, which
complies with the definition of an intangible asset as of the acquisition date and
which was charged as an expense as of the acquisition date, will be recognized as
an asset as of the effective date of the Standard. The amount of the adjustment
will be recorded to retained earnings as of January 1, 2007.
 The Company is examining Standard 30, however it can not, at this stage, evaluate its
effect on the Companys financial statements.
 NOTE 3  CASH AND CASH EQUIVALENTS
 December 312006
    
    2005
    
    2006ReportedInterest
    
    
    
    
    
    
    
    
    
    Conveniencerate
    
    
    
    
    
    
    
    
    
    translation%
    
    (in thousand NIS)
    
    US$000Euro
    
    
    3.5-3.7
    
    
    
    1,199,834
    
    
    
    363,736
    
    
    
    283,984NIS
    
    
    4.5-5.3
    
    
    
    665,026
    
    
    
    7,577
    
    
    
    157,403US dollar
    
    
    5.0-5.22
    
    
    
    244,199
    
    
    
    64,792
    
    
    
    57,799British Pound
    
    
    4.0
    
    
    
    19,762
    
    
    
    34,230
    
    
    
    4,677Other (mainly, Forint, Zloty and Ron)
    
    
    1.0-3.0
    
    
    
    22,050
    
    
    
    19,009
    
    
    
    5,2192,150,871
    
    
    
    489,344
    
    
    
    509,082
 - 32 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4  SHORT-TERM DEPOSITS AND INVESTMENTS
 A.
    
    Composition:
 December 312006
    
    2005
    
    2006ReportedInterest
    
    
    
    
    
    
    
    
    
    Conveniencerate
    
    
    
    
    
    
    
    
    
    translation%
    
    (in thousand NIS)
    
    US$000Deposits with banks and
financial institutions
denominated in or
linked to the:US dollar
    
    
    4.9-5.0
    
    
    
    73,595
    
    
    
    148,211
    
    
    
    17,419Euro
    
    
    2.1-3.0
    
    
    
    21,606
    
    
    
    45,070
    
    
    
    5,114Other
    
    
    1.0-5.0
    
    
    
    34,504
    
    
    
    25,322
    
    
    
    8,167In NIS
    
    
    3.3-4.3
    
    
    
    8,651
    
    
    
    13,739
    
    
    
    2,048138,356
    
    
    
    232,342
    
    
    
    32,748Marketable securities (*)
    
    
    
    
    
    
    124,986
    
    
    
    7,450
    
    
    
    29,580263,342
    
    
    
    239,792
    
    
    
    62,328Current Maturities of
long-term loans and receivables
    
    
    
    
    
    
    15,770
    
    
    
    280
    
    
    
    3,734279,112
    
    
    
    240,072
    
    
    
    66,062
 
 (*)
    
    Mainly government bonds. B.
    
    Liens see Note 17D.
 NOTE 5  TRADE ACCOUNTS RECEIVABLE
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Outstanding accounts
    
    
    61,699
    
    
    
    44,643
    
    
    
    14,604Less  allowance for doubtful debts
    
    
    10,558
    
    
    
    9,239
    
    
    
    2,49951,141
    
    
    
    35,404
    
    
    
    12,105
 - 33 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6  RECEIVABLES AND OTHER DEBIT BALANCES
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Government institutions
    
    
    57,819
    
    
    
    23,414
    
    
    
    13,685Prepaid expenses
    
    
    16,119
    
    
    
    15,755
    
    
    
    3,815Employees
    
    
    370
    
    
    
    (*) 13,450
    
    
    
    88Receivables in respect of realization of investments (**)
    
    
    30,855
    
    
    
    11,072
    
    
    
    7,303Control Center Group companies
    
    
    5,993
    
    
    
    3,186
    
    
    
    1,418Other
    
    
    11,185
    
    
    
    9,803
    
    
    
    2,647122,341
    
    
    
    76,680
    
    
    
    28,956
 
 (*)
    
    Mainly loans in respect of realization of shares  see Note 18B(i).(**)
    
    See Notes 9B.(3)e. and 9B(4)c. NOTE 7  INVENTORIES
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Hotels inventories
    
    
    2,726
    
    
    
    2,729
    
    
    
    645Image Guided Treatment:Raw materials
    
    
    8,568
    
    
    
    9,747
    
    
    
    2,028Products under process and finished goods
    
    
    3,126
    
    
    
    3,622
    
    
    
    740Fashion  merchandise
    
    
    10,290
    
    
    
    8,034
    
    
    
    2,43624,710
    
    
    
    24,132
    
    
    
    5,849
 - 34 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7A  TRADING PROPERTY
 A.
    
    Composition:
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Balance as of January 1
    
    
    583,101
    
    
    
    
    
    
    
    138,012Reclassification from real estate and other
fixed assets (*)
    
    
    
    
    
    
    583,101
    
    
    
    Initially consolidated companies
    
    
    37,954
    
    
    
    
    
    
    
    8,983Additions during the year
    
    
    534,713
    
    
    
    
    
    
    
    126,559Deconsolidated companies
    
    
    (250,475
    )
    
    
    
    
    
    
    (59,284
    )Adjustment resulting from translation of
foreign subsidiaries financial statements
    
    
    5,200
    
    
    
    
    
    
    
    1,231Balance as of December 31
    
    
    910,493
    
    
    
    583,101
    
    
    
    215,501
 
 (*)
    
    See Note 2C. B.
    
    Additional information in respect of trading property:
 (1)
    
    MPSA holds a 99-year perpetual usufruct lease of a land, being the subject matter
of the project located in Lublin, Poland, which have been leased from the local
municipality, with a view of constructing thereon a complex, consisting of: commercial
area, a hotel, offices, convention center and the like. MPSA has a right to acquire the
land from the local municipality, upon completion of construction, at an agreed upon
price of PLN 8.5 million (NIS 12.3 million; $2.9 million) net (after deduction) of
accumulated lease fees paid through the exercise of such right. The local municipality is
entitled to terminate the perpetual usufruct if the use of the land does not correspond
to the approved usage and/or in the event unauthorized delays or schedule deviations
occur. Should perpetual usufruct be so terminated, MPSA shall be entitled to demand
reimbursement of its investment in the construction of the complex through termination.In November 2004 MPSA and the local municipality amended the agreement so as to divide
the project into two stages, subject to the first (construction of the convention center
and commercial area) being completed by August 31, 2006. The second stage (construction
of the hotel and office area) shall commence by no later than September 30, 2009 and
conclude by the end of 2011. The parties are allowed, with written consent, to increase
or decrease the areas provided for offices and a hotel or to change those functions.
Should MPSA fails to comply with the timetable of the second stage a penalty shall be
imposed thereon in the amount of PLN 2.5 million (NIS 3.6 million; $0.9 million).(2)
    
    In 2004, PC entered into an agreement for the acquisition of 50% of the ownership
in and to a Latvian corporation which owns land property, with the view of constructing
thereon a commercial and entertainment center. Throughout 2004 and 2005 the Latvian
corporation acquired additional land properties. The construction permit issued in
respect of the land, which was valid at the time of PCs acquisition thereof, has expired
in September 2004.Following the additional land acquisitions, and in light of the possibility which has
arisen to substantially upgrade the scope of the project (including the construction of
an underground parking, reducing construction costs, altering the shape of the project
while improving same in comparison with the previous plans, etc.) PC has extensively
changed the structure of the project, which required revision to be made to the building
permit, in order to allow for the approval of the project in its expanded scope.PCs investment in this project was carried out by means of shareholder loans (mainly
Libor +2.5% interest) totaling, as at December 31, 2006 6.2 million (NIS 34.1
million; $8.1 million).
 - 35 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7A  TRADING PROPERTY (CONT.)
 B.
    
    Additional information in respect of trading property (cont.):
 (3)
    
    On May 2000 a Greek subsidiary (Helios) obtained a building permit for the
construction of a commercial and entertainment center on the area of land owned thereby.
Excavation works commenced in 2001, but shortly thereafter the works were suspended due
to archeological findings at the site. Final clearance issued by the competent
archeological authorities was obtained in February 2002. However, in terms of the
archeological clearance, and in order to comply with the provisions of an environmental
and traffic impact plan, Helios was required to carry out certain modifications to the
architectural plans of the commercial and entertainment center. Upon completion of the
new requirements, Helios submitted an application for a revised building permit. In
December 2003, the local governmental authorities placed a one year suspension
(moratorium) on the issuance of all building permits and constructions along the Piraeus
side of the National Highway (which includes the land owned by Helios).In November 2004 a ministerial decision was issued, which changed the land uses along
the national highway (Piraeus Avenue), restricting the use of the Helios site only to
office buildings and/or residential buildings and/or small size retail activities. Under
the new land uses Helios may no longer build a shopping center. During the term of such
suspension Helioss building permit expired. In April, 2005 Helios submitted an
application to the competent authorities requesting the renewal of its building license,
which application had been denied. In consequence, Helios filed a petition with the
constitutional court for an order determining that the refusal to re-issue the building
license was unconstitutional and directing the competent authorities to re-issue the
building license.The Greek constitutional court awarded certain rulings during this period, which reverse
the Greek regulatory civil planning framework and effectively voiding the powers granted
to the government by the 2002 law by reason of the law which conferred such powers being
declared unconstitutional. Given that Helioss project was affected by a ministerial
decision issued by virtue of this 2002 law which has now been held to be void, it
appears that such ministerial decision is unconstitutional and accordingly invalid.
However, Helios has no direct means to create a practical result out of this event,
since the period during which Helios is permitted to challenge the ministerial decision
has expired, and there appears to be no direct way to compel the civil planning agency
to issue a new building permit on the basis of the previous permit (already expired) or
of the amendment that would allow Helios to construct a shopping center. PC is presently
seeking legal advice as to steps to be takes to protect its interests in current
circumstances. PC contemplates further application for the re-issuance of the building
permit and/or filing a petition with the constitutional court on additional grounds.Considering the unclear nature of the status of the initial building permit, the
application for the amended building permit and the recent legislative changes which
affect the project, PCs management is currently considering the alternative possible
solutions which are available to it, in order to finalize the project as originally
planned. In addition, PCs management is examining, simultaneously, the possibility that
substantial changes may be required to be made to the extent and nature of the project,
the viability of such alternative projects, and the commercial and financial
implications of such changes.
Notwithstanding the aforestated, PCs management estimates that the project cost, as
recorded in Helios books of record, does not exceed its recoverable amount.(4)
    
    In August 2001, a subsidiary, located in Lodz, Poland, received a construction
permit for the construction of a commercial and entertainment center, which expired prior
to the balance sheet date. Construction works in respect of this project have not
commenced as at the approval date of these financial statements. The cost of investment
in the land (including demolition and other development costs) amounts to 5.5 million
(NIS 30.6 million; $7.2 million). No zoning plans exist as at the balance sheet date, in
respect of the area surrounding the respective land. Once construction plans are
determined, new requests will be filed for a revised building permit. PCs management
estimates that applying for and obtaining the revised building permit will not result in
substantial additional costs and that the book value of the asset, as recorded in the
financial statements, does not exceed its recoverable amount.
 - 36 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  DEPOSITS, LOANS AND OTHER LONG-TERM BALANCES
 A.
    
    Composition:
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Deposits at banks and financial institutions (1)
    
    
    39,874
    
    
    
    8,222
    
    
    
    9,438Loans to interest holders in investee companies (2)
    
    
    44,547
    
    
    
    44,296
    
    
    
    10,544A loan to a former associated company (3)
    
    
    20,534
    
    
    
    19,997
    
    
    
    4,860Loans to anchor tenants (4)
    
    
    3,472
    
    
    
    1,233
    
    
    
    822Payment on account of acquisition of land inventory (5)
    
    
    24,741
    
    
    
    
    
    
    
    5,856Payment on account of acquisition of a subsidiary (6)
    
    
    107,953
    
    
    
    
    
    
    
    25,552Loans to venture capital companies
    
    
    
    
    
    
    1,232
    
    
    
    Deferred taxes
    
    
    4,997
    
    
    
    6,356
    
    
    
    1,183Others
    
    
    1,225
    
    
    
    6,467
    
    
    
    290247,343
    
    
    
    87,803
    
    
    
    58,545Less  allowance for doubtful debts
    
    
    (30,080
    )
    
    
    (25,384
    )
    
    
    (7,120
    )217,263
    
    
    
    62,419
    
    
    
    51,425Less  current maturities
    
    
    (15,770
    )
    
    
    (280
    )
    
    
    (3,734
    )201,493
    
    
    
    62,139
    
    
    
    47,691
 
 (1)
    
    Mainly, deposits pledged as security for the repayment of loans and debts obtained
by Group companies, which have been included as due and payable concurrently with the
loan or debts repayment dates. (2)
    
    (i)
    
    Loans to the Management Company or to its controlled companies. A loan of NIS
7.0 million ($1.7 million) which is linked to the US dollar, bears annual interest at a
rate of Libor+1%, was due and payable on December 31, 2006 and accordingly was fully
provided for doubtful debts as of December 31, 2006. A loan of NIS 14.0 million ($3.3
million) is linked to the US dollar, bears annual interest at the rate of Libor+1% due
and payable through June 30, 2007. According to the agreement, the amounts to be received
by the Management Company from the Group companies in respect of the formers interest in
hotels owned by the latter (other than hotel management fees (see Note 17A.(1)a. and b.)
will be used as security for the repayment of the loans.A loan of NIS 2.3 million ($0.5 million) which is linked to the EURO and bears
annual interest at a rate of 4.9%. B.H. received no security for these loans.(ii)
    
    Include NIS 21.2 million ($5.0 million)  loans to shareholders of a
jointly held company (50%) within the PC group  see Note 9B.(3)f.
 - 37 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  DEPOSITS, LOANS AND OTHER LONG-TERM BALANCES (CONT.)
 A.
    
    Composition (cont.):
 (3)
    
    A loan linked to the Israeli CPI and bearing no interest provided to former
associated company of Elscint (Gilbridge Ltd.) in October 2001. As of the Balance sheet
date an allowance for all outstanding balance of the loan is recorded since maturity
date of the loan has expired in October 2005. On January 8, 2007 Elscint, Gilbridge and
the controlling shareholder of Gilbridge (Gil) entered into an agreement according to
which the outstanding amount of the loan would be set to $4.5 million and it will bear
annual interest of 5.0%. According to the terms of the agreement an amount of $1.0
million was paid by Gil on January 11, 2007 and an amount of $1.5 million (including
interest) will be paid by Gil by June 30, 2007. An additional amount of $2.0 million
(including interest) will be paid by Gilbridge by June 30, 2008. Gilbridge had also
consented to transfer to Elscint any proceeds received thereby from the sale of its
portfolio companies, less certain Gilbridge expenses not exceeding a maximum amount as
stipulated in the agreement.(4)
    
    Linked mainly to the NIS, bears annual interest of Prime + 2.1% to 2.9%.(5)
    
    In September 2006 the Company together with an Indian corporation (Project SPV)
wholly owned by an unrelated third party (the Third Party Shareholder) entered into an
agreement (as amended in January 2007) for the purchase of an agricultural land (The
Land) measuring 41 acres located in Cochi, India. In accordance with the terms of the
agreement the Company and Project SPV will acquire 13 acres (Property A) for a total
consideration of INR 1,495 million (NIS 142.0 million; $33.6 million) payable subject to
fulfillment of certain obligation by the seller in respect of the Land including
obtaining all permissions required for construction thereon and making good and
marketable title with regard to Property A and others (Conditions precedent). The
additional 28 acres (Property B) would be transferred by the seller to the Project SPV
without any consideration and the seller will be entitled to receive 40% of the
constructed area which will be built by the Project SPVs. It was further agreed that all
fess costs and expenses with regards to construction on Property B will be borne by the
Project SPV and that the project SPV will have the entire control over the construction
as well as the marketing of the entire project. The agreement also provides that if the
seller fails to comply with the aforementioned Conditions Precedent, the Project SPV and
the Company shall have the right to terminate the agreement and the seller will then
refund all amounts paid under this agreement plus an interest of Libor +1%.On September 29, 2006 the Company, the Third Party Shareholder and the Project SPV
entered into a share subscription agreement according to which the Company will transfer
to the Project SPV its respective rights in and to the Land in consideration of 50%
shareholding and voting rights in the Project SPV. The allotment of shares is subject to
conversion of the land use to a non-agricultural land and the securing of sanctioned
plans for the Land. As of the balance sheet date, the allotment of the shares was not
yet executed and the Project SPV is fully controlled (100%) by the Third Party
Shareholder. Accordingly, the total amount invested by the Company as of December 31,
2006, of NIS 24.7 million ($5.8 million) is presented as payment on account of
acquisition of land inventory. The Project SPV intends to develop the property as a
mixed used project which will include residential units, offices, hotels and commercial
areas.(6)
    
    See Note 9B(3)(l).
 - 38 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  DEPOSITS, LOANS AND OTHER LONG-TERM BALANCES (CONT.)
 B.
    
    Repayment dates:
 December 31 2006ReportedConvenienceTranslation(in thousand NIS)
    
    US$0002007 - Current maturities
    
    
    15,770
    
    
    
    3,7342008
    
    
    37,660
    
    
    
    8,9142009
    
    
    2,844
    
    
    
    6732010
    
    
    398
    
    
    
    942011
    
    
    1,742
    
    
    
    412Undetermined
    
    
    21,155
    
    
    
    5,00779,569
    
    
    
    18,834Other investments and debt balances
    
    
    137,694
    
    
    
    32,591217,263
    
    
    
    51,425
 C.
    
    Liens see Note 17D.
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES
 A.
    
    Composition and activity
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Associated companies:Shares (see (1) below):Cost (*)
    
    
    114,818
    
    
    
    98,140
    
    
    
    27,176Accumulated losses, net
    
    
    (48,798
    )
    
    
    (39,133
    )
    
    
    (11,550
    )Adjustment arising from translation of
autonomous investees financial statements
    
    
    1,607
    
    
    
    4,337
    
    
    
    380Total shares
    
    
    67,627
    
    
    
    63,344
    
    
    
    16,006Loans (see (2) and B.(3)h. below)
    
    
    16,991
    
    
    
    16,392
    
    
    
    4,02284,618
    
    
    
    79,736
    
    
    
    20,028Provision for impairment of investment
    
    
    (22,938
    )
    
    
    (22,938
    )
    
    
    (5,429
    )61,680
    
    
    
    56,798
    
    
    
    14,599(*) Including goodwill, net (i)
    
    
    27,027
    
    
    
    28,632
    
    
    
    6,397
 (i)
    
    Net, after amortization through December 31, 2005 (see Note 2H) and
provision for impairment. - 39 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 A.
    
    Composition and activity (cont.)
 (1)
    
    Venture capital investments  associated companies  shares:
 a.
    
    GeneralThe company invests in hi-tech associated companies (Invested Companies). The
Invested Companies engage in research and development operations and are yet to
attain financial stability. The value of these investments is thus contingent upon
the continued operation of the Invested Companies, which entails certain risks
stemming from the nature of their operations including the uncertainty as to the
success of development and marketing potential of the product. It is therefore,
difficult to objectively assess the fair value of most of these investments due to
the lack of a verifiable market value. Nevertheless, the Companys management is
of the opinion that the fair value of the investments is not lower than their cost
(net of provisions for impairment, to the extent applicable).As to a law-suit filed by an employee of the EIL group  see Note 17B.(7) below.b.
    
    Gamida Cell Ltd. (Gamida) (through Elscint Bio Medical Ltd.)Gamida is engaged in the expansion of hematopoietic (blood) stem cells
therapeutics in clinical development for cancer and autoimmune diseases, as well
as future regenerative cell-based medicines including cardiac and pancreatic
repair.On September 14, 2006 Gamida entered into an investment agreement in terms of
which The Israel Health Care Ventures (IHCV) and some of Gamidas existing
shareholders (including the Company) have invested therein $10.0 million and $6.0
million, in consideration for the allotment to such investors of preferred
securities (Series D) representing 13.2% and 7.9% of Gamida shareholders equity
(on a fully diluted basis), respectively. In addition, Gamida granted the
investors warrants to purchase Gamidas D1 preferred shares at an exercise price
of $15.09 per share. The warrants expire on the earlier of (i) four years from the
closing date; (ii) Initial Public Offering of Gamidas shares; or (iii) Merger or
Acquisition transaction. The Companys share in this investment totaled
approximately $2.5 million.On July 28, 2005, the Company entered into an agreement, in terms of which, mainly
the existing shareholders of Gamida have invested therein, a total amount of $4.0
million, in consideration for the allotment to such investors of securities having
same rights as those issued by Gamida during its previous equity financing round
(Series C). The Companys share in the investment totaled approximately $1.4
million.The Company holds both ordinary and preferred shares having anti-dilution rights
and liquidation preference (US Dollar linked return of its investment in Gamida
bearing 8% annual interest, prior to any distribution to ordinary share holders or
holders of preferred shares with subordinated rights). Subsequent to the
aforementioned financing rounds and as of December 31, 2006, the Company holds
29.1% of the equity and voting rights in Gamida and the right to appoint 20% of
its directors. Should all the convertible securities of Gamida be so converted or
exercised, then and in such an event, the Company shall be diluted to 24.8%.
 - 40 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 A.
    
    Composition and activity (cont.)
 (1)
    
    Venture capital investments  associated companies  shares (cont.):
 b.
    
    Gamida Cell Ltd. (Gamida) (through Elscint Bio Medical Ltd.) (cont.)On February 16, 2005, Teva Pharmaceutical Industries Ltd. (Teva)  one of
Gamidas shareholders, decided to exercise its option to enter into a joint
venture (JV) with Gamida to develop and commercialize certain products being the
subject matter of Gamidas developing technology (StemEx®). On
February 12, 2006 Gamida, Teva and the JV signed a founders agreement which set
forth the establishment, funding and management of the JV. The sole purpose of the
JV shall be commercialization of StemEx® and obtaining all required
registrations and marketing approvals. Teva shall make an equity investment in the
JV of up to $ 25.0 million in consideration for up to 50% of the JV shares.
In the framework of the agreement Gamida and the JV signed on a license agreement
according to which Gamida granted the JV a royalty free, worldwide license to
exploit StemEx® and Gamidas IP necessary for developing, manufacturing
sale and distribution of StemEx® and a royalty free, illimitable,
worldwide exclusive license to manufacture, develop, market, offer for sale,
distribute and sell StemEx®and the right to sublicense.As to a dispute between Elscint Bio Medical and its former CEO  see Note 17B.(8)
below.c.
    
    Olive Software Inc. (Olive)Olive is engaged in the development and marketing of products enabling a
transparent link between traditional newspaper printing systems and the world of
e-publishing, as well as digital archiving services for newspapers and libraries.In August 2005, Olive and its shareholders entered into an agreement with the
Sequoia Fund and the Pitango Fund, under which the latters invested in Olive an
aggregate amount of $9.0 million, in consideration of 5% and 15.0% (on a fully
diluted basis), respectively, of the equity and control in Olive.The issued shares have anti-dilution rights as well as liquidation preference to
receive the amount of their investment with the addition of 8% annual interest
thereon, prior to any distribution to other shareholders of Olive (including the
Company). The Companys shares entitle it to anti-dilution rights as well as
liquidation preference (return of its investment in Olive plus interest at LIBOR +
2% per annum, prior to any distribution to holders of ordinary shares or
subordinated preferred shares). As of December 31, 2006, the Company holds 22.3%
of the equity and voting rights in Olive. Assuming all of Olives convertible
securities be so converted into shares, the Companys interest in Olive would then
be diluted to 18.3%.d.
    
    Easy Run Ltd. (E.R.)E.R. is engaged in the development and marketing of call center solutions, which
support under a single platform, diversified infrastructure ranging from
historical telephonia through to futuristic telecom equipment (IP switchboards)
and modern e-commerce applications.The Company holds 49.4% of the equity and voting rights in E.R. as well as the
right to appoint 40% of its directors. The shares held by the Company entitle it
to anti-dilution rights as well as liquidation preference (as defined in the
investment agreements).In addition, the Company holds warrants exercisable into E.R. shares, at $0.13 per
share, up to a total amount of $0.8 million. Assuming all loans be converted and
warrants be
exercised, as afore and below stated, the Companys interest in E.R. would then
dilute to 47.8% (fully diluted).
 - 41 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 A.
    
    Composition and activity (cont.)
 (1)
    
    Venture capital investments  associated companies  shares: (cont.)
 e.
    
    Varcode Ltd. (Varcode)In September 2006 the Company signed an agreement with an unrelated third party to
establish a company (Varcode) in which the Company will invest an amount of
$3.0 million (subject to fulfillment of certain milestones in accordance with the
terms of the agreement) in consideration for approximately 46% of Varcode equity
rights. Through the balance sheet date the Company invested an amount of $0.7
million in consideration of approximately 11% interest in Varcode and the
remaining shares are held by a trustee and will be transferred to the Company upon
execution of the additional investments in Varcode. The Company is entitled to 50%
of the voting rights in the general assembly and the right to appoint 50% of
Varcode directors subject to certain time limitation and provisions as stipulated
in the agreement. One of Varcode founders and shareholder has a casting vote in
case of dead lock in Varcode board.In addition, the company has an option to purchase additional 4% in Varcode share
capital in consideration for $0.5 million for a period of 18 months following the
date of the agreement. Following the exercise of such option the Company will hold
50% of the voting and equity rights in Varcode.Varcode is engaged in developing labels for improving shelf life of perishables.
 (2)
    
    Venture capital investments  associated companies  loans:Through December 31, 2006, the Company granted to E.R. a dollar linked loan amounted to
NIS 5.8 million ($1.4 million) (including accrued interest), convertible, at any time
into E.R. preferred shares having anti-dilution rights and liquidation preferences,
using a conversion rate of $0.13-$0.35 per each share. Additionally, the Company has a
right to be granted upon conversion and without further consideration, warrants
convertible into E.R. shares (vested with same rights) at a principal conversion price
of, $0.81 per warrant, up to a total amount of $0.4 million.
 B.
    
    Additional information as to investments in subsidiaries and changes thereof
 (1)
    
    Elscint Ltd.On November 22, 2005 the Company consummated a merger with Elscint, pursuant to which
the Company purchased all Elscint ordinary shares, other than those held by the Company
and by Elscint. Following such purchase the Company owns all issued and outstanding
share capital of Elscint and Elsicnt ordinary shares are no longer traded on the NYSE.
Under the terms of the merger, each ordinary share of Elscint (other than ordinary
shares of Elscint held by the Company and Elscint) was exchanged for 0.53 ordinary share
of the Company.The merger is treated as a purchase for accounting purposes, which means that the
purchase price  calculated based on the Companys number of shares issued in
consideration for Elscints minority shares (3,479,216 ordinary shares and 26,500
warrants of the Company) based on the Companys average share market price close to the
date of the announcement of the exchange ratio of the Merger ($18.6)  is allocated to
Elscints assets and liabilities based on the fair value of the assets acquired and the
liabilities assumed. As a result, the Companys shareholders equity increased by NIS
292.2 million. The excess of the fair value of Elscints net identified assets acquired
over the purchase price at acquisition (Negative Initial Difference), at the amount of
NIS 66.3 million, was set-off, at the date of the consummation of the transaction, in
the consolidated financial statements of the Company, first against any intangible asset
of Elscint, with the balance set-off against non-monetary tangible assets pro rata to
their fair value.
 - 42 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (cont.)
 (1)
    
    Elscint Ltd. (Cont.)As a result of the merger, certain limitations shall apply (as per law and the tax
authorities approval) for a period of two years from the merger (through December 31,
2007), mainly pertaining to the realization, subject to certain conditions, of Elscints
shares  held by the Company and/or by its wholly owned subsidiary. The Company, its
controlling shareholders and Elscint will be subject to certain restrictions, mainly
pertaining to the realization of the majority of the assets (as defined by law) that
were transferred within the framework of the merger and/or the majority of their
existing assets. Should the companies fail to fulfill the terms of the approval and/or
the provisions of the law, validity of the approval would be terminated retroactively.(2)
    
    Insightec Ltd. (Insightec)
 a.
    
    Insightec is engaged in the development, manufacture and sale of
noninvasive means for the treatment of blood vessel tumors (benign and malignant)
and the localized injection of medication, as well as the development of decision
support systems for operating rooms and trauma units. In October 2004, Insightec
received Food and Drug Administration (FDA) approval for commercial use of the
ExAblate system for removal of benign uterine fibroids, as developed thereby.b.
    
    As of the balance sheet date, GE holds approximately 25% of Insightecs
shares. The agreement with GE for the acquisition of the shares (in December 2001)
stipulates several limitations on the execution of certain material transactions or
activities not in the ordinary course of business, without obtaining GEs prior
approval.c.
    
    Within the framework of an agreement signed in March 2004, the Company
was granted warrants, convertible through a 3 year period, into 977,552 ordinary
shares  of Insightec, at an aggregate conversion amount of $7.1 million,
concurrently with extension of the loans and guarantees provided by the Company to
Insightec through March 2007. In February 2007, the Company and Insightec agreed to
extend the loan, the guarantee and the warrants through December 31, 2007. The
Company and Insightec have agreed that prior to Insightecs IPO the Company shall
exercise its warrants into Insightecs shares in consideration of (i) a cash
payment of $5.0 million; and (ii) a conversion of the loan granted by it to
Insightec at the amount of $2.1 million.d.
    
    Within the framework of an agreement signed in August 2006 for the
issuance of convertible debentures (See Note 14G.), the Company was granted 111,310
warrants convertible into Insightecs ordinary shares at an exercise price of NIS
0.01 per share. The warrants will expire on August 9, 2011 and will be exercisable,
in whole or in part, at any time after the earlier of August 9, 2009 or occurrence
of a liquidity event (IPO or sale) provided that if the liquidity event provides at
least a 20% IRR (as defined in the agreement) to the holders of the convertible
note, then the warrants will expire and not be exercisable. If in connection with
qualified IPO or change in control (as defined in the agreement) Insightec is not
entitled to require conversion of the Notes held by the warrantholders, then the
warrantholders shall exercise the warrants, in whole but not in part.
 
 - 43 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (cont.)
 (2)
    
    Insightec Ltd. (Insightec) (cont.)
 e.
    
    Convertible securities  option plans
 Number of shares (thousands)ServiceprovidersEmployee options
    
    
    Directors options
    
    
    options1999
    
    
    2003
    
    
    2006
    
    
    1999
    
    
    2003
    
    
    2006plan(1)
    
    
    plan(2)
    
    
    plan
    
    
    plan
    
    
    plan
    
    
    plan
    
    
    2003 planShares designated and issued:Through December 31, 2003
    
    
    1,462
    
    
    
    938
    
    
    
    
    
    
    
    100
    
    
    
    250
    
    
    
    
    
    
    
    20Granted during:2004
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152006
    
    
    
    
    
    
    90
    
    
    
    369
    
    
    
    
    
    
    
    44
    
    
    
    8
    
    
    
    Exercised during 2004
till 2006
    
    
    (110
    )
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled during 2004
till 2006
    
    
    (2
    )
    
    
    (81
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Through December 31, 2006
    
    
    1,350
    
    
    
    1,319
    
    
    
    369
    
    
    
    100
    
    
    
    294
    
    
    
    8
    
    
    
    35Vesting of designated and issued
shares:Through December 31, 2006
    
    
    1,350
    
    
    
    1,033
    
    
    
    
    
    
    
    100
    
    
    
    250
    
    
    
    
    
    
    
    35As and from 2007 and thereafter
    
    
    
    
    
    
    286
    
    
    
    369
    
    
    
    
    
    
    
    44
    
    
    
    8
    
    
    
    1,350
    
    
    
    1,319
    
    
    
    369
    
    
    
    100
    
    
    
    294
    
    
    
    8
    
    
    
    35Undesignated shares
as at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    (4)699
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Terms of plan:Exercise price of each option into
NIS 0.01 par value ordinary share
    
    NIS0.01
    
    
    (3)
    
    
    $
    12.0
    
    
    $
    3.33
    
    
    $
    3.33
    
    
    $
    12.0
    
    
    $
    5.35Exercise period following date of
grant (years) (5)
    
    
    9
    
    
    
    7
    
    
    
    7
    
    
    
    9
    
    
    
    7
    
    
    
    7
    
    
    
    7
 
 (1)
    
    Vested options which entitle their holder to participate in dividend
distributions and have voting rights.(2)
    
    Includes 100,000 issued to Companys CEO..(3)
    
    926,000 options  at NIS 0.01; 260,000 options  at $5.85;
133,000 options  at $16.00(4)
    
    Includes 250,000 options in Insightec, for no
consideration, to the Companys Chairman of the Board (its controlling
shareholder), at an exercise price of $5.5 each. The issuance was approved by
the Companys Board of Directors and Audit Committee and it is subject to
approval of the Companys shareholders meeting. - 44 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (cont.)
 (2)
    
    Insightec Ltd. (Insightec) (cont.)
 e.
    
    Convertible securities  option plans (cont.)
 (5)
    
    In January 2006 Insightecs decided to extend the
exercise period under the 1999 Plan for 2 additional years, meaning 9 years
from the effective date as defined in the 1999 Plan.(6)
    
    For the purpose of estimating the fair value of the options
in accordance with the provisions of Standard 24, Insightec utilize the
Black-Scholes option-pricing model. Fair value was determined on the basis of
private placement of Insightecs equity securities, using the following
assumptions:
 Year ended December 31,2006
    

2005Risk free interest rate (%)
    
    
    4
    %
    
    
    4
    %Expected life of options (years)
    
    
    7
    
    
    
    7Expected volatility (%)
    
    
    60
    %
    
    
    60
    %Expected dividend yield
    
    None
    
    NoneForfeited (%)
    
    
    3.5
    %
    
    
    3.5
    %
 The cost of benefit inherent in Insightecs option plans base on the fair value on
the day of their grant in accordance with the provision of Standard 24 amount to
NIS 22.1 million ($5.2 million). This amount will be recognized as an expense over
the vesting period of each portion. An expense in an amount of NIS 8.9 million
($2.1 million) was recorded in 2006 financial statements.
 f.
    
    As to Companys investment in Insightec convertible debentures  see
Note 14G. below.g.
    
    Assuming conversion of all of Insightecs outstanding convertible
securities, on December 31, 2006 the Companys interest would have been diluted to
51.3%.h.
    
    At year-end of 2002, the operations of Insightec and its wholly owned
subsidiary (TxSonics) were merged. In 2005, Insightec and its shareholders on one
hand, and the Israeli Tax Authorities on the other, have concluded the principles,
subject to which the merger of Insightec and TxSonics was approved under Section
103 of the Income Tax Ordinance, retroactively from December 31, 2002. As per law
and approval, taxable consolidated loss of Insightec and TxSonics may be offset
against future taxable income, over a 7 year period (16% each year), however not
exceeding 50% of annual taxable net income per each year.Said approval provides, inter alia, that profit generated by the Company from the
sale of its holdings in Insightec shall be considered as C.F.C. profits and shall
be taxable at a rate of 25%, or any lower rate as determined by tax authorities.
The Company undertook, among other things, to deposit its shares in Insightec with
a trustee, as security for the tax payment to the Israeli Tax Authorities, upon
realization of the shares.Should the companies fail to fulfill the terms of the approval and provisions of
the law, validity of the approval shall be terminated retroactively.
 - 45 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.)
 a.
    
    On July 30, 2004, a transaction was consummated, within the framework
of which, Klépierre  a French group of companies, and the owner and operator of
shopping centers in Europe (Klépierre)  acquired from PC all equity and voting
rights in and to the companies owning 12 Hungarian shopping centers (the Sold
Centers), as well as 50% of the equity and voting rights in and to a wholly owned
subsidiary of PC which operates as the management company of the Hungarian
commercial and entertainment centers (Hungarian Management Company). The
remaining 50% of the equity and voting rights in the Hungarian Management Company
(which were retained by PC under the 2004 transaction) were subsequently acquired
by Klépierre within the framework of the 2005 transaction, as detailed in paragraph
d. below, for  0.9 million.The value of the Sold Centers and Hungarian Management Company amounted to
287.0 million was determined according to a methodology stipulated in the
agreement, which is based, mainly, on the revenues thereof (net of certain
operating costs and management fees at an agreed rate) and on pre-agreed
capitalization rates. The cash consideration paid to PC, amounting to 94.1
million, was determined according to the value of the Sold Centers with an
addition of monetary and other balances, net of banking and other monetary
liabilities relating to the said assets.As a result of the said transactions, the Company recorded in the financial
statements for the year ended December 31, 2004 a pre-tax gain of NIS 131.9
million. As security for achieving certain future revenues, PC had provided a bank
guarantee totaling 7.5 million. Within the framework of the transaction
detailed in paragraph d. below, Klépierre has returned the guarantee unexercised.
Klépierre, furthermore waived all and any future claims against PC relating to the
future sale of utilities in all or any of the Sold Centers, in respect of which
the guarantee had been furnished. As a result, the Company recorded in the
financial statements of 2005 an additional pre-tax gain of NIS 27.5 million.In order to secure certain payments to foreign tax authorities, if and to the
extent imposed on the Sold Companies and which relate to the periods prior to the
consummation of the sale, PC deposited in an escrow account 6.8 million in
favor of Klepierre. In March 2005, the escrow funds were realesed in exchange for
a 5 year guarantee provided by the Company, at a principal amount of 6.8
million together with an additional amount equal to 25% of the basic amount of the
guarantee. As a result of the deposit release, the Company recorded an additional
pre-tax gain of NIS 29.8 million, in its financial statements for the year ended
December 31, 2005, which has previously been presented as deferred income.The transaction also included provisions relating to the possible future
acquisition by Klépierre of additional property measuring approximately 12,000
sq.m., on which PC is to construct for and on behalf of Klepierre (if and to the
extent) an extension to the Duna Plaza. Construction of the extension and the
completion of the transaction are subject, among other things, to the execution of
a turn-key construction agreement between the parties, the obtaining of regulatory
approvals and permits during a specific period stipulated in the agreement, and
the utilization of the premises while fulfilling certain operational targets. The
amount of consideration and schedule of payments follow an agreed upon
methodology, with the asset value being based on revenues and agreed upon
capitalization rate.The Company guaranteed fulfillment of PCs undertakings under the detailed
agreements.
 - 46 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B. Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 b.
    
    In April 2005, a transaction was consummated by and between PC and the
Dawnay Day Europe group  an international funds management company of the United
Kingdom (Purchaser)  according to which PC sold to the Purchaser all the equity
and voting rights (100%) in 4 companies owning 4 commercial and entertainment
centers in certain peripheral cities in Hungary (Sold Centers). The asset value
of the Sold Centers at the aggregate amount of 54.4 million was calculated
according to an agreed upon methodology and is based, mainly, on revenues thereof
(net after deduction of certain operational costs and management fees) and on
agreed upon capitalization rate. The net cash consideration which was paid to PC
amounted to 17.2 million and it was determined according to the asset value of
the Sold Centers together with monetary and other balances, after deduction of bank
and other monetary liabilities pertaining thereto, and with the addition of a
variable amount, determined based on the period that lapsed from the reference date
of the transaction (January 1, 2005) through consummation thereof. As a result, the
Company had recorded a pre-tax gain of approximately NIS 3.5 million in its
financial statements for the year ended December 31, 2005. The Company undertook
within the framework of the agreement to guarantee the achievement of certain
operational targets of one of the Sold Centers, for a period of 3 years ending on
March 31, 2008. As of the balance sheet date, PCs management estimates that the
maximum exposure of the guarantee expected to be materialized totals 1.0
million (NIS 5.6 million; $1.3 million).The Company undertook to guarantee fulfillment of all of PCs undertakings under
the detailed agreements.The revenues and the operating profits of the companies holding the Sold Centers
as recorded in the consolidated statement of operations for the year ended
December 31, 2004 totals NIS 45.7 million and NIS 13.6 million, respectively.c.
    
    On May 17, 2005 PC completed the acquisition of the 50% not owned by
it, in the Sadyba commercial and entertainment center in Warsaw, Poland, for a
purchase price of $20.0 million. The Sadyba commercial center was sold in July 2005
to Klepierre (see item d. below).d.
    
    On July 29, 2005, a transaction was consummated by and between PC and
Klépierre for the sale by PC of all equity and voting rights (100%) of the
companies owning 4 operational shopping centers in Poland (Stage A). The value of
these companies (Sold Centers) amounted to 204.0 million, was determined
according to methodology stipulated in the agreement which is based, mainly, on the
gross rentals of the Sold Centers upon consummation, and agreed upon capitalization
rate. The cash consideration paid to PC as at the closing amounted to 73.8
million and it was determined according to the value of the Sold Centers together
with monetary and other balances, and excluded bank and other monetary liabilities
pertaining thereto. As part of the transaction, Klépierre has acquired all
outstanding share capital of the Polish subsidiary of PC which operates and manages
the acquired operational shopping centers. As a result, the Company recorded in the
financial statements for the year ended December 31, 2005 a pre-tax gain of
approximately NIS 166.4 million.
 
 - 47 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B. Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 d.
    
    (Cont.)Part of the proceed in the amount of 5.4 million was subject to obtaining
utilities license by PC in respect of the Sold Centers and accordingly has been
deferred for recognition in the financial statement for the year ended December
31, 2005. Within the framework of a settlement agreement signed between PC and
Klepierre on November 16, 2006 it was agreed that PC shall be unconditionally and
irrecoverably released from its obligations to obtain such utilities license and
that Klepierre will assume full and sole responsibility thereof. Accordingly, the
Company recorded in these financial statements an additional pre-tax gain of NIS
30.4 million ($7.2 million).Furthermore, PC and Klepierre agreed to conclude a final purchase price adjustment
in respect of the Sold Centers in accordance with the provisions set forth in the
sale agreement and accordingly the Company recorded in these financial statement
an additional pre tax gain of NIS 49.3 million
($11.7 million).One of the commercial centers which was sold to Klepierre within the framework of
Stage A transaction is subject to a long term lease agreement with the
municipality of Warsaw (Municipality) through 2021.The municipality has the
right to buy back the commercial center at the end of the lease term in terms
specified in the lease agreement. Within the framework of the transaction, it was
agreed that an amount of 10.0 million (NIS 55.6 million; $13.2 million) will
be reduced from the total proceed payable by Klepierre (Deferred Proceed) due to
the aforementioned lease agreement . PC will be entitled to receive the Deferred
Proceed (plus interest) if it will extend the lease term over 34 years under the
same terms and conditions within a term of 10 years from the date of the
agreement(July 2015.), or proportional part thereof if it will extend the lease
term over 10 years. In addition, if PC will acquire an ownership of the land
through July 2015, Klepirre will pay to PC the Deferred Proceed plus an additional
Euro 2.0 million and interest. The Company has not recognized the deferred proceed
as gain in these financial statements.
The revenues and operating profits, as recorded in the consolidated financial
statements of the companies holding the Sold Centers, for the year ended December
31, 2004, totals NIS 59.3 million and NIS 21.8 million, respectively.
 - 48 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 e.
    
    On July 29, 2005 PC and Klépierre signed a preliminary share purchase
agreement for the future acquisition by Klepierre of all equity and voting rights
(100%) in the companies developing 2 shopping centers in Poland, 2 companies
developing shopping centers in the Czech Republic and an option under certain
conditions, to acquire all equity and voting rights of a third company developing a
shopping center in Poland, upon the fulfillment of certain conditions, on same
terms and conditions applicable to the remaining centers (see item f below) (Stage
B). Upon the completion and delivery of each of these centers, in accordance with
certain pre-agreed terms as determined in the preliminary agreement, and upon the
fulfillment of certain pre-conditions, Klépierre will pay to PC the purchase price
of each specific center which is to be calculated based on gross rentals prevailing
at a date close to delivery, capitalized at agreed yields. A final purchase price
adjustment for each of these development centers will be conducted not later than
10 months following delivery, on the basis of actual gross rentals prevailing on
their respective adjustment dates, discounted at the agreed yields. In addition, a
net asset value adjustment will be carried out on the basis of audited financial
statements as at the delivery date. Klepierre has furnished the Company with a bank
guarantee in the amount of 115.0 million (NIS 640.0 million; $151.5 million)
for the payment of the respective purchase prices of those development centers in
respect of which building permits have been issued. Klepierre has undertaken to
furnish the Company with a similar bank guarantee in respect of the remaining
development centers immediately upon the issuance of the building permit. The
Company has furnished Klépierre with its corporate guarantee for the fulfillment by
PC of all its undertakings and obligations under the definitive agreements.On June 30, 2006 PC completed the construction of one of Czech commercial centers
(The Novo Plaza) and in accordance with the terms of the agreement it was
delivered to klepierre. The value of the Novo Plaza amounted to 43.9 million
(following purchase price adjustments agreed upon in the agreement signed in
November 2006) and the cash consideration paid to PC amounted to 5.0 million.
As a result the Company recorded in these financial statement pre-tax gain of NIS
30.6 million ($7.2 million).Within the framework of an agreement signed between PC and Klepierre on November
16, 2006, klepierre expressed its interest in principal in acquiring all the
equity rights in the companies presently developing 4 shopping centers in the
Czech Republic, Poland and Latvia at an agreed upon yields (New Development
Projects). PC undertook to negotiate with Klepierre in order to execute a
preliminary agreement on substantially the same terms and conditions provided for
in the Stage B agreement in respect of at least 2 of the New Development Project
(New Preliminary Agreement). PC also undertook to award an option to Klepirre to
acquire up to 5% of the equity rights in each of the companies holding the rights
in the New Development Projects in respect of which New Preliminary Agreement
shall be executed. The option is subject to the consent of, and is subordinated to
each respective financing bank which had granted a construction loan to the
relevant project. The option, once granted, is exercisable at any time subject to
fulfillment of certain preconditions against payment of the exercise price which
shall be agreed between PC and Klepierre at the date of the execution of the
relevant New Preliminary Agreement. Upon consummation of the transaction, the
exercise price of the option shall be deemed to constitute flat down payment on
account of full transaction consideration. In the event that the transaction is
not consummate, PC has a call option
to reacquire the 5% shares in consideration for the amount paid by Klepierre for
the option.
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 e.
    
    (Cont.)In addition to the above, Klepeirre had agreed to reduce the capitalization rates
in respect of three commercial centers included in the Stage B transaction (other
than the Novo Plaza which has already been delivered to Klepierre in June 2006)
subject to the following: (i) PC shall procure ,by not later than May 29, 2007,
that its joint venture partner in Lublin Plaza (see item f below) will agree to
sell its 50% holding in the project to klepierre together with the 50% held by PC
at the same terms and conditions agreed between Klepierre and PC; (ii) a New
Preliminary Agreement will be concluded between PC and Klepierre in respect of at
least 2 of the New Development Project by not later than 90 days following the
date of the aforementioned agreement and that on the same date Klepeirre will be
awarded an option to acquire up to 5% of the equity rights in each of the
companies holding the rights in the New Development Projects in respect of which
New Preliminary Agreement shall be executed and; (iii) PC shall procure that
planning permits will be obtained for the relocation of the supermarket unit in
the Pilsen Plaza shopping center.f.
    
    PC entered, in May 2002, into a JV agreement (as amended in November
2003) for the purchase of 50% of the ownership of a company registered in Lublin,
Poland (MPSA), which holds a perpetual usufruct in and to a land in Lublin,
Poland (see Note 7A.B.(1)).According to the JV agreement, financing of the project to be constructed by MPSA
is to be borne by both parties in equal shares, except for initial payment of $4.0
million which is to be provided by PC, with half of such amount to be considered
as a loan to the other shareholder (the JV Partner).As of the balance sheet date, PC and the JV partner were in dispute regarding the
shareholders loan (equity loans) required to be invested by the JV partner. The
JV Partner alleges that the increase in the project budget, in comparison with the
original one, was caused by the acts or omissions of PC, and accordingly PC should
solely bear all additional equity loans. PC refutes such allegation and has
demanded the execution of the JV agreement on its terms as indicated above, namely
all additional amounts, over the initial $4.0 million, required for the financing
of the project, should be financed by the parties in equal parts. As of the date
of the approval of these financial statements, this dispute has not yet been
resolved. Through December 31, 2006, PC has invested in MPSAs (mainly in loans,
Libor + 2.5% annually interest bearing) 8.4 million (NIS 46.7 million; $11.0
million). As part of an agreement signed in April 2007 (see above) it was agreed
that PCs owner loans (including the equity loans) will be paid in the framework
of the sale of MPSAs shares to Klepierre.Within the framework of the 2005 sale agreement with Klepierre, as stated in Note
9B.(3)e. above, PC awarded an option to Klepierre to acquire 100% of the equity
rights of MPSA, subject to the acquisition by PC of the entire interest of the JV
Partner in MPSA, by not later than the end of May 29, 2007 (the First Option).
In the event that PC shall fail to acquire the JV partners rights by that date
Klepierre shall automatically have an additional option to acquire the 50% of such
equity rights in MPSA which are held by PC (the Second Option).
 - 50 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 f.
    
    (Cont.)The exercise by Klepierre of the Second Option shall be subject, at all times, to
(i) the JV Partners rights of first offer which entitles the JV Partner to
acquire PC shares in the event that PC wishes to sell its shares to a third party;
and to (ii) the tag-along rights which entitles the JV Partner to demand that
Klepierre shall also acquire its shares together with PC Shares on the identical
terms and conditions, pro rata. In the event that the JV Partner shall exercise
its rights of first offer to acquire PC shares, as aforesaid, then the Second
Option shall automatically lapse.PC undertook, for so long as the Second Option remains valid, not to amend,
modify, and/or terminate the JV agreement, without the prior approval of
Klepierre, and to abstain from taking any actions which may prejudice the rights
and/or interests (present or future) of Klepierre under or in connection with this
Second Option.In the event the transaction for the sale and transfer of all equity rights in
MPSA to Klepierre fails to consummate for any reason or in the event that the JV
Partner shall exercise its first offer rights, PC shall pay to Klepierre a
commitment penalty in the amount of 1.6 million (NIS 8.9 million; $2.1
million), without prejudice to the rights of Klepierre to be further indemnified
in the event that such non-consummation would result from a breach by PC of its
contractual obligations. In the event that Klepierre shall have elected to
exercise the Second Option however acquisition cannot be fully consummated for any
reason, then and in such event PC shall be obliged to pay to Klepierre a
commitment penalty in a reduced amount of 0.8 million (NIS 4.5 million; $1.0
million).In the event that the JV Partner shall exercise its tag-along rights and in the
event that Klepierre shall actually acquire both the PC shares and the JV Partner
shares, then and in such event PC shall be severally and jointly liable with the
JV Partner with respect to the sale of the JV Partner shares and PC shall grant to
Klepierre the same indemnifications provisions guarantee with respect to the JV
Partners shares to the extent that the JV Partner fails or refuses to do so.Upon the exercise of either of the options abovementioned, PC shall assume full
liability for the performance of the obligation made by MPSA in favor of the local
municipality (see Note 7A.B.(1)) in terms of the ground lease, to construct a
hotel above or adjacent to the commercial center project (Stage B Project) and
shall furnish Klerierre with a full indemnity against such liability and/or
against any harm which may be suffered by Klepierre and/or by MPSA in consequence
of the failure to construct the hotel as aforesaid.On April 13, 2007, PC and the JV Partner have agreed on the Spin-Off of MPSAs
obligation in terms of the Stage B Projects, to a subsidiary of the JV Partner
(Project B Company), in consideration of 3.5 million ($4.6 million).
Spin-Off has been executed by means of a Tenancy Agreement within the framework of
which MPSA undertook, without consideration, to consent and fully cooperate so as
to allow Project B Company the development of the stage B Projects. MPSA and
Project B Company had also executed a Preliminary Agreement for the future
transfer, to the latter, of all rights in the Stage B Projects upon completion of
same.
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 f.
    
    (Cont.)The abovementioned agreement also provides an option awarded by Project B Company
to PC, to subscribe to 50% interest in Project B Company, in consideration for the
amount equivalent to 50% of the share capital and shareholders loans invested by
the JV Partner in Project B Company as at the date of consummation of the
transaction. PC is entitled to exercise the option by no later than September 30,
2007.PC and the JV Partner have agreed, in addition to the above, to sell their
respective holdings in MPSA to Klepierre, to be executed within the framework of
the abovementioned Klepierre 2005 sale agreement (see paragraph e above).g.
    
    On November 15, 2005, PC consummated a transaction for the acquisition
of an area of land (measuring 122,857 square meters) situated on Kerepesi Street in
central Budapest, the former site of the Hypodrome (Site). Building permits for
the construction of a large shopping and entertainment center have been issued in
respect of the Site. The acquisition was carried out by the purchase of all equity
rights (100%) of 4 companies holding all freehold ownership and usage rights to the
Site. The purchase price of all equity rights represent a Site value of 21.0
million. The financing of the acquisition was provided by a consortium of
International Banks, and constitute approximately 90% of the above value.h.
    
    PCs jointly controlled (50%) subsidiary (AC), owns 60.0% of the
ownership and voting rights of a Target Company, which owns approximately 320,000
sq.m., of land on the island of Obuda in the Danube River, located in the heart of
Budapest.The remaining 50% of the equity and voting rights in AC is held by a Hungarian
Commercial Bank (the Bank). As security for a loan granted by the Bank, AC,
among other things, pledged its shares in the Target Company. In addition, the
Company undertook to guarantee repayment of the loan in the event that the
construction plans are not approved.

PCs investment in AC includes a loan in the amount of 1.8 million (NIS 10.0
million; $2.4 million) which bears interest at the rate of 6.7%
per annum.10% of equity and voting rights of the Target Company are held by ESI  a company
owned by PCs former manager  which were granted to it in consideration for
acquisition cost thereof, by AC from the Hungarian Privatization Board. The
purchase by ESI of its interests was financed through loans which were granted
thereto by the Target Company, in the amount of amount of 1.8 million (NIS
10.0 million; $2.4 million), repayable until March 2008.Resolutions of the Target Company are to be approved by majority of votes save for
certain minority rights in specific extraordinary matters, in which a 75% majority
of votes of shareholders or directors, as the case may be, is required.In September 2006, the Target Company has received from the Municipality of
Budapest final formal approval for the zoning plan of the project, which allows
the Target Company to apply for the receipt of a building permit.
As part of the above approval the target Company has undertaken to ensure the
traffic connections to, from and within the island and to develop certain
landscape works. The additional investment required in consideration of the
aforementioned projects is estimated in approximately 55 million.
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 h.
    
    (Cont.)The proposed plan includes development of the site as a tourism oriented area
including hotels and apartment-hotels complemented by, sport centers, yacht
harbours, casino, shops and conference and conventions centers.Financial statements of AC and the Target Company are included in the consolidated
financial statements of the Company by the equity method.i.
    
    On October 27, 2006 PC announced the successful pricing of the Initial
Public Offering of its ordinary shares (IPO or Offer) on the Official List of
the London Stock Exchange (LSE). The Offers price was set at £1.8 (NIS14.8;
$3.5) per ordinary share (Offer Price) which reflected market capitalization of
PC at the commencement of conditional dealing on the LSE of £514.3 million (NIS
4,227 million; $1,000 million).The Offer consisted of 85,714,286 ordinary shares
than constituting 30% of PC share capital. In addition PC granted to the sponsor
and sole bookrunner, UBS Investment Bank (UBS) over allotment options of up to
10% of the Offered Shares (namely: 8,571,458 ordinary shares, than representing 3%
of PCs share capital) exercisable for a period of 30 days following the date of
the Offer with an exercise price equal to the Offer Price. On November 27, 2006 PC
announced that UBS exercised over allotment options in respect of 6,631,801 shares
constituting 2.6% of PCs share capital. Following the Offer and the exercise of
the over allotment options by UBS, the Companys shareholding in PC were diluted to
68.4%.The total amount raised by PC (including the exercised over allotment options
and net of the IPOs related expenses) amounted to
234.5 million (NIS 1,280.1
million; $303.0 million). As a result, the Company recorded in these financial
statements gain from decrease in shareholding in PC in the amount of NIS 668.0
million ($158.1 million).j.
    
    On October 26, 2006 PCs Board of Directors approved the grant of up to
33,834,586 non-negotiable options over PCs ordinary shares to PCs board members,
employees in PCs group and other persons who provide services to PC including
employees of the Company (Offerees).On the same date PC granted to the Offerees 26,108,602 options out of which
3,907,895 options are designated for grant to the Companys Chairman of the Board
(the Chairman) who also serves as the PCs Chairman of the Board and 1,516,541
options are designated for grant to the Companys directors. The grant of the
options to the Chairman and the Companys directors was approved by the Companys
Audit committee and it is subject to the approval of the Companys additional
organs.The options were granted to the Offerees for no consideration. The exercise price
of each option shall be the average price of PCs shares in the LSE during the 5-
day period before the date of grant. Notwithstanding the foregoing the exercise
price of the options granted on October 26, 2006 is £1.8 per option (Exercise
Price).
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 j.
    
    (Cont.)Exercise of the options is subject to the following mechanism:

On exercise date PC shall allot, in respect of each option so exercised, shares
equal to the difference between (A) the opening price of PC shares on the LSE on
the exercise date, provided that if the opening price exceeds 180% of the Exercise
Price the opening price shall be set at 180% of the Exercise Price; less (B) the
Exercise Price of the Options; and such difference (A minus B) will be divided by
the opening price of PCs Shares in the LSE on the exercise date.The maximum number of shares issuable upon exercise of all outstanding options as
of the balance sheet date is 11,603,823 constituting 3.8% of PC share capital on a
fully diluted basis.The options vest over a three year period following grant, in equal parts (the
Vesting Periods), and will expire after five years following the grant date.The average estimated fair value of each option granted was calculated based on
the binominal-lattice model using the following assumptions:
 Directors andManagement
    
    EmployeesRisk free interest rate (%)
    
    4.584.94
    
    4.584.94Expected life of options (years)
    
    5
    
    5Expected volatility (%)
    
    2530
    
    2530Expected dividend yield
    
    None
    
    NoneForfeited (%)
    
    5
    %
    10
%Suboptimal exercise multiple ()
    
    2.68
    
    2.68
 PC has been publicly traded for a short period of time and therefore has no
historical data. The public companies in the PCs industry are for the most part,
more mature than PC. In order to avoid bias and given the aforementioned
circumstances, the expected volatility is based on companies in comparable
stages as well as companies in the industry.The cost of benefit inherent in PCs option plan based on the fair value thereof
upon grant, in accordance with the provision of Standard 24, amounts to 18.6
million (NIS 103.2 million; $24.4 million), which amount is to be recognized as an
expense over the vesting period of each portion. An expense in an amount of
2.0 million (NIS 11.2 million; $2.7 million) was recorded in these financial
statements.
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 k.
    
    On October 12, 2006 the Company entered into a joint venture and
shareholders agreement with an unrelated third party (Third Party Shareholder)
pertaining to the development of a shopping and entertainment centre at Koregaon
Park, Pune, India subject to the necessary planning and building permits being
obtained. This freehold development site is currently held by 24 separate companies
in equal undivided shares (one of which is the JV Company). Twelve of these
companies (Group B Companies) have sold the development rights relating to their
respective portions of the land to an affiliate of such Third Party Shareholder.
The remaining 11 companies (Group A Companies) and the JV Company retain the
development rights relating to their respective portions. Under the Agreement, the
Company is to subscribe for shares and convertible securities representing 50% of
the JV Company, upon fulfillment of certain conditions precedent (First Closing)
which are principally requiring the JV Company will acquire 100% of all the Group A
and Group B Companies and conclude a development rights assignment agreement with
the Third Party Shareholder, whereby the development rights to the Group B
Companies land will be irrevocably assigned to the JV Company. The cash
consideration payable by the JV Company is INR 440 million (NIS41.8 million; $9.9
million), payable in installments of which INR 310 million were paid at First
Closing and INR 130 million (NIS11.7 million; $2.8 million) are due on Second
Closing (being the date within ten days after the issue of the necessary building
permits on the site).Pursuant to the Indian Sourcing Agreement (see Note 17A(14)) the Company assigned
its rights under the agreement to PC.As of the balance sheet date, PC invested an amount of INR 310 million (NIS 29.5
million; $7.0 million) in the JV Company by means of shareholder equity and fully
and compulsorily convertible debentures (FCDs) bearing an annual interest of 14%
and convertible into non-voting preference shares.l.
    
    On October 11, 2006, PC has entered into an agreement, according to
which it acquired a 75% interest in a company (Project Company) which under
public-private partnership agreement with the Government of Romania is to develop
the Casa Radio site in central Bucharest. The consummation of the transaction is
subject to the fulfillment of certain conditions, including obtaining the approval
of the government of Romania to an amendment to the public-private partnership
agreement. The costs of the acquisition of the rights in the Project Company
amounted to approximately $40.0 million (NIS 170.0 million). As of the balance
sheet date, an amount of $25.5 million (NIS107.9 million) was deposited by PC into
an escrow account and it will be released to the seller following the fulfillment
of the condition presented included in the agreement. The other investors include
the government of Romania, which will procure that the development company is
granted the necessary development and exploitation rights in relation to the site
for a 49-year period in consideration for a 15% interest in the Project Company and
the seller who will retain 10% interest in the Project Company.
 
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (3)
    
    Companies within the Plaza Center N.V. (formerly: Plaza Centers (Europe) B.V.)
Group (P.C.) (cont.)
 l.
    
    (Cont.)In November 2006 the public-private partnership agreement was approved by the
government of Romania. The approval was subject to an additional ratification by
the Romanian Parliament which as of the date of the approval of these financial
statements has been obtained.The transaction and the nomination of directors in
the Project Company by PC were approved by the general shareholders meeting of the
Project Company in February, 2007. PC could not have exercises control over the
Project Company operations prior to such approval and accordingly, the financial
statements of the Project Company were not consolidated in the Company financial
statements as of December 31, 2006 but rather the investment in the Project
Company is presented in the consolidated balance sheet as payment on account of
acquisition of a subsidiary within long term receivable (see Note 8A).The Project, which is planned to consist of an estimated constructed area of
approximately 360,000 square meters, will include shopping and entertainment
center, five star hotel, residential units and offices. In accordance with the
terms of the agreement, the purchasers (including PC) have undertaken to cause the
Project Company to construct an office building measuring approximately 13,000
square meters for the government of Romania at the Project Companys own costs.
The latter intends to finance the construction of the project through bank loan.
Additional finance of the Project (if needed) will be borne by PC and the seller
pro-rata to their shareholding.The Company guarantees PCs obligations under the agreement.m.
    
    In February 2007, PC acquired 50% of the shareholding and voting right
in an Indian company(JV) which owns a freehold land of approximately 14 acres
situated in the Kharadi district of Pune, India for total consideration of 17.0
million (NIS 94.5 million; $22.4 million) . The remaining 50% is held by a leading
property developer in Pune.The JV intends to develop its plot of land through the construction of a project
totaling approximately 225,000 square meters gross lettable area which will
include a shopping center, an office complex and a serviced apartment facility.n.
    
    In March 2007, PC acquired a site in Timisoara, West Romania, for a
total consideration of 12.0 million (NIS 66.8 million; 15.8 million). The
site totals 31,800 square meters and is located alongside a major road approaching
the center of the city. PC plans to build a multy-storey shopping center of
approximately 30,000 square meters gross lettable Area with an option to develop
on the site approximately 20,000 square meters of new mixed retail, office and
residential space adjacent to the shopping center.o.
    
    PCs shares are traded on the LSE. The market value of the Companys
holdings in PC shares as of December 31, 2006, amounts to NIS 3,176 million ($752
million), and their book value as of that date amount to NIS 1,356 million ($321
million).p.
    
    Assuming exercise of all of PCs outstanding options, on December 31,
2006, the Companys interest in PC would have been diluted approximately to 65%.
 
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (4)
    
    Companies in BEA Hotels N.V. (B.H.) Group
 a.
    
    B.H. holds, through a wholly owned and controlled subsidiary
incorporated in Romania (Domino)  approximately 70% of SC Bucuresti Turism S.A.
(Bucuresti) which in turn owns a complex consisting of a hotel, an apartment
hotel, commercial areas and a restaurant, situated in the heart of Bucharest,
Romania (the Bucuresti Complex). Bucuresti was purchased through a privatization
tender published by the State Ownership Fund of the Romanian government (SOF).
The tender procedure was approved by a decision of the supreme court of Romania.The acquisition of most of the rights in Bucuresti was carried out within the
framework of a memorandum of understanding (MOU) for the establishment of a
joint venture, 80% of the rights of which were to be held by B.H. and 20% of the
rights by an unrelated third party (Third Party Shareholder). Pursuant to the
provisions of the MOU, B.H. is entitled to receive 100% of Dominos profits to be
distributed as dividends up to an aggregate amount of $2.0 million. Income in
excess of such amount is to be distributed according to holdings ratio (80%:20%).
In addition, B.H. has a Put Option to oblige the Third Party Shareholder to
increase its interest from 20% up to 50% (based on full investment cost) for
period and in terms to be agreed upon by the parties. The parties undertook to
finance the renovation of the hotel, should same be required. Should one of the
parties fail to provide the financing pro rata to its share, the shareholdings of
the delinquent party will be diluted based on a methodology to be agreed upon.As a result of a breach of agreements and undertakings by the Third Party
Shareholder, B.H. announced the termination of all agreements and simultaneously
filed, together with its subsidiary a law-suit against the Third Party Shareholder
for all damages incurred by it due to the latters breach of contracts and
undertakings. B.H. withheld, prior to filing the claim, the Third Party
Shareholders shares (20%) as security for fulfillment of its undertakings. As a
result of the agreements termination and the filing of the lawsuit, the Company
believes, based on legal advice, that it is no longer required to transfer said
shares  to the Third Party Shareholder, which follows that B.H. is in effect the
holder of the entire share capital and all voting rights (indirectly) in Domino.B.H. filed a monetary claim against the Third Party Shareholder for noncompliance
with the indemnity conditions, in the framework of which liens were imposed on the
Third Party Shareholders assets. The Third Party Shareholder filed a statement of
defense against the suit. Mediation proceeding between the parties failed, and a
notice to that effect was filed by B.H. in January 2005 to the competent court.For information concerning legal actions filed in connection with the purchase and
ownership of Bucuresti and Domino shares, and the real estate owned thereby  See
Note 17B.(5).Bucuresti shares are traded on the Romanian stock exchange. The value of B.H.s
holdings in Bucuresti shares, based on the price of a Bucuresti share as of
December 31, 2006, amounts to NIS 107.2 million ($25.3 million), and their book
value as of that date amount to NIS 279.7 million ($66.2 million).
 - 57 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (4)
    
    Companies in BEA Hotels N.V. (B.H.) Group (cont.)
 b.
    
    Within the framework of an agreement, executed on December 19, 2005,
for the sale of the entire (100%) equity and voting rights in a company (Shaw)
which owns a hotel located in London, that is subject to a long-term lease
agreement (the Sold Hotel), B.H. had sold all its shares and rights in Shaw (30%)
to an unrelated third party. The transaction reflects an asset value of £74.9
million in which the Companys share is £22.5 million. The total net cash
consideration paid to B.H. amounted to £4.0 million and it was determined based on
the agreed upon value of the Sold Hotel, net of bank loan and related transaction
expenses. As a result, the Company recorded pre-tax gain of NIS 58.3 million in the
financial statements for the year ended December 31, 2005.The revenues and operating profits of Shaw, as recorded in the consolidated
statement of operations for the year ended December 31, 2004, totals NIS 13.2
million and NIS 10.0 million, respectively.As part of the Companys real estate assets liquidation process, as detailed in
Note 2c. above, the Company currently examines the optimal methods for realizing
its assets, considering the business opportunities currently available to it as
well as certain financial conditions and other parameters (e.g. location of
property, the Companys capital yield, cost of external credit, market yields,
cash flow timeline, etc.)

Accordingly, the Company executed, and from time to time contemplates variable
liquidation or deemed liquidation transaction, which differ by nature each one
from the other, such as, long term lease transactions, refinance of loans
attributed to specific assets, absolute sales of real estate assets, and the like.

Notwithstanding the Sold Hotel constituting a reportable segment, the Companys
management does not consider the result of its sale nor does it consider the
results of its current operations, as discontinuing operation, as it intends to
carry on examining, from time to time, the possible liquidation of its real estate
assets through means such as long term lease transactions.c.
    
    Within the framework of an agreement, executed in October 2006, for the
sale of the entire (100%) equity and voting rights in a company (Sandton Park
Plaza) which owns a hotel located in South Africa (the Sold Hotel), B.H. has
sold all the shares and rights held by it in Sandton Park Plaza (33.3%) to an
unrelated third party. The transaction reflects an asset value of South Africa Rand
(SAR) 54.0 million (NIS 30.7 million; $7.3 million) in which the Companys share is
SAR 18.0 million (NIS 10.0 million; $2.4 million). The cash consideration was
determined based on an agreed upon value of the Sold Hotel net of a bank loan and
other net monetary assets as well as transaction costs. The proceed from the sale
was deposited into an escrow account in the name of the sellers. The transfer of
the funds from the escrow account to the sellers was, as of the balance sheet date,
subject to the technical approval of the South African reserve bank, which was
attained after the balance sheet date. As a result of this transaction, the Company
recorded pre-tax gain of NIS 5.0 million ($1.2 million) in these financial
statements.d.
    
    In December 2006 B.H.s jointly controlled subsidiary (50%) purchased a
freehold office building measuring a gross built area of approximately 6,500 square
meters and situated near the Victoria Amsterdam hotel for a purchase price of
14.0 million. The property is listed as a monument and historic building within
the meaning of the Dutch law. The Jointly controlled subsidiary intends to renovate
the building and to convert it to a hotel
containing approximately 100 rooms. Building permits for such renovation have not
yet been issued. The acquisition was financed by a bank loan.
 - 58 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 B.
    
    Additional information as to investments in subsidiaries and changes thereof (Cont.)
 (5)
    
    Mango Israel Clothing and Footwear Ltd. (Mango)In May 2005, Elscint completed the acquisition of all of the equity and voting rights
of Mango Israel Clothing and Footwear Ltd. (Mango), the Israeli distributor and
retailer of the internationally renowned retail brand name MANGO-MNG. The excess of
cost over fair value of identified tangible assets of Mango, in the amount of NIS 2.4
million, was attributed to the distribution rights acquired. The book value of the
assets of Mango, its revenues and its operating loss, for the period covering from its
acquisition, initially consolidated in the financial statements as of December 31, 2005
and for the year then ended, totals NIS 26.8 million, NIS 31.8 million and NIS 3.8
million, respectively.
 C.
    
    The following is summarized data outlining the Groups share in items of the proportionately
consolidated companies financial statements
 At December 31, 2006
    
    
    At December 31, 2005and for the year then ended
    
    
    and for the year then ended(in thousand NIS)Proportionately consolidated companiesReportedShareholding
    
    50%
    
    
    33.3%
    
    
    30%
    
    
    Total
    
    
    50%
    
    
    33.3%
    
    
    30%
    
    
    TotalCurrent assets
    
    
    224,484
    
    
    
    
    
    
    
    37
    
    
    
    224,521
    
    
    
    112,708
    
    
    
    420
    
    
    
    34
    
    
    
    113,162Long-term
deposits, loans and
receivables
    
    
    20,805
    
    
    
    
    
    
    
    
    
    
    
    20,805
    
    
    
    20,220
    
    
    
    791
    
    
    
    
    
    
    
    21,011Fixed assets and
other assets
    
    
    964,322
    
    
    
    
    
    
    
    
    
    
    
    964,322
    
    
    
    895,826
    
    
    
    4,239
    
    
    
    
    
    
    
    900,065Current liabilities
    
    
    (180,811
    )
    
    
    
    
    
    
    
    
    
    
    (180,811
    )
    
    
    (60,677
    )
    
    
    (841
    )
    
    
    (8
    )
    
    
    (61,526
    )Long-term
liabilities
    
    
    (978,401
    )
    
    
    
    
    
    
    
    
    
    
    (978,401
    )
    
    
    (662,410
    )
    
    
    (4,302
    )
    
    
    
    
    
    
    (666,712
    )50,399
    
    
    
    
    
    
    
    37
    
    
    
    50,436
    
    
    
    305,677
    
    
    
    307
    
    
    
    26
    
    
    
    306,000Liabilities to
(of) group companies
    
    
    72,516
    
    
    
    
    
    
    
    (1,252
    )
    
    
    71,264
    
    
    
    311,610
    
    
    
    10,871
    
    
    
    (1,242
    )
    
    
    321,239Shareholders
equity (deficiency)
    
    
    (22,117
    )
    
    
    
    
    
    
    1,289
    
    
    
    (20,828
    )
    
    
    (5,943
    )
    
    
    (10,564
    )
    
    
    1,268
    
    
    
    (15,239
    )50,399
    
    
    
    
    
    
    
    37
    
    
    
    50,436
    
    
    
    305,667
    
    
    
    307
    
    
    
    26
    
    
    
    306,000Revenues
    
    
    251,876
    
    
    
    1,557
    
    
    
    
    
    
    
    253,433
    
    
    
    194,884
    
    
    
    2,077
    
    
    
    12,619
    
    
    
    209,580Profit (loss)
before income taxes
    
    
    (33,937
    )
    
    
    (2,529
    )
    
    
    (29
    )
    
    
    (36,495
    )
    
    
    (48,727
    )
    
    
    (351
    )
    
    
    1,639
    
    
    
    (47,439
    )Net profit (loss)
    
    
    (35,139
    )
    
    
    (2,557
    )
    
    
    (29
    )
    
    
    (37,725
    )
    
    
    (49,886
    )
    
    
    (351
    )
    
    
    1,639
    
    
    
    (48,598
    )
 - 59 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9  INVESTMENTS IN INVESTEES AND OTHER COMPANIES (CONT.)
 C.
    
    The following is summarized data outlining the Groups share in items of the proportionately
consolidated companies financial statements (cont.)
 At December 31, 2006and for the year then endedConvenience translation (US$000)Proportionately consolidated companiesReportedShareholding
    
    50%
    
    
    33.3%
    
    
    30%
    
    
    TotalCurrent assets
    
    
    53,133
    
    
    
    
    
    
    
    9
    
    
    
    53,142Long-term deposits, loans and receivables
    
    
    4,924
    
    
    
    
    
    
    
    
    
    
    
    4,924Fixed assets and other assets
    
    
    228,242
    
    
    
    
    
    
    
    
    
    
    
    228,242Current liabilities
    
    
    (44,472
    )
    
    
    
    
    
    
    
    
    
    
    (44,472
    )Long-term liabilities
    
    
    (229,898
    )
    
    
    
    
    
    
    
    
    
    
    (229,898
    )11,929
    
    
    
    
    
    
    
    9
    
    
    
    11,938Liabilities to (of) group companies
    
    
    17,164
    
    
    
    
    
    
    
    (296
    )
    
    
    16,868Shareholders equity (deficiency)
    
    
    (5,235
    )
    
    
    
    
    
    
    305
    
    
    
    (4,930
    )11,929
    
    
    
    
    
    
    
    9
    
    
    
    11,938Revenues
    
    
    59,616
    
    
    
    369
    
    
    
    
    
    
    
    59,985Loss before income taxes
    
    
    (8,032
    )
    
    
    (599
    )
    
    
    (7
    )
    
    
    (8,638
    )Loss
    
    
    (8,317
    )
    
    
    (605
    )
    
    
    (7
    )
    
    
    (8,929
    )
 - 60 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10  REAL ESTATE AND OTHER FIXED ASSETS
 A. Composition:
 December 312006
    
    
    2005Reported
    
    
    ReportedReal estateCommercialHotels
    
    
    centersUnder
    
    
    
    
    
    
    
    
    
    
    Otherconst-
    
    
    
    
    
    
    
    
    
    
    fixed
    
    
    
    
    
    
    ConvenienceOperating
    
    
    ruction
    
    
    Operating
    
    
    Other
    
    
    assets
    
    
    Total
    
    
    translation
    
    
    Total(in thousand NIS)
    
    
    US$000
    
    
    NIS000Cost:Balance as of January 1 (*)
    
    
    1,528,488
    
    
    
    200,253
    
    
    
    618,167
    
    
    
    184,852
    
    
    
    118,229
    
    
    
    2,649,989
    
    
    
    627,216
    
    
    
    4,049,069Initially consolidated companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274,745Deconsolidated companies
    
    
    (3,581
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,581
    )
    
    
    (848
    )
    
    
    (1,292,566
    )Adjustments resulting from
translation of foreign subsidiaries
financial statements
    
    
    66,986
    
    
    
    22,418
    
    
    
    
    
    
    
    2,364
    
    
    
    (727
    )
    
    
    91,041
    
    
    
    21,548
    
    
    
    (189,558
    )Additions during the year
    
    
    76,318
    
    
    
    74,384
    
    
    
    18,205
    
    
    
    138
    
    
    
    20,305
    
    
    
    189,350
    
    
    
    44,817
    
    
    
    424,978Disposals during the year
    
    
    (6,969
    )
    
    
    (3,975
    )
    
    
    
    
    
    
    
    
    
    
    (31,515
    )
    
    
    (42,459
    )
    
    
    (10,049
    )
    
    
    (24,537
    )Reclassification to trading property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (592,143
    )Balance as of December 31
    
    
    1,661,242
    
    
    
    293,080
    
    
    
    636,372
    
    
    
    187,354
    
    
    
    106,292
    
    
    
    2,884,340
    
    
    
    682,684
    
    
    
    2,649,988Accumulated depreciation:Balance as of January 1 (*)
    
    
    228,724
    
    
    (1)
    26,944
    
    
    
    72,043
    
    
    
    27,787
    
    
    
    53,564
    
    
    
    409,062
    
    
    
    96,819
    
    
    
    374,437Initially consolidated companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,333Deconsolidated companies
    
    
    (1,529
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,529
    )
    
    
    (362
    )
    
    
    (95,964
    )Adjustments resulting from
translation of foreign subsidiaries
financial statements
    
    
    9,773
    
    
    
    3,047
    
    
    
    
    
    
    
    478
    
    
    
    2,627
    
    
    
    15,925
    
    
    
    3,769
    
    
    
    (17,521
    )Additions during the year
    
    
    48,821
    
    
    
    
    
    
    
    24,404
    
    
    
    4,483
    
    
    
    9,803
    
    
    
    87,511
    
    
    
    20,713
    
    
    
    111,613Disposals during the year
    
    
    (4,671
    )
    
    
    (3,898
    )
    
    
    
    
    
    
    
    
    
    
    (21,865
    )
    
    
    (30,434
    )
    
    
    (7,203
    )
    
    
    (10,527
    )Reclassification to trading property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,308
    )Balance as of December 31
    
    
    281,118
    
    
    
    26,093
    
    
    
    96,447
    
    
    
    32,748
    
    
    
    44,129
    
    
    
    480,535
    
    
    
    113,736
    
    
    
    409,063Provision for impairment of
investments and assets (See C.
below)
    
    
    71,268
    
    
    
    
    
    
    
    5,893
    
    
    
    6,517
    
    
    
    
    
    
    
    83,678
    
    
    
    19,805
    
    
    
    65,561Depreciated balance net book value:As at December 31, 2006
    
    
    1,308,856
    
    
    
    266,987
    
    
    
    534,032
    
    
    
    148,089
    
    
    
    62,163
    
    
    
    2,320,127
    
    
    
    549,143As at December 31, 2005
    
    
    1,246,613
    
    
    
    173,309
    
    
    
    540,230
    
    
    
    150,548
    
    
    
    64,664
    
    
    
    
    
    
    
    
    
    
    
    2,175,364
 
 (1)
    
    In respect of a hotel, closed during 2003, for renovations.(*)
    
    Reclassified. - 61 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10  REAL ESTATE AND OTHER FIXED ASSETS (CONT.)
 A.
    
    Composition (Cont.):Cost of fixed assets includes:
 Net book ValueDecember 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Financial expenses
capitalized to cost of
the buildings under
construction
    
    
    20,039
    
    
    
    31,033
    
    
    
    4,743
 B.
    
    Composition of land and buildings, distinguished between freehold and leasehold rights:
 Net book Value as at December 31, 2006ReportedCommercialHotels
    
    
    centersUnder
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConvenienceOperating
    
    
    construction
    
    
    Operating
    
    
    Others
    
    
    Total
    
    
    translation(in thousand NIS)
    
    
    US$000Freehold (1)
    
    
    802,677
    
    
    
    266,987
    
    
    
    
    
    
    
    145,857
    
    
    
    1,215,521
    
    
    
    287,698Leasehold:Capitalized
    
    (2)
    31,579
    
    
    
    
    
    
    (5)
    534,032
    
    
    
    2,232
    
    
    
    567,843
    
    
    
    134,401Uncapitalized
    
    (4)(3)
    474,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474,600
    
    
    
    112,3311,308,856
    
    
    
    266,987
    
    
    
    534,032
    
    
    
    148,089
    
    
    
    2,257,964
    
    
    
    534,430
 
 (1)
    
    Majority of the rights are registered in the name of those subsidiaries, which own
the rights thereto.(2)
    
    Leasehold rights (capitalized for a 50-year period until 2036), of the land area on
which the Utrecht Park Plaza Hotel is situated, were acquired from the municipality of
Utrecht. The execution of any change in the use of the land or the demolition of a build
constructed thereon requires the consent of the municipality. The lessee has no rights of
leasehold termination. The municipality has the right to terminate the leasehold should
it determine that the land is required for public use or in the event a court determines
that the lessee failed to fulfill its undertakings under the terms of the lease.(3)
    
    The sub-lease rights of the Sherlock Holmes Park Plaza Hotel were granted for a
period of 99 years (ending in 2095), in consideration of an annual rent payment of £0.6
million (NIS 4.9 million; $1.2 million). Rent payments are adjusted every five years on
the basis of open market value. First such adjustment was initiated in October 2006 and
is yet to conclude. The company holding the property has an option to terminate the lease
in 2059 with an advance notice of 2.5 years.A Red Sea Group company (Guarantor) guaranteed fulfillment of all undertakings of the
lessee as if it were a principal party to the agreement. The guarantee contains a
provision, by which, in the event the guarantee is exercised, the land-owners may
require the Guarantor to assume the lessees position as a lessee. Two documents were
executed between the
Guarantor and B.H., which establish the indemnification procedures amongst them, in
relation to said guarantee. - 62 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10  REAL ESTATE AND OTHER FIXED ASSETS (CONT.)
 B.
    
    Composition of land & buildings, distinguished between freehold and leasehold rights (Cont.):
 (4)
    
    The leasehold rights to a land area on which the Riverbank Park Plaza Hotel is
located, are for a period of 125 years, in consideration for annual payment of £ 0.6
million (NIS 4.9 million; $1.2 million), adjusted every five years based on the CPI in
England, with the next adjustment to be carried out in May 2010. The leasehold is subject
to various rights and easements granted to certain authorities; The lessee may not assign
its rights to a third party without the lessors consent; A breach by the lessee of any
of its undertakings under the agreement may, under certain circumstances allow the lessor
to forfeit the property.(5)
    
    Capitalized lease rights in respect of the Arena entertainment and commercial
center are for a period of 49 years with an option for an additional 49 year lease
period. The option period will expire in 2086, subject to the lessees compliance with
the terms of the lease.(6)
    
    Within the framework of the 2004 sale agreement, detailed in Note 9B(3)a. above,
Klepierre has acquired from PC all equity rights in Duna Plaza. Duna Plaza is the
registered and legal owner of the entire rights, title and interest in and to the Duna
Plaza Complex, which is comprised of Duna Plaza shopping center (the Sold Center or
Duna Plaza) and the Duna Plaza Offices (DPO). Since DPO was specifically excluded
from the framework of the 2004 transaction, Klepierre and PC have agreed to implement
certain procedures to cause: (i) the registration of the DPO as a separate title unit in
a condominium the rights of which shall initially be held by Duna Plaza; (ii) thereafter
to implement a de-merger of Duna Plaza in such a manner that DPO will be recorded in the
name of a new company to be incorporated under the de-merger (DPO Owner); and (iii) to
cause the sale and transfer to PC of all equity and voting rights in DPO Owner (the
de-merger procedures). The assets and the liabilities of Duna Plaza shall be so divided
that Duna Plaza shall retain the liabilities associated with the Sold Center, while DPO
Owner shall retain the assets and the liabilities associated with the DPO. PC shall
indemnify Duna Plaza for the liabilities assumed by DPO Owner.During the period until the consummation of the de-merger procedures (Interim Period)
PC is entitled to all rental and other revenues (excluding from the sale of utilities)
as received by Duna Plaza from the DPO tenants, net after deducting the aggregate amount
of: (i) all those direct costs and expenses and taxes which shall be incurred and/or
disbursed by Duna Plaza which directly relate to and/or connected with the ownership,
operation and management of the DPO; and (ii) that proportion of the general costs and
expenses of the Duna Plaza Complex, which may reasonably be attributed and apportioned
to the DPO. During the Interim Period, PC is responsible for and shall manage and
operate the DPO. Duna Plaza has a lien over DPOs funds, as security for payment of the
DPO costs. PC shall warrant and indemnify Klepierre for and against any cost, debt,
actions, suits and liability that may arise as a result of or in connection with the
ownership, possession, operation and transfer of the DPO.The de-merger procedure was finalized on December 31, 2006 and consummation of the
transfer of DPOs shares is expected on the second quarter of 2007.
 C.
    
    Impairment of long-lived assets:A significant decrease in the number of visitors in the Aquatopia (an attraction within the
Astrid Plaza hotel in Antwerp, Belgium), during 2006 as compared to the Companys forecasts
for this year, have lead the Company to reexamine its investment in the project. As a result,
the Company included in these financial statements a provision for impairment loss for its
investment in the Aquatopia in the amount of NIS 16.1 million ($3.8 million).D.
    
    Annual depreciation rates- see Note 2I above.E.
    
    Liens- see Note 17D below.
 - 63 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11   OTHER ASSETS AND DEFERRED EXPENSES
 A.
    
    Composition:
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000CostAcquired patent rights, distribution rights, technical
know-how and other intellectual property
    
    
    28,757
    
    
    
    31,022
    
    
    
    6,806Hotels and/or commercial centers
pre-opening costs
    
    
    4,393
    
    
    
    9,316
    
    
    
    1,040Cost of obtaining loans (*)
    
    
    
    
    
    
    12,124
    
    
    
    Project initiation costs
    
    
    13,603
    
    
    
    3,066
    
    
    
    3,220Cost of obtaining long-term leases
    
    
    8,779
    
    
    
    8,734
    
    
    
    2,078Cost of long-term service contract
    
    
    3,728
    
    
    
    4,063
    
    
    
    88259,260
    
    
    
    68,325
    
    
    
    14,026Accumulated amortizationAcquired patent rights, distribution rights, technical
know-how and other intellectual property
    
    
    21,485
    
    
    
    20,266
    
    
    
    5,085Hotels and/or commercial centers
pre-opening costs
    
    
    2,538
    
    
    
    7,376
    
    
    
    601Cost of obtaining loans (*)
    
    
    
    
    
    
    1,677
    
    
    
    Cost of obtaining long-term leases
    
    
    7,766
    
    
    
    6,384
    
    
    
    1,838Cost of long-term service contract
    
    
    2,821
    
    
    
    2,146
    
    
    
    66834,610
    
    
    
    37,849
    
    
    
    8,192Amortized cost (net book value)
    
    
    24,650
    
    
    
    30,476
    
    
    
    5,834
 
 (*)
    
    Commencing January 1, 2006 these costs were offset from the related long-term
loans. See Notes 2J(4) and 14A. B.
    
    Amortization rates see Note 2J. above.
 - 64 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12  SHORT-TERM CREDITS
 A.
    
    Composition:
 December 312006
    
    2005
    
    2006ReportedInterest
    
    
    
    
    
    
    
    
    
    Conveniencerate
    
    
    
    
    
    
    
    
    
    translation%
    
    (in thousand NIS)
    
    US$000Short-term bank loans:US dollars
    
    Libor+ 1.3-2.5
    
    
    124,713
    
    
    
    267,350
    
    
    
    29,519Euro
    
    Euribor+ 1.7
    
    
    274,550
    
    
    
    305,230
    
    
    
    64,982Hungarian Forint
    
    Wibor+1.4
    
    
    18,737
    
    
    
    
    
    
    
    4,435NIS
    
    Prime+ 1.1-1.6
    
    
    17,311
    
    
    
    23,475
    
    
    
    4,097435,311
    
    
    
    596,055
    
    
    
    103,033Less  cost of raising loans
    
    
    
    
    (12,965
    )
    
    
    
    
    
    
    (3,069
    )Current maturities
    
    
    
    
    58,425
    
    
    
    59,352
    
    
    
    13,828480,771
    
    
    
    655,407
    
    
    
    113,792
 B.
    
    Liens See Note 17D.
 NOTE 13  PAYABLES AND OTHER CREDIT BALANCES
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Government institutions
    
    
    27,305
    
    
    
    24,724
    
    
    
    6,463Wages and fringe benefits
    
    
    47,199
    
    
    
    29,730
    
    
    
    11,171Accrued interest payable
    
    
    37,055
    
    
    
    5,428
    
    
    
    8,770Income in advance
    
    
    13,008
    
    
    
    16,946
    
    
    
    3,079Control Centers Group companies
    
    
    7,608
    
    
    
    3,153
    
    
    
    1,801Liability in respect of land purchase
    
    
    6,733
    
    
    
    
    
    
    
    1,594Expenses accrued in connection with the
realization of commercial centers
    
    
    7,060
    
    
    
    4,336
    
    
    
    1,671Advances in respect of land sale
    
    
    
    
    
    
    515
    
    
    
    Accrued expenses, commissions and others
    
    
    83,032
    
    
    
    65,163
    
    
    
    19,652229,000
    
    
    
    149,995
    
    
    
    54,201
 - 65 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE
14  LONG-TERM LIABILITIES
 A.
    
    Composition:
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Loans from banks and financial institutions
    
    
    1,866,821
    
    
    
    1,661,691
    
    
    
    441,851Debentures (see H. below)
    
    
    1,091,075
    
    
    
    
    
    
    
    258,243Convertible debentures (see G. below) (1)
    
    
    78,028
    
    
    
    
    
    
    
    18,4683,035,924
    
    
    
    1,661,691
    
    
    
    718,562Less  costs of raising loans and debentures (2)
    
    
    (40,453
    )
    
    
    
    
    
    
    (9,575
    )Less  current maturities
    
    
    (58,425
    )
    
    
    (59,352
    )
    
    
    (13,828
    )2,937,046
    
    
    
    1,602,339
    
    
    
    695,159Other liabilities:Deferred income taxes
    
    
    41,427
    
    
    
    39,928
    
    
    
    9,805Suppliers
    
    
    53,787
    
    
    
    26,355
    
    
    
    12,731Pre-paid rent income
    
    
    7,035
    
    
    
    31,335
    
    
    
    1,665Deferred gain from realization of commercial
centers (Note 9B.(3)a above)
    
    
    5,626
    
    
    
    5,822
    
    
    
    1,332Accrued severance pay (3)
    
    
    2,525
    
    
    
    1,475
    
    
    
    597110,400
    
    
    
    104,915
    
    
    
    26,1303,047,446
    
    
    
    1,707,254
    
    
    
    721,289
 
 (1)
    
    Convertible debentures were presented as quasi-equity item in the financial
statements as of December 31, 2005, based on the provision of Opinion No. 53 of the ICPAI
 see Note 2P.(2)
    
    Through December 31, 2005, these costs were presented as assets under Other assets
and deferred charges  see Notes 11 and 2J(4).(3)
    
    See Note 15, below. B.
    
    Linkage basis and interest rates:
 December 31, 2006ReportedConvenienceInterest rates
    
    
    
    
    
    translation%
    
    (in thousand NIS)
    
    US$000NIS
    
    Israeli CPI + 5.3-6.0
    
    
    1,028,885
    
    
    
    243,523NIS
    
    Prime+ 2.25
    
    
    211,438
    
    
    
    50,044Pound sterling (*)
    
    7.72
    
    
    807,213
    
    
    
    191,056Euro
    
    Euribor+ 1.5-4.25
    
    
    566,441
    
    
    
    134,069Euro (*)
    
    5.11
    
    
    196,993
    
    
    
    46,626US dollar
    
    Libor+ 1.75-3.35
    
    
    224,954
    
    
    
    53,2443,035,924
    
    
    
    718,562
 
 (*)
    
    The interest on these loans is hedged by a Swap transaction  see Note 23F. - 66 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE
14  LONG-TERM LIABILITIES (CONT.)
 C.
    
    Repayment schedule:
 December 31, 2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000First year  current maturities
    
    
    58,425
    
    
    
    13,828Second year
    
    
    670,317
    
    
    
    158,657Third year
    
    
    389,673
    
    
    
    92,230Fourth year
    
    
    205,762
    
    
    
    48,701Fifth year
    
    
    976,341
    
    
    
    231,087Sixth year and thereafter
    
    
    735,406
    
    
    
    174,0593,035,924
    
    
    
    718,562
 D.
    
    Loans obtained by the Company from an Israeli bank, totaling NIS 271 million ($64.1 million),
will be repaid (principal and interest) in equal semi-annual installments, through December
31, 2012. As part of the agreement, an arrangement to accelerate repayment was established as
follows: (i) net amounts received by the Company, from public or private offerings of
securities of the Company (and/or of its subsidiaries which were financed by the loan funds),
as part of a business merger, as a result of the realization of assets and/or investments, or
as a result of refinancing or any other receipt of capital by the Company (and/or its
subsidiaries, as above), will be used first to repay the loans; (ii) net amounts so received
from realization of the shares of PC or shares of a Project Company, by means of sale or
issuance to a third party or the sale of a project owned thereby (in full or part), will
serve to repay part of the loans (relative to the portion sold) that were received to finance
the investment in shares or projects realized, as the case may be; (iii) part of the net
amounts to be received from refinancing will be used initially to repay the loans, as long as
the total balance of the loans exceeds $40.0 million.Upon consummation of the transaction for the sale of the commercial and entertainment centers
(see Note 9B(3)a., b., d & e.), the issuance of non convertible debentures by the Company (see
item H. below) and the Initial Public Offer (IPO) of PCs shares in the LSE (see Note
9B(3)(i)), the Company is conducting negotiations with the bank with the view of mutually
rescheduling the rate and scope of repayments and the other terms of credit. In the framework
of re-examining various terms contained in the loan agreements, the bank and the Company have
reached to written understanding according to which (i) repayment of the loans which the
Company was obliged to repay as a result of such sales of the commercial centers, the
debenture issuance and the IPO of PCs shares, as stipulated in the loan agreements, is not
yet required prior to January 1, 2008; (ii) principal repayment of loans, which the bank had
provided the Company with and which repayment dates had fallen prior to December 31, 2006, is
not yet required prior to January 1, 2008, subject to payment by the Company of all interest
payments in respect of the loans; (iii) as of December 31, 2006, the bank did not demand that
the Company will comply with the covenants stipulated in the loan agreement except for
maintaining a minimum rate of adjusted shareholders equity of the Company to its adjusted
balance sheet. As of the balance sheet date the Company is in compliance with this covenant
and accordingly, the balance of the bank credits was classified as long-term loans.
 - 67 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 14  LONG-TERM LIABILITIES (CONT.)
 E.
    
    In December 2005, Elscint reached a long term loan agreement with an Israeli bank, according
to which the bank has rescheduled the repayment of Elscints outstanding loans at that date
(NIS 308.0 million), for a period of up to 10 years. As part of the agreement, an arrangement
to accelerate repayment was established as follows: (i) net amounts received by Elscint,
and/or by its subsidiaries which were financed by the loan funds (Funded Subsidiaries), from
any public offering or private placement of its securities, as part of a business merger, as a
result of the realization (in whole or in part) of assets and/or investments, or as a result
of refinancing or any other receipt of any distribution by Elscint (and/or by its Funded
Subsidiaries), will be used first to repay the loans; (ii) net amounts so received from
realization of the shares of B.H. or shares of a Target Company, by means of sale or issuance
of shares to a third party or the sale of a project owned thereby (in full or part), will
serve to repay the part of the loans attributed to the project sold as the case may be. In
March 2006 Elscint paid to the bank an amount of £16.7 million (NIS 137 million; $32.5
million) following a refinancing loan provided to three Funded Subsidiaries.The balance of these loans as of December 31, 2006 totaled to NIS 159.2 million ($37.6
million).As of December 31, 2006 Elscint is yet to comply with certain financial and operational
covenants included in the loan agreement, which in the opinion of Elscints management, do not
affect its repayment ability (principal and/or interest) to the financing bank on a regular
basis. The parties to the loan agreement follow the terms and conditions provided therein in
respect of the long term repayment schedules.In the framework of re-examining various terms contained in the loan agreement, the bank has
informed Elscint that:(i) repayment of a principal amount of 9.6 million (NIS 53.4 million;
$12.6 million) is not yet required till January 1, 2008 subject to repayment by Elscint of all
interest payments; (ii) as of December 31, 2006 the bank did not demand that Elscint will
comply with the covenants stipulated in the loan agreement except for the maintaining of a
minimum rate of shareholders equity to total balance sheet. As of the balance sheet date,
Elscint is in compliance with this covenant and accordingly, the balance of the bank credit
was classified as long-term loans.F.
    
    Within the framework of an agreement executed with an Israeli bank for the award of long-term
credit facilities for one of the Companys subsidiaries, in an aggregate amount of NIS 205.8
million ($48.7 million), such subsidiary undertook in favor of the bank to comply, throughout
the duration of the credit, with certain financial and operating covenants. Should the
subsidiary fail to comply with all or any of its respective covenants, or upon the occurrence
of certain events as detailed in the agreements, the bank will be entitled to demand the
immediate repayment of the loan. As of December 31, 2006, the subsidiary is yet to comply with
certain covenants. The parties to the agreements follow the terms and conditions provided
therein in respect of the long term repayment schedule or in accordance with the agreement
with the bank, as the case may be. The bank has informed the subsidiary in writing as to its
consent to extend the term of the above-mentioned credit facility through April 1, 2008.
 - 68 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 14  LONG-TERM LIABILITIES (CONT.)
 G.
    
    Convertible debentures issued by Insightec in August 2006 and in September 2004 (as amended
in the 2006 agreement) to its existing shareholders in the total amount of $36.0 million (NIS
152.0 million) (2004 Notes and 2006 Notes respectively, or collectively the Notes).The
Notes bear interest, payable on a semi-annual basis, at the rate of LIBOR + 3% (to be
increased by an additional 2% upon the first event of default as defined in the agreement and
by an additional 3% upon the occurrence of any additional event of default as defined in the
agreement). To the extent not previously converted or prepaid, Insightec is required to repay
the 2006 Notes and the 2004 Notes (principal and interest, if relevant) on August 9, 2011 and
on September 27, 2009, respectively. Insightec has the option that any interest payment due
on or prior to August 9, 2009 in respect of 2006 Notes or March 27, 2008 in respect of 2004
Notes, may be paid in the form of additional notes containing the same terms as the Notes
(other than issue date) in a principal amount equal to the amount of such interest due .The
holders can convert the Notes (or any part thereof) into ordinary shares of Insightec at any
time on or after the date of their respective issuance. The full outstanding and unpaid
amounts of the Notes (principal and interest) shall be automatically
converted into ordinary shares of Insightec in the event Insightec completes a qualified initial public offering (as
defined in the agreement) (IPO) after August 9, 2009. Immediately prior to completion of a
qualified IPO or a change in control, as defined in the Agreement, in either case prior to
August 9, 2009 (Liquidity Date), Insightec shall be entitled to require the holders to
convert the full outstanding and unpaid amount of the Notes (principal and interest) into
ordinary shares of Insightec, provided however that Insightec shall only be entitled to
require such conversion if (i) the annualized Internal Rate of Return (IRR) on the principal
amount of the Notes to the Liquidity Date would be at least 20% and (ii) in the case of a
change in control, as defined in the agreement, the holders are provided an opportunity to
sell or transfer all of the shares (or securities convertible into shares), including
ordinary shares into which the Notes is convertible, that they own immediately prior to
completion of such change in control. The conversion rate of the Notes (which is subject to
adjustments in certain instances) is the lower of (i) pre-money valuation of Insightec at the
amount of $220.0 million ($12 per share) in respect of the 2006 Notes and $110.0 million
($7.3 per share) in respect of the 2004 Notes; or (ii) at an 85% of the price per share
determined in Insightecs next equity financing round following the issuance of the Notes.H.
    
    Between February and July 2006, the Company agreed with Israeli investors to issue NIS 575.0
million ($136.0 million) aggregate principal amount of unsecured non-convertible debentures,
consisting of two series. Series A debentures, at the principal amount of NIS 516.0 million
($122.1 million), bearing interest at a rate of 6% per annum and are linked (principal and
interest) to increase in the Israeli CPI. Series B debentures, at the principal amount of NIS
59.0 million ($14.0 million) bearing interest at a rate of Libor plus 2.65% per annum, and are
linked (principal and interest) to the U.S. dollar. The principal amount of the Series A and
Series B will be repayable in 10 semi-annual equal installments commencing August 2009. The
Series A and Series B debentures also provide that the debentures will be prepaid by the
Company at the option of the trustee or the holders of the debentures, if the Companys
securities are de-listed from trade on the Tel Aviv Stock Exchange and on the Nasdaq National
Market jointly.The Company has undertaken to use its best efforts to register the two series of debentures
for trade on the Tel Aviv Stock Exchange (TASE) no later than August 30, 2006. In August
2006 the Company filed prospectus for the registration of Series A and Series B for trade in
the TASE. On the same date the Company filed an offering prospectus for the offering to the
public in Israel of Series C, Series B and Series A debentures in a principal amount of NIS
459.0 million, 10.0 million and NIS 51.0 million respectively. Series A and Series B
debentures have the same terms mentioned above. Series C debentures bearing interest of 5.3%
per annum and are linked to the increase in the Israeli CPI. The principal amount of Series C
debentures will be repayable in 10 annual equal installments commencing September 2009.Series A, B and C were rated By Midroog Ltd. (Midroog) at an A2 rating and by Maalot at an
A2 rating, on a local scale. In March 2007 Midroog had approved an additional series of
debentures (Series D) of up to NIS 620.0 million ($ 146.7 million). Series D were rated at an
A1 on local scale. In addition, Midroog had approved an upgrade to its rating to the existing
Series A, B and C from A2 to A1 on a local scale.The total cost of obtaining these debentures amounted to NIS 14.2 million.I.
    
    Liens- see Note 17D.
 - 69 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 15 ACCRUED SEVERANCE PAY
 A.
    
    Composition:
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Provision for severance pay
    
    
    4,878
    
    
    
    3,816
    
    
    
    1,154Less  amounts deposited in the severance-pay
fund
    
    
    1,271
    
    
    
    1,259
    
    
    
    301 Europe Israel (M.M.S.) Ltd.
    
    
    1,082
    
    
    
    1,082
    
    
    
    2562,353
    
    
    
    2,341
    
    
    
    5572,525
    
    
    
    1,475
    
    
    
    597
 B.
    
    In Israel:The Group companies liability to employees upon their retirement includes, primarily,
voluntary and/or involuntary termination severance payments as well as adaptation grants. The
liabilities are partially covered by ordinary deposits to employees accounts at accredited
pension and severance-pay funds and/or by acquiring insurance policies. Such deposits are not
under the custody or management of the Group companies and, therefore, are not reflected in
the balance sheet.Insightec reached an agreement with its employees, according to which they would accept the
provisions of Section No.14 of the Israeli Severance Compensation Act, 1963 (Section 14).
Section 14 allows Insightec to make deposits in the severance pay funds according to the
employees current salary. Such deposits release Insightec from any further obligation with
this regard. The deposits made are available to the employee at the time when the
employer-employee relationship comes to end, regardless of cause of termination. The balance
of such payment obligations not covered by the above-mentioned deposits and/or insurance
policies is stated at the balance sheet as a liability for employment termination. An amount
equal to such obligation is deposited on behalf of the respective companies in an accredited
severance-pay fund.The Companys Chairmans term of employment by EIL shall be taken into consideration in
calculating the period of his employment by the Company, for all purposes. EIL undertook in
terms of the agreement to transfer to the Companys ownership all amounts deposited in
severance-pay funds, in order to cover all rights accumulated throughout the period of the
Chairmans employment with EIL. As of the balance sheet date, balances of NIS 0.9 million
($0.2 million) have not yet been transferred to the Company.C.
    
    Abroad:The obligations of foreign subsidiaries in respect of severance-pay to their respective
employees, in terms of the laws of their respective countries of residence, and various valid
labor agreements are generally covered by ordinary payments executed to that end to
governmental institutions, as well as by current payments to insurance companies for pension
benefits and by the balance-sheet accrual.
 - 70 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  INCOME TAXES
 A.
    
    Composition:
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Current
    
    
    459
    
    
    
    1,847
    
    
    
    3,495
    
    
    
    108Deferred
    
    
    334
    
    
    
    607
    
    
    
    12,516
    
    
    
    79In respect of prior years
    
    
    4,429
    
    
    
    5,344
    
    
    
    (207
    )
    
    
    1,0485,222
    
    
    
    7,798
    
    
    
    15,804
    
    
    
    1,235
 B.
    
    Principle tax laws applicable to the major Group companies in their country of residence:
 (1)
    
    Israel
 a.
    
    The Company and its Israeli subsidiaries are subject to income tax
under the provisions of the Income Tax Law (Inflationary Adjustments), 1985, which
introduced the concept of measuring results for tax purposes on a real basis.
Corporate tax rate applicable to companies in Israel in 2006 is 31% which will
gradually decrease from 29% in 2007 through 25% in 2010.b.
    
    As from January 1, 2003, certain statutory provisions came into force
and effect, concerning, among other things, the tax reform in Israel in respect of
the following:
 1.
    (a)
    Taxation of profits of foreign companies considered as
Controlled Foreign Companies (CFC), if: (i) majority of revenues thereof
are passive, as same is defined by law, or majority of profits thereof derive
from passive revenues; (ii) the tax rate applying to the passive profits
thereof in their country of residence does not exceed 20%; and (iii) over 50%
of the means of control therein are held, directly or indirectly, by Israeli
residents. In accordance with the statutory provisions, a controlling
shareholder in those companies having unpaid profits, as same is defined by
law, is deemed to have been distributed with a dividend representing its
respective share in such profits (Notional Dividend). A Notional Dividend,
will be subject to a 25% tax rate, less withholding taxes which would have
been paid abroad in respect of such dividend, had it in fact been
distributed. The provisions of the CFC will not apply to foreign companies,
which at least 30% of their share capital is registered for trade in a
recognized stock exchange.(b)
    Taxation at a rate of 25% of a dividend
received in Israel, out of profits generated or accrued abroad, as well
as a dividend originating abroad.
 Each Israeli assessee has the right to elect, at its sole discretion, to be
assessed according to the Israeli corporate tax rate less taxes actually
paid abroad in respect of such profits.2.
    
    Capital gain tax from the realization of assets at a
reduced rate of 25%. The reduced rate is to apply to realization of assets,
which were acquired after January 1, 2003 and thereafter, and will be
calculated for the portion of the gain relating to the period subsequent to
this date through realization.3.
    
    Method of loss offsetting  regarding business losses,
capital losses, passive losses and CFC losses.
 - 71 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  INCOME TAXES (CONT.)
 B.
    
    Principle tax laws applicable to the major Group companies in their country of residence
(Cont.):
 (1)
    
    Israel (cont.)
 c.
    
    During 2004, the Company, EIL and Elscint have finalized an arrangement
with the Israeli Tax Authorities, with effect from December 31, 2002, whereby a new
tax basis has been determined for the Companys investments (on a consolidated
basis) in foreign subsidiaries (Regulated Revaluation and Regulated Assets).
The arrangement provides for no additional tax to be imposed in Israel on gains
generated from the realization of Regulated Assets, and on dividends distributed
therefrom, and all up to the amount of the Regulated Revaluation.d.
    
    Insightec has been awarded the status of approved enterprise (AE)
pursuant to the Law for the Encouragement of Capital Investments  1959 (the
Law), in respect of an investment (which has been completed, through December 31,
2006), of $0.5 million (NIS 2.1 million). This law provides for tax-exemption on
undistributed income generated from the AE for a period of two years commencing the
first year in which the AE has taxable income, and provides also for a reduced tax
rate (25%) for the remaining five-year period. As at December 31, 2006, the benefit
period had not yet commenced.Insightecs benefit period is eligible for an increase from 7 to a 10-year period,
in the event the investment therein, of foreign residents (as defined by Law)
exceeds 25%. In the event such foreign residents investment exceeds 49%, then the
tax rate may decrease from a 25% rate to 10%-20%, depending on the level of
ownership by non-Israeli investors, in each relevant taxable year.The period of benefits to these AE are limited to the earlier of 12 years from the
commencement of production or 14 years following receipt of the approval document.
Scope of benefit is determined by the ratio of the additional sales revenues
during each benefited period over the sales revenue in the entire last year of
production prior to the activation of each program (adjusted for the change in the
wholesale-price index of the industrial output), divided by the total sales
revenues in each of the tax-benefit years.The benefits as abovementioned are subject to fulfillment of the conditions
stipulated in the Law, the regulations promulgated thereunder and the criteria set
forth in the certificates of approval. Failure to meet those conditions may lead
to the termination of the benefits and trigger a demand for reimbursement of the
amounts received (in whole or in part), with the addition of interest and linkage
difference. Change in the ownership structure of a company owning an AE, including
a public offering of over 49% or any private placement during the period of
execution of the approved investment program through the end of execution of the
period of benefits, is subject to the advance approval by the Investment Center.

In the event of a dividend distribution from tax-exempt earnings, the distributing
company would be subject to tax of up to 25%, while the distribution of earnings
of an AE as dividends would be taxable to the recipient at an additional rate of
15% (for a period of 12 years from the end of the benefit period).
 - 72 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  INCOME TAXES (CONT.)
 B.
    
    Principle tax laws applicable to the major Group companies in their country of residence
(Cont.):
 (2)
    
    USAUS tax laws set limitations on the utilization of carry-forward tax losses in companies
that have undergone a material change in ownership. Accordingly, should the transfer of
the Companys shares to EIL (in 1999) be defined as a material change in ownership of
Elscint, then the ability to utilize the accumulated tax-losses of a US subsidiary
against future income will be considerably limited. Management is of the opinion that
there will be no limitation to the utilization of the carry  forward losses. As of
December 31, 2006 the accumulated carry-forward losses utilized against current profits
amount to approximately $10.5 million (NIS 44.3 million). No deferred income tax assets
have been recorded in respect of the unutilized balance of the carry-forward losses.(3)
    
    The Netherlands
 a.
    
    Companies resident in the Netherlands are subject to corporate income
tax at the general rate of 29.6% for the fiscal year of 2006. Commencing 2007 the
general corporate income tax rate has been reduced to 25.5%. Under the amended
rules effective January 1 2007 tax losses may be carried forward and set of against
income of the immediately preceding tax year and the 9 subsequent tax years.
Transitional rules apply for tax losses on account of tax years up through 2002
which may be carried forward and set of against income up through 2011.b.
    
    Under the participation exemption rules, income including dividends,
capital gains and capital losses derived by Netherlands companies in respect of
qualifying investments in the nominal paid up share capital of resident or non
resident investee companies, are exempt from Netherlands corporate income tax
provided the conditions as set under these rules have been satisfied. The
participation exemption rules and more particularly the statutory conditions
thereunder have been amended with effect of January 1, 2007. Such amended
conditions require, among others, a minimum percentage ownership interest in the
investee company and require the investee company to satisfy either of, or both the
newly introduced assets  test and the amended subject to tax  test.c.
    
    Dividend distributions from a Netherlands company to qualifying Israeli
corporate shareholders holding at least 25% of the shares of such Netherlands
company is subject to withholding tax at a rate of 5% provided certain compliance
related formalities have been satisfied. In other situations, dividend
distributions from Netherlands companies to Israeli shareholders are subject to
withholding tax at a rate of 15%.
 (4)
    
    England
 a.
    
    Operating income and capital gains generated by the British resident
group companies are subject to a 30% tax rate. Dividends received from a U.K.
resident company are taxed in accordance with the jurisdiction of the company
receiving the dividend (in the Netherlands  tax exempt); No tax credits are
allowed for distributed dividends.b.
    
    Net rental income from real estate held as an investment and let in the
U.K. by companies not resident in the U.K., are charged to U.K. income tax at 22%.
Any gains on disposal are not taxable in the U.K.
 - 73 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  INCOME TAXES (CONT.)
 B.
    
    Principle tax laws applicable to the major Group companies in their country of residence
(Cont.):
 (5)
    
    RomaniaThrough December 31, 2004, the corporate income tax rate for resident companies and
non-resident entities with a permanent establishment in Romania is 25% (including
capital gains). Commencing 2005, the tax rate has been reduced to 16%. Dividends paid to
resident and non-resident corporations are subject to a final withholding tax of 15%
(commencing 2006  16%), unless lower double taxation treaty rates apply. Losses may be
offset against taxable income for a period of five years from the incurrence year-end.(6)
    
    HungaryThe corporation tax rate imposed on the income of the subsidiaries incorporated in
Hungary is 16%. Commencing 2007, capital gain are exempted from corporate income tax
provided that certain criteria is fulfilled. A special solidarity tax is levied on
companies as from September 1, 2006, being 4% of the modified accounting profit as
determined by law. Dividends, interest, royalty paid out to companies are not subject to
withholding tax. Losses in the first three years of operation can be carried forward
without limitation. Losses incurred until 2004 can be carried forward for the period of
five years, subject to certain limitations. Losses incurred in 2005 and thereafter, may
be carried forward indefinitely, subject to certain limitations.(7)
    
    PolandThe corporate tax applicable to income of Polish subsidiaries (including capital gains)
is 19%. Dividends paid out of these profits are subject to an additional (final) tax
rate of 19%, subject to the relevant double taxation treaty. Distribution of dividend of
Polish subsidiary to Dutch parent company, holding at least 50% of shares for a period
of at least 2 years, is exempt from withholding tax. Losses may be offset against
taxable income over a 5 year period, subject to a maximum annual utilization of up to
50% of the accumulated loss from each particular tax year.(8)
    
    IndiaThe corporate income tax applicable to the income of Indian subsidiaries is 33.6% with a
minimum alternative tax of 11.2% on the accounting profits if the company does not have
tax profits. The paid amount will be credited if the company has taxable profits in the
following five years. Capital gains on sale of fixed assets and real estate assets are
taxed at the rate of 21% provided that they were held at least 36 month prior to the
sale thereof or 33.6% if they were held less than 36 month. Capital gains taxes on the
sale of shares by an Indian company are ranging from 10.4% up to 41.8% dependant on the
nature of the assets sold and the time it was held prior to the sale thereof. Dividends
paid out of these profits are taxed at an additional 14%. Dividends distribution from
India to Israel or Cyprus is exempt from withholding tax. Losses can be offset against
taxable income for a period of eight years from the incurrence years end.
 - 74 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  INCOME TAXES (CONT.)
 B.
    
    Principle tax laws applicable to the major Group companies in their country of residence
(Cont.):
 (9)
    
    CyprusThe taxation of companies incorporated in Cyprus is based on tax residence and all
companies are taxed at the rate of 10%. A special levy of 10% is imposed on interest
received and deemed interest income in certain cases. Dividend income and profits from
the sale of shares and other titles of companies are exempt from taxation. There is no
withholding tax on payments of dividends to non-resident shareholders or shareholders
that are companies resident in Cyprus. Payments of dividend to shareholders that are
physical persons resident in Cyprus are subject to a 15% withholding tax. Companies,
which do not distribute 70% of their profits after tax, as defined by the relevant tax
law within two years after the end of the relevant tax year, will be deemed to have
distributed as dividends 70% of these profits. A special levy at 115% will be payable on
such deemed dividends to the extent that the shareholders (companies and individuals)
are Cyprus tax residents. The amount of deemed distribution is reduced by any actual
dividends paid out of the profits of the relevant year during the following two years.
This special levy is payable for the account of the shareholders.
 C.
    
    Effective tax rate:The following is a reconciliation between the income tax expense computed on the pretax income
at the ordinary tax rates (the theoretical tax) and the tax amount included in the
consolidated statement of operations:
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    
    US$000Companys statutory tax rate (%)
    
    
    31
    
    
    
    34
    
    
    
    35
    
    
    
    31Income before income taxes
    
    
    521,011
    
    
    
    14,465
    
    
    
    24,893
    
    
    
    123,315The theoretical tax
    
    
    161,513
    
    
    
    4,918
    
    
    
    8,712
    
    
    
    38,228Differences in tax burden in respect of:Utilization of prior-year losses for
which deferred taxes had not
previously been recorded
    
    
    (13,001
    )
    
    
    (49,556
    )
    
    
    (25,213
    )
    
    
    (3,077
    )Losses and other timing differences
for which deferred taxes had not been
created
    
    
    93,099
    
    
    
    102,066
    
    
    
    77,764
    
    
    
    22,035Variances from different measurement
principles applied for the financial
statements and those applied for
income tax purposes (including
exchange differences)
    
    
    (10,883
    )
    
    
    (24,943
    )
    
    
    (15,763
    )
    
    
    (2,576
    )Differences in tax rates on income of
foreign subsidiaries
    
    
    3,197
    
    
    
    4,442
    
    
    
    (11,143
    )
    
    
    757Adjustment due to changes in tax rate
    
    
    
    
    
    
    728
    
    
    
    (1,992
    )
    
    
    The Companys share in results of
associated companies
    
    
    2,996
    
    
    
    4,089
    
    
    
    5,589
    
    
    
    709Taxes for prior years
    
    
    4,429
    
    
    
    5,344
    
    
    
    (207
    )
    
    
    1,048Other differences, net (1)
    
    
    (236,128
    )
    
    
    (39,290
    )
    
    
    (21,943
    )
    
    
    (55,889
    )5,222
    
    
    
    7,798
    
    
    
    15,804
    
    
    
    1,235
 
 (1)
    
    Mainly tax-exempt income and non-deductible expenses. - 75 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  INCOME TAXES (CONT.)
 D.
    
    Carryforward losses and deductions:As of December 31, 2006 the Group companies had accumulated tax losses and deductions
amounting to NIS 1,025 million ($242.6 million), which may be utilized in the coming years
against taxable income at rates ranging from 16% to 31% depending on the country of residence.
The realization of the carry-forward losses is subject to taxable income available in those
periods when these losses are deductible.Computation of said carry-forward taxable losses includes Insightecs losses in an aggregate
amount of NIS 203.0 million ($48.0 million). Insightecs management estimates that its income,
throughout the utilization period of said losses, will be tax-exempt, hence no tax benefits
are expected in respect of these losses, in the foreseeable future. As to the limitation on
utilizing Insightecs losses as a result of a merger pursuant to section 103 of the Income Tax
Ordinance, at the amount of NIS 97.0 million ($23.0 million)  see Note 9B.(2)h.Hungarian, Polish, Romanian, Netherland and Indian tax laws have set a time limitation on the
utilization of losses (see B.(3) and B.(5) to (8) above). Accordingly, the right to utilize
carry-forward losses in the amount of NIS 39.1 million ($9.2 million), against taxable income,
will gradually expire over the following years:
 December 31, 2006ReportedConveniencetranslation(in thousand NIS)
    
    US$0002007
    
    
    3,828
    
    
    
    9062008
    
    
    5,681
    
    
    
    1,3452009
    
    
    4,318
    
    
    
    1,0222010
    
    
    12,984
    
    
    
    3,0732011
    
    
    12,251
    
    
    
    2,89939,062
    
    
    
    9,245
 E.
    
    Deferred taxes in respect of non-monetary assets:Deferred taxes, not recorded in respect of net book value of assets which were acquired prior
to December 31, 2004 and for which depreciation is not deductible for tax purposes (for which
it was determined not to record deferred income taxes), amounted as at December 31, 2006, to
approximately NIS 21.1 million ($5.0 million).
 - 76 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16  INCOME TAXES (CONT.)
 F.      Deferred income taxes:
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Accelerated depreciation differences in
respect of fixed assets
    
    
    (2,956
    )
    
    
    21,602
    
    
    
    (700
    )Difference between fair value of real
estate at acquisition and related cost
for income tax purposes
    
    
    11,526
    
    
    
    14,094
    
    
    
    2,728Timing differences  income and expenses
    
    
    (3,645
    )
    
    
    (6,860
    )
    
    
    (863
    )Carryforward tax losses and deductions
    
    
    (267,832
    )
    
    
    (212,056
    )
    
    
    (63,392
    )(262,907
    )
    
    
    (183,220
    )
    
    
    (62,227
    )Valuation allowance
    
    
    299,337
    
    
    
    216,792
    
    
    
    70,849Total (*)
    
    
    36,430
    
    
    
    33,572
    
    
    
    8,622(*) Presented among:Long-term liabilities
    
    
    41,427
    
    
    
    39,928
    
    
    
    9,805Long-term receivables
    
    
    (4,997
    )
    
    
    (6,356
    )
    
    
    (1,183
    )36,430
    
    
    
    33,572
    
    
    
    8,622
 G.
    
    Final tax assessments:The Company, Elscint and certain Israeli subsidiaries have received final tax assessments,
some through 2002 and others by 2003. Certain foreign group companies have received final tax
assessments while others have not been assessed since incorporation.In 2005 the Company and Elscint (each of them separately) agreed with the Israeli Tax
Authorities on final tax assessments for the years 1999 through 2002 (the Company  through
2003), the outcome of which has resulted in (i) an aggregate decrease in the carry-forward
losses, in the amount of NIS 267.0 million, in respect of which a full valuation allowance
was previously recorded; (ii) an amount of NIS 35.0 million business losses which were charged
into capital losses; and (iii) an additional payment by Elscint of NIS 5.0 million for which a
provision has been previously recorded.
 - 77 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS
 A.
    
    Commitments
 (1)
    a.
    The Companys hotels (located in the Netherlands, Belgium and England) are
managed by Park Plaza Hotel Europe B.V. (Management Company), in consideration for an
annual fee of 2% of the room revenue (Base fee) as well as 7% of the gross operating
profit (Incentive fee) as defined in the agreements. The companies owning the hotels
also participate in certain portions of the expenses incurred by the Management Company
in the course of performance of its due obligations, up to 3% of the gross operating
profit. Upon a sale of any hotel or the transfer of control therein to a third party, the
companies owning the respective hotel are obliged to pay to the Management Company an
amount equal to the Base fee, the Incentive fee and the Franchise fee (see sub-section b.
below) paid to the Management Company in the 12 months period preceding such sale or
transfer. In the specific event of a sale of the Victoria Hotel in Amsterdam, the
Management Company shall also be entitled to receive 2.5% of any profit generated from
such a sale.The Management Company is vested with ownership rights at a rate of 5% or 10%
(excluding voting rights), as the case may be, in several corporations owning
hotels which are held by B.H. jointly with Red Sea Hotels Group (RSG).b.
    Within the terms of the management agreements, B.H. Group companies
(the Companies) were granted a sub-franchise by the Management Company allowing
them the utilization, throughout the term of the management agreements, of the
Park Plaza name, in relation to the hotels owned and operated thereby, in
consideration for royalties not exceeding 1.5% of the room revenues (Franchise
fee).c.
    Two Group companies have agreed with the Rezidor group (Operator), on
the future management of two hotels, currently under construction and/or renovation
(the National Ballet Building in Hungary that is intended to operate under the
Regent brand name and the Bucuresti hotel in Bucharest that is planned to operate
under the brand name Radisson SAS). The 20 year management period shall commence
once construction and/or renovation is completed. The managing company undertook
within the framework of the management agreements, to guarantee that the adjusted
operating income will not decrease below a fixed annual amount, as stipulated in
the agreements. The total aggregate amount of the guarantee will not, however,
exceed, cumulatively during the term of the agreements, those amounts as stipulated
in the agreements. Under the management agreement relating to the Bucuresti hotel,
the hotel owning company has undertaken to ensure that the aggregate fees payable
to the Operator (base fees and incentive fees) shall not be less than certain
agreed amounts as specified in the management agreement, provided that the owning
companys obligation in this regard is capped at a total agreed amount.
 (2)
    
    A former subsidiary of PC incorporated in Prague, Czech Rep. (Bestes), which was
sold in June 2006 (see Note 9B (3) e) is a party to an agreement with a third party
(Lessee), for the lease of commercial areas in a center constructed on property owned
thereby, for a period of 30 years, with an option to extend the lease period by
additional 30 years, in consideration for 6.9 million (NIS 38.4 million; $9.1 million).
Through June 30, 2006 the whole 6.9 million (NIS 38.4 million; $9.1 million) was paid to
PC. According to the lease agreement, the Lessee has the right to terminate the lease
subject to fulfillment of certain conditions as stipulated in the agreement. Within the
framework of the agreement for the sale of Bestes to Klepierre on June 30, 2006, PC will
remain liable to Klepierre in case the Lessee terminates its contract in certain
conditions. PCs management is of the opinion that this commitment will not result in any
material amount due to be paid by it.
 - 78 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 A.
    
    Commitments (Cont.)
 (3)
    
    The Company and/or its subsidiaries are bound by the following agreements, with
Control Centers Ltd. (CC) and/or companies controlled thereby:
 a.
    
    A framework agreement to provide coordination, planning and supervision
services over projects for the construction of commercial centers, the initiation
of which began during the term of the agreement (through December 31, 2002), in
consideration of 5% of the actual execution costs of each project (excluding land
acquisition costs, general and administrative expenses and financing costs),
payable according to milestones stipulated in the specific agreement for each
project. Additionally, CC will be entitled to reimbursement of reasonable expenses
directly incurred thereby for fees of external consultants required for the
provision of the services and the like, at an amount not to exceed $50,000 per
project.b.
    
    A framework agreement according to which the Company will receive from
CC (either directly or through its subsidiaries or affiliates) coordination,
planning, execution and supervision services (the Services) over real estate
projects of the Company and/or its subsidiaries and/or affiliates in consideration
for a fee equal to 5% of the actual execution costs (excluding land acquisition
costs, financing cost and the consideration for CC under the agreement)of each such
project (Supervision Fees). The agreement applies to real estate projects whose
initiation began following the approval of the agreement by the Companys
shareholders (i.e.: May 31, 2006) and to three other real estate projects which
were under early stage of development as of May 31, 2006 (Real Estate Projects).Supervision Fees are to be paid in installments upon the attainment of certain
milestones. In addition, the Company will reimburse CC for all reasonable costs
incurred in connection with the services rendered thereby, not to exceed a total
of 75,000 per Real Estate Project.

If the purpose of a Real Estate Project is changed for any reason prior to the
completion of the project or if the development of the Real Estate Project is
terminated for any reason (including the sale of the Real Estate Project), the
payment to CC will be calculated as a percentage of the budget for the project and
provided that such percentage shall not exceed the percentage determined for the
next milestone of the project had it had continued as planned. The calculation of
such payments to CC will be subject to the approval of an external accountant and
the Companys Audit Committee and Board of Directors.In addition, the Company and/or its subsidiaries and/or affiliates may also
purchase from CC through Jet Link Ltd. up to 125 flight hours per calendar year in
consideration for payments to Jet Link Ltd. in accordance with its price list
deducted by a 5% discount. This agreement does not derogate from a previous
agreement entered into between the Company and Jet Link Ltd. for the purchase by
the Company of aviation services (see Item c. below).These agreements entered into effect upon their approval by the Companys
shareholders meeting and shall remain in effect for a five year term (May 2010).c.
    
    An agreement with Jet Link Ltd., (a company controlled by CC) for the
provision of aviation services, (up to 150 flight hours per annum) for the
operations, in connection with projects abroad, in consideration for payment
calculated on the basis of the price list of Jet Link Ltd., deducted by a 5%
discount. Due to our increasing business needs, the Company purchased during 2006,
2005 and 2004 certain additional flight hours from Jet Link under the same terms
stipulated in the agreement. The purchase of the additional flight hours was
approved by the Audit Committee and the Board of Directors as a non-extraordinary
transaction within the meaning of the Israeli Companies Law.
 - 79 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 A.
    
    Commitments (Cont.)
 (4)
    
    In 2005 Insightec entered into a worldwide distribution and sale representation
agreement with GE Healthcare (a part of GE group), granting GE Healthcare the exclusive
worldwide distribution rights to market and promote Insightecs product subject to the
achievement of minimum sales targets, except in territories where Insightec already has
existing distributors and representatives. In accordance with the terms of the agreement,
Insightec shall pay to GE Healthcare a commission calculated as percentage of the net
sales and actual payments received by Insightec for each order for the sale of products
from an end-user in the Territory, attributed to GE Healthcares activities. Insightec
retains the right to promote, market and sell its products to end-users directly, through
its employees. The agreement is for five years, unless earlier terminated in accordance
with the terms of the agreement. Thereafter the agreement shall automatically extended
for one additional year, unless either party provides a written notice of its intent to
terminate the agreement.Insightec was commited to pay MTA (a shareholder thereof) a success fee commission of 2%
of the value of any signed purchase order, for which MTA was involved. In March 2006
Insightec notified MTA that it is terminating the agreement effective April 1, 2006.(5)
    
    Insightec is obliged to pay royalties to the Israeli Office of the Chief Scientist
(OCS)  in respect of products, the development of which was funded by grants provided
by the OCS  at a rate of 3% of revenues, for the initial three years through the end of
2006 and 3.5% of revenues as and from 2007 and up to the amount of the grants received.
Total grants received through December 31, 2006, net of royalties paid or accrued, amount
to $12.4 million (NIS 52.4 million).(6)
    
    In accordance with an engagement between Bucuresti and Control Centers wholly
owned subsidiary (CCS), which was approved at the shareholders meeting of Elscint.,
CCS provides coordination, planning and supervision services with respect to the
renovation works of the Bucuresti Hotel complex, for a fee equal to the lower of (i) 5%
of total actual costs of the renovation works (excluding general and administrative as
well as financing costs); and (ii) 5% of $30 million. A definitive agreement has not been
executed in respect of such engagement.(7)
    
    In 2001, the Elezra Group won the right to
purchase, through privatization, the shares of the state owned Afridar  Ashkelon Housing and Development Ltd. (Afridar).
The Elezra Group consists of Elezra Developments and Investments Ltd. (Elezra) and
Elbit Medical Holdings Ltd.  a subsidiary of the Company (Elbit Holdings), as well as
the Company and Mr. Eli Elezra as an interested party (altogether: the Group).
Immediately following the win of the right, the members of the Group signed a
principle-agreement so as to regulate and govern the relations thereof, according to
which Elezra would bear the entire acquisition costs of the Afridar shares (NIS 80
million), while the Company and/or Elbit Holdings would hold the Afridar shares, which
would be registered in their name, in trust for Elezra.Transfer of the shares among the members of the Group is subject to the approval of the
Israeli Governmental Companies Authority (IGCA). In the absence of such approval,
the Company and/or Elbit Holdings will remain the owners of the Afridar shares until such time
that the restriction on transfer thereof is lifted. Elbit Holdings
and Elezra would remain, under such circumstance, jointly and severally, liable to
IGCA as well as to the State of Israel for all undertakings applicable to
purchasers of Afridar shares. The sale of control in and to Afridar (directly or
indirectly) is contingent on the assignment to the purchaser of all sellers
obligations in favor of IGCA, all as stipulated in the agreement. Elezra undertook
to indemnify the Company and/or Elbit Holdings for any expense and/or damage and/or
claim and/or loss and/or payment demand and/or any other expense incurred by the
Company and/or Elbit Holdings in connection with the acquisition of the Afridar
shares, the
 holding of same in trust, transfer thereof by and between the parties
and the abovementioned principle-agreement. As of the date of approval of these
financial statements, the rights in and to Afridar, had not been
assigned. Companys management estimates that it is not exposed to any costs and/or
damage in respect of these holdings.
 - 80 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 A.
    
    Commitments (Cont.)
 (8)
    
    Currency transactions  see Note 23F., below.(9)
    
    Minimum future rental payments due under the Companys current operating leases
(see Note 10B. above) as of December 31, 2006 are as follows:
 ReportedConveniencetranslationYear ended December 31,
    
    (in thousand NIS)
    
    US$0002007
    
    
    23,793
    
    
    
    5,6322008
    
    
    24,473
    
    
    
    5,7922009
    
    
    23,673
    
    
    
    5,6032010
    
    
    22,304
    
    
    
    5,2792011
    
    
    20,022
    
    
    
    4,739Thereafter
    
    
    711,894
    
    
    
    168,496826,159
    
    
    
    195,541
 (10)
    
    Aggregate amount of commitments in respect of construction services totaled, as of
December 31, 2006, approximately NIS 581 million ($137 million).(11)
    
    PC is a party to an agreement with third parties, for the provision of manpower,
management, supervisory and logistical services, in exchange for a payment of a certain
commission.(12)
    
    Mango is a party to a distribution, support and service agreements signed in May
2005 with a third party for a 10-year period, subject to fulfillment of certain
conditions, which entitled it to market the brand name MANGO-MNGTMin the
territory of Israel. In the framework of the agreements Mango has furnished the third
party with a bank guarantee in the amount of 2.1 million (NIS 11.1 million; $2.6
million) in order to secure payments to the third party under the agreements.
 (13)
    (a)
    In October 2006 the Company and PC entered into services agreement, pursuant to
which the Company will provide PC with a legal and accounting services. The services are
to be provided by the Company for a period of 24 months, unless terminated earlier by PC,
at a cost to be agreed between the parties from time to time.(b)
    In October 2006, the Company and PC enterd into an agreement, pursuant
to which  with effect from 1 January 2006  PC will pay a commission to the
Company in respect of all and any outstanding corporate and first demand guarantees
which have been issued by the Company in favour of PC up to 0.5% of the amount or
value of the guarantee, per annum.
 (14)
    
    On October 13, 2006, the Company entered into an agreement with PC, under which the
Company obliged to offer to PC potential real estate development sites sourced by it in
India. These sites will be suitable for shopping and entertainment centers development
projects as well as mixed use projects (comprising offices, residential units, congress
centers and leisure facilities). The projects may also involve the acquisition and
renovation of existing shopping and entertainment centers. In Integrated Shopping Center
Projects, the shopping and entertainment center may not be the key element of the
project. Under the agreement, the Company is obliged to offer PC the exclusive right to
develop all of the shopping center projects which the Company acquires during the 15-year
term of the agreement. PC must, within 30 days of receiving the Companys offer, indicate
to the Company whether it wishes to accept or decline the offer. In respect of sites
acquired by PC, it has agreed to pay the
Company the cost of the site paid by the Company as well as direct costs, subject to a
cap of 5% of the cost of the site.
 - 81 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 A.
    
    Commitments (Cont.)
 (15)
    
    On December 11, 2006 the Company entered into an agreement with a third party for
the establishment of a joint venture company (JV) which will be engaged in
development, construction and operations of multi-specialty tertiary hospitals in India.
The first hospital in the chain will be located in Kolkata and it will include a 1,000
beds as well as ancillary services such as bio-tech research center, serviced apartment
for patients families, a medical mall, an alternative medicine center and nursing
training institute. The total built up area of the project is anticipated to
approximately 250,000 square meters.(16)
    
    In November 2006 the Company and Taya Communication Ltd. (Taya) through a Jointly
controlled company (JV company) signed an establishment agreement with a third party
group to establish a company (Business Channel Ltd.) which will establish T.V channel
that will focus on the business ,economic and law environment.The JV company share in the Business Channels equity and voting rights is 70%.

The JV company undertook to invest in the Business Channel the initial equity
investments up to an amount of $ 2.5 million (NIS 10.5 million) by means of share
capital, shareholder loans and guarantees (Initial Investment). It was further agreed
that should additional financing be required, the third party shareholder may either
participate pro-rata to its share, in such additional financing or its shareholdings in
the Business Channel be diluted. The agreement prohibits dividend distribution to the
Business Channels shareholders prior to the repayment of the Initial Investment and the
additional finance to the JV Company. The JV Company has a right of first refusal over
the shares held by the third party. In addition the agreement includes Tag Along Right
(subject to certain conditions) and a Drag Along Right.

The Company is currently in a process to terminate the said agreement.
 B.
    
    Claims
 (1)
    
    In November 1999, a number of institutional and other investors, holding shares in
Elscint, filed a lawsuit in the Haifa District Court against the Company, Elscint, EIL,
Control Centers and others. The plaintiffs also requested the certification of their
claim as a class action suit on behalf of all those who had held Elscint shares on
September 6, 1999, and continued to do so as at the filing date of the suit (excluding
the Company and certain other shareholders). The claim alleges discrimination against
Elscints minority shareholders arising from various transactions or activities carried
out by its controlling shareholders and directors, which allegedly caused them financial
loss, manifested by the 45% ($100.0 million) decline in the value of Elscints shares in
the period from February 24, 1999 to the claims filing date.The principal remedy requested in the claim is a court order instructing the Company to
carry out a tender offer of Elscints shares at $14.0 per share as the former allegedly
undertook, in its letter to Elscint of February 1999, or
alternatively, to purchase the shares in their possession, at a price to be determined by the court. As another
alternative, the plaintiffs requested the court to issue an injunction prohibiting
execution of the September 9, 1999 transactions (acquisition of the hotel operations and
the Arena commercial center in the Herzliya Marina, by Elscint, from EIL and Control
Centers, respectively) and the refund of all and any amounts paid thereunder. Part of
the remedies were requested as a derivative claim on behalf of Elscint.Although, the Haifa district court has rejected the class-action request, it allowed the
plaintiffs, notwithstanding so rejecting the request for class action proceedings, to
pursue their matter. In November 2001, the plaintiffs were granted leave to appeal on
such decision to the Israeli supreme court. On December 14, 2006 the supreme court
accepted the Plaintiffs appeal, ordering the district court to reconsider its decision
in the class-action request in light of the provisions of the Israeli Class Action Law
of 2006.Managements of the Company believes  based, inter alia, on legal opinions  that the
final outcome of this case cannot at this stage, be estimated.
 - 82 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 B.
    
    Claims (Cont.)
 (2)
    
    On September 6, 2006 the Company, Elscint, EIL, Control Center and others were
served with two lawsuits to the district court in Haifa. These statements of claim are a
virtually identical to the claim detailed in section1 (1) above and the Plaintiff
requested a joinder of the deliberation thereof and the deliberation of the said
proceeding. The Plaintiff also requested approval of his suit as a class action, although
to date, copies of the motions, if any, have not been served to the Company.In the first claim, the Plaintiff alleges acts of deprivation vis-à-vis the shareholders
of the Company and in the second one, the Plaintiff alleges acts of deprivation
vis-à-vis the shareholders of Elscint .The Plaintiff claims the continuing and
systematical deprivation of the minority shareholders in Elscint and in the Company,
which caused him financial damage and which, he claims, had its origins in Elscint
having executed unfair agreements for the realization of a substantial part of its
assets, continued in the concealing of information from the stock exchange and from the
public, the sale of control in Elscint to Mr. Zisser (the Controlling shareholder in the
Company and its Chairman of the Board) , the breach of the purchase offer which the
Company made to purchase the minority shares in Elscint and culminated in Elscint
entering into an agreement with Mr. Zisser for the sale of businesses whose value was
lower than the consideration amount received in respect thereof, as alleged by the
Plaintiff. The main relief petitioned in the claim is the relief of damages and it is
composed of punitive damages for the defendants acts and damages for mental harm to
the Plaintiff and to the group which he seeks to have approved as being representative.
In addition the Plaintiff claims damages for the difference between the price at which
the Elscint shares held by the Plaintiff and the members of the representative group
were in fact sold and the price of $14, plus interest and linkage from 1999 as well as
compensation for the damage to the value of his holdings in the Companys shares.

It is noted that the statements of claim in both proceedings require certain
clarifications, on account of the way in which they were worded.Management of the Company believes  based, inter alia, on legal opinions  that the
final outcome of this case cannot be estimated at this stage.(3)
    
    The Company, Elscint and others were served with a claim as well as a motion to
recognize same as a class-action, in respect of $158.0 million (NIS 668.0 million) damage
allegedly caused to the represented class. Underlying the claim is the contention that
the Company, through Elscints board of directors, caused damage to and discriminated
against minority shareholders of Elscint. Both parties agreed to postpone the hearing in
this case until the supreme court hands down a decision on the leave to appeal, as
detailed in section (1) above. Management, based on legal advice, is of the opinion that
it is not possible at this stage to estimate the outcome of the claim and the motion for
class-action recognition.(4)
    
    Elscint and its subsidiaries are parties to several court claims as well as certain
other written demands, filed against them by third parties (including governmental
institutions), some without any specified amount, and others in the aggregate principal
amount of $41.2 million (NIS 174.1 million), as royalties or compensation for damages
allegedly caused as a result of the companies actions and/or products, which mainly
relate to the medical imaging business sold by Elscint in 1998 and 1999. In respect of
certain claims, totaling approximately $5.1 million (NIS 21.5 million), managements of
the companies estimate, based on legal opinion and/or on past experience, that no
significant costs will incurre thereof as a result of said claims exceeding the
provisions included in respect thereof in the financial statements, and that such
provisions are adequate for covering the costs and resources required to settle the
liabilities arising therefrom. Elscints legal advisers cannot presently determine the
outcome of other written demands, totaling $35.1 million (NIS 148.3 million). Elscints
management believes that the prospects for realization of most such written demands are
remote, based on the time that has elapsed since serving said demand and on the nature
thereof. The companies have included in their financial statements provisions that are,
as per their managements discretion based inter alia on specific counsels advice and
past experience, adequate to cover the costs and resources required to settle the
liabilities under these written claims.
 - 83 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 B.
    
    Claims (Cont.)
 (5)
    a.
    On April 11, 2006, a claim was filed against Elscint, the Chairman of the Board
of Directors of Elscint, Elscints office holders and against companies controlled by
Elscint. The plaintiff requested the court to declare the former as the legal owner of
20% of Dominos shares, to enforce the MOU signed by the parties (see Note 9B.(4)a.) and
to order the defendants to pay damages in the amount of NIS 25.0 million ($5.9 million).
The defendants have filed their statement of defense in July 2006.In addition, the Court was requested to enforce the loan agreement between Domino
and the plaintiff, and to rule that Domino is required to pay it an amount of NIS
3.2 million ($ 0.8 million) in respect of this loan. Furthermore, the plaintiff
asked the court to instruct the defendants to take action, in order for the
plaintiff to sign an agreement with Bucuresti for the management of the apartment
hotel and to serve as a party to the agreement for the management of the China
Restaurant and additional assets of Bucuresti.Management of the Company believes  based, inter alia, on legal opinion that
there is good chance that the entire legal action, or the majority thereof, will
be denied.b.
    A claim and certain other proceedings are pending against Bucuresti,
which challenge its ownership in and to its properties. Management believes, based
inter-alia, on legal opinion that Bucuresti is expected to win in this claim.c.
    In mid 2005 certain individuals submitted their final appeal to the
Romanian supreme court requesting the nullification of the public tender for the
sale of the Bucuresti shares, the privatization contract and the transfer of the
Bucuresti shares to Domino. This case was ruled in favor of Domino in the previous
procedural stages (first instance and appeal) on technicalities, since the
application for the cancellation of the privatization contract was served after the
three months term during which any interested person could file an application for
the cancellation of the privatization. At a hearing held on January 25, 2006
Bucuresti has irrevocably won this case.d.
    In addition to the above, certain legal proceedings are being conducted
from time to time in Romania within the framework of which it is claimed that
resolutions passed at the general meetings of shareholders of Bucuresti, were not
validly adopted  for procedural reasons only  hence not binding. Some were
approved by the courts, in respect of which Domino has filed appeals, and others
were rejected.B.H.s management is of the opinion that the claims are provocative and
tendentious and will not significantly affect B.H.s rights in the shares of
Bucuresti and in the Bucuresti Complex, owned thereby.
 (6)
    
    Elscint is a formal party to a claim filed by a number of employees, holding shares
of Algotech (sold to a third party in November 2003), against the majority shareholder in
Algotech, in the framework of which the court issued an injunction precluding the
transfer of funds from Algotech to that shareholder. No remedies were requested against
Elscint and the injunction does not affect Elscints entitlement to the transfer of funds
which are to be received as proceeds of the sale. The Companys management estimates that
no significant costs will be incurred in respect of this claim.
 - 84 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 B.
    
    Claims (Cont.)
 (7)
    
    In March 2005, an action ( the Action) was instituted at the regional labor
court in Tel-Aviv-Jaffa by an employee of the EIL group (the Plaintiff) against the
Companys Chairman of the Board of Directors, Control Centers (the controlling
shareholder of the Company) and Vectory Investments Ltd., in terms of which, the Court
was requested to issue a declaratory order establishing the Plaintiffs entitlement to
14% of the shares of the companies specified in the statement of
claim  including: shares of the Company, Elscint, Insightec, Gamida, Olive, E.R. and Vcon  which are
directly or indirectly, owned and/or controlled by the defendants and/or by companies
under control thereof. The Court was further requested to order the transfer of such
14% to escrow.The plaintiff also filed, simultaneously, a motion to grant an interim injunction
prohibiting the defendants and/or any party on their behalf, from making any change to
and/or transfer and/or assignment and/or pledge of and/or disposition
in 14% of the shares of those companies detailed in the motion. Underlying the claim is the contention
that the Plaintiffs rights under the statement of claim derive from agreements executed
by and between the Plaintiff and the defendant companies.On March 27, 2005, the labor court dismissed substantially all of the Plaintiffs
motion, in determining that the Plaintiff failed to evidence: (i) his prima facieright
to 14%, as he claimed; (ii) his entitlement to rights in and to companies aside from
those directly invested by EIL; (iii) his right to shares in the Company, Elscint,
Insightec and in Gamida.After the above Action was erased at the request of the Plaintiff, the Plaintiff filed
in October 2005, an additional lawsuit in Tel-Aviv-Jaffa against Vectory. The Plaintiff
requested the court to issue a mandatory injunction against Vectory ordering it to
transfer the Plaintiff shares of the companies specified in the statement of claim -
including 2,500 shares of the Company, 1,000 shares of Elscint, 1,250 shares of
Insightec, 1,500 shares of Gamida, 2,000 shares of E.R, 2,000 shares of Olive and shares
of other companies within the EIL Group. The Plaintiff evaluated his claim to an
aggregate amount of NIS 285,000.Underlying the claim is the contention that the Plaintiffs rights under the statement
of claim derive from an agreement executed in 1998 by and between the Plaintiff and
Vectory. This Agreement was terminated by Vectory due to different breaches of the
agreement made by the Plaintiff. It should be noted that the conclusions made by the
court in the framework of the provisional proceedings of the above previous claim, sided
with Vectorys interpretation of the agreement. In January 2006 Vectory filed a
statement of defense in respect of this claim.Vectory is of the opinion that this claim, insofar as it relates to the Company and/or
to its subsidiaries as included in the claim, is provocative, fundamentally, unfounded
and groundless (both with respect to the number of the companies in which rights are
sought and with respect to the scope of rights claimed) and that it will not materially
affect its rights in the Company and its subsidiaries. However, the defendants legal
counsels cannot, at this early stage, estimate the outcome of the claim.Although the Company and its subsidiaries are not parties to the claim, its outcome may
nevertheless indirectly affect the nature and scope of their rights in their investee
companies. No adjustments were made in these financial statements in respect of these
claims which may be required, should it be sustained, in full or in part.
 - 85 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 B.
    
    Claims (Cont.)
 (7)
    
    (Cont.)On May 25, 2006, the Plaintiff filed an additional lawsuit against the Company, its
Chairman of the Board and/or Control Centers and/or the Companys board members and/or
the management companies related to the Companys Chairman of the Board and Control
Centers, requesting the court to state the annulment of any decision made by the Company
for granting of any benefits to the Chairman of the Board and/or
Control Centers using shares subject to the plaintiffs claims. Alternatively, the Plaintiff requested the
court to determine that the plaintiffs claimed rights to the Companys shares will be
taken into account as an opposing side to any decision made in any general meetings of
the Company, while reserving the Plaintiffs rights to take legal proceedings to prevent
infringement of his rights as a minority shareholder in the company. Alternatively, the
Plaintiff requested the court to determine that in every general meeting that convened
for determining the above stated decisions, the Plaintiffs claimed rights to the
Companys shares will not be considered as taking any side in the decisions, while
reserving his above legal rights.Management, based on a legal advice received, is of the opinion that it is not possible
at this early stage to estimate the outcome of the claim.A mediation proceeding between the Plaintiffs and the Defendants is currently being
conducted. Pending the conclusion of the mediation proceeding, all of proceedings
between the parties in the legal action were stayed.(8)
    
    Elscint Bio Medical Ltd. (Bio) was bound by agreements with a company controlled
by its former CEO (the CEO), entitling the CEO to shares representing 2% of Bios
issued and paid-up capital, in consideration for their nominal value. It was also
provided that venture capital investments of Bio would be carried out such that Bio would
invest 92% and the CEO  8%, and that for the purpose of financing the CEOs investment,
Bio would grant him a dollar-linked non-recourse loan bearing LIBOR+1% interest. It was
further provided that should this agreement (or another agreement between them for the
provision of consulting services) be canceled, Bio would be entitled, according to the
conditions specified in the agreement, to acquire all or any of the CEOs holdings in the
venture capital investments and in Bio at cost and/or at market value, as relevant
(depending on the purchase date). In 2002, Bio and the CEO terminated the employment
agreement then existing between them. Further to the termination of the agreement,
Elscint transferred to itself the CEOs rights in Bio and in the venture capital
investments (mainly in Gamida), as payment for the loans, which it had provided to the
CEO for acquisition thereof. A dispute arose between the parties, with the CEO contending
that Bio had lost its right to acquire his holdings, as aforesaid, since the deadline,
according to the agreement, for giving notice of its intention in this regard had
expired. Bios management disputes this contention and is acting to realize its rights
under the agreement. The parties have not yet signed a full and final agreement for the
waiver and/or settlement of their mutual claims. The Companys management estimates that,
it will not incur significant costs from the termination of the agreements, beyond those
reflected in the financial statements.(9)
    
    In December 2005, Elscint was served with a statement of a claim by Elscints
former employee (in connection with Elscints discontinuing operation) requesting that
Elscint compensates him for damages resulting from his cancer disease, allegedly caused
by exposure to radiation in the amount of NIS 315,000 ($75,000) and other undefined
compensation. The insurance company rejected its liability and claimed that such
radiation is excluded from the policy. Elscint has approached a radiation expert to
receive an expert opinion. A statement of defense was submitted and a third party notice
to the insurance company has not yet been filed. Management of the Company, based inter
aliaon legal opinion received, believes that the potential financial consequences of
this claim can not be estimated at this early stage.
 - 86 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 B.
    
    Claims (Cont.)
 (10)
    
    On April 5, 2006 the Company and PC were served with a summary procedure claim by
a third party in term of which, the court was requested to order the Company and PC to
pay the plaintiff an amount of NIS 10.8 million ($2.6 million) as an intermediary fee for
the sale by PC to Klepierre of commercial centers in Poland and the Czech Republic (see
Note 9B. (3)e.)The Company and PC filed a motion to strike out this claim in limine or alternatively to
strike out the title summary procedure. In a ruling handed down in July 2006, the
heading summary procedure was deleted and accordingly both the Company and PC filed
their statements of defense.

Management of the Company believes, based on a legal advice received, that there is a
good chance that the entire legal action against the Company, or the majority thereof,
will be denied. PCs management believes, based on legal advice received, that there is
a fairly good chance that the entire legal action against it or the majority thereof,
will be denied.(11)
    
    The Company and its subsidiaries are currently involved in various legal proceeding
relating to their ordinary course of activities. Although the final outcome of these
claims cannot be estimated at this time, the managements of these companies believe based
on legal advice, that the claims will not materially impact the Group companies.
 C.
    
    Other contingent liabilities
 (1)
    
    The General Meeting of the Companys shareholders approved the grant of prospective
indemnification undertaking to directors and officers (including in their capacity as
officers of subsidiaries). Total indemnification shall not exceed the lower of 25% of the
shareholders equity as recorded in the Companys financial statements as at the
indemnification or $40.0 million, and all in addition to amounts, if any, which are to be
paid by insurance companies under certain risk policies. The General Meeting also
approved an exemption of directors and officers (other than controlling parties) from
liability for any damage caused by breach of a duty of towards the Company.(2)
    
    Elscints shareholders approved in their General Meeting, the grant of prospective
indemnification undertaking to directors and officers of Elscint (including in their
capacity as officers of subsidiaries). Total indemnification shall not exceed the lower
of 25% of the shareholders equity as recorded in Elscints financial statements as at
the indemnification or $50.0 million, and all in addition to amounts, if any, which are
to be paid by insurance companies under certain risk policies. The General Meeting also
approved an exemption of directors and officers from liability in respect of any damage
caused to Elscint by breach of duty of care.
 - 87-




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 C.
    
    Other contingent liabilities (cont.)
 (3)
    
    (i)The Company received, in 2003, a letter from a certain insurer (the
Insurer) of EIL, Elscint and the Company (the Insured Companies), which insured
against, inter alia, the lawsuit as described in item B(1) above, alleging against the
Insured Companies, inter alia, that the Insured Companies have breached their disclosure
duties under Section 6(a) to the Insurance Contract Law 1981, by failing to disclose to
the Insurer material information prior to the issuance of additional cover to the policy
purchased by EIL (the Policy), effective as of July 1999 (the Additional Cover), and
prior to the replacement of the Policy and the Additional Cover by the issuance of a new
policy effective as of August 1999 (the Replacement Cover). The letter states that the
Policy, Additional Cover and Replacement Cover (the Insurance Cover) issued by the
Insurer will be cancelled unless the Insured Companies indicate that circumstances as at
the issuance of the Insurance Cover differ from those stated in the letter. The
Companys legal counsel replied on behalf of the Insured Companies on March 20, 2003,
rejecting all allegations. As of the approval of these financial statements the Company
has not received any reply thereto from the Insurer.(ii)
    
    In January 2006, the Company and Elscint entered into an agreement with
one of the insurers of both the Company and Elscint which insured the Company and
Elscint, inter alia, with respect to the lawsuit described in item B(1) above. In
accordance with the terms of the agreement the Company, Elscint and their former
and current directors and officers released the insurer from all liabilities that
will arise from the abovementioned claim in consideration for a one-time payment in
the amount of $0.2 million.
 (4)
    
    In the framework of the transactions for the sale of the Companys real estate
assets and investments as described in Note 9B, the Company and/or its subsidiaries took
upon themselves to indemnify the Purchasers for any losses incurred in connection with
the sale transactions. The liabilities are either limited or unlimited in time. Some of
these liabilites are limited in amount and some are not.(5)
    
    Final approval for completion of construction of the Arena commercial center is
contingent on the furnishing, to the local municipality, of a bank guarantee to secure
payment of the land betterment tax, for an amount of approximately NIS 4.5 million ($1.1
million). Arbitration is currently being held as to such liability between Marina
Herzliya Limited Partnership Ltd. (of the Control Centers Group) and the local
municipality. The Companys management estimates, based on professional opinion that no
significant costs will be borne thereby, in respect of this guarantee.(6)
    
    As for guarantee issued in favour of Klepierre  see Note 9B.(3)e.(7)
    
    PC is obliged to indemnify its directors (including Pcs directors who serves as
directors of the Company) against any liability incurred by them in the discharge of
their duties by the maximum amount permitted by the English Law. The indemnification in
respect of the Companys directors is subject to the approval of the Companys Audit
Committee, Board of directors and the shareholders meeting.
 - 88 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 D.
    
    Liens and collateral
 (1)
    a.
    As security for a loan of NIS 271 million ($64.1 million) granted to the Company
by an Israeli bank, the Company undertook to comply with financial covenants, including,
among other, an undertaking to maintain throughout the term of credit a minimum ratio of
adjusted shareholders equity of the Company to its adjusted balance sheet, all as
defined in the agreement. The Company also committed to a minimum net operating profit,
before financial expenses and before depreciation and amortization deductions. The
Company further committed to a minimum net asset value of PC (after deduction of loans,
including shareholders loans) which is to be determined by an external appraiser. The
covenants will remain in full force and effect for as long as the credit provided by the
bank to the Company or to EIL exceeds $ 30.0 million (NIS 126.7 million).The Company also undertook not to pledge, in favor of third parties, any existing
and prospective assets, without the banks prior consent (excluding pledges of new
assets and/or projects granted in favor of those who financed or refinanced -the
acquisition and/or execution of same). The Company further undertook to provide
under certain circumstances, some additional securities as detailed in the
agreement, including a secondary lien on assets and interests acquired through
funds provided by the credit line.Should the Company fail to comply with all or any of said financial covenants, or
upon the occurrence of an event of default (including failure to provide the
additional securities), the bank shall then be entitled to demand the immediate
repayment of the loan.As for written understanding between the Company and the bank  see Note 14D.b.
    As security for loans totaling NIS 56 million ($13.2 million) granted
to the Company by another Israeli bank, the Company undertook, in favor thereof,
not to pledge the majority of its shares in Elscint, without the banks prior
consent.
 (2)
    
    As security of a long term credit facility of approximately NIS 159.2 million
($37.6 million) received from an Israeli bank, Elscint undertook to comply with certain
financial covenants, namely maintaining, throughout the duration of the credit, a minimum
ratio of shareholders equity to total balance sheet assets and others. Elscint has
registered, as a security for the credit, a first-ranking pledge in favor of the bank on
the B.H. shares and granted certain additional first and second ranking pledges on shares
of subsidiaries owned thereby. Elscint also undertook not to grant any floating or fixed
charges of any rank, on any existing and prospective assets, in favor of third parties,
without the banks prior consent (excluding pledges of assets and/or projects, granted in
favor of those who financed or refinanced -the acquisition and/or execution of same).
Elscint further undertook to provide additional collateral, as detailed in the agreement,
including first or second ranking pledges on assets and interests acquired by means of
the credit line, and all as may be required by the bank. Should Elscint fail to comply
with the financial covenant, or upon the occurrence of certain events of default, then
and in such events, the bank shall be entitled to demand immediate payment of the loans.
As for written understanding between Elscint and the bank  see Note 14E.
 - 89 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 D.
    
    Liens and collateral (Cont.)
 (3)
    
    Projects under credit facilities
 a.
    
    Certain Project Companies which engaged in the purchase, construction
or operation of hotels and/or commercial centers (Project Companies) have secured
their respective credit facilities awarded by financing banks, in a total amount of
NIS 1,712 million ($405.1 million), by providing the first or second ranking (fixed
or floating) charges on property owned thereby, including right in and to real
estate property as well as the financed projects, on goodwill and other intangible
assets, on rights pertaining to certain contracts (including lease, operation and
management agreements), on rights arising from insurance policies, and the like.
Shares of Project Companies were also pledged in favor of the financing banks.Shareholders loans as well as any other rights and/or interests of shareholders in
and to the Project Companies were subordinated to the respective credit
facilities. Payment is permitted to the shareholders (including the distribution
of dividends but excluding management fees) subject to fulfilling of certain
preconditions.Certain loan agreements include an undertaking to fulfill certain financial and
operational covenants throughout the duration of the credit, namely: achieving
certain operational milestones on certain specified dates (e.g. scope of lease,
etc.); complying with a minimum debt services cover ratio, loan outstanding
amount to secured assets value ratio; complying with certain restrictions on
interest rates; maintaining certain cash balances for current operations;
maintaining equity to project cost ratio and net profit to current banks debt;
occupancy percentage; average room or rental fee rates, a minimum ratio of total
room revenue per available rooms and others.The Project Companies undertook not to make any disposition in and to the secured
assets, not to sell, transfer or lease any substantial part of their assets
without the prior consent of the financing bank. In certain events the Project
Companies undertook not to allow, without the prior consent of the financing bank:
(i) any changes in and to the holding structure of the Project Companies nor to
allow for any change in their incorporation documents; (ii) execution of any
significant activities, including issuance of shares, related party transactions
and significant transactions not in the ordinary course of business; (iii) certain
changes to the scope of the project; (iv) the assumption of certain liabilities by
the Project Company in favor of third parties; (v) receipt of loans by the Project
Company and/or the provision thereby of a guarantee to third parties; and the
like.b.
    
    B.H jointly controlled subsidiaries that hold 3 hotels in the UK
(Project Companies) and the Management Company are jointly and severally liable
(Borrowers) towards a foreign bank which provided the Project Companies a loan in
the total amount of £195.0 million. The Project Companies have provided the
financing bank charges over their tangible fixed assets and the Management Company
pledged its franchise agreements. In addition, pledges have been provided over the
Borrowers shares by their respective shareholders. B.H. and Elscint have taken
upon themselves to irrevocably indemnify the Management Company for 50% of the cost
and damages which may be incurred thereby in connection with this loan agreement.The loan agreement also provides that in the event of cash
distributions deriving from the sale, disposal, refinancing of the hotels
which were financed by the refinancing loan funds or repayment of the loan
(Transactions), the Borrowers shall pay to the financing bank an amount
equivalent to 15% of the difference between the market value of the hotels as
determined in such Transactions and the current agreed value of the hotels.
 - 90 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17  COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT.)
 D.
    
    Liens and collateral (Cont.)
 (3)
    
    Projects under credit facilities (Cont.)
 c.
    
    The Company and Elscint guarantee fulfillment of certain project
companies obligations under loan agreements up to an aggregate amount of NIS 350.5
million ($83.0 million).PC undertook in the context of various loan agreements to supplement shareholders
equity (including shareholder loans) of the Project Companies, in accordance with
the financing agreements or alternatively provide additional financing in the
event of a budget overrun or should same be required for operation or maintenance
of the respective project.d.
    
    As to bank deposits made to secure loans and debts, by the Group
Companies  see Notes 4 and 8 above.
 (4)
    
    In order to secure a bank loan in the amount of NIS 46.5 million ($11.0 million)
received by the controlling shareholder in Domino (BHEE), for the financing of
investment in Bucuresti, BHEE granted a fixed pledge on its Domino shares and a floating
charge on all Dominos assets as well as a lien on the Bucuresti shares. Elscint pledged
its BHEE shares and also granted a floating charge on BHEEs assets. An undertaking was
granted in favor of the financing bank, not to allow for any change in the ownership and
control structure of BHEE throughout the duration of the credit. Elscint furthermore
provided a guarantee, unlimited in amount, to secure BHEEs undertakings to the bank. The
bank restricted its right to realize this guarantee, by linking it to the realization
terms of the Bucuresti shares owned by Domino (except for certain instances as stipulated
in the agreement).(5)
    
    Within the framework of an investment, in which Insightec has raised from its
existing shareholders through the issuance of convertible notes, $36.0 million (NIS 152
million), Insightec undertook that, so long as any note remains outstanding and until a
qualified IPO of at least 25% of Insightecs shares or a financing of at least $ 50.0
million (NIS 211 million) at a price per share not lower than $ 14.0, it will comply with
certain limitations regarding dividend distributions, merger and/or asset acquisition
transactions totaling $5.0 million per annum, and the like. Similarly, Insightec is
obliged to meet certain financial covenants regarding a level of liquidity of at least $
5.0 million (NIS 21.1 million) and to maintain a ratio between consolidated EBITDA (as
defined in the agreement) and interest payments of not less than 1:1 for 2007, 1.5:1 for
2008 and 2:1 for 2009 and thereafter. Failure to maintain the above covenants will be
considered as an event of default.(6)
    
    In order to secure credit line of $20.0 million (NIS 84.5 million) which was
provided to insightec by two commercial banks, Insightec recorded in favor of the
financing banks floating lien in an unlimited amount on substantially all its assets and
specific fixed liens on Insightecs rights in certain assets and receivable. An amount of
$ 5.0 million (NIS 21.1 million) is guaranteed by the Company through December 31, 2007.(7)
    
    Insightecs technology developed with OCS funding is subject to transfer
restrictions, which may impair its ability to sell its technology assets or to outsource
manufacturing. The restrictions continue to apply even after Insightec has paid the full
amount of royalties payable for the grants. In addition, the restriction may impair
Insightecs ability to consummate a merger or similar transaction in which the surviving
entity is not an Israeli company.
 - 91 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18  SHARE CAPITAL
 A.
    
    Composition:
 Ordinary sharesof NIS 1.00 par value eachDecember 312006
    
    2005Authorized share capital
    
    
    50,000,000
    
    
    
    50,000,000Issued and outstanding (*)
    
    
    28,254,262
    
    
    
    28,226,298
 
 (*)
    
    December 31, 2006  including 2,800,000 dormant shares (see section B.(iv),
below)December 31, 2005  including 2,842,400 dormant shares (see section B(i) and B(iv),
below) and 524,187 shares held by Elscint (see section B.(vii) below). B.
    
    Further information regarding the share capital and dispositions therein
 (i)
    
    The balance of the shares on December 31,2006, includes 103,439 shares (including
47,700 shares issued by the Company to Elscints employees and directors in the framework
of the merger with Elscint -(see Note. 9B.(1) above)) held by the Groups employees and
directors, issued thereto, within the framework of the employees and officers incentive
plan (Employees and 2001 Plan). The acquisition of the shares by the Employees was
financed by a loan provided for such purpose by the Company, to be repaid at the end of a
five-year period. The loan bears an annual interest of 6%. Any tax to which Employees may
be subject as a result of the said interest shall be borne by the Company. However, the
Company will not assume any liability for the payment of tax imposed, if so, in respect
of the allotment of the shares and their subsequent sale. The shares are held in escrow,
and will be used as sole security for repayment of the said loan. In the event an
Employee elects to transfer its vested shares, whether to himself or to any other third
party, then he shall be obliged to deposit an amount equal to the balance of the loan as
security for its repayment.Should the Company distribute any dividends, with a record date occurring at any date
during the escrow period, then the Company shall transfer to the escrow agent such
dividends corresponding to the number of shares held on behalf of Employees by the
escrow agent, who in turn will transfer such dividends to the respective Employees.On February 16, 2006 the Companys Board of Directors extended the exercise term of the
Companys 2001 Plan for 2 additional years to Employees other than the Companys
directors and office holders.In January 2006, the Company transferred 42,400 of its ordinary shares to Employees
within the framework of the 2001 Plan, out of its dormant shares.All shares held by the Employees, as of December 31, 2006, are free of any restriction
(Vested).
 - 92 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18  SHARE CAPITAL (CONT.)
 B.
    
    Further information regarding the share capital and dispositions therein (cont.)
 (ii)
    
    In 2001, an agreement was signed between the Company, PC and EUN as one party, and
Triple-S Holdings NV (Triple-S) as another party, under which the latter transferred to
PC its rights (existing and future) to acquire shares in the commercial centers project
companies. The Company issued to Triple-S, as consideration thereof, 250,000 ordinary
shares. In accordance with the terms of the agreement, a valuation was carried out, on
January 15, 2004, as to the market value on such date, of the issued shares (calculated
based on the average price of the Companys shares on the NASDAQ during the 30 trading
days prior to said date). As the market value of the shares on that date was lower than
$6.0 million, the Company issued 623,362 additional ordinary shares to Triple-S
(according to a resolution of the Board of Directors adopted in January 2004), such that
the total value of shares issued to Triple-S would equal $6.0 million, based on the
average price per share, as indicated above. An amount of NIS 18.9 million that
previously recorded as a long-term liability, was charged upon the issuance of shares, to
share capital and to premium on shares, respectively.(iii)
    
    In November 2004, a transaction was consummated in terms of which Elscint
transferred to an institutional investor (the Investor) 357,953 shares of the Company
in consideration for 576,923 Elscint shares held by the Investor. The ratio of the share
transfer was determined based on the closing price of the Companys shares on the stock
exchange as at the date of the transaction ($8.4 per share). The price of Elscints share
on the NYSE as at such date was $4.3 per share. This transaction was recorded, in the
Companys financial statements, as an investment in the shares of Elscint in exchange for
the issuance of shares at their fair value as at the date of the transaction.(iv)
    
    On December 27, 2004, the Company executed a tender offer, in the framework of
which it purchased 2,800,000 of its ordinary shares from its shareholders (approximately
11.5% of the Companys than issued share capital), for cash consideration of NIS 138.5
million(v)
    
    As for issuance of shares to the minority shareholders of Elscint within the
framework of a merger  see Note 9B.(1).(vi)
    
    As for issuance of shares to the Chairman of the Board of Directors as a result of
exercise of warrants  see Note 20A.(7).(vii)
    
    On May 17, 2006 Elscint sold trough a private transaction 524,187 dormant shares
of the Company in consideration of NIS 115.0 for each share. As a result, the Companys
shareholders equity increased in the amount of NIS 47.4 million ($11.2 million) which
comprise of the proceeds received by Elscint net of transaction cost and provision for
income taxes on the gain generated by Elscint. Following this transaction, these shares
have full equity and voting rights.(viii)
    
    Within the framework of the merger with Elscint (see Note 9B(1)), the Company issued
26,500 options to directors and officers of Elscint, against 50,000 options granted to
them by Elscint. The options were exercisable to 26,500 ordinary shares of the Company in
consideration of NIS 38.7 per share. In March 2006, the options were exercised into
27,964 ordinary shares of the Company (the additional 1,464 shares deriving from an
adjustment in connection with the distribution of a dividend on January 17, 2006  see
note 18D).
 - 93 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18  SHARE CAPITAL (CONT.)
 C.
    
    Options plansOn March 29, 2006 the Companys Audit Committee and Board of Directors approved the following
options plans:
 (i)
    
    The grant of up to 1,000,000 non-marketable options to the employees, directors and
officers of the Company and companies under its control (2006 Option Plan). In
accordance with the terms of the plan 353,500 options were approved for grant to all the
Companys directors except the Chairman of the Board, and the remaining shall be granted
to the Companys employees and officers (the Offerees). The Options will be granted to
the Offerees for no consideration. The exercise price per Option will be the lower of:
(i) NIS 83.71, which constitutes the average closing price of the Companys shares on the
Tel Aviv Stock Exchange (TASE) during the 30-trading day period preceding March 29,
2006; or (ii) the average closing price of the shares on the TASE during the 30-trading
days period preceding the date of grant of the options (the Exercise Price). On May 31,
2006 the Companys shareholders meeting approved the grant of the options in accordance
with the terms of the plan save that the Exercise Price of the options granted will be
the lower of NIS 100.0 or the average closing price of the shares on the TASE during the
30 trading days period preceding the date of grant.The Exercise Price will be reduced upon distributions of dividend by the dividend per
share net of tax.The exercise mechanism of the options into the Companys shares will be as follow:At the exercise date the Company shall issue to each option exercised shares equal to
the difference between the (A) opening price of the Companys shares on the TASE on the
exercise date, provided that if the opening price exceeds 166% of the Exercise Price the
opening price shall be set as 166% of the Exercise Price (Caped Exercise Price); less
(B) the Exercise Price of the options; and the result (A minus B) will be divided by the
Caped Exercise Price.The vesting period of the options will occur ratably over a three years period (33.33%
of the Options shall vest on each of the first three anniversaries of the date of grant
(the Vesting Period). The options will expire five years following the date of grant.As of December 31, 2006 503,750 options were granted to employees and officers and
353,500 options were granted to directors. All options are not yet vested as of the
balance sheet date.The average estimated fair value of the option was calculated based on the Binomial
model using the following assumptions:
 Employees
    
    DirectorsRisk free interest rate (%)
    
    
    4.96
    
    
    
    4.96Exercise coefficient
    
    
    1.66
    
    
    
    1.66Contractual term
    
    
    5
    
    
    
    5Expected volatility (%)
    
    
    37
    %
    
    
    37.45
    %Expected dividend yield
    
    None
    
    NoneForfeited (%)
    
    
    5
    %
    
    
    2
    %
 The cost of benefit inherent in the Company Employees and Officers option plan base on
the fair value on the day of their grant in accordance with the provision of Standard 24
amount to NIS 20,930 thousands ($4,953 thousands). This amount will be recognized as an
expense over
the vesting period of each portion. An expense in the amount of NIS 6,370 thousands
($1,508 thousands) was recorded in 2006 financial statements.
 - 94 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18  SHARE CAPITAL (CONT.)
 C.
    
    Options plans (cont.)
 (i)
    
    (Cont.)On January 31, 2007 the Companys Audit Committee and Board of Directors approved an
amendment to the 2006 Option Plan according to which the Caped Exercises Price of each
option will be NIS 200.0 instead of NIS 166.0. Such amendment terms will apply
immediately to all Offerees other than the Companys directors, in respect of which the
amendment terms are subject to the approval of the Companys shareholders meeting.

The total additional cost of benefit inherent from such amendment terms in respect of
the Companys employees is NIS 7.3 million ($ 1.7 million).

The total additional cost of benefit inherent from such amendment terms in respect of
the Companys directors is NIS 5.3 million ($ 1.3 million) base on the market conditions
as of January 31, 2006.This amount is subject to modification once the amendment terms
will be approved by the Companys shareholders meeting as mentioned above.The maximum number of shares issuable upon exercise of all of the outstanding options as
of the balance sheet date, following the amendment of the Caped Exercise Price (see
above), is 428,625.(ii)
    
    The Grant of 350,000 non-marketable options to the Companys Chairman of the Board
who is also considered the indirect controlling shareholder of the Company, exercisable
into 350,000 shares. The exercise price of each option shall equal 125% of the average
closing price in NIS of the Companys shares on the TASE during the 30-trading day period
preceding the date of grant of the options which is equal to NIS 137.4 per share. The
options will become exercisable immediately upon their grant and will remain exercisable
for a period of three years thereafter. The options were granted on May 31, 2006
following the approval of the Companys shareholder meeting.The average estimated fair value of the option granted was calculated based on the
Black-Scholes model using the following assumptions:
 Risk free interest rate (%)
    
    
    3.8
    %Expected life of options (years)
    
    
    3Expected volatility (%)
    
    
    35.8
    %Expected dividend yield
    
    NoneForfieted (%)
    
    None
 The cost of benefit inherent in this option plan base on the fair value on the day of
their grant in accordance with the provision of Standard 24 amount to NIS 6,832
thousands ($1,617 thousands). This amount was recorded as an expense in these financial
statements.
 - 95 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18  SHARE CAPITAL (CONT.)
 D.
    
    Dividend declared
 (i)
    
    On March 17, 2005, the Company distributed to its shareholders a dividend in the
amount of NIS 159.5 million (which represents NIS 7.28 per share). Out of the said
amount: (i) NIS 3.2 million was paid to employees and is recorded as salary expenses in
the 2005 financial statements; and (ii) NIS 3.8 million was paid to Elscint in respect of
its shareholding in the Companys stock.(ii)
    
    On January 17, 2006, the Company distributed to its shareholders a dividend in the
amount of NIS 130.0 million ($30.8 million) (which represents NIS 5.1 per share). Out of
that amount: (i) NIS 3.1 million ($0.7 million) was paid to employees and is recorded as
salary expenses in these financial statements; and (ii) NIS 2.7 million ($0.6 million)
was paid to Elscint in respect of its shareholding in the Companys stock.(iii)
    
    On March 28, 2007, the Companys Board of Directors has declared a dividend in the
amount of NIS 160.9 million ($38.0 million) (which represents NIS 6.5 per share). Out of
the said amount, NIS 0.7 million ($0.2 million) will be paid to employees and will be
recorded as salary expenses in the financial statements of the first quarter of 2007.(iv)
    
    On January 14, 2007, the Companys Board of Directors, has adopted a dividend
distribution policy (the Policy), pursuant to which the Company will distribute a cash
dividend of at least 50% of its surpluses accrued by the Company every year, provided
such dividend does not exceed 50% of the cash flow accrued by the Company from dividends
and repayment of owners loans received by the Company from its subsidiaries in that
year, all in accordance with the Companys audited and consolidated annual financial
statements. The Company will publish a detailed report with respect to any such
distribution under the Policy, at a time close to the publication date of its annual
financial statements for the previous year. Distribution of the Companys first dividend
under the Policy will be carried out in the year 2008, in respect of the year 2007.Any distribution of dividends under the Policy is subject to a specific resolution of
the Companys board of directors determining the Companys compliance with the
distribution criteria, as prescribed in the Companies Law, as may be from time to time,
and to any applicable law. In reaching such resolution, the Companys board of directors
will take into account, inter alia, the Companys liabilities and undertakings towards
third parties, the Companys cash-flow needs and financing resources available to the
Company. The board of directors is authorized in its sole discretion to change or
terminate the Policy at any time. The adoption of the Policy does not serve to
constitute any undertaking towards any third party.The Policy was adopted based on the financial statements prepared in accordance with
Israeli generally accepted accounting principles currently applicable to the Company.
However, in light of the adoption in Israel of International Financial Reporting
Standards (IFRS) (see Note 2AA(iii)), the Company will review the Policy and may amend
it as necessary.
 - 96 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19  ADDITIONAL DETAILS CONCERNING STATEMENT OF OPERATIONS ITEMS
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000A. Revenues from sale of real estate
assets and investments, netSales of commercial centers (i)
    
    
    74,595
    
    
    
    223,280
    
    
    
    131,921
    
    
    
    17,655Sales of hotels (ii)
    
    
    5,623
    
    
    
    58,381
    
    
    
    
    
    
    
    1,33180,218
    
    
    
    281,661
    
    
    
    131,921
    
    
    
    18,986
 
 (i)
    
    As for information as to the transactions for the sale of the commercial centers -
see Note 9B.(3)a., b. d. & e.The gain generated from the 2005 transactions include loss from realization of capital
reserves from foreign currency translation adjustments in respect of realized
investments (shares and shareholders loans) amounted NIS 39.7 million. The gain
generated from the 2004 transaction includes gain from such realization, amounts to NIS
153.3 million.(ii)
    
    As for information regarding the transactions for the sale of hotels  see Note
9B.(4)b.&c.The gain generated from the sale of hotels in 2006 includes loss from realization of
capital reserves from foreign currency translation adjustments in respect of realized
investments (shares and shareholders loans) amounted to NIS 2.7 million ($0.6 million).
The gain generated from the 2005 transactions include gain from such realization,
amounted to NIS 14.2 million. - 97 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19  ADDITIONAL DETAILS CONCERNING STATEMENT OF OPERATIONS ITEMS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000B. Revenues from hotel operations and managementRooms
    
    
    227,592
    
    
    
    165,225
    
    
    
    135,208
    
    
    
    53,868Food, beverage and other services
    
    
    111,497
    
    
    
    92,447
    
    
    
    74,793
    
    
    
    26,390Rental of commercial space
    
    
    12,521
    
    
    
    12,385
    
    
    
    8,364
    
    
    
    2,963351,610
    
    
    
    270,057
    
    
    
    218,365
    
    
    
    83,221C. Revenues from realization of investmentsDecrease in shareholding of PC (i)
    
    
    667,971
    
    
    
    
    
    
    
    
    
    
    
    158,100Gain from realization (repayment) of
investment-type monetary balances in
Investees (ii)
    
    
    29,387
    
    
    
    
    
    
    
    12,378
    
    
    
    6,955Decrease in shareholding of Insightec (iii)
    
    
    
    
    
    
    
    
    
    
    13,003
    
    
    
    Realization of investment in Algotec (iv)
    
    
    
    
    
    
    1,958
    
    
    
    3,412
    
    
    
    697,358
    
    
    
    1,958
    
    
    
    28,793
    
    
    
    165,055
 
 (i)
    
    See Note 9B(3)i.(ii)
    
    In 2004 and 2006, certain subsidiaries have entered into agreements with foreign
banks and other financial institutions for the refinancing of several real estate assets
located in Europe. The borrowing companies have transferred, to their respective
shareholders certain financing surplus of the credits received, as repayment of
shareholders loans. As a result, capital reserves from foreign currency translation
adjustments attributed to the said shareholders loans, were realized.(iii)
    
    Derives from recording in the statement of operations, deferred income in respect
of a decrease in the shareholding in Insightec.(iv)
    
    Derives from deferred consideration received as a result of the sale by Elscint of
its entire holdings (16% fully diluted) in Algotech Systems Ltd. in November 2003. See,
in addition, Note 17B.(6) above. - 98 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19  ADDITIONAL DETAILS CONCERNING STATEMENT OF OPERATIONS ITEMS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000D. Other operational incomeSales of goods
    
    
    58,035
    
    
    
    31,790
    
    
    
    
    
    
    
    13,736Lease of assets
    
    
    
    
    
    
    12,619
    
    
    
    13,238
    
    
    
    58,035
    
    
    
    44,409
    
    
    
    13,238
    
    
    
    13,736E. Cost of commercial centers operationsDirect expenses:Wages and fringe benefits
    
    
    9,662
    
    
    
    13,083
    
    
    
    18,411
    
    
    
    2,287Energy costs
    
    
    12,162
    
    
    
    15,439
    
    
    
    40,744
    
    
    
    2,879Taxes and insurance
    
    
    2,814
    
    
    
    9,249
    
    
    
    10,501
    
    
    
    666Maintenance of property and other expenses
    
    
    24,450
    
    
    
    23,175
    
    
    
    44,902
    
    
    
    5,78749,088
    
    
    
    60,946
    
    
    
    114,558
    
    
    
    11,619Other operating expenses:Wages and fringe benefits
    
    
    18,814
    
    
    
    15,882
    
    
    
    14,929
    
    
    
    4,453Stock-based compensation expenses
    
    
    6,647
    
    
    
    
    
    
    
    
    
    
    
    1,573Advertising
    
    
    11,992
    
    
    
    7,138
    
    
    
    17,820
    
    
    
    2,838Doubtful debts
    
    
    240
    
    
    
    1,540
    
    
    
    9,511
    
    
    
    57Others
    
    
    24,558
    
    
    
    26,426
    
    
    
    25,713
    
    
    
    5,81362,251
    
    
    
    50,986
    
    
    
    67,973
    
    
    
    14,734Depreciation of building and equipment
    
    
    33,223
    
    
    
    45,708
    
    
    
    88,861
    
    
    
    7,863144,562
    
    
    
    157,640
    
    
    
    271,392
    
    
    
    34,216F. Cost of hotel operations and managmentDirect expenses:Wages and fringe benefits
    
    
    106,286
    
    
    
    89,118
    
    
    
    69,194
    
    
    
    25,156Food and beverages
    
    
    21,349
    
    
    
    17,656
    
    
    
    12,652
    
    
    
    5,053Others
    
    
    81,672
    
    
    
    67,544
    
    
    
    55,776
    
    
    
    19,331209,307
    
    
    
    174,318
    
    
    
    137,622
    
    
    
    49,540Other operating expensesWages and fringe benefits
    
    
    1,106
    
    
    
    1,232
    
    
    
    1,000
    
    
    
    262Management fees and reimbursement expenses
    
    
    16,228
    
    
    
    10,848
    
    
    
    8,695
    
    
    
    3,841Business taxes, insurance and lease payments
    
    
    22,427
    
    
    
    16,018
    
    
    
    9,959
    
    
    
    5,308Others
    
    
    9,285
    
    
    
    14,288
    
    
    
    12,245
    
    
    
    2,19849,046
    
    
    
    42,386
    
    
    
    31,899
    
    
    
    11,609Depreciation and amortization
    
    
    48,031
    
    
    
    42,589
    
    
    
    37,631
    
    
    
    11,368306,384
    
    
    
    259,293
    
    
    
    207,152
    
    
    
    72,517
 - 99 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19  ADDITIONAL DETAILS CONCERNING STATEMENT OF OPERATIONS ITEMS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000G. Costs and expenses of medical systems
operationCost of sales:Wages and fringe benefits
    
    
    5,603
    
    
    
    4,384
    
    
    
    1,093
    
    
    
    1,326Stock-based compensation expenses
    
    
    1,239
    
    
    
    58
    
    
    
    
    
    
    
    293Materials and subcontractors
    
    
    9,738
    
    
    
    9,524
    
    
    
    7,352
    
    
    
    2,305Royalties to OCS (Note 17A.(5))
    
    
    2,653
    
    
    
    2,271
    
    
    
    1,317
    
    
    
    628Changes in work in process and
finished goods
    
    
    670
    
    
    
    
    
    
    
    (986
    )
    
    
    159Others
    
    
    9,891
    
    
    
    3,149
    
    
    
    1,058
    
    
    
    2,34129,794
    
    
    
    19,386
    
    
    
    9,834
    
    
    
    7,052Marketing and selling expenses:Wages and fringe benefits
    
    
    8,441
    
    
    
    4,487
    
    
    
    3,283
    
    
    
    1,998Stock-based compensation expenses
    
    
    1,385
    
    
    
    151
    
    
    
    
    
    
    
    328Advertising and commissions
    
    
    13,347
    
    
    
    10,805
    
    
    
    4,033
    
    
    
    3,159Others
    
    
    3,613
    
    
    
    2,386
    
    
    
    1,950
    
    
    
    85526,786
    
    
    
    17,829
    
    
    
    9,266
    
    
    
    6,340General and administrative expenses:Wages and fringe benefits
    
    
    6,056
    
    
    
    4,943
    
    
    
    3,237
    
    
    
    1,433Stock-based compensation expenses
    
    
    2,122
    
    
    
    588
    
    
    
    
    
    
    
    502Depreciation and amortization
    
    
    483
    
    
    
    302
    
    
    
    360
    
    
    
    114Others
    
    
    7,274
    
    
    
    7,326
    
    
    
    3,342
    
    
    
    1,72215,935
    
    
    
    13,159
    
    
    
    6,939
    
    
    
    3,77172,515
    
    
    
    50,374
    
    
    
    26,039
    
    
    
    17,163
 - 100 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19  ADDITIONAL DETAILS CONCERNING STATEMENT OF OPERATIONS ITEMS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000H. Other operational expensesCost of sale of goods:Direct costs:Inventories  Opening balance
    
    
    8,034
    
    
    
    3,426
    
    
    
    
    
    
    
    1,902Purchases
    
    
    28,886
    
    
    
    18,051
    
    
    
    
    
    
    
    6,837Less  Inventories closing balance
    
    
    10,290
    
    
    
    8,034
    
    
    
    
    
    
    
    2,43626,630
    
    
    
    13,443
    
    
    
    
    
    
    
    6,303Marketing and selling expenses:Wages and fringe expenses
    
    
    9,029
    
    
    
    4,845
    
    
    
    
    
    
    
    2,137Rental, management fee and shops
maintenance
    
    
    16,967
    
    
    
    8,922
    
    
    
    
    
    
    
    4,016Advertising
    
    
    6,146
    
    
    
    3,498
    
    
    
    
    
    
    
    1,455Depreciation and amortization
    
    
    3,042
    
    
    
    2,096
    
    
    
    
    
    
    
    720Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,184
    
    
    
    19,361
    
    
    
    
    
    
    
    8,328General and administrative expenses:Wages and fringe benefits
    
    
    3,889
    
    
    
    2,358
    
    
    
    
    
    
    
    920Depreciation and amortization
    
    
    396
    
    
    
    168
    
    
    
    
    
    
    
    94Others
    
    
    1,776
    
    
    
    900
    
    
    
    
    
    
    
    4206,061
    
    
    
    3,426
    
    
    
    
    
    
    
    1,434Total cost of sale of goods
    
    
    67,875
    
    
    
    36,230
    
    
    
    
    
    
    
    16,065Cost of lease of assets
    
    
    
    
    
    
    2,802
    
    
    
    3,175
    
    
    
    Project initiation expenses
    
    
    2,376
    
    
    
    7,761
    
    
    
    480
    
    
    
    56270,251
    
    
    
    46,793
    
    
    
    3,655
    
    
    
    16,627I. Research and development expenses, net:Wages and fringe benefits
    
    
    31,675
    
    
    
    26,180
    
    
    
    20,572
    
    
    
    7,497Stock-based compensation expenses
    
    
    4,111
    
    
    
    897
    
    
    
    
    
    
    
    973Materials and subcontractors
    
    
    21,542
    
    
    
    20,859
    
    
    
    16,369
    
    
    
    5,099Depreciation and amortization
    
    
    5,965
    
    
    
    5,945
    
    
    
    5,849
    
    
    
    1,412Others
    
    
    8,667
    
    
    
    9,841
    
    
    
    3,052
    
    
    
    2,05171,960
    
    
    
    63,722
    
    
    
    45,842
    
    
    
    17,032Less  participation of the OCS
    
    
    9,394
    
    
    
    3,926
    
    
    
    7,684
    
    
    
    2,22362,566
    
    
    
    59,796
    
    
    
    38,158
    
    
    
    14,809
 - 101 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19  ADDITIONAL DETAILS CONCERNING STATEMENT OF OPERATIONS ITEMS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000J. General and administrative expensesWages and fringe benefits
    
    
    33,106
    
    
    
    19,667
    
    
    
    22,873
    
    
    
    7,836Stock-based compensation expenses (*)
    
    
    16,571
    
    
    
    3,159
    
    
    
    
    
    
    
    3,922Depreciation and amortization
    
    
    1,171
    
    
    
    976
    
    
    
    968
    
    
    
    277Others
    
    
    16,313
    
    
    
    13,137
    
    
    
    19,786
    
    
    
    3,86167,161
    
    
    
    36,939
    
    
    
    43,627
    
    
    
    15,896(*) Including dividend in the amount of NIS 3,089 thousand ($731 thousand) and NIS
3,159 thousand in 2006 and 2005, respectively.K. Financial income (expenses), netBank loans and debentures
    
    
    (159,332
    )
    
    
    (186,264
    )
    
    
    (68,088
    )
    
    
    (37,712
    )Deposits, debentures and long- term
receivables
    
    
    17,388
    
    
    
    22,356
    
    
    
    2,082
    
    
    
    4,116Gains (losses) from currency transactions
    
    
    4,508
    
    
    
    14,658
    
    
    
    (14,880
    )
    
    
    1,067Gains on securities
    
    
    1,863
    
    
    
    656
    
    
    
    2,496
    
    
    
    441Others
    
    
    (7,692
    )
    
    
    2,501
    
    
    
    (19,115
    )
    
    
    (1,820
    )(143,265
    )
    
    
    (146,093
    )
    
    
    (97,505
    )
    
    
    (33,908
    )Financial expenses, net capitalized to
real estate assets and trading property
under construction (*)
    
    
    13,103
    
    
    
    34,861
    
    
    
    13,808
    
    
    
    3,101Financial costs (income) credited to
capital reserves from translation
differences
    
    
    1,035
    
    
    
    (11,089
    )
    
    
    30,128
    
    
    
    244(129,127
    )
    
    
    (122,321
    )
    
    
    (53,569
    )
    
    
    (30,563
    )(*) The discount rate applicable to
non-specific credit (see Note 2U. above)
    
    
    5.3
    %
    
    
    11.1
    %
    
    
    3.7
    %
    
    
    5.3
    %L. Other expenses, netLoss from disposition of assets and
liabilities
    
    
    11,970
    
    
    
    21,836
    
    
    
    12,201
    
    
    
    2,833Provision for impairment of investments
and assets (1)
    
    
    21,594
    
    
    
    24,617
    
    
    
    52,620
    
    
    
    5,111Others, net
    
    
    3,272
    
    
    
    10,653
    
    
    
    (1,015
    )
    
    
    77536,836
    
    
    
    57,106
    
    
    
    63,806
    
    
    
    8,719
 
 (1)
    
    See Note 10C. - 102 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 19  ADDITIONAL DETAILS CONCERNING STATEMENT OF OPERATIONS ITEMS (CONT.)
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000M. Earnings per share1. Net income (loss) used in Company basic
and diluted earnings per shareProfit from continuing operations
    
    
    525,480
    
    
    
    80,462
    
    
    
    36,537
    
    
    
    124,374profit from discontinuing operations
    
    
    35,664
    
    
    
    5,917
    
    
    
    6,810
    
    
    
    8,441Cumulative effect of accounting
change at the beginning of the
year
    
    
    
    
    
    
    (622
    )
    
    
    
    
    
    
    2. Weighted average number of shares
(in thousands)Weighted average number of shares
used in computing basic earnings
per share
    
    
    25,232
    
    
    
    21,743
    
    
    
    23,463
    
    
    
    25,232Effect of diluted options
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Weighted average number of shares
used in computing diluted earnings
per share
    
    
    25,240
    
    
    
    21,743
    
    
    
    23,463
    
    
    
    25,240
 - 103 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 20  RELATED PARTIES
 A.
    
    Transactions
 (1)
    
    Components:
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000General and administrative expenses (I)
    
    
    34,816
    
    
    
    8,810
    
    
    
    7,570
    
    
    
    8,240Project expenses (coordination,
supervision and aviation services) -
charged, mainly to cost of real estate
assets and trading property (II)
    
    
    38,691
    
    
    
    18,486
    
    
    
    25,045
    
    
    
    9,158Cost of construction of the Arena -
charged to the cost of the real estate
assets (III)
    
    
    
    
    
    
    
    
    
    
    7,800
    
    
    
    (I)     Includes:Year ended December 312006
    
    
    2005
    
    
    2004
    
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    
    US$000A. Benefits granted to related parties, as
follows:Payments to directors:Non-employee
- Cost
    
    (1)
    1,574
    
    
    
    352
    
    
    
    386
    
    
    
    372Number of recipients
    
    
    6
    
    
    
    4
    
    
    
    5Employed - Cost
    
    (1)
    31,734
    
    
    
    7,444
    
    
    
    6,375
    
    
    
    7,511Number of recipients
    
    
    4
    
    
    
    3
    
    
    
    3B. Participation in joint expenses(2)
    
    
    
    
    
    
    792
    
    
    
    471
    
    
    
    
 
 (1)
    
    Includes stock-base compensation expenses and
dividend payments in respect of options and shares granted to directors
(see Notes 18B(i) and 18C(i)&(ii)) in the amount of NIS 13,182 thousand
($3,120 thousand).(2)
    
    based on an agreement for the cost allocation
between EIL group companies, which was in force through December 31,
2005. (II)
    
    See Note 17A(3) & (6).(III)
    
    Payments to Control Center group in respect of a turn key agreement
for the construction of the Arena Commercial Center, which was approved by
Elscints shareholders meetings in May 2002.
 - 104 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 20  RELATED PARTIES (CONT.)
 A.
    
    Transactions (Cont.)
 (2)
    
    In March, 2005 an amendment in the Chairmans monthly cost of employment to NIS
220,000 ($52,075), was approved at the Companys general shareholders meeting, with
effect as from January 1, 2005.On May 31, 2006 the general shareholders meeting approved a service agreement with a
company controlled (directly or indirectly) by its Chairman of the Board (the
Management Company and the Chairman respectively) according to which, the Management
Company will provide the Company with executive chairman services (the Services). The
Management Company may provide the Services to private subsidiaries and/or affiliates of
the Company. In accordance with the term of the agreement, the Services will be provided
by the Chairman only, as an employee of the Management Company and the Chairman will
devote at least 80% of his time, skills and efforts to his position as Chairman of the
Company. The control over the Management Company will not be changed during the term of
the agreement. In consideration for the Chairmans services the Company will pay the
Management Company a monthly amount of $50,000 (NIS 211,000) as well as reimbursement of
direct expenses incurred with the provision of the Services.In accordance with the terms of the service agreement, the Management Company will be
the sole employer of Chairman and no employer-employee relationship will exist between
the Chairman and the Company. The Management Company has agreed to indemnify the Company
with respect to any amount, rights or benefits the Company would be required to pay the
Chairman including legal fees, in connection with any determination by the labor court
and/or any other competent authority that the Chairman was or is an employee of the
Company during the term of the agreement. The agreement is for a five-year term
commencing retroactively on August 1, 2005. The Chairman has guaranteed all of the
Management Companys obligations as far as they relate to it and has further guaranteed
the Management Companys indemnification undertakings and responsibility for damages.(3)
    
    On October 27, 2006 PC and the Chairman have entered into service agreement,
pursuant to which the Chairman will be entitled to monthly salary of $25,000 (NIS
106,000) which includes pension, retirement and similar benefits for his services as PCs
chairman of the board. The agreement was approved by the Companys Audit Committee and it
is subject to the approval of the Companys additional organs.(4)
    
    On May 31, 2006 the Companys shareholders were asked to approve bonus payments for
the fiscal years commencing January 1,2006 to the Chairman which will be paid following
the approval of the Companys annual audited consolidated financial statements and will
be calculated, as follows: (i) 0% of the first NIS 100 million of the annual consolidated
pre- tax profits of the Company (Profits); (ii) 3% of Profits between NIS 100 million
and NIS 125 million; (iii) 3.5% of Profits between NIS 125 million and NIS 150 million;
and (iv) 4% of Profits exceeding NIS 150 million. Following a recalculation of the votes
at the said general meeting, it has been determined that there was a technical error in
the calculation of the votes in respect of the proposal regarding the payment of such
annual bonus to our Chairman. Accordingly, it has been determined that same was not
approved by the Companys shareholders by the majority of votes required.(5)
    
    On May 31, 2006, the general shareholders meeting approved bonus payments for the
fiscal years commencing January 1, 2006 to two of the Companys employed directors, which
will be paid following the approval of the Companys annual audited consolidated
financial statements and will be calculated, as follows: (i) 0.75% of the first NIS 125
million of the annual consolidated pre-tax profits of the Company (Profits); (ii)
0.875% of Profits between NIS 125 million and NIS 150 million; and (iii) 1% of Profits
exceeding NIS 150 million.(6)
    
    Shares and warrants issued to related parties  see Notes 18B.(i), 18C.(i)&(ii),
9B.(2)e. and 9B.(3)(j).
 - 105 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 20  RELATED PARTIES (CONT.)
 A.
    
    Transactions (Cont.)
 (7)
    
    In September 2004, Companys shareholders meeting approved a 1-year extension to
the exercise period of the options issued to the Chairman of the Board of Directors
(through September 8, 2005). The exercise price was determined to NIS 45.7 per warrant
(instead of NIS 44.0). Other conditions of the options remain unchanged. The computed
theoretical economic value of the options, based on the Black-Scholes model, totaled
as of June 22, 2004 (the Board of Directors resolution in respect of the change in
exercise terms) to NIS 1.5 million (calculated on the basis of a 37% annual standard
deviation and 6% annual capitalization rate). The closing price of the Companys share
on the Tel Aviv Stock Exchange and on the NASDAQ, immediately prior to the Board of
Directors resolution as to the change was NIS 37.3 and $8.4, respectively. In February
2005, the options were exercised into 350,000 ordinary shares of the Company, in
consideration of NIS 16.0 million.(8)
    
    The directors and officers of the Company, of EIL and its Group companies and of
companies in which directors serve on behalf of the Company, are covered through October
2007 by insurance of up to $40.0 million (per event and for the period) in respect of
their liability (the total coverage amount for EIL amounts up to $10.0 million and it is
limited to the first layer of the policy coverage). The coverage is within the framework
of a joint insurance policy for the EIL Group companies. The allocation of the insurance
costs between the Company and its subsidiaries (90%) and EIL (10%) was approved by the
Companys Audit Committee as a reasonable allocation in these specific circumstances.In November 2006 the Companys Audit Committee and Board of Directors approved the
coverage of liability of the Chairman under the above insurance policy.PCs Directors and Officers are covered through October 2012 by Public Offering of
Securities Insurance of up to $5.0 million for liabilities arising under the prospectus
filed by PC in October 2006 (see Note 9B.(3)i). In respect of the Directors of officers,
who serve as directors or officers of the Company, such coverage requires approval of
the Comopanys organs.(9)
    
    As for directors indemnification  see Note 17C.(1), (2) and (7) above.(10)
    
    The Company and Mango lease office space from EIL at customary commercial terms.(11)
    
    On October 27, 2006, PC has entered into an agreement with the Companys
Vice-Chairman of the Board (VP) with responsibility for its operations in India, under
which the VP will be entitled to receive options (the Options) to acquire up to 5% of
the holding company through which PC will carry out its operations in India. However,
where considered appropriate and by agreement, the VP will be entitled to take up a 5%
interest in specific projects, in which case necessary adjustments will be made at the
holding company level. PC and the VP will agree on the form of the Option for each
acquisition, taking into account taxation, securities laws and regulations applicable to
either party or their respective affiliates, and other considerations of the respective
parties. If the VP exercises all of his Options (5%) at the holding company level, his
right to take up interests on a project by project basis will lapse. The Options will be
subject to vesting over a three-year period, with an initial vesting of 2% on award of
the options following commencement of the relevant project with an additional 1% on the
following dates: March 31 2007, March 31 2008 and March 31 2009. If the VP elects to take
up Options in a specific project which commences after any of the vesting dates specified
above, an immediate vesting will be allowed in respect of Options which would have vested
as of the above dates. The Options may be exercised at any time, at a price equal to PCs
net equity investment made in the projects as at the Option exercise date plus interest
at the rate of LIBOR plus 2% per annum from the date of the investment until the Options
exercise date (Exercise price).
 - 106 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 20  RELATED PARTIES (CONT.)
 A.
    
    Transactions (Cont.)
 (11)
    
    (Cont.)The VP has cash-in right to require PC to purchase shares held by him following the
exercise of the Options, at a price to be determined by an independent valuer. In
addition, the VP has the right to pay the Exercise Price on a partial exercise of
Options by way of the surrender to PC of Options valued at the Exercise Price of the
exercised Options. The agreement includes tag-along rights and a right of first refusal.The share Option arrangement will apply to all projects sourced to PC from the Company
(see Note 17A.(14)). On November 8, 2006, the Companys Audit Committee approved the
above agreement subject to an expiration of the options upon the lapse of 10 years and a
compulsory sale upon a third party demand.(12)
    
    In 2005, Elscints Audit Committee and Board of Directors approved lease agreements
between a company  25% of which are held by Elscints then director  as a lessee in the
Arena commercial and entertainment center. The approval related also to a loan and a
grant awarded to such lessee within a framework of the lease agreement. The transactions
were approved as non-extraordinary transaction within the meaning of the Israeli
Companies Law.
 B.
    
    Balances
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Assets:Receivables and other debit accounts
    
    
    5,995
    
    
    
    3,186
    
    
    
    1,418Deposit, loans and other long-term liabilities
    
    
    540
    
    
    
    221
    
    
    
    128Liabilities:Payables and other credit accounts
    
    
    7,608
    
    
    
    3,153
    
    
    
    1,801
 C.
    
    Commitments see Note 17A.D.
    
    Liens and guarantees see Note 17D and 17C.
 - 107 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 21  BUSINESS AND GEOGRAPHIC SEGMENTS
 Data regarding business segments
 A.
    
    Primary reporting -Year ended December 31, 2006
 Commercialandentertain-
    
    
    
    
    
    Imagement
    
    
    
    
    
    guided
    
    Othercenters
    
    Hotels
    
    treatment
    
    activities
    
    TotalReported(In thousand NIS)Year ended December 31 2006:Revenues
    
    
    1,140,074
    
    
    
    386,620
    
    
    
    85,824
    
    
    
    58,035
    
    
    
    1,670,553Operating income (loss) by segment
    
    
    744,057
    
    
    
    56,377
    
    
    
    (51,550
    )
    
    
    (21,920
    )
    
    
    726,964Share in losses of associated
companies, net
    
    
    (828
    )
    
    
    
    
    
    
    
    
    
    
    (8,837
    )
    
    
    (9,665
    )Less  unallocated general and
administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67,161
    )Financial expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129,127
    )Profit before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    521,011Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,222Profit after income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    515,789Minority interest in results of
subsidiaries, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,691Profit from continuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    525,480Profit from discontinuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,664Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,144Purchase cost of segment fixed
(tangible and intangible) assets
(*)
    
    
    587,059
    
    
    
    150,702
    
    
    
    280
    
    
    
    8,921Depreciation and amortization of
segment assets
    
    
    27,102
    
    
    
    50,266
    
    
    
    4,737
    
    
    
    3,439Provision for impairment of
investments and assets
    
    
    
    
    
    
    21,594December 31 2006:Total segment assets (*)
    
    
    1,730,533
    
    
    
    1,633,587
    
    
    
    50,248
    
    
    
    27,022
    
    
    
    3,441,390Investment on the equity basis
    
    
    16,678
    
    
    
    
    
    
    
    
    
    
    
    45,002
    
    
    
    61,680Unallocated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,656,0316,159,101Segment liabilities
    
    
    114,723
    
    
    
    109,669
    
    
    
    40,999
    
    
    
    11,957
    
    
    
    277,348Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,627,4993,904,847
 
 (*)
    
    As for the balance of assets under construction and changes therein, during the
reporting year  see Note 10A. - 108 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 21  BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)
 Data regarding business segments (Cont.)
 A.
    
    Primary reporting (Cont.) -Year ended December 31, 2006 (cont.)
 Convenience translationCommercialandentertain-
    
    
    
    
    
    Imagement
    
    
    
    
    
    guided
    
    Othercenters(**)
    
    Hotels
    
    treatment
    
    activities
    
    TotalReported(In thousand NIS)Year ended December 31 2006:Revenues
    
    
    268,839
    
    
    
    91,508
    
    
    
    20,313
    
    
    
    13,736
    
    
    
    395,396Operating income (loss)
by segment
    
    
    176,109
    
    
    
    13,344
    
    
    
    (12,202
    )
    
    
    (5,189
    )
    
    
    172,062Share in losses of associated
companies, net
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    (2,092
    )
    
    
    (2,288
    )Less  unallocated general and
administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,896
    )Financial expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,563
    )Profit before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,315Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,235Profit after income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,080Minority interest in results of
subsidiaries, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,294Profit from continuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,374Profit from discontinuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,441Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,815Purchase cost of segment
(tangible and intangible) assets (*)
    
    
    138,949
    
    
    
    35,670
    
    
    
    66
    
    
    
    2,111Depreciation and amortization of
segment assets
    
    
    6,415
    
    
    
    11,897
    
    
    
    1,121
    
    
    
    814Provision for impairment of
investments and assets
    
    
    
    
    
    
    5,111December 31 2006:Total segment assets (*)
    
    
    409,594
    
    
    
    386,648
    
    
    
    11,893
    
    
    
    6,396
    
    
    
    814,531Investment on the equity basis
    
    
    3,947
    
    
    
    
    
    
    
    
    
    
    
    10,652
    
    
    
    14,599Unallocated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    628,6461,457,776Segment liabilities
    
    
    27,153
    
    
    
    25,957
    
    
    
    9,704
    
    
    
    2,830
    
    
    
    65,644Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    858,580924,224
 
 (*)
    
    As for the balance of assets under construction and changes therein, during the
reporting year  see Note 10A.(**)
    
    Includes the results, costs and liabilities of real-estate assets classified as
trading property and which forms part of the commercial and entertainment centers
segment. - 109 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 21  BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)
 Data regarding business segments (Cont.)
 A.
    
    Primary reporting (Cont.) -Year ended December 31, 2005
 Commercialand
    
    
    
    
    
    Image
    
    Leaseentertain-
    
    
    
    
    
    guided
    
    of
    
    Otherment centers
    
    Hotels
    
    treatment
    
    assets
    
    activities
    
    TotalReported(In thousand NIS)Year ended December 31 2005:Revenues
    
    
    366,237
    
    
    
    270,057
    
    
    
    75,713
    
    
    
    71,000
    
    
    
    33,748
    
    
    
    816,755Operating income (loss) by segment
    
    
    189,093
    
    
    
    (156
    )
    
    
    (36,644
    )
    
    
    68,199
    
    
    
    (34,739
    )
    
    
    185,753Share in losses of associated
companies, net
    
    
    220
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,248
    )
    
    
    (12,028
    )Less  unallocated general and
administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,939
    )Financial expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122,321
    )Profit before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,465Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,798Profit after income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,667Minority interest in results of
subsidiaries, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,795Profit from continuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,462Profit from discontinuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,917Cummulative effect of accounting
change at the beginning of the
year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (622
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,757Purchase cost of segment (tangible
and intangible) assets (*)
    
    
    507,248
    
    
    
    128,637
    
    
    
    11,121
    
    
    
    
    
    
    
    46,269Depreciation and amortization of
segment assets
    
    
    58,082
    
    
    
    42,589
    
    
    
    9,945
    
    
    
    2,636
    
    
    
    2,263Provision for impairment of
investments and assets
    
    
    4,128
    
    
    
    5,617
    
    
    
    
    
    
    
    
    
    
    
    13,883December 31 2005:Total segment assets (*)
    
    
    1,375,577
    
    
    
    1,485,138
    
    
    
    56,942
    
    
    
    
    
    
    
    26,752
    
    
    
    2,944,409Investment on the equity basis
    
    
    16,515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,283
    
    
    
    56,798Unallocated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    784,9103,786,117Segment liabilities
    
    
    111,179
    
    
    
    60,273
    
    
    
    40,666
    
    
    
    
    
    
    
    8,275
    
    
    
    220,393Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,498,8652,719,258
 
 (*)
    
    As for the balance of assets under construction and changes therein, during the
reporting year  see Note 10A. - 110 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 21  BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)
 Data regarding business segments (Cont.)
 A.
    
    Primary reporting (Cont.)- Year ended December 31, 2004
 Commercialand
    
    
    
    
    
    Image
    
    Leaseentertain-
    
    
    
    
    
    guided
    
    of
    
    Otherment centers
    
    Hotels
    
    treatment
    
    assets
    
    activities
    
    TotalReported(In thousand NIS)Year ended December 31 2004:Revenues
    
    
    443,814
    
    
    
    218,365
    
    
    
    57,052
    
    
    
    13,238
    
    
    
    3,412
    
    
    
    735,881Operating income (loss) by segment
    
    
    124,703
    
    
    
    11,513
    
    
    
    (7,099
    )
    
    
    10,063
    
    
    
    (1,123
    )
    
    
    138,057Share in losses of associated
companies, net
    
    
    2,890
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,858
    )
    
    
    (15,968
    )Less  unallocated general and
administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,627
    )Financial expenses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53,569
    )Profit before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,893Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,804Profit after income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,089Minority interest in results of
subsidiaries, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,448Profit from continuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,537Profit from discontinuing operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,810Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,347Purchase cost of segment (tangible
and intangible) assets (*)
    
    
    199,369
    
    
    
    161,361
    
    
    
    511Depreciation and amortization of
segment assets
    
    
    94,257
    
    
    
    37,631
    
    
    
    6,069
    
    
    
    2,895Provision for impairment of
investments and assets
    
    
    36,668
    
    
    
    10,025
    
    
    
    
    
    
    
    
    
    
    
    3,876December 31 2004:Total segment assets (*)
    
    
    2,028,028
    
    
    
    1,522,842
    
    
    
    51,198
    
    
    
    129,914
    
    
    
    14,678
    
    
    
    3,746,660Investment on the equity basis
    
    
    16,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,245
    
    
    
    56,930Unallocated assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    716,6894,520,279Segment liabilities
    
    
    165,638
    
    
    
    45,352
    
    
    
    27,432
    
    
    
    8,311
    
    
    
    
    
    
    
    246,733Unallocated liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,038,8913,285,624
 
 (*)
    
    As for the balance of assets under construction and changes therein, during the
reporting year  see Note 10A., above. - 111 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 21  BUSINESS AND GEOGRAPHIC SEGMENTS (CONT.)
 Data regarding business segments (Cont.)
 B.
    
    Secondary reporting
 Revenues by geographical marketsYear ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Israel
    
    
    118,558
    
    
    
    92,226
    
    
    
    71,678
    
    
    
    28,061West Europe
    
    
    371,879
    
    
    
    304,731
    
    
    
    215,993
    
    
    
    88,019East and central Europe
    
    
    1,120,054
    
    
    
    359,420
    
    
    
    414,457
    
    
    
    265,100Others
    
    
    60,062
    
    
    
    60,378
    
    
    
    46,131
    
    
    
    14,2161,670,553
    
    
    
    816,755
    
    
    
    748,259
    
    
    
    395,396
 Purchase cost of segment(tangible and intangible) assetsYear ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Israel
    
    
    27,419
    
    
    
    24,780
    
    
    
    25,353
    
    
    
    6,490West Europe
    
    
    73,119
    
    
    
    73,952
    
    
    
    143,904
    
    
    
    17,306East and central Europe
    
    
    608,987
    
    
    
    594,543
    
    
    
    191,984
    
    
    
    144,139India
    
    
    37,437
    
    
    
    
    
    
    
    
    
    
    
    8,861746,962
    
    
    
    693,275
    
    
    
    361,241
    
    
    
    176,796
 Segment assetsAs of December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Israel
    
    
    643,822
    
    
    
    648,441
    
    
    
    152,384West Europe
    
    
    1,417,148
    
    
    
    1,252,253
    
    
    
    335,420East and central Europe
    
    
    1,397,659
    
    
    
    1,070,463
    
    
    
    330,807India
    
    
    37,966
    
    
    
    
    
    
    
    8,986Others
    
    
    6,475
    
    
    
    30,050
    
    
    
    1,5333,503,070
    
    
    
    3,001,207
    
    
    
    829,130
 - 112 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 22  DISCONTINUING OPERATIONS
 A.
    
    Following the sale of the diagnostic ultrasound activity and the sale of Nuclear Medicine
(NM), Magnetic Resonance Imaging (MRI) and Computerized Tomography (CT) activities by Elscint,
the Groups core activity in these areas was, during 1998, terminated. The results from these
operations have therefore been presented in the statements of operations, as discontinuing
operation. Balances included in the statement of operations and/or dispositions in balance
sheet items through the reported years, reflect primarily settlements or resolution of
disputes and/or lawsuits and/or certain claims relating to the ultrasound, CT and MRI
businesses and the ultimate sale thereof by Elscint.B.
    
    The following table states composition of assets, liabilities, income and expenses relating
to the discontinuing operations in previous years:
 December 312006
    
    2005
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Current assetsReceivable and other debit accounts
    
    
    1,575
    
    
    
    2,276
    
    
    
    372Long-term investments and receivables
    
    
    10,908
    
    
    
    10,331
    
    
    
    2,58212,483
    
    
    
    12,607
    
    
    
    2,954Current liabilitiesPayables and other credit accounts
    
    
    40,513
    
    
    
    62,430
    
    
    
    9,589
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Financial income (expenses), net
    
    
    4,273
    
    
    
    (5,236
    )
    
    
    2,512
    
    
    
    1,011Other income, net
    
    
    31,391
    
    
    
    14,266
    
    
    
    8,555
    
    
    
    7,43035,664
    
    
    
    9,030
    
    
    
    11,067
    
    
    
    8,441Minority interest
    
    
    
    
    
    
    (3,113
    )
    
    
    (4,257
    )
    
    
    Net income from discontinuing operation
    
    
    35,664
    
    
    
    5,917
    
    
    
    6,810
    
    
    
    8,441
 - 113 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 23  FINANCIAL INSTRUMENTS
  A.
    
    Price riskInvestments in marketable securities are exposed to market-price fluctuations. Capital markets
are also subject to fluctuations in respect of events over which the Group has no control.
Such changes may have an impact on the value of these investments upon realization.

As for composition of the short and long-term investment portfolio- see Notes 4 and 8 above.B.
    
    Credit riskThe Company holds cash and cash equivalents, short term investments and other financial
instruments in various reputable banks and financial institutions. These banks and financial
institutions are located in different geographical regions, and it is the Companys policy to
disperse its investments among different banks and financial institutions.Due to the nature of their activity, the Group companies are not materially exposed to
credit risks stemming from dependence on a given customer. The Group companies examine on
an ongoing basis the credit amounts extended to their customers and, accordingly, record
a provision for doubtful debts based on those factors they consider having an effect on
specific customers.Short term receivables includes balance due to PC from Klepierre mainly as a result of
purchase price adjustment in respect of commercial centers sold in 2006 and 2005.C.
    
    Interest rate riskFair value risk a significant portion of the Companys long term loans and debentures are
bearing fixed interest rate and are therefore exposed to change in their fair value as a
result of changes in the market interest rate.Cash flow risk part of the companys long term loans and debentures as well as long term
loans receivable are bearing variable interest rate. Cash and Cash equivalent, short term
deposit and short term bank credit are mainly deposited in or obtained at variable interest
rate. Change in the market interest rate will affect the Companys finance expenses and its
cash flow. As for swap transaction in order to hedge the cash flow risks of long term loans-
see item F below.The following table presents the book value of the groups of financial instruments as of
December 31, 2006 which are exposed to fair value risk and/ or cash flow risk with respect to
interest rates, in accordance with the contractual repayment dates of the dates of resetting
the price, whichever is earlier:
 - 114 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 23  FINANCIAL INSTRUMENTS (CONT.)
 C.
    
    Interest rate risk (cont.)
 Effectiveinterest rateas of6th year and
    
    
    
    
    
    
    
    December 31,Note
    
    1styear
    
    2nd year
    
    3rd year
    
    4th year
    
    5th year
    
    thereafter
    
    Un-determined
    
    Total
    
    2006In thousand NIS - Reported
    
    %Financial instrument with fixed
interest rateLong-term deposits and loans
receivables
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    2,476
    
    
    
    
    
    
    
    1,742
    
    
    
    
    
    
    
    
    
    
    
    4,218
    
    
    
    3.3Loans from banks and financial
institutions:
    
    
    14Linked to the Euro
    
    
    
    
    
    
    (3,122
    )
    
    
    (3,750
    )
    
    
    (190,121
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196,993
    )
    
    
    5.1Linked to the GBP
    
    
    
    
    
    
    (9,103
    )
    
    
    (12,130
    )
    
    
    (12,130
    )
    
    
    (12,130
    )
    
    
    (761,720
    )
    
    
    
    
    
    
    
    
    
    
    (807,213
    )
    
    
    7.7Debentures linked to the Israeli
CPI
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    (102,888
    )
    
    
    (159,916
    )
    
    
    (159,916
    )
    
    
    (606,165
    )
    
    
    
    
    
    
    (1,028,885
    )
    
    
    6.0(12,225
    )
    
    
    (15,880
    )
    
    
    (302,663
    )
    
    
    (172,046
    )
    
    
    (919,894
    )
    
    
    (606,165
    )
    
    
    
    
    
    
    (2,028,873
    )Financial instrument with variable
interest rateLong-term deposits and loans
receivables
    
    
    8
    
    
    
    15,770
    
    
    
    36,836
    
    
    
    368
    
    
    
    398
    
    
    
    
    
    
    
    
    
    
    
    129,107
    
    
    
    182,479
    
    
    
    4.3Loans from banks and financial
institutions:
    
    
    14Linked to the Euro
    
    
    
    
    
    
    (46,200
    )
    
    
    (358,261
    )
    
    
    (21,279
    )
    
    
    (21,278
    )
    
    
    (21,279
    )
    
    
    (98,148
    )
    
    
    
    
    
    
    (566,445
    )
    
    
    5.5Linked to the NIS
    
    
    
    
    
    
    
    
    
    
    (211,438
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211,438
    )
    
    
    7.2Linked to the US Dollar
    
    
    
    
    
    
    
    
    
    
    (84,736
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84,736
    )
    
    
    7.5Debentures linked to the US dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,219
    )
    
    
    (12,438
    )
    
    
    (12,438
    )
    
    
    (31,095
    )
    
    
    
    
    
    
    (62,190
    )
    
    
    8.1Convertible debentures linked to
the US Dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,037
    )
    
    
    
    
    
    
    (20,990
    )
    
    
    
    
    
    
    
    
    
    
    (78,027
    )
    
    
    8.7(30,430
    )
    
    
    (617,599
    )
    
    
    (84,167
    )
    
    
    (33,318
    )
    
    
    (54,707
    )
    
    
    (129,243
    )
    
    
    129,107
    
    
    
    (820,357
    )
 - 115 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 23  FINANCIAL INSTRUMENTS (CONT.)
 D.
    
    Foreign currency riskThe Company has loans and deposits which are linked to foreign currency (Mainly Euro, US
Dollar and British Pound). In addition, the Companys debentures are linked to the Israeli CPI
and the US Dollar. Fluctuations in the exchange rates of these currencies against the NIS
and/or the Israeli CPI could have an affect on the Companys finance expenses (income). Part
of the long term loans (mainly Euro and US Dollar) were utilized for financing an investment
in an autonomous investee and they were provided in the functional currency of the investee.
Therefore, exchange rate differences in respect of these loans are charged directly to
cumulative foreign currency translation within the shareholder equity.E.
    
    Fair Value of financial instrumentsThe principal methods and assumptions which served to compute the estimate fair value of the
financial instruments are as follows:
 (1)
    
    Financial instruments included in current assets (cash and cash equivalents,
deposits and marketable securities, trade receivables and other current assets) or
current liabilities (short-term credit, suppliers and other current liabilities)  Due to
their nature, their fair values approximate to those presented in the balance sheet.(2)
    
    Financial instruments included in investments and long-term receivables- mainly
loans and deposits which bear variable interest rate and accordingly their fair value is
approximate to those presented in the balance sheet.In accordance with the provisions of Standard No. 22 ,fair value of investment in
associated, which are presented in the consolidated balance sheet at the equity method,
was not computed.(3)
    
    Financial instruments included in long- term liabilities- the fair value of the
traded liabilities is determined according to closing prices as of the balance sheet date
quoted on the Tel- Aviv Stock Exchange, multiplied by the quantity of the marketable
financial instrument issued as of that date.
 - 116 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 23  FINANCIAL INSTRUMENTS (CONT.)
 E.
    
    Fair Value of financial instruments (cont.)The fair value of non-traded liabilities at fixed rate interest is determined according to the
present value of future cash flows, capitalized at a discount interest rate which reflects, in
the estimation of the Company, the level of risk embedded in the financial instrument.The following table presents the book value and fair value of groups of financial instruments,
which are presented in the financial statements at other than their fair value:
 Book value (1)
    
    Fair valueAs of December 312006
    
    2005
    
    2006
    
    2005Financial liabilitiesLong- term loans at fixed rate interest (2)
    
    
    1,012,501
    
    
    
    194,095
    
    
    
    981,027
    
    
    
    195,632Debentures (3)
    
    
    1,100,465
    
    
    
    
    
    
    
    1,163,075
    
    
    
    
 
 (1)
    
    Principal and accrued interest as of the balance sheet date.(2)
    
    The fair value is based on a calculation of the present value of cash flows at the
customary interest rate for a similar loan with similar characteristics.(3)
    
    The fair value is based on quoted prices in an active market as of the balance sheet date. The fair value of the Companys long term loans and debentures which bear fixed interest rates
would be decreased by approximately NIS 81.6 million ($19.3 million) if an increase of 1% in
the discounts rates will occur.F.
    
    Swap TransactionSeveral companies within the B.H. Group have entered into a Swap transaction with a foreign
financial institution (which granted thereto a variable-interest bearing loan), with respect
to the interest rate on the loan principal. The Companys share in the principal amount of the
loans and in the fair value of the transaction (asset) as of December 31, 2006, based on the
market valuation of transactions similar thereto (considering all terms and conditions
thereof), totals NIS 25.7 million ($6.1 million).
 - 117 -




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 23  FINANCIAL INSTRUMENTS (CONT.)
 G. Linkage basis report
 As of December 31, 2006
 Other
    
    
    Adjustments toIsraeli NIS
    
    
    Euro
    
    
    GBP
    
    
    US Dollar
    
    
    Currencies
    
    
    Consolidation
    
    
    TotalUnlinked
    
    
    LinkedReported in NIS milIionCurrent AssetsCash and cash equivalents
    
    
    665
    
    
    
    
    
    
    
    1,200
    
    
    
    20
    
    
    
    244
    
    
    
    22
    
    
    
    
    
    
    
    2,151Short-term deposits and investments
    
    
    133
    
    
    
    
    
    
    
    22
    
    
    
    19
    
    
    
    74
    
    
    
    15
    
    
    
    16
    
    
    
    279Trade accounts receivable
    
    
    4
    
    
    
    
    
    
    
    18
    
    
    
    17
    
    
    
    4
    
    
    
    8
    
    
    
    
    
    
    
    51Receivables and other debit balances
    
    
    7
    
    
    
    
    
    
    
    38
    
    
    
    4
    
    
    
    9
    
    
    
    64
    
    
    
    
    
    
    
    122Long-Term Investments and
ReceivablesDeposits, loans and other
long-term balances
    
    
    5
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    122
    
    
    
    2
    
    
    
    (16
    )
    
    
    172Investments in investees and other
companies
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    17Assets Related to Discontinuing
Operation
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Total assets
    
    
    814
    
    
    
    
    
    
    
    1,360
    
    
    
    60
    
    
    
    459
    
    
    
    111
    
    
    
    
    
    
    
    2,804Current LiabilitiesShort-term credits
    
    
    17
    
    
    
    
    
    
    
    275
    
    
    
    
    
    
    
    125
    
    
    
    19
    
    
    
    58
    
    
    
    494Suppliers and service providers
    
    
    12
    
    
    
    
    
    
    
    27
    
    
    
    22
    
    
    
    8
    
    
    
    38
    
    
    
    
    
    
    
    107Payables and other credit balances
    
    
    80
    
    
    
    
    
    
    
    31
    
    
    
    42
    
    
    
    48
    
    
    
    28
    
    
    
    
    
    
    
    229Long-Term Liabilities
    
    
    216
    
    
    
    1,029
    
    
    
    794
    
    
    
    807
    
    
    
    246
    
    
    
    
    
    
    
    (58
    )
    
    
    3,034Liabilities Related to
Discontinuing Operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    41Total liabilities
    
    
    325
    
    
    
    1,029
    
    
    
    1,127
    
    
    
    870
    
    
    
    469
    
    
    
    85
    
    
    
    
    
    
    
    3,905Excess assets over liabilities
(liabilities over assets)
    
    
    489
    
    
    
    (1,029
    )
    
    
    233
    
    
    
    (810
    )
    
    
    (10
    )
    
    
    26
    
    
    
    
    
    
    
    (1,101
    )
 118




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 23  FINANCIAL INSTRUMENTS (CONT.)
 F. Linkage basis report (cont.)
 As of December 31, 2005
 Other
    
    
    Adjustments toIsraeli NIS
    
    
    Euro
    
    
    GBP
    
    
    US Dollar
    
    
    Currencies
    
    
    Consolidation
    
    
    TotalUnlinkedReported in NIS milIionCurrent AssetsCash and cash equivalents
    
    
    7
    
    
    
    364
    
    
    
    34
    
    
    
    65
    
    
    
    19
    
    
    
    
    
    
    
    489Short-term deposits and investments
    
    
    18
    
    
    
    45
    
    
    
    4
    
    
    
    151
    
    
    
    22
    
    
    
    
    
    
    
    240Trade accounts receivable
    
    
    4
    
    
    
    5
    
    
    
    11
    
    
    
    10
    
    
    
    5
    
    
    
    
    
    
    
    35Receivables and other debit balances
    
    
    16
    
    
    
    23
    
    
    
    2
    
    
    
    7
    
    
    
    25
    
    
    
    
    
    
    
    73Long-Term Investments and
ReceivablesDeposits, loans and other
long-term balances
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    24
    
    
    
    3
    
    
    
    
    
    
    
    62Investments in investees and other
companies
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    16Assets Related to Discontinuing
Operation
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Total assets
    
    
    45
    
    
    
    495
    
    
    
    51
    
    
    
    263
    
    
    
    74
    
    
    
    
    
    
    
    928Current LiabilitiesShort-term credits
    
    
    23
    
    
    
    305
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    59
    
    
    
    655Suppliers and service providers
    
    
    12
    
    
    
    29
    
    
    
    15
    
    
    
    11
    
    
    
    15
    
    
    
    
    
    
    
    82Payables and other credit balances
    
    
    46
    
    
    
    38
    
    
    
    21
    
    
    
    38
    
    
    
    21
    
    
    
    
    
    
    
    164Long-Term Liabilities
    
    
    16
    
    
    
    745
    
    
    
    611
    
    
    
    327
    
    
    
    43
    
    
    
    (59
    )
    
    
    1,683Liabilities Related to
Discontinuing Operation
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    62Convertible debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    62Total liabilities
    
    
    97
    
    
    
    1,122
    
    
    
    647
    
    
    
    763
    
    
    
    79
    
    
    
    
    
    
    
    2,708Excess assets over liabilities
(liabilities over assets)
    
    
    (52
    )
    
    
    (627
    )
    
    
    (596
    )
    
    
    (500
    )
    
    
    (5
    )
    
    
    
    
    
    
    (1,780
    )
 119




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 24  SUBSEQUENT EVENTS
 A.
    
    In April and May 2007, the Company issued approximately NIS 514 million aggregate principal
amount of unsecured non-convertible Series D debentures, to investors in Israel. The
debentures bear interest at a rate of 5% per annum and linked (principal and interest) to
increases in the Israeli CPI. The principal amount will be repayable in eight annual equal
installments commencing in April 2013 and ending in April 2020.The Company has undertaken to
use its best efforts to register the debentures for trade on the TASE no later than August 30,
2007.During that period or trough registration for trade in TASE, the Company has undertaken
to pay an additional interest at an annual rate of 0.5%. The debentures will be prepaid at the
option of the trustee or the holders of the Series D debentures, if the securities of Company
are de-listed from trade on the TASE and on the Nasdaq Gloabl Market jointly.Series D debentures were rated A1, on a local scale, by Midroog Ltd. See in addition Note 14H.B.
    
    On February 7, 2007, Elscint has signed heads of terms (as amended on April 22, 2007) for the
sale of the entire interest in its wholly owned subsidiary, S.L.S. Sails Limited, which owns
and operates the Arena shopping and entertainment center (Arena), located at the Herzlia
Marina in Israel. Pursuant to the heads of terms, Israel Financial Levers Ltd. (Purchaser)
will acquire the entire rights in and to Arena in consideration for an assets value of NIS
538.0 million ($127.3 million). A price adjustment of up to an additional NIS 10.5 million
($2.5 million) will be paid subject to the attainment of certain conditions agreed upon
between the parties. The cash consideration payable upon consummation of the transaction will
be calculated according to the agreed upon value of Arena with the addition of monetary
balances and net of bank loan and other monetary liabilities as will be reflected in the
audited balance sheet at the closing.The Purchaser paid to Elscint non-refundable deposit (The deposit) in the amount of NIS 20.1
million ($5.0 million). The Deposit will be considered as final and agreed upon compensation
of the Purchaser to Elscint in case that the Transaction will not be consummated or as payment
on account of the total consideration if the transaction will be consummated. On June 14, the
parties executed a definitive agreement in respect of the transaction. The consummation of the
transaction is anticipated to be at the end of June 2007.C.
    
    On May 8, 2007, PC has formally completed the handover of the Rybnik Plaza and Sosnowiec
Plaza commercial and entertainment centers in Poland to Klepierre. These commercial centers
were pre-sold to Klepierre in July 2005 (See Note 9b(3)(e)) .The actual closing consideration,
subject to the fulfillment of certain conditions, resulted in an additional consideration of
18.6 million (NIS 103 million; $24.5 million) than the one agreed upon in July 2005
transaction. The revenues from selling these assets will be recorded in the following quarters
of 2007.D.
    
    On May 8, 2007 PC announced that it has agreed the sale of the Duna Plaza offices in
Budapest, Hungary, to Klepierre for a consideration of 14.2 million (NIS 79 million; $187
million) (see Note 10B.(6)). Furthermore, PC has agreed with Klepierre to proceed with the
development of the extension to the Duna Plaza Centre on an adjacent area of land, which is
anticipated to be completed by 2010.E.
    
    For other subsequent events, see Notes 9B.(3)f, m & n, 20A.(12) and 18C.(i).F.
    
    During March 2007 the Romanian National Department of Anticorruption resume the criminal
investigation against number of suspects for certain events relating to the period prior to
the acquisition of control in Bucuresti by B.H. Such criminal indictment was returned-in
December 2005- by the Romanian court to the prosecution office for its resubmission .Such
criminal investigation may have an indirect effect on the validity of the privatization and
thereby an indirect effect on Dominos rights in Bucuresti, notwithstanding Domino is not
being investigated.Considering the fact that Domino does not have any quality in this investigation the Company
estimates, based on a legal advice received, that the final result of this investigation will
not have a material effect on its rights in the shares of Bucuresti.
 120




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 24  SUBSEQUENT EVENTS (CONT.)
 G.
    
    On May 30, 2007 Maalot, the Israel Securities Rating Company Ltd. (Maalot) has approved a
rating of A+/Positive, for PC to raise new debt up to the amount of $400 million. In case PC
decides to proceed with such offer, it anticipates that its debentures would be linked to the
Israeli CPI, while the exact rate of interest would be determined at tenderH.
    
    On June 5, 2007, the Company executed a Framework Heads of Terms for the establishment of a
joint venture with one the leading real estate developers in Bangalore, India, which became
valid on June 6, 2007 following fulfillment of certain pre-conditions. The joint venture
company to be established (JV Company) will be held 50% by each of the Company and the local
partner. Subject to the fulfillment of certain conditions, the JV Company will acquire
ownership and development rights in approximately 190 acres of land situated in an upscale
section of Bangalore. Additionally, the Indian partner will assign to the JV Company joint
development rights with the owners of an adjacent area of land measuring approximately 100
acres. The consummation of the transaction is subject to fulfilment of certain agreed
conditions, principally the satisfactory completion of due diligence investigations, and
change of zoning to parts of the subject area.Subject to the fulfillment of the conditions to closing, it is anticipated that the Company
will invest an aggregate amount of approximately $180 million (NIS 760 million) in the land
acquisition transactions, of which $50 million (NIS 211 million) has been paid as an advanced
payment upon signature of the Heads of Terms. Such advance payment will be returned to the
Company should the preliminary conditions of the agreement not be fulfilled. The Company
intends to offer PC to take up a 50% participation in the Companys share of the joint
venture. PC participation requires the approval of its various corporate organs.


The JV Company intends to develop these extensive land areas for the construction of a large
scale residential project.I.
    
    On June 13, 2007, B.H. consummated a transaction for the sale of its 50% interest in a
company (Andrassy) which owns the building known as the Ballet Institute Building located
at Budapest, Hungary. The transaction reflects an asset value of 30 million (NIS 167
million; $40 million). As a result of this transaction, the Company will record a gain (before
tax) of approximately NIS 60-65 million($ 14-15 million) in the second quarter of 2007.Upon consummation of the transaction all existing agreements relating to the asset have been
cancelled by mutual agreement and without prejudice.J.
    
    On June 10, 2007 the plaintiffs mentioned in Note 17 B (1) submitted, per the courts
decision, updated class-action request and claim action. The main change appearing in the
updated request and claim was the deletion of the previous abovementioned principal remedy
with the following requested principal remedy:With respect to Elscints shares which were sold after the submission of the claim-
compensation in the amount of the difference between the price sale and 14$.With respect to Elscints shares which were not sold after the submission of the claim-
compensation in the amount of the difference between 7.25$ and 14$.In addition, the plaintiffs requested a new request (which did not appear in the original
claim) to add to the 14$ price annual interest at a rate of 14.2% to 16.3%.
 
 121




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON
THE CONSOLIDATED FINANCIAL STATEMENTS
  A. Differences between Israeli GAAP and U.S. GAAP
 1.
    
    Effect of inflationIn accordance with Israeli GAAP. Through December 31, 2003, the Companys financial
statements were prepared in adjusted values (in NIS of constant purchasing power), on
the basis of changes in the consumer price index. On January 1, 2004, Accounting
Standard No. 12 of the IASB came into effect (Standard 12). In accordance with the
provisions of Standard 12, adjustment of financial statements to the inflation ceased
commencing January 1, 2004 with adjusted amounts of non-monetary items which were
included in the balance sheet as of December 31, 2003, used as the basis for the nominal
financial reporting as of and from January 1, 2004. Amounts presented in the financial
statements for all periods were, therefore, included in values to be hereinafter
referred to as Reported amounts.In accordance with U.S. GAAP.The financial statements should be expressed in nominal
historical terms.As permitted by the United States Securities and Exchange Commission rules for foreign
private issuers whose financial statements comprehensively include the effects of
inflation, price level adjustments have not been reversed in the reconciliation of
Israeli GAAP to the U.S. GAAP financial statements.2.
    
    Jointly controlled companiesIn accordance with Israeli GAAP.The financial statements of jointly controlled
companies are included in the consolidated financial statements in accordance with the
proportionate consolidation method.In accordance with U.S. GAAP.Investments in jointly controlled companies are accounted
for by the equity method. However, use of the proportionate consolidation method is
permitted by Securities and Exchange Commission rules for a foreign issuer. Use of
proportionate consolidation does not have any effect on the income (loss) and/or
shareholders equity. Differences in classifications or display of items in the balance
sheet, in the statement of operations and in the statement of cash flows, that result
from using proportionate consolidation, are not required to be included in the
reconciliation to the U.S. GAAP financial statements. However, summarized data on a pro
forma basis, regarding reporting differences between the proportionate consolidation
method and the equity method, is provided in item B.3 below.
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ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 3. Deferred tax
 a.
    
    Deferred taxes in respect of inflation adjustmentIn accordance with Israeli GAAP.Through December 31, 2004 deferred taxes in
respect of inflation adjustments of fixed assets are provided only to the extent
that such fixed assets are depreciated over a period not exceeding 20 years.On January 1, 2005, Accounting Standard No. 19 of the IASB (Standard 19) came
into effect. In accordance with the provisions of Standard 19, the Company
initially included in its financial statements of 2005 deferred taxes in respect
of adjustment component for land and buildings, as cumulative effect for the
beginning of the year due to a change in accounting method in the statement of
operations and in the statement of changes of shareholders equity for the year
ended December 31, 2005.Thus, as from January 1, 2005 no difference between Israeli GAAP and US GAAP
regarding this issue, exists.In accordance with U.S. GAAP.Deferred taxes are provided on all such
inflation-adjustments, to the extent that they are temporary differences,
regardless of the period through which they will be depreciated or when they will
be deductible for tax purposes.b.
    
    Deferred taxes in respect of business combinationIn accordance with Israeli GAAP.Through December 31, 2004, deferred taxes were
recorded for differences between the assigned value, at the acquisition date, and
their value for tax purposes, of identifiable assets and liabilities of
subsidiaries, upon acquisition of the investment therein, except for assets for
which depreciation is not allowable for tax purposes (e.g. land and similar
assets). In accordance with the provisions of Standard 19, which came into effect
as from January 1, 2005, deferred taxes are to be recorded for such differences as
long as such differences relate to transactions occurring as of that date and
thereafter.In accordance with U.S. GAAP.Deferred taxes are recorded for temporary
differences mentioned in the preceding paragraph, in respect of assets whether or
not their depreciation is allowed for tax purposes.c.
    
    Tax effect on items initially charged or credited to shareholders
equityAny related tax effects in respect of items charged or credited directly to
shareholders equity during the current year, should also be included directly in
equity.In accordance with Israeli GAAP.Current-year deferred taxes related to
prior-years equity items arising from (i) changes in assessments of recovery of
deferred tax assets; or (ii) changes in tax rates, tax laws, or other measurement
factors, should be included directly in shareholders equity.In accordance with U.S. GAAP.The tax effect for deferred taxes related to prior
years as mentioned above should usually be included in the statement of
operations.
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ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 3. Deferred tax (cont.)
 d.
    
    Initial recognition of an asset or a liabilityFor temporary differences which arise on initial recognition of an asset or a
liability:In accordance with Israeli GAAP.It is not allowed to recognize deferred tax asset
or liability on initial recognition, when temporary differences generated upon
initial recognition of goodwill or upon transaction not in respect with a business
combination, and that which at the initial recognition thereof had no effect on
the accounting or tax net income.In accordance with U.S. GAAP.EITF 98-11 addresses recognition of deferred taxes
resulting from purchases of assets which are not business combination. Thus, even
if the transaction is not a business combination, and affects neither accounting
income nor taxable income, an entity should recognize the resulting deferred tax
liability or asset and adjust the carrying amount of the asset by the same amount.
 4. Stock-based compensation
 a.
    
    Accounting treatment through December 31, 2005In accordance with Israeli GAAP.The Company was not obliged to recognize stock
based compensation expenses in respect of share based payment transactions
(including shares granted to employees against loans which constitute the sole
security for the loans repayment, that are treated as options), granted by it to
employees and/or directors. The Company recorded only dividend payments in respect
of shares granted to employees against loans as compensation cost.In accordance with U.S. GAAP.The Company applies the intrinsic value method for
employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and in
accordance with FASB Interpretation No. 44. Pursuant to these accounting
pronouncements, the Company recorded compensation for stock options in respect of
fixed awards (i.e., award in which the number of shares granted and their exercise
price is fixed and known at the grant date), granted to employees and/or directors
over the vesting period of the options, based on the difference, if any, between
the exercise price of the options and the fair value of the underlying shares as
of the date of grant. Dividend payments was also recorded as compensation cost.
With respect to variable awards, changes in the market price of the
underlying shares at each balance sheet date, may affect the aggregate amount of compensation
recorded.Accordingly, in some of the Companys and its subsidiaries stock option plans, no
compensation expenses has been recognized for options granted, as grants were made
at the quoted market value of the underlying shares. However, in stock option
plans, adopted by one of the Companys subsidiaries, a privately held company (see
Note 9B(2) above), its Board of Directors determined that, at the various times of
issuance of its stock options under two Stock Option Plans, the fair
value of the shares underlying the stock options exceeded the stock option exercise prices by
an accumulated amount of approximately $9.2 million. Deferred compensation is
amortized to compensation expenses over the vesting period of the options and is
included as salary, as part of the cost of revenues, research and development
costs, selling and marketing expenses and general and administrative expenses, as
the case may be.
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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 4. Stock-based compensation (cont.)
 a.
    
    Accounting treatment through December 31, 2005 (cont.)Grants to other-than employees/directors are accounted for at fair value as of the
date of grant, in accordance with SFAS No. 123, Accounting for Stock-based
Compensation (SFAS No. 123), as amended by SFAS 148 and related interpretations
and in accordance with EITF 96-18.Regarding pro-forma effect, according to SFAS No. 123, see B.5.A. below.b.
    
    Accounting treatment from January 1, 2006Commencing January 1, 2006 the Company apply the provisions of Standard 24 of the
IASB in its Israeli GAAP financial statements and the provisions of SFAS 123R in
its U.S. GAAP financial statements. The followings are the material differences
between Standard 24 and SFAS 123R in respect of the Companys share based
arrangements:
 (i)
    
    Transitional provisionsIn accordance with Israeli GAAP.Standard 24 is effective for periods
beginning on or after January 1, 2006 (effective date). Pursuant to the
transition provisions set forth in the Standard, the Company applied this
standard to grants of shares, stock options or other equity instruments that
were granted after March 15, 2005 and had not yet vested at the effective
date. The Standard also apply to modifications of grants which were executed
after March 15, 2005 and which related to awards granted before that date.Dividend payments in respect of awards granted prior to March 15, 2005 are
recorded as compensation costs in the statements of operations.In accordance with the provisions of Standard 24 the Company retrospectively
applied its guidance in the financial statements for the year ended December
31, 2005 and recorded additional expenses in the amount of NIS 1.7 million
(net of minority interest NIS 1.2 million).In accordance with U.S. GAAP.The provisions of SFAS 123R apply to all
awards which were granted by the Company after January 1, 2006 and to awards
modified, repurchased, or cancelled after that date.In respect of awards granted prior to January 1, 2006, which are not vested
at that date, the Company has elected to apply the modified prospective
transition method under which the Company is required to recognize
compensation cost for all such awards commencing January 1, 2006 based on
the grant-date fair value of those awards calculated for pro-forma
disclosure under SFAS 123.Dividend payments are not recognized as compensation costs.
 125




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 4. Stock-based compensation (cont.)
 b.
    
    Accounting treatment from January 1, 2006 (cont.)
 (ii)
    
    Recognition of compensation costWithin the framework of PCs options plan in October 2006, PC designated
5,424,436 options for grant to the Companys directors and its controlling
shareholder (Oferees). Such grants are subject to the approval of the
Companys additional organs. As of December 31, 2006 such approvals were not
yet obtained.In accordance with Israeli GAAP.The Company should recognize expenses in
respect of such options from the date that the Oferrees begun rendering
services to the Company. In this situation, the Company should estimate the
grant date fair value of the equity instruments (e.g., by estimating the
fair value of the equity instruments at the end of the reporting period),
for the purposes of recognizing the services received during the period
between service commencement date and grant date. Once the date of grant
has been established, the entity should revise the earlier estimate so that
the amounts recognized for services received in respect of the grant are
ultimately based on the grant date fair value of the equity instruments.In accordance with U.S. GAAP.Compensation costs for such options should not
be recognized prior to receiving all necessary approvals, when the approvals
are not a formality.
 5.
    
    Issuance of shares by a development stage investeeIn accordance with Israeli GAAP.The increase in the Companys share in the net asset
value of a development stage investee, as a result of an issuance of shares by the
investee to third parties, is recorded as deferred income, which is charged to the
statement of operations over a three year period or up to the Companys share in
investees losses during the relevant period, whichever is higher, on cumulative basis.In accordance with U.S. GAAP.The increase in the Companys share in the investees net
asset value, is included directly in shareholders equity.
 126




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 6. Implementation of the equity method
 a.
    
    Investment previously accounted for on the cost basis which becomes
qualified for use of the equity method, due to an increase in the level of
ownership as a result of acquisition by the Company of additional voting stock of
the investee or due to a change in the investors status because of no longer
meeting the applicable Venture Capital Investment Fund conditions, is treated as
follows:In accordance with Israeli GAAP.The company (the Investor) should implement the
equity method only from the date the investment become qualified for use of the
equity method (i.e. from the date the change has occurred) and thereafter.
Restatement of previous years data, presented within the financial statements, is
not required or permitted.In accordance with U.S. GAAP.The investment, results of operations (current and
prior periods presented) and retained earnings of the company, should be adjusted,
retroactively, by applying the accounting of step-by-step acquisition of the
investees stock.b.
    
    In accordance with Israeli GAAP.Through December 31, 2005, goodwill
was amortized periodically over its respective estimated useful life, and was
reviewed periodically  as part of the investment as a whole whenever there are
indicators  for impairment. Commencing January 1, 2006, goodwill in respect of
associated companies will no longer be amortized but rather examined  as part of
the investment as a whole  whenever there are indicators for impairment.In accordance with U.S. GAAP.Goodwill related to equity method investees is not
amortized (as from January 1, 2002 and thereafter) but is tested for impairment
under the provisions of APB 18.c.
    
    In circumstances where the Companys ownership in an investee company
(mainly, venture capital investments) is in the form of preferred securities or
other senior securities, the Company records equity losses based on the ownership
level of the particular investee securities or loans extended by the Company to
which the equity method losses are being applied.In accordance with Israeli GAAP.If the investor is able to exercise significant
influence over the investees operational and financial policies, the equity
method of accounting shall be applied.In accordance with U.S. GAAP.Effective for reporting periods beginning after
September 15, 2004, the equity method of accounting is no longer to be applied in
respect of investments that are not common stock (or in-substance common stock),
regardless of the Companys ability to carry out through such securities
significant influence over the investees operational and financial policies.
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ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 7.
    
    Capitalization of financial expenses during the construction periodIn accordance with Israeli GAAP.The amount of financial expenses to be capitalized for
qualifying assets, include exchange rate differences, incurred during the assets
construction period.In accordance with U.S. GAAP.Financial expenses eligible for capitalization for
qualifying assets include only interest costs, and do not include exchange rate
differences.8.
    
    Impairment of long-lived assets and investmentsThroughout the process of assessing the need for recording an impairment loss, the
Company considers certain indicators, so as to trigger an impairment review.In accordance with Israeli GAAP.As from January 1, 2003, the impairment review for such
assets is based on the assets estimated net selling price or the estimated
value-in-use, based on discounted cash flows expected to be generated by those assets,
whichever is higher.

According to the provisions set forth in opinion No. 68 of the ICPAI (which were in
effect through December 31, 2002), in case of a decline in value (other than of a
temporary nature) that causes the fair value of an investment in an autonomous foreign
investee company (including, subsidiaries) to be less than its carrying amount, a
provision for the decline in fair value was provided. See also sub-section A.9.a. below.

Through December 31, 2005, goodwill was amortized over its estimated useful life, and
was reviewed periodically whenever there were indicators, for impairment. Commencing
January 1, 2006 positive goodwill presented in the balance sheet on December 31, 2005
will no longer be amortized but rather examined for impairment. Such examination will be
at least annually or more frequently whenever there are indicators for impairment loss.In accordance with U.S. GAAP.The impairment review for such assets that are held for
use is based on undiscounted future cash flows expected from the holding and use of
these assets in accordance with SFAS 144 (Accounting for the Impairment or Disposal of
Long-Lived Assets). Goodwill, arising from business combination, is not amortized (effective January 1,
2002), but is tested for impairment, at least annually or more frequently whenever there
are indicators for impairment loss, using a two-steps method.The first step of the test, in order to ascertain if a decline in value of the goodwill
has, in fact, taken place, is performed by means of a comparison of the fair value of
the reporting unit with its net asset value, including the goodwill.If the result is that the fair value of the reporting unit is less than its net asset
value including goodwill, the second step is to be performed in order to measure the
amount of impairment loss, by comparing the value of the goodwill unit with its carrying
amount. If the value of the goodwill is less than its carrying amount, an impairment
loss should be recognized.Fair value of goodwill will be determined by allocating the fair value of the reporting
unit from the first step to all assets and liabilities of that unit, with the residual
is to be goodwill.
 128




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 9. Realization of capital reserve from translation adjustment
 a.
    
    As a result of impairment loss recognition:In accordance with Israeli GAAP.Through December 31, 2002, such an impairment
loss was charged directly against any credit balance in the capital reserves for
translation adjustments, previously recorded in respect of this investment.
Commencing January 1, 2003, (the date a new accounting standard regarding
impairment of assets became effective in Israel) such a decline in value is
charged directly to the statement of operations. Thus, as from that date no
difference between Israeli GAAP and U.S. GAAP regarding this issue, exists.In accordance with U.S. GAAP.Capital reserves for translation adjustments are
realized only upon sale or upon complete (or substantially complete) liquidation
of the investment in the foreign entity. Realization of such capital reserve as a
result of recording a provision for impairment loss, is prohibited.b.
    
    As a result of a repayment of a monetary balance of a capital nature:In accordance with Israeli GAAP.The accumulated translation adjustment relating
to such monetary balance, is released to the statement of operations.In accordance with U.S. GAAP.Capital reserves for translation adjustments are
realized only upon sale or upon complete (or substantially complete) liquidation
of the investment in the foreign entity. Realization of such capital reserve, as a
result of a repayment of a monetary balance of a capital nature, is prohibited.
 129




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 10. Derivative financial instruments
 a.
    
    The Company leases its commercial centers under long-term contracts.
The leases were denominated, generally, in Euro (some are denominated in dollars),
most of which were linked to the Euro Index.In accordance with Israeli GAAP.Derivatives embedded within non-derivative
instruments, should not be bifurcated from the host instruments and are treated
for accounting purposes together with the host instrument.In accordance with U.S. GAAP.According to Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), a derivative is typically defined as an instrument whose value is
derived from an underlying instrument, index or rate, has a notional amount,
requires no or little initial investment and can be net settled. Derivatives
include, but are not limited to, the following types of investments: interest rate
swaps, interest rate caps and floors, put and call options, warrants, futures,
forwards and commitments to purchase securities and combinations of the foregoing.

Derivatives embedded within non-derivative instruments, must be bifurcated from
the host instrument and accounted for in accordance with SFAS 133, when the
embedded derivative is not clearly and closely related to the host instrument.
Rental for the use of leased assets and adjustments for inflation on similar
property are considered to be clearly and closely related. Thus, the
inflation-related derivative embedded in an inflation-indexed lease contract is
not bifurcated from the host contract.

In conformity with SFAS 133, foreign currency forward contracts that are embedded
within such lease contract (the host contract) should be bifurcated and
accounted for separately. The bifurcated forward contracts are recorded at their
fair value while changes in their fair values are charged to the statement of
operations and classified under financial income, (expenses) net.

An embedded foreign currency instrument is not bifurcated from the host contract,
if (i) contracts in which specified volumes of sales of one of the parties to the
contract serve as the basis for settlement (underlying); (ii) the host contract
is not a financial instrument and it requires payments denominated in the
functional currency of any substantial party to that contract, determined based on
the conditions exists at the inception of the lease agreement.b.
    
    In order to partially hedge the risk of variable interest rate on long
term loans, the Company fixed certain variable interest rates by swap transactions.In accordance with Israeli GAAP.Derivative financial instruments that are
designated for hedging cash flows are not presented as assets or liabilities. The
results of the derivatives are charged to the statement of operations concurrently
with the charging of the results from the hedged liability.In accordance with U.S. GAAP.Derivative financial instruments that are designated
for hedging cash flows, are stated, according to FAS No. 133, at their estimated
fair value. Changes in their fair value during the reporting period are charged,
when occurred, as capital reserve, under other comprehensive income, in
shareholders equity and transferred to the statement of operations concurrently
with charging of the interest from the hedged liability to the statement of
operations.
 130




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ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 11.
    
    Discontinued operations  Determination of a component of an entityUpon realization of a component of an entity the results thereof should be accounted
for as discontinued operations.In accordance with Israeli GAAP.A component of an entity comprises operations that
(i) can be distinguished operationally and for financial reporting purposes, from the
rest of the entity; and (ii) represent a separate major line of business or geographical
area of operations. The applicable Israeli principles do not address a reporting unit
(as defined in Standard No. 15 of the IASB) to be considered a component of an entity
for discontinued operation purposes.In accordance with U.S. GAAP.A component of an entity comprises operations and cash
flows that can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of the entity. A component of an entity may be a reportable
segment or an operating segment (as those terms are defined in SFAS No. 131), a
reporting unit (as that term is defined in SFAS No. 142), a subsidiary, or an asset
group (as that term is defined in SFAS No. 144). The results of operations of a
component of an entity that either has been disposed of or is classified as
held-for-sale, shall be reported as discontinued operations, if both of the following
conditions are met: (i) the operations and cash flows of the component have been (or
will be) eliminated from the ongoing operations of the entity as a result of the
disposal transaction; and (ii) the entity will not have any significant continuing
involvement in the operations of the component after the disposal transaction.

Each operational hotel or operational commercial center is, as of the date of the
financial statements, the lowest level at which the operations and cash flows can be
clearly distinguished, operationally and for financial reporting purposes, from the rest
of the entity. Therefore, each operational hotel and/or operational commercial center
which were disposed of is considered for discontinued operations purpose, as a
component of the entity.12.
    
    Subsequent events  dividendIf a dividend is declared subsequent to the balance sheet date but before the financial
statements are issued, the dividend is not recognized as a liability at the balance
sheet date.In accordance with Israeli GAAP.Such dividend is to be recorded as a separate item in
the shareholders equity, named declared dividend after the balance sheet date.In accordance with U.S. GAAP.Such dividend is not recorded as a separate item in the
shareholders equity.
 131




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 13.
    
    Convertible debentureA subsidiary of the Company has issued convertible debentures.In accordance with Israeli GAAP.Through December 31, 2005, convertible debentures were included based on conversion
probability tests, as set out in Opinion No. 53 of the ICPAI. Debentures, whose
conversion was not probable, were presented at their liability value. Debentures, whose
conversion was probable were included as a quasi-equity item between liabilities and
shareholders equity, at the higher of their monetary or non-monetary value. In
accordance with the provisions of Standard No. 22, as effective from January 1, 2006,
the liability component and the conversion option component should be measured at the
date of their issuance and should be recognized separately in the balance sheet. The
fair value of the liability component is determined based on the interest rates
customary to similar debentures having no conversion rights. The difference between the
convertible debentures proceeds and the fair value of the liability component is
attributed to the conversion option and is recognized in the consolidated financial
statements as a minority interest (included in shareholders equity in the financial
statements of the subsidiary).In accordance with U.S. GAAP.Convertible debentures are recorded as liabilities at their monetary value. In
accordance with EITF No. 98-5, Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios and EITF No. 00-27,
Application of Issue No. 98-5 to Certain Convertible Instruments, embedded beneficial
conversion features included in convertible securities, should be valued separately at
issuance. The embedded beneficial conversion feature should be recognized and measured
by allocating a portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital in the financial statements of the subsidiary. In the
consolidated financial statements it will be part of minority interest. That amount
should be calculated at the commitment date as the difference between the conversion
price and the fair value of the common stock or other securities into which the
debentures are convertible, multiplied by the number of shares into which the security
is convertible (intrinsic value).
 132




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ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 14.
    
    Principles of consolidation in respect of Variable Interest Entities (VIE)In accordance with Israeli GAAP.Statement of Opinion No. 57 of the ICPAI, which
constitutes the sole prevailing pronouncement for consolidation principles in Israel,
does not deal with control achieved through means other than voting rights.In accordance with U.S. GAAP.Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an interpretation of ARB 51, provides a new framework for
identifying variable interest entities (VIE) and determining when a company should
include the assets, liabilities and results of operations of a VIE in its consolidated
financial statements. In December 2003, the FASB issued FIN 46 (revised December 2003),
Consolidation of Variable Interest Entities (FIN 46-R) to address certain FIN 46
implementation issues.

An entity is considered as a VIE when (i) the equity investment at risk is not
sufficient to permit the entity from financing its activities without additional
subordinated financial support from other parties; or (ii) equity holders either: (a)
lack direct or indirect ability to make decisions about the entity; (b) are not
obligated to absorb expected losses of the entity; or (c) do not have the right to
receive expected residual returns of the entity if they occur. If an entity or
investment is deemed to be a VIE, an enterprise that absorbs a majority of the expected
losses of the VIE or receives a majority of the residual returns (if no other variable
interests absorb majority of the VIEs losses), or both, is considered the primary
beneficiary and must consolidate the VIE.

FIN 46 was effective immediately for VIEs created after January 31, 2003. For VIEs
created before January 31, 2003, the provisions of FIN 46, as revised, were adopted as
of December 31, 2004. The Company evaluated its investee companies in respect of the
need for adoption of FIN 46-R and it was determined that one of its investee companies
(which, in accordance with the Israeli GAAP, is consolidated on the basis of the
proportionate-consolidation method), should be fully consolidated in the Companys
financial statements, in accordance with U.S. GAAP.15.
    
    Convertible securities of investeesIn accordance with Israeli GAAP.Through December 31, 2005 the Company was required to
record a provision for losses which may incur as a result of the dilution of its
shareholdings in investees upon exercise of vested share options, when it was probable
that they will be exercised. These provisions were terminated by Standard No. 22 of the
IASB, which is effective as from January 1, 2006 and which requires that loss resulting
from the dilution of the Companys shareholding in investee will be recorded only at the
event the convertible securities of the investees were exercised into shares. Thus as
from that date no difference between Israeli GAAP and U.S. GAAP regarding this issue,
exits.In accordance with U.S. GAAP.A loss resulting from the dilution of a Companys
shareholdings, in the event the share options are exercised, is recorded in its
financial statements only at the time of exercise.16.
    
    Excess of fair value of aquired net assets over costIn accordance with Israeli GAAP.The excess of fair value of net assets acquired in a
business combination or in acquisition of some or all of the non-controlling equity
interest in a subsidiary over cost, should be allocated as a pro rata reduction to the
amount that otherwise would have been assigned to all of the acquired non-monetary
assets.In accordance with U.S. GAAP.In accordance with the provisions of SFAS No. 141 such
allocation is not permitted to assets of the acquired entity to be disposed of by sale.
 133




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 17. Revenue recognition
 a.
    
    Sale of medical systemsIn certain cases, a related party of a subsidiary provides financing to its
customers, by way of long-term loans.In accordance with Israeli GAAP. Revenue for such transactions is recognized upon
delivery provided that all other criteria for revenue recognition (See Note 2 R)
are met.In accordance with U.S. GAAP.In those transactions the Company applied the
presumption that the fee is not fixed or determinable, and therefore deferred the
revenues over the term of these loans, based on the due dates of the payments.b.
    
    Sale of real estate assets, investment and trading propertyIn accordance with Israeli GAAP.The Company recognized revenues from sales of
real estate assets when all the conditions for revenue recognition have been
fulfilled. See Note 2R(iv)).

For sales transactions with a certain degree of continuing involvement (for
example, in a form of a guarantee to the buyer), revenues are reduced by the
estimated exposure to loss related to the continuing involvement.In accordance with U.S GAAP.For sales transactions with continued involvement of
the Company to the buyer for an extended period of time(generally more than five
years), the revenues recognized are to be reduced by the maximum exposure to loss
which will be resulted from the continuing involvement.
 18.
    
    Guarantees provided in favor of third partiesIn accordance with Israeli GAAP.A guarantor is not required to recognize a liability
for the fair value of the obligation undertaken in issuing the guarantee that is the
obligation to stand ready to perform in the event that specified triggering events or
conditions occur.In accordance with U.S. GAAP.According to FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others some disclosures must be made by a guarantor in
its financial statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. The Interpretation requires the guarantor to recognize a liability for the
non-contingent component of the guarantee, that is the obligation to stand ready to
perform in the event that specified triggering events or conditions occur. The initial
measurement of this liability is the fair value of the guarantee at inception. The
recognition of the liability is required even if it is not probable that payments will
be required under the guarantee or if the guarantee was issued with a premium payment or
as part of a transaction with multiple elements. The management of the Company is of the
opinion that FIN 45 does not have a material impact on its financial statements.
 134




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 19. Other differences
 a.
    
    Translation of profit and loss items:In accordance with Israeli GAAP.As from January 1, 2004 revenues and expenses of
foreign operations constituting autonomous foreign entities, are translated
based on the exchange rate as at the date of transaction, or for sake of
practicality, using the average exchange rate for the period. Thus, as from that
date, no differences between Israeli GAAP and U.S. GAAP, exists. Principles used
through Decembers 31, 2003 provided for translation of all items of the
autonomous foreign entities financial statements (including those of the
statements of operations), based on closing rates.In accordance with U.S. GAAP.The transactions included in the statements of
operations of an autonomous foreign entity, were always translated at the actual
transaction rates or the average rate for the period.
 b. Start-up costs:
 In accordance with Israeli GAAP.
 (i)
    
    Pre-operating costs in respect of hotels and/or commercial
centers operations are stated at cost and amortized over a three-year period
from commencement of full scale operations. In accordance with the provisions
of Standard No. 30 of the IASB  which is effective from January 1, 2007 
such costs are not eligible for capitalization but rather should be expensed
to the statement of operations as incurred. Thus, as from January 1, 2007 no
differences between Israeli GAAP and US GAAP regarding this issue exists.(ii)
    
    Initiation costs of projects which do not meet
capitalization criteria are included as operating expenses.
 In accordance with U.S. GAAP.Statement of Position
(SOP) 98-5 Reporting on the Costs of Start-up Activities, requires that all costs of start-up activities
(pre-opening, pre-operating and organizational costs) are to be expensed, within
operating expenses, as incurred.c.
    
    Marketable Securities:In accordance with Israeli GAAP.Investments in marketable securities, designated
by management for sale in the short term, are included in current assets at their
market value at the balance-sheet date. Changes in value are charged to the
statement of operations, as incurred.In accordance with U.S. GAAP.In accordance with SFAS No. 115, marketable
securities that are acquired and held principally for the purpose of selling them
within the near future, are classified as trading securities and are reported at
their fair value. Unrealized gains and losses in respect of such securities, are
included in the statement of operations. Held-to-maturity securities are debt
securities for which the Company has the intent and ability to hold to maturity
and are reported at amortized cost. Marketable securities not classified as
trading securities or held-to-maturity securities, are classified as
available-for-sale securities and are reported at their fair value. Unrealized
gains and losses in respect of such securities, are included in a separate item
within the shareholders equity and reported as other comprehensive income.
 135




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 19. Other differences (cont.)
 d.
    
    Capitalization of rent costs:In accordance with Israeli GAAP.Rent costs incurred during the construction
period have been capitalized to the cost of the assets.In accordance with U.S. GAAP.There are two acceptable methods to account for rent
costs incurred during the construction period as follows: (i) to expense these
costs as incurred in the period they are recognized (the Expense Method); or
(ii) to capitalize these costs to the cost of the assets (the Capitalization
Method). The Company applies for U.S. GAAP purposes the Expense Method.e.
    
    Contingent consideration based on security price:Consideration for a business combination may be contingent on the change in the
market price of the shares issued by the acquirer. Under such an agreement, unless
the price of the shares issued equals, at least, an agreed amount (Specified
Amount) on the date such contingency have been resolved (Specified date) the
acquiring corporation is required to issue additional shares or to transfer cash
(at the acquirers sole discretion) in order to make the current value of the
total consideration equal to the Specified Amount. The Company in such a
transaction elected at the settlement (specified) date to issue additional shares.In accordance with Israeli GAAP.The shares, which are issued unconditionally at
the date the transaction is consummated, should be recorded at their market price
at such date. The difference between the market price of such shares upon
issuance, and the Specified Amount, is recorded as a monetary liability. Changes
in the value of the liability (since the shares issuance through the specified
date), are recorded in the statement of operations for each reporting period. On
the specified date, by way of issuance of additional shares, such liability is to
be charged to share capital and to premium on shares.In accordance with U.S. GAAP.The shares issued unconditionally at the date the
transaction is consummated, should be recorded at the Specified Amount, discounted
to its present value. No adjustments on the shareholders equity and on other
balance sheet items are required until and after the contingency is resolved by
way of issuance of additional shares.f.
    
    Costs incurred in connection with an exchange or modification of a debt
instrument between an existing borrower and lender:In accordance with Israeli GAAP.Fees paid by the debtor to the creditor (Fees)
or costs incurred with third parties (Costs) directly related to the exchange or
modification of a debt instrument, which is not accounted for as a debt
extinguishment, should be accounted as an adjustment to the carrying amount of the
new debt, due to the fact that the terms of the old debt and the new debt are not
considered substantially different, and are amortized over the remaining term of
the replacement or modified debt.In accordance with U.S. GAAP.Such expenses are distinguished into two categories:
(i) Fees paid as part of an exchange or modification, which is not accounted for
as a debt extinguishment, should be accounted as an adjustment of interest expense
and amortized over the remaining term of the replacement or modified debt
instrument; (ii) Costs incurred with third parties, should be expensed, as
incurred.
 136




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 19. Other differences (cont.)
 g.
    
    Cost relating to written options:In accordance with Israeli GAAP.Written options, which permit the option holder
to buy or sale shares of investees, are not recorded in the financial statements.In accordance with U.S. GAAP.SEC long standing position is that written options,
which permit the option holder to buy or sale shares of investees, should be
reported at their fair value thought the statement of operations.h.
    
    Cost of raising loans:In accordance with Israeli GAAP.Commencing January 1, 2006 the Company applied
prospectively the provisions of Standard 22 which require offsetting such costs
from their related liabilities.In accordance with U.S GAAP.Such costs are presented as other assets and
deferred charges in the balance sheet.
 20.
    
    Earnings per share (EPS)Through December 31, 2005 there were several differences in the calculation of EPS
between the Israeli GAAP and U.S. GAAP. Efectively from January 1, 2006, in accordance
with Israeli GAAP, is calculated in accordance with the provisions of Standard No. 21,
Earnings per Share (Standard 21).In accordance with the transition provisions of Standard 21, the Company retrospectively
adjusted its EPS data for previous years.The provisions set forth in Standard 21  in respect of the Companys EPS data -are
similar, in all material respects, to those provided by SFAS 128 under U.S. GAAP.
 137




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##### 



ELBIT MEDICAL IMAGING LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A. Differences between Israeli GAAP and U.S. GAAP (Cont.)
 21. Recently issued accounting standards under U.S. GAAP
 a.
    
    In February 2006, the FASB issued SFAS 155, accounting for certain
Hybrid Financial Instruments, an amendment of FASB statements No. 133 and 140. This
statement permits fair value measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation. For the
Company, this statement is effective for all financial instruments acquired or
issued after January 1, 2007. Earlier adoption is permitted as of the beginning of
an entitys fiscal year. Management is currently evaluating the impact of this
statement, if any, on the Companys financial statements and its results of
operations.b.
    
    In September 2006, FASB issued SFAS No. 157, Fair Value Measurements,
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This Statement applies under other
accounting pronouncements that require or permit fair value measurements, and does
not require any new fair value measurements. The application of SFAS 157, however,
may change current practice within an organization. For the Company, SFAS 157 is
effective for all fiscal years beginning after January 1, 2008, with earlier
application encouraged. The Company is currently evaluating the effect that the
application of SFAS 157 will have on its financial position, results of operations
and cash flows.c.
    
    In September 2006 , FASB issued SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans- an amendment of FASB
Statement No. 87, 88, 106 and 132 ( R),  (SFAS 158). SFAS 158 requires an
employer to recognize as of December 31, 2006 the over-funded or under-funded
status of a defined benefit postretirement plan as an asset or a liability in its
statement of financial position and to recognize changes in that funded status in
the year in which the changes occur through comprehensive income to the extent
these charges are not recognized in earning as component of periodic net benefit
costs. Effective from 2008 the funded status of a plan should be measured as of the
Companys year end. The initial implementation of SFAS 158 did not have a material
impact on its financial position, results of operations or cash flows.d.
    
    In February 2007, FASB issued SFAS No 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB Statement
No 115 (SFAS 159). SFAS 159 permits entities to measure many financial
instruments and certain other assets and liabilities at fair value on an
instrument-by-instrument basis under a fair value option. For the Company, SFAS 159
is effective beginning January 1, 2008. The Company is currently evaluating the
effects, if any, the adoption of SFAS 159 will have on its financial statements.
 138




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25   MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 A.
    
    Differences between Israeli GAAP and U.S. GAAP (Cont.)
 21.
    
    Recently issued accounting standards under U.S. GAAP (cont.)
 e.
    
    In June 2006, FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109 Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attributes for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return that results in a tax benefit. The first step is to evaluate
the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount which is more
than 50% likely of being realized upon ultimate settlement. Additionally, FIN 48
provides guidance on derecognition, income statement classification of interest and
penalties, accounting in interim periods, disclosure, and transition. For the
Company, this interpretation is effective beginning January 1, 2007. The Company
will be required to apply the provisions of FIN 48 to all tax positions upon
initial adoption with any cumulative effect to be recognized as an adjustment to
retained earnings. The Company is currently evaluating the effects that the
application of FIN 48 will have on its results of operations and its financial
condition.f.
    
    In March 2006, EITF 06-03 how Taxes Collected from Customers and
Remitted to Governmental Authorities Should be Presented in the Income Statement
(That Is, Gross versus Net Presentation) was issued. EITF 06-03 provides guidance
on how to account for any tax assessed by a governmental authority that is imposed
concurrent with a revenue producing transaction between a seller and a customer
(e.g.: value added taxes). According to EITF 06-03 such taxes could be presented on
either gross or net basis and that accounting policy decision should be disclosed.
For the Company, EITF 06-03 is effective from January 1, 2007. EITF 06-03 is not
expected to have a material impact on the Companys financial position, results of
operations or cash flows.g.
    
    In September 2006 SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements When Quantifying Misstatements
in the Current Year Financial Statements(SAB 108), to address diversity in
practice in quantifying financial statement misstatements. SAB 108 requires the
quantification of misstatements based on their impact on both the balance sheet and
the income statement to determine materiality. The guidance provides for a one-time
cumulative effect adjustment to correct for misstatements that were not deemed
material under a companys prior approach but are material under the SAB 108
approach. For the Company, SAB 108 is effective for December 31, 2006. The
implementation of SAB 108 did not have a material impact on the Companys financial
position, results of operations or cash flows.
 - 139 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements
 1.
    
    Statements of operations:
 A.
    
    The Statement Of Operations In Accordance With Israeli GAAP Is
Reconciled To U.S. GAAP as follows:
 Year Ended December 31, 2006ReportedIsraeli GAAP
    
    
    
    
    
    
    
    
    
    U.S. GAAPAs reportedin these
    
    
    
    
    
    Dis-
    
    
    
    
    
    Con-financial
    
    Re-
    
    continued
    
    
    
    
    
    veniencestatements
    
    conciliations
    
    Operation
    
    Total
    
    translation(In Thousand NIS)
    
    US$000RevenuesSale of real estate assets and
investments, net
    
    
    80,218
    
    
    
    
    
    
    
    (5,800
    )
    
    
    74,418
    
    
    
    17,614Sale of trading property
    
    
    286,633
    
    
    
    (22,541
    )
    
    
    
    
    
    
    264,092
    
    
    
    62,507Commercial center operations
    
    
    110,875
    
    
    
    
    
    
    
    
    
    
    
    110,875
    
    
    
    26,242Hotels operations and management
    
    
    351,610
    
    
    
    
    
    
    
    (1,557
    )
    
    
    350,053
    
    
    
    82,853Sale of medical systems
    
    
    85,824
    
    
    
    (33,825
    )
    
    
    
    
    
    
    51,999
    
    
    
    12,307Realization of investments
    
    
    697,358
    
    
    
    (20,506
    )
    
    
    
    
    
    
    676,852
    
    
    
    160,201Other operational income
    
    
    58,035
    
    
    
    
    
    
    
    
    
    
    
    58,035
    
    
    
    13,7361,670,553
    
    
    
    (76,872
    )
    
    
    (7,357
    )
    
    
    1,586,324
    
    
    
    375,470Costs and expensesCost of trading property sold
    
    
    250,475
    
    
    
    
    
    
    
    
    
    
    
    250,475
    
    
    
    59,284Commercial center operations
    
    
    144,562
    
    
    
    (996
    )
    
    
    
    
    
    
    143,566
    
    
    
    33,980Hotels operations and management
    
    
    306,384
    
    
    
    (1,504
    )
    
    
    (1,207
    )
    
    
    303,673
    
    
    
    71,875Medical systems operation
    
    
    72,515
    
    
    
    (8,978
    )
    
    
    
    
    
    
    63,537
    
    
    
    15,039Other
operational expenses
    
    
    70,251
    
    
    
    
    
    
    
    
    
    
    
    70,251
    
    
    
    16,628Research and development expenses,
net
    
    
    62,566
    
    
    
    1,453
    
    
    
    
    
    
    
    64,019
    
    
    
    15,153General and administrative expenses
    
    
    67,161
    
    
    
    (3,089
    )
    
    
    
    
    
    
    64,072
    
    
    
    15,165Share in results of associated
companies, net
    
    
    9,665
    
    
    
    5,768
    
    
    
    
    
    
    
    15,433
    
    
    
    3,653Financial expenses, net
    
    
    129,127
    
    
    
    (25,203
    )
    
    
    (140
    )
    
    
    103,784
    
    
    
    24,564Other expenses
    
    
    36,836
    
    
    
    8,335
    
    
    
    
    
    
    
    45,171
    
    
    
    10,6911,149,542
    
    
    
    (24,214
    )
    
    
    (1,347
    )
    
    
    1,123,981
    
    
    
    266,032Profit (loss) before income taxes
    
    
    521,011
    
    
    
    (52,658
    )
    
    
    (6,010
    )
    
    
    462,343
    
    
    
    109,428Income taxes (tax benefits)
    
    
    5,222
    
    
    
    (2,940
    )
    
    
    (28
    )
    
    
    2,254
    
    
    
    533Profit (loss) after income taxes
    
    
    515,789
    
    
    
    (49,718
    )
    
    
    (5,982
    )
    
    
    460,089
    
    
    
    108,895Minority interest in results of
subsidiaries, net
    
    
    9,691
    
    
    
    7,506
    
    
    
    
    
    
    
    17,197
    
    
    
    4,070Profit (loss) from continuing
operation
    
    
    525,480
    
    
    
    (42,212
    )
    
    
    (5,982
    )
    
    
    477,286
    
    
    
    112,965Profit from discontinued
operation, net of taxes:Profit from the ordinary
activities of the operation
    
    
    35,664
    
    
    
    
    
    
    
    182
    
    
    
    35,846
    
    
    
    8,484Gain on discontinuance
    
    
    
    
    
    
    
    
    
    
    5,800
    
    
    
    5,800
    
    
    
    1,37335,664
    
    
    
    
    
    
    
    5,982
    
    
    
    41,646
    
    
    
    9,857Net income (loss)
    
    
    561,144
    
    
    
    (42,212
    )
    
    
    
    
    
    
    518,932
    
    
    
    122,822Basic earning per share:Continuing operations
    
    
    20.83
    
    
    
    
    
    
    
    
    
    
    
    18.91
    
    
    
    4.47Discontinuing operations
    
    
    1.41
    
    
    
    
    
    
    
    
    
    
    
    1.65
    
    
    
    0.3922.24
    
    
    
    
    
    
    
    
    
    
    
    20.56
    
    
    
    4.86
 - 140 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 1.
    
    Statements of operations (cont.):
 A.
    
    The Statement Of Operations In Accordance With Israeli GAAP Is
Reconciled To U.S. GAAP as follows (cont.):
 Year Ended December 31, 2005ReportedIsraeli GAAP
    
    
    
    
    
    
    
    
    
    U.S. GAAPAs reportedin these
    
    
    
    
    
    Dis-financial
    
    Re-
    
    continuedstatements
    
    conciliations
    
    Operation
    
    Total(In Thousand NIS)RevenuesSale of real estate assets and
investments, net
    
    
    281,661
    
    
    
    15,773
    
    
    
    (297,434
    )
    
    
    Commercial center operations
    
    
    142,957
    
    
    
    
    
    
    
    (58,156
    )
    
    
    84,801Hotels operations and management
    
    
    270,057
    
    
    
    
    
    
    
    (2,077
    )
    
    
    267,980Sale of medical systems
    
    
    75,713
    
    
    
    
    
    
    
    
    
    
    
    75,713Realization of investments
    
    
    1,958
    
    
    
    
    
    
    
    
    
    
    
    1,958Other operational income
    
    
    44,409
    
    
    
    
    
    
    
    (12,619
    )
    
    
    31,790816,755
    
    
    
    15,773
    
    
    
    (370,286
    )
    
    
    462,242Costs and expensesCommercial center operations
    
    
    157,640
    
    
    
    
    
    
    
    (36,934
    )
    
    
    120,706Hotels operations and management
    
    
    259,293
    
    
    
    244
    
    
    
    (1,986
    )
    
    
    257,551Cost and expenses of medical
systems operation
    
    
    50,374
    
    
    
    3,286
    
    
    
    
    
    
    
    53,660Other operational expenses
    
    
    46,793
    
    
    
    (1,700
    )
    
    
    (2,802
    )
    
    
    42,291Research and development expenses,
net
    
    
    59,796
    
    
    
    3,701
    
    
    
    
    
    
    
    63,497General and administrative expenses
    
    
    36,939
    
    
    
    
    
    
    
    
    
    
    
    36,939Share in results of associated
companies, net
    
    
    12,028
    
    
    
    (4,223
    )
    
    
    
    
    
    
    7,805Financial expenses, net
    
    
    122,321
    
    
    
    9,295
    
    
    
    (25,341
    )
    
    
    106,275Other expenses
    
    
    57,106
    
    
    
    828
    
    
    
    
    
    
    
    57,934802,290
    
    
    
    11,431
    
    
    
    (67,063
    )
    
    
    746,658Profit (loss) before income taxes
    
    
    14,465
    
    
    
    4,342
    
    
    
    (303,223
    )
    
    
    (284,416
    )Income taxes (tax benefits)
    
    
    7,798
    
    
    
    (5,752
    )
    
    
    1,866
    
    
    
    3,912Profit (loss) after income taxes
    
    
    6,667
    
    
    
    10,094
    
    
    
    (305,089
    )
    
    
    (288,328
    )Minority interest in results of
subsidiaries, net
    
    
    73,795
    
    
    
    3,871
    
    
    
    
    
    
    
    77,666Profit (loss) from continuing
operation
    
    
    80,462
    
    
    
    13,965
    
    
    
    (305,089
    )
    
    
    (210,662
    )Profit from discontinued
operation, net of taxes:Profit from the ordinary
activities of the operation
    
    
    5,917
    
    
    
    
    
    
    
    7,566
    
    
    
    13,483Gain on discontinuance
    
    
    
    
    
    
    
    
    
    
    297,523
    
    
    
    297,5235,917
    
    
    
    
    
    
    
    305,089
    
    
    
    311,006Cumulative effect of accounting
change at the beginning of the
year
    
    
    (622
    )
    
    
    622
    
    
    
    
    
    
    
    Net income
    
    
    85,757
    
    
    
    14,587
    
    
    
    
    
    
    
    100,344Basic earning (loss) per share:Continuing operations
    
    
    3.70
    
    
    
    
    
    
    
    
    
    
    
    (8.35
    )Discontinuing operations
    
    
    0.27
    
    
    
    
    
    
    
    
    
    
    
    12.33Cumulative effect for the
beginning of the year due to a
change in accounting method
    
    
    (0.03
    )
    
    
    
    
    
    
    
    
    
    
    3.94
    
    
    
    
    
    
    
    
    
    
    
    3.98
 - 141 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 1.
    
    Statements of operations (cont.):
 A.
    
    The Statement Of Operations In Accordance With Israeli GAAP Is
Reconciled To U.S. GAAP as follows (cont.):
 Year Ended December 31, 2004ReportedIsraeli GAAP
    
    
    
    
    
    
    
    
    
    U.S. GAAPAs reportedin these
    
    
    
    
    
    Dis-financial
    
    Re-
    
    continuedstatements
    
    conciliations
    
    operation
    
    Total(In Thousand NIS)RevenuesSale of real estate assets and investments, net
    
    
    131,921
    
    
    
    (116,210
    )
    
    
    (15,711
    )
    
    
    Commercial center operations
    
    
    311,893
    
    
    
    
    
    
    
    (243,919
    )
    
    
    67,974Hotels operations and management
    
    
    218,365
    
    
    
    
    
    
    
    (2,080
    )
    
    
    216,285Sale of medical systems
    
    
    44,049
    
    
    
    
    
    
    
    
    
    
    
    44,049Realization of investments
    
    
    28,793
    
    
    
    (25,381
    )
    
    
    
    
    
    
    3,412Other operational income
    
    
    13,238
    
    
    
    
    
    
    
    (13,238
    )
    
    
    748,259
    
    
    
    (141,591
    )
    
    
    (274,948
    )
    
    
    331,720Costs and expensesCommercial center operations
    
    
    271,392
    
    
    
    1,914
    
    
    
    (160,828
    )
    
    
    112,478Hotels operations and management
    
    
    207,152
    
    
    
    1,507
    
    
    
    (1,742
    )
    
    
    206,917Cost and expenses of medical systems operation
    
    
    26,039
    
    
    
    3,830
    
    
    
    
    
    
    
    29,869Other operational expenses
    
    
    3,655
    
    
    
    1,699
    
    
    
    (3,175
    )
    
    
    2,179Research and development expenses, net
    
    
    38,158
    
    
    
    3,412
    
    
    
    
    
    
    
    41,570General and administrative expenses
    
    
    43,627
    
    
    
    
    
    
    
    
    
    
    
    43,627Share in results of associated companies, net
    
    
    15,968
    
    
    
    (4,368
    )
    
    
    
    
    
    
    11,600Financial expenses, net
    
    
    53,569
    
    
    
    9,030
    
    
    
    9,227
    
    
    
    71,826Other expenses
    
    
    63,806
    
    
    
    (5,529
    )
    
    
    (25,274
    )
    
    
    33,003723,366
    
    
    
    11,495
    
    
    
    (181,792
    )
    
    
    553,069Profit (loss) before income taxes
    
    
    24,893
    
    
    
    (153,086
    )
    
    
    (93,156
    )
    
    
    (221,349
    )Income taxes (tax benefits)
    
    
    15,804
    
    
    
    (19,641
    )
    
    
    (16,863
    )
    
    
    (20,700
    )Profit (loss) after income taxes
    
    
    9,089
    
    
    
    (133,445
    )
    
    
    (76,293
    )
    
    
    (200,649
    )Minority interest in results of subsidiaries, net
    
    
    27,448
    
    
    
    (2,349
    )
    
    
    
    
    
    
    25,099Profit (loss) from continuing operation
    
    
    36,537
    
    
    
    (135,794
    )
    
    
    (76,293
    )
    
    
    (175,550
    )Profit from discontinued operation, net of taxes:Profit from the ordinary activities of the
operation
    
    
    6,810
    
    
    
    
    
    
    
    60,580
    
    
    
    67,390Gain on discontinuance
    
    
    
    
    
    
    
    
    
    
    15,713
    
    
    
    15,7136,810
    
    
    
    
    
    
    
    76,293
    
    
    
    83,103Net income (loss)
    
    
    43,347
    
    
    
    (135,794
    )
    
    
    
    
    
    
    (92,447
    )Basic earning (loss) per share:Continuing operations
    
    
    1.56
    
    
    
    
    
    
    
    
    
    
    
    (6.96
    )Discontinuing operations
    
    
    0.29
    
    
    
    
    
    
    
    
    
    
    
    3.291.85
    
    
    
    
    
    
    
    
    
    
    
    (3.67
    )
 - 142 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 1.
    
    Statements of operations (cont.):
 B.
    
    The reconciliation of net income (loss) in accordance with Israeli GAAP
to the loss in accordance with U.S. GAAP, is as follows (reconciling items are
shown net of taxes):
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Net income according to Israeli
GAAP
    
    
    
    
    
    
    561,144
    
    
    
    85,757
    
    
    
    43,347
    
    
    
    132,815Less  profit from
discontinuing operation, net
    
    
    
    
    
    
    (35,664
    )
    
    
    (5,917
    )
    
    
    (6,810
    )
    
    
    (8,441
    )Less  cumulative effect of
accounting change
    
    
    
    
    
    
    
    
    
    
    622
    
    
    
    
    
    
    
    Net income from continuing
operations according to Israeli
GAAP
    
    
    
    
    
    
    525,480
    
    
    
    80,462
    
    
    
    36,537
    
    
    
    124,374Deferred taxes
    
    
    A3
    
    
    
    1,258
    
    
    
    (2,363
    )
    
    
    38,190
    
    
    
    298Stock based compensation
    
    
    A4
    
    
    
    2,270
    
    
    
    (6,988
    )
    
    
    (7,268
    )
    
    
    537Issuance of shares by a
development stage investee
    
    
    A5
    
    
    
    
    
    
    
    
    
    
    
    (13,003
    )
    
    
    Implementation of the equity
method
    
    
    A6
    
    
    
    (5,768
    )
    
    
    4,223
    
    
    
    4,368
    
    
    
    (1,365
    )Capitalization of financial
expenses during the
construction period
    
    
    A7
    
    
    
    23,930
    
    
    
    (9,823
    )
    
    
    (6,093
    )
    
    
    5,664Provision for impairment loss
of long lived assets and
investments
    
    
    A8
    
    
    
    (8,335
    )
    
    
    158
    
    
    
    7,279
    
    
    
    (1,973
    )Realization of capital reserve
from translation adjustments
    
    
    A9
    
    
    
    (26,432
    )
    
    
    (2,727
    )
    
    
    (99,066
    )
    
    
    (6,256
    )Derivative financial instruments
    
    
    A10
    
    
    
    
    
    
    
    24,805
    
    
    
    (61,120
    )
    
    
    Discontinued operations
    
    
    A11
    
    
    
    (5,982
    )
    
    
    (305,089
    )
    
    
    (76,293
    )
    
    
    (1,416
    )Convertible debentures
    
    
    A13
    
    
    
    (87
    )
    
    
    
    
    
    
    
    
    
    
    (21
    )Variable interest entity (VIE)
    
    
    A14
    
    
    
    (1,413
    )
    
    
    
    
    
    
    
    
    
    
    (335
    )Convertible securities of
investees
    
    
    A15
    
    
    
    
    
    
    
    6,182
    
    
    
    
    
    
    
    Excess of fair value of aquired
net assets over cost
    
    
    A16
    
    
    
    
    
    
    
    (14,225
    )
    
    
    
    
    
    
    Revenue recognition
    
    
    A17
    
    
    
    (38,491
    )
    
    
    
    
    
    
    
    
    
    
    (9,110
    )Other differences
    
    
    A19
    
    
    
    3,350
    
    
    
     (1)10,850
    
    
    
    3,267
    
    
    
    792Minority interest in the
abovementioned reconciliations
    
    
    
    
    
    
    7,506
    
    
    
    3,873
    
    
    
    (2,350
    )
    
    
    1,776Loss from continuing operations
according to U.S. GAAP
    
    
    
    
    
    
    477,286
    
    
    
    (210,662
    )
    
    
    (175,552
    )
    
    
    112,965Income from discontinued
operations, net of taxes
according to U.S. GAAP
    
    
    A11
    
    
    
    41,646
    
    
    
    311,006
    
    
    
    83,105
    
    
    
    9,857Net income (loss) according to
U.S. GAAP
    
    
    
    
    
    
    518,932
    
    
    
    100,344
    
    
    
    (92,447
    )
    
    
    122,822
 
 (1)
    
    Mainly in respect of realization of capital reserve from
translation of profit and loss items in the amount of NIS 8.7 million (see
item 19a.) and an amount of NIS 5.5 million in respect
of cost relating to written options (see item 19g.). - 143 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON
THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 2.
    
    The reconciliation of the balance sheets prepared in accordance with Israeli GAAP to
U.S. GAAP, is as follows:
 Reconciliation As Of December 31, 2006-Reported
 Israeli GAAPAs reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conven-in these
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Total
    
    iencefinancial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    reconci-
    
    U.S.
    
    trans-Item\Subsection
    
    statements
    
    A3
    
    A4
    
    A5
    
    A6
    
    A7
    
    A8
    
    A9
    
    A10
    
    A12
    
    A13
    
    A14
    
    A15
    
    A16
    
    A17
    
    A19
    
    liation
    
    GAAP
    
    lationInThousand(In Thousand NIS)
    
    U.S. DollarShort term deposits and investment
    
    
    279,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    879
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    879
    
    
    
    279,991
    
    
    
    66,270Trade accounts receivable
    
    
    51,141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,462
    )
    
    
    
    
    
    
    (5,462
    )
    
    
    45,679
    
    
    
    10,812Inventories
    
    
    24,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,065
    
    
    
    
    
    
    
    1,065
    
    
    
    25,775
    
    
    
    6,101Receivables and other debit balances
    
    
    122,341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,184
    
    
    
    
    
    
    
    
    
    
    
    1,229
    
    
    
    
    
    
    
    5,413
    
    
    
    127,754
    
    
    
    30,238Trading property
    
    
    910,493
    
    
    
    12,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,292
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,136
    
    
    
    992,629
    
    
    
    234,942Deposits, loans and other long-term balances
    
    
    201,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,861
    
    
    
    
    
    
    
    
    
    
    
    (20,621
    )
    
    
    
    
    
    
    
    
    
    
    8,458
    
    
    
    
    
    
    
    13,698
    
    
    
    215,191
    
    
    
    50,933Investments in investees and other companies
    
    
    61,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,819
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,819
    )
    
    
    56,861
    
    
    
    13,458Fixed assets, net
    
    
    2,320,127
    
    
    
    26,512
    
    
    
    
    
    
    
    
    
    
    
    1,643
    
    
    
    30,202
    
    
    
    (1,795
    )
    
    
    16,650
    
    
    
    998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    
    
    
    
    (889
    )
    
    
    65,278
    
    
    
    2,385,405
    
    
    
    564,593Other assets and deferred expenses
    
    
    24,650
    
    
    
    31,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,567
    
    
    
    83,117
    
    
    
    107,767
    
    
    
    25,507Total assets
    
    
    6,159,101
    
    
    
    70,153
    
    
    
    
    
    
    
    
    
    
    
    (3,176
    )
    
    
    23,910
    
    
    
    (1,795
    )
    
    
    16,650
    
    
    
    26,859
    
    
    
    
    
    
    
    
    
    
    
    60,779
    
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    5,290
    
    
    
    50,678
    
    
    
    241,305
    
    
    
    6,400,406
    
    
    
    1,514,889Short-term credit
    
    
    480,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,965
    
    
    
    57,813
    
    
    
    538,584
    
    
    
    127,476Suppliers and service providers
    
    
    107,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,315
    
    
    
    5,564
    
    
    
    10,879
    
    
    
    117,996
    
    
    
    27,928Non-current deferred income tax liability, net
    
    
    41,427
    
    
    
    60,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,539
    
    
    
    63,693
    
    
    
    105,120
    
    
    
    24,880Long term liabilities
    
    
    3,006,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,066
    )
    
    
    17,344
    
    
    
    
    
    
    
    
    
    
    
    45,588
    
    
    
    40,451
    
    
    
    102,317
    
    
    
    3,108,336
    
    
    
    735,701Minority interest
    
    
    652,467
    
    
    
    723
    
    
    
    (544
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    976
    
    
    
    (445
    )
    
    
    
    
    
    
    
    
    
    
    (13,829
    )
    
    
    (1,758
    )
    
    
    (14,877
    )
    
    
    637,590
    
    
    
    150,908Capital reserves
    
    
    828,593
    
    
    
    
    
    
    
    27,446
    
    
    
    48,645
    
    
    
    18,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347
    
    
    
    95,105
    
    
    
    923,698
    
    
    
    218,627Unrealized gain from derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,627
    
    
    
    26,627
    
    
    
    6,302Dividend declared after balance sheet date
    
    
    159,767
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159,767
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159,767
    )
    
    
    
    
    
    
    Retained earnings
    
    
    618,342
    
    
    
    6,156
    
    
    
    (26,228
    )
    
    
    (58,243
    )
    
    
    (19,718
    )
    
    
    19,043
    
    
    
    6,863
    
    
    
    (188,145
    )
    
    
    23,343
    
    
    
    159,767
    
    
    
    90
    
    
    
    (968
    )
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    (31,784
    )
    
    
    5,005
    
    
    
    (112,862
    )
    
    
    505,480
    
    
    
    119,640Total shareholders equity
    
    
    1,601,787
    
    
    
    8,598
    
    
    
    544
    
    
    
    
    
    
    
    (3,176
    )
    
    
    22,588
    
    
    
    (1,795
    )
    
    
    16,650
    
    
    
    26,859
    
    
    
    
    
    
    
    90
    
    
    
    (968
    )
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    (31,784
    )
    
    
    (8,084
    )
    
    
    21,480
    
    
    
    1,623,267
    
    
    
    384,205
 144




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 2.
    
    The reconciliation of the balance sheets prepared in accordance with Israeli GAAP to
U.S. GAAP, is as follows (Cont.):Reconciliation As Of December 31, 2005-Reported
 Israeli GAAPAs reported inthese
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Totalfinancial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    re-
    
    U.S.Item\Subsection
    
    statements
    
    A3
    
    A4
    
    A5
    
    A6
    
    A7
    
    A8
    
    A9
    
    A10
    
    A12
    
    A13
    
    A14
    
    A15
    
    A16
    
    A19
    
    conciliation
    
    GAAP(In Thousand NIS)Short term deposits and investment
    
    
    240,072
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    657
    
    
    
    240,729Receivables and other debit balances
    
    
    76,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,624
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,624
    
    
    
    78,304Trading property
    
    
    583,101
    
    
    
    11,836
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,012
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,724
    
    
    
    617,825Deposits, loans and other long-term balances
    
    
    62,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,134
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,134
    )
    
    
    43,005Investments in investees and other companies
    
    
    56,798
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,695
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,695
    )
    
    
    40,103Fixed assets, net
    
    
    2,508,726
    
    
    
    13,672
    
    
    
    
    
    
    
    
    
    
    
    1,643
    
    
    
    4,270
    
    
    
    5,815
    
    
    
    16,092
    
    
    
    998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    (666
    )
    
    
    33,781
    
    
    
    2,209,147Other assets and deferred expenses
    
    
    30,476
    
    
    
    28,527
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,176
    )
    
    
    25,351
    
    
    
    55,827Total assets
    
    
    3,786,117
    
    
    
    54,035
    
    
    
    
    
    
    
    
    
    
    
    (15,052
    )
    
    
    (2,742
    )
    
    
    5,815
    
    
    
    16,092
    
    
    
    998
    
    
    
    
    
    
    
    
    
    
    
    13,047
    
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    (3,842
    )
    
    
    60,308
    
    
    
    3,846,425Suppliers and service providers
    
    
    82,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,757
    
    
    
    
    
    
    
    
    
    
    
    5,500
    
    
    
    9,257
    
    
    
    91,270Non-current deferred income tax liabilty, net
    
    
    39,928
    
    
    
    48,042
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,539
    
    
    
    49,581
    
    
    
    89,509Currency transaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,696
    
    
    
    2,696Convertible debentures
    
    
    62,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,159
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,159
    )
    
    
    Long term liabilities
    
    
    1,667,326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,159
    
    
    
    9,291
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,450
    
    
    
    1,738,776Minority interest
    
    
    1,186
    
    
    
    
    
    
    
    (1,186
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,186
    )
    
    
    Capital reserves
    
    
    789,164
    
    
    
    
    
    
    
    31,104
    
    
    
    48,645
    
    
    
    1,831
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347
    
    
    
    81,927
    
    
    
    871,091Unrealized loss from derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,988
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,988
    )
    
    
    (1,988
    )Deferred stock based compensation
    
    
    
    
    
    
    
    
    
    
    (3,658
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,658
    )
    
    
    (3,658
    )Cumulative foreign currency translation adjustments
    
    
    67,872
    
    
    
    1,095
    
    
    
    (674
    )
    
    
    9,598
    
    
    
    (2,933
    )
    
    
    2,145
    
    
    
    (9,383
    )
    
    
    177,805
    
    
    
    (23,053
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,883
    )
    
    
    141,717
    
    
    
    209,589Dividend declared after balance sheet date
    
    
    124,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,160
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (124,160
    )
    
    
    Retained earnings
    
    
    216,965
    
    
    
    4,897
    
    
    
    (25,586
    )
    
    
    (58,243
    )
    
    
    (13,950
    )
    
    
    (4,886
    )
    
    
    15,198
    
    
    
    (161,713
    )
    
    
    23,343
    
    
    
    124,160
    
    
    
    
    
    
    
    
    
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    1,655
    
    
    
    (103,168
    )
    
    
    113,797Total shareholders equity
    
    
    1,054,224
    
    
    
    5,993
    
    
    
    1,186
    
    
    
    
    
    
    
    (15,052
    )
    
    
    (2,742
    )
    
    
    5,815
    
    
    
    16,092
    
    
    
    (1,698
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,182
    
    
    
    (14,225
    )
    
    
    (10,881
    )
    
    
    (9,330
    )
    
    
    1,044,894
 
 - 145 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT
ON THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 3.
    
    Proportionate consolidation:Summarized data regarding the differences between the proportionate consolidation method
and the equity method:
 December 31, 2006ReportedAs Reportedin these
    
    Effect ofFinancial
    
    Proportionate
    
    EquityStatements
    
    Consolidation
    
    Method(In Thousand NIS)Balance Sheet:Current assets
    
    
    3,538,668
    
    
    
    (224,521
    )
    
    
    3,314,147Non-current assets
    
    
    2,620,433
    
    
    
    (985,127
    )
    
    
    1,635,306Current liabilities
    
    
    816,888
    
    
    
    (180,811
    )
    
    
    636,077Non-current liabilities
    
    
    3,087,959
    
    
    
    (978,401
    )
    
    
    2,109,558Statement of operations:Revenues
    
    
    1,670,553
    
    
    
    (253,433
    )
    
    
    1,417,120Profit before income taxes
    
    
    521,011
    
    
    
    36,495
    
    
    
    557,506Statement of cash flows:Net cash used in operating activities
    
    
    (523,367
    )
    
    
    50,407
    
    
    
    (472,960
    )Net cash provided by investing activities
    
    
    (196,787
    )
    
    
    315,005
    
    
    
    118,218Net cash provided by financing activities
    
    
    (2,344,956
    )
    
    
    (372,171
    )
    
    
    (1,972,785
    )
 December 31, 2005ReportedAs Reportedin these
    
    Effect ofFinancial
    
    Proportionate
    
    EquityStatements
    
    Consolidation
    
    Method(In Thousand NIS)Balance Sheet:Current assets
    
    
    1,448,733
    
    
    
    (113,162
    )
    
    
    1,335,571Non-current assets
    
    
    2,337,384
    
    
    
    (921,076
    )
    
    
    1,416,308Current liabilities
    
    
    887,415
    
    
    
    (61,526
    )
    
    
    825,889Non-current liabilities
    
    
    1,831,843
    
    
    
    (666,712
    )
    
    
    1,165,131Statement of operations:Revenues
    
    
    816,755
    
    
    
    (209,580
    )
    
    
    607,175Profit before income taxes
    
    
    14,465
    
    
    
    47,439
    
    
    
    61,904Statement of cash flows:Net cash used in operating activities
    
    
    (99,108
    )
    
    
    197
    
    
    
    (98,911
    )Net cash provided by investing activities
    
    
    5,496
    
    
    
    39,266
    
    
    
    44,762Net cash provided by financing activities
    
    
    243,727
    
    
    
    (49,059
    )
    
    
    194,668
 - 146 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 3.
    
    Proportionate consolidation (Cont.):Summarized data regarding the differences between the proportionate consolidation method
and the equity method:
 December 31, 2004ReportedAs Reportedin these
    
    Effect ofFinancial
    
    Proportionate
    
    EquityStatements
    
    Consolidation
    
    Method(In Thousand NIS)Balance Sheet:Current assets
    
    
    736,339
    
    
    
    (67,035
    )
    
    
    669,304Non-current assets
    
    
    3,783,940
    
    
    
    (829,476
    )
    
    
    2,954,464Current liabilities
    
    
    794,741
    
    
    
    (263,711
    )
    
    
    531,030Non-current liabilities
    
    
    2,490,883
    
    
    
    (632,800
    )
    
    
    1,858,083Statement of operations:Revenues
    
    
    748,259
    
    
    
    (186,624
    )
    
    
    561,635Profit (loss) before income taxes
    
    
    24,893
    
    
    
    (3,210
    )
    
    
    21,683Statement of cash flows:Net cash used in operating activities
    
    
    (21,562
    )
    
    
    (33,247
    )
    
    
    (54,809
    )Net cash provided by investing activities
    
    
    128,481
    
    
    
    206,586
    
    
    
    335,067Net cash provided by financing activities
    
    
    75,872
    
    
    
    (171,680
    )
    
    
    (95,808
    )
 4.
    
    Comprehensive income (loss)Comprehensive income consists of the change, during the current period, in the
Companys shareholders equity not derived from shareholders investments or from the
distribution of earnings to shareholders (including capital reserve from transaction
with controlling shareholders).
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Net income (loss) in accordance
with U.S. GAAP
    
    
    518,932
    
    
    
    100,344
    
    
    
    (92,447
    )
    
    
    122,822Other comprehensive income
(loss), after tax:Foreign currency translation
adjustments
    
    
    62,214
    
    
    
    23,446
    
    
    
    (53,238
    )
    
    
    14,727Unrealized gain (losses) from
derivative instruments
    
    
    28,615
    
    
    
    (361
    )
    
    
    (4,230
    )
    
    
    6,773Total comprehensive income (loss)
    
    
    609,761
    
    
    
    123,429
    
    
    
    (149,915
    )
    
    
    144,322
 - 147 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 4.
    
    Comprehensive income (loss) (cont.)Components of other comprehensive income:
 UnrealizedForeign
    
    gain (loss)currency
    
    from derivativetranslation
    
    financialadjustment
    
    instruments
    
    TotalReported(In Thousand NIS)Balance as of January 1, 2004
    
    
    239,381
    
    
    
    2,603
    
    
    
    241,984Changes during the year
    
    
    (53,238
    )
    
    
    (4,230
    )
    
    
    (57,468
    )Balance as of December 31, 2004
    
    
    186,143
    
    
    
    (1,627
    )
    
    
    184,516Changes during the year
    
    
    23,446
    
    
    
    (361
    )
    
    
    23,085Balance as of December 31, 2005
    
    
    209,589
    
    
    
    (1,988
    )
    
    
    207,601Changes during the year
    
    
    62,214
    
    
    
    28,615
    
    
    
    90,829Balance as of December 31, 2006
    
    
    271,803
    
    
    
    26,627
    
    
    
    298,430
 5.
    
    Additional information as required by U.S. GAAP
 A.
    
    The effect on pro forma data calculated according to SFAS No. 123 is as
follows:
 (1)
    
    As mentioned in Item A4 above, the Company is applying FAS
123R in the financial statements of 2006 whereby the Company is recording the
costs in respect of such option plans within the statements of operations.
Therefore the Pro-forma disclosure in this item is relating to the years
ended on December 31, 2005 and 2004 only.(2)
    
    The Black  Scholes model is used for estimating fair value
of such securities (at each applicable measurement date), utilizing the
following assumptions:
 Elbit
    
    Insighteca. Dividend yield (%)
    
    
    
    
    
    b. Risk free interest rate (%)
    
    
    6
    
    
    
    4c. Expected lives from the date of grant
(years)
    
    
    5
    
    
    
    7d. Expected volatility (%)
    
    
    24
    
    
    
    60
 For pro-forma disclosure, the compensation expense for the shares and the
share options, granted, as estimated, is amortized over the period of the
services (vesting period).
 - 148 -




---



##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 5.
    
    Additional information as required by U.S. GAAP (Cont.)
 A.
    
    The effect on pro forma data calculated according to SFAS No. 123 is as
follows (cont.):
 (3)
    
    If compensation cost in respect of shares or share options
issued to employees under these plans had been computed on the basis of their
fair value, in accordance with SFAS No. 123, the effect on net income and
earnings per share in accordance with U.S. GAAP on the financial statements
of 2005 and 2004 would have been as follows:
 Year endedDecember 31,2005
    
    2004Reported(In Thousand NIS)Profit (loss) according to U.S. GAAP
    
    
    100,344
    
    
    
    (92,447
    )Add  stock based compensation determined under APB
25  see Note 25A.(4)
    
    
    8,681
    
    
    
    6,742Deduct  stock based compensation determined under
FAS 123
    
    
    (11,788
    )
    
    
    (9,568
    )Pro forma net profit (loss)
    
    
    97,237
    
    
    
    (95,273
    )Pro forma basic earnings (loss) per share (in NIS)
    
    
    4.43
    
    
    
    (4.14
    )Pro forma diluted earnings (loss) per share (in NIS)
    
    
    4.39
    
    
    
    (4.14
    )
 B.
    
    Valuation allowance of deferred tax assets according to FAS No. 109:The differences between Israeli GAAP and U.S GAAP as described in paragraph A
changed the balance of the valuation allowance as follows:
 Year ended December 312006
    
    2005
    
    2006ReportedConveniencetranslation(In thousand NIS)
    
    US$000As reported, according to Israeli GAAP
    
    
    299,337
    
    
    
    216,792
    
    
    
    70,849Reconciliation as per U.S. GAAP
    
    
    (12,590
    )
    
    
    (23,903
    )
    
    
    (2,980
    )According to U.S GAAP
    
    
    286,747
    
    
    
    192,889
    
    
    
    67,869
 - 149 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25 
    MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 5.
    
    Additional information as required by U.S. GAAP (Cont.)
 C.
    
    Supplementary business segments information based on Israeli GAAP
financial statements:
 1.
    
    Primary report:
 Commercialand
    
    
    
    
    
    Image
    
    LeaseEntertainment
    
    
    
    
    
    guided
    
    of
    
    OtherCenters
    
    Hotels
    
    treatment
    
    assets
    
    activities
    
    TotalReported(In Thousand NIS)Year Ended
December 31, 2006:Financial expenses,
net (1)
    
    
    (11,687
    )
    
    
    (78,737
    )
    
    
    (5,355
    )
    
    
    
    
    
    
    (33,348
    )
    
    
    (129,127
    )Income taxes (tax
benefits)
    
    
    2,970
    
    
    
    4,492
    
    
    
    565
    
    
    
    
    
    
    
    (2,805
    )
    
    
    5,222Year Ended
December 31, 2005:Financial expenses,
net (1)
    
    
    (42,058
    )
    
    
    (50,664
    )
    
    
    
    
    
    
    (8,035
    )
    
    
    (21,564
    )
    
    
    (122,321
    )Income taxes
    
    
    1,005
    
    
    
    1,442
    
    
    
    
    
    
    
    
    
    
    
    5,351
    
    
    
    7,798Year Ended
December 31, 2004:Financial income
(expenses), net (1)
    
    
    10,423
    
    
    
    (9,904
    )
    
    
    (3,298
    )
    
    
    (8,367
    )
    
    
    (42,423
    )
    
    
    (53,569
    )Income taxes (tax
benefits)
    
    
    18,295
    
    
    
    (647
    )
    
    
    
    
    
    
    
    
    
    
    (1,844
    )
    
    
    15,804
 
 (1)
    
    Excluding financial results in respect of inter-company balances and
transactions. - 150 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25 
      MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 5.
    
    Additional information as required by U.S. GAAP (Cont.)
 C.
    
    Supplementary business segments information based on Israeli GAAP
financial statements (cont.):
 2.
    
    Other disclosureRevenues classified by countries which constitute more than 10% of the total
revenues:
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Israel
    
    
    118,558
    
    
    
    92,226
    
    
    
    71,678
    
    
    
    28,061United Kingdom
    
    
    209,113
    
    
    
    183,382
    
    
    
    96,544
    
    
    
    49,494Czech Republic
    
    
    303,503
    
    
    
    6,390
    
    
    
    5,683
    
    
    
    71,835Hungary
    
    
    7,644
    
    
    
    82,498
    
    
    
    311,025
    
    
    
    1,809Poland
    
    
    100,433
    
    
    
    219,099
    
    
    
    71,451
    
    
    
    23,771Others
    
    
    931,302
    
    
    
    233,160
    
    
    
    291,878
    
    
    
    220,4261,670,553
    
    
    
    816,755
    
    
    
    748,259
    
    
    
    395,396
 D.
    
    Statement of Cash Flows
 1)
    
    Supplemental Information Required According To U.S. GAAP:
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Interest paid
    
    
    90,852
    
    
    
    139,554
    
    
    
    143,068
    
    
    
    21,503Income tax paid
    
    
    5,068
    
    
    
    11,431
    
    
    
    2,695
    
    
    
    1,199
 - 151 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25 
       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 5.
    
    Additional information as required by U.S. GAAP (Cont.)
 D.
    
    Statement Of Cash Flows (cont.)
 2)
    
    Effect of Exchange Rate Changes on Cash And Cash
Equivalents:In accordance with Israeli GAAP:The statement shall report the effect of exchange rate changes on cash
balances held in foreign currencies, only in autonomous foreign entities,
in a separate part of the reconciliation of the change in cash and cash
equivalents during the period.In accordance with U.S. GAAP:The statement shall report the effect of exchange rate changes on all cash
balances held in foreign currencies in all foreign entities as a separate
part of the reconciliation of the change in cash and cash equivalents during
the period.
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000As reported, according
to Israeli GAAP
    
    
    36,725
    
    
    
    (6,516
    )
    
    
    (522
    )
    
    
    8,692Reconciliation as per
U.S. GAAP
    
    
    (18,907
    )
    
    
    1,332
    
    
    
    3,362
    
    
    
    (4,475
    )According to U.S. GAAP
    
    
    17,818
    
    
    
    (5,184
    )
    
    
    2,840
    
    
    
    4,217
 3)
    
    Cash flow classification:In accordance with Israeli GAAP
 a.
    
    Proceeds from sale or purchase of marketable
securities are presented in cash flows from investing activities in the
statement of cash flows.b.
    
    In accordance with standard No. 8 of the IASB
an entity should provide segregation of cash flows from continuing and
discontinuing operation for each of the categories of cash flows (i.e.:
operating, investing and financing cash flow).
 - 152 -




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##### 



ELBIT MEDICAL IMAGING LTD.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25  MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR EFFECT ON THE
CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
 B.
    
    The effect of the material differences between Israeli GAAP and U.S. GAAP on the Financial
Statements (Cont.)
 5.
    
    Additional information as required by U.S. GAAP (Cont.)
 D.
    
    Statement Of Cash Flows (cont.)
 3)
    
    Cash flow classification (cont.):In accordance with U.S. GAAP
 a.
    
    Proceeds from sale or purchase of marketable
securities, which are classified by the Company as held for trading are
included in cash flows from operating activities. According to an
amendment included in SFAS 159, which is effective from January 1,
2008, securities held for trading would be classified in the statement
of cash flows based on the nature and purpose for which these
securities were acquired.b.
    
    In accordance with SFAS 95 segregation of cash
flows from continuing and discontinuing operation is not required.
 Year ended December 312006
    
    2005
    
    2004
    
    2006ReportedConveniencetranslation(in thousand NIS)
    
    US$000Cash flows from
operating activities:As reported, according
to Israeli GAAP
    
    
    (523,367
    )
    
    
    (99,108
    )
    
    
    (21,562
    )
    
    
    (123,870
    )Reconciliation as per
U.S. GAAP:Purchases of
marketable
securities
    
    
    (162,785
    )
    
    
    
    
    
    
    (1,951
    )
    
    
    (38,529
    )Proceeds from
marketable
securities
    
    
    44,980
    
    
    
    2,724
    
    
    
    
    
    
    
    10,646According to U.S. GAAP
    
    
    (641,172
    )
    
    
    (96,384
    )
    
    
    (23,513
    )
    
    
    (151,753
    )Cash flows from
investing activities:As reported, according
to Israeli GAAP
    
    
    (196,787
    )
    
    
    5,496
    
    
    
    128,481
    
    
    
    (46,580
    )Reconciliation as per
U.S. GAAP:Purchases of
marketable
securities
    
    
    162,785
    
    
    
    
    
    
    
    1,951
    
    
    
    38,529Proceeds from
marketable
securities
    
    
    (44,980
    )
    
    
    (2,724
    )
    
    
    
    
    
    
    (10,646
    )According to U.S. GAAP
    
    
    (78,982
    )
    
    
    2,772
    
    
    
    130,432
    
    
    
    (18,697
    )
 - 153 -




---



##### 



Appendix
 ELBIT MEDICAL IMAGING LTD.
 LIST TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Rate of (directas well asindirect)
    
    Countryownership
    
    ofName of company
    
    
    
    Nature of Activity
    
    and control
    
    Residence%Elscint Ltd. (*)
    
    (Elscint)
    
    Management and
investment in
companies;
operation of Arena;
    
    
    100.0
    
    
    IsraelBea Hotels N.V.
    
    (B.H.)
    
    A holding company
in the hotel
segment, mainly in
Europe
    
    
    100.0
    
    
    The NetherlandsSLS Sails Ltd.
    
    (SLS)
    
    Ownership of a
commercial and
entertainment
center (Arena)
    
    
    100.0
    
    
    IsraelMango Israel Clothing and
Footwear Ltd.
    
    (Mango)
    
    A distributor and
retailer of the
retail brand name
MANGO  MNG
TM
    
    
    100.0
    
    
    IsraelElbit Ultrasound Netherlands B.V.
    
    (EUN)
    
    A holding company
    
    
    100.0
    
    
    The NetherlandsPlaza Centres NV
    
    (PC)
    
    Development and
operations in the
commercial centers
in Central and
Eastern Europe and
in India
    
    
    68.4
    
    
    The NetherlandsInsightec Ltd.
    
    (Insightec)
    
    Development
manufacturing and
marketing of means
of imaging-guided
treatment
    
    
    57.3
    (**)
    
    Israel
 
 (*)
    
    See Note 9B.(1), above.(**)
    
    Including exercise of options which were granted for par value (NIS 0.01) consideration  See
Note 9B.(2). - 154 -




---



##### 



Report of Independent Registered Public Accounting Firm




---



##### 



Report of Independent Registered Public Accounting Firm
 To the Board of Directors and Shareholders ofPlaza Centers (Europe) B.V.




---



##### 



n
    
    Kost Forer Gabbay & Kasierer
    
    n
    
    Phone: 972-3-62325253 Aminadav St.
    
    
    
    Fax: 972-3-5622555Tel-Aviv 67067, Israel
 REPORT OF INDEPENDENT AUDITORS
 To the Shareholders of
 GAMIDA CELL LTD.
(A Development Stage Company)
    Tel-Aviv, Israel
    
    KOST FORER GABBAY & KASIERERMarch 14, 2007
    
    A Member of Ernst & Young Global