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Document and Entity Information
 9 Months Ended
Sep. 30, 2018
Document and Entity Information [Abstract]  
Entity Registrant Name FORMULA SYSTEMS (1985) LTD
Entity Central Index Key 0001045986
Trading Symbol FORTY
Amendment Flag false
Current Fiscal Year End Date --12-31
Document Type 6-K
Document Period End Date Sep. 30, 2018
Document Fiscal Period Focus Q3
Document Fiscal Year Focus 2018
Interim Condensed Consolidated Statements of Financial Position - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
CURRENT ASSETS:    
Cash and cash equivalents $ 271,764 $ 245,947
Short-term deposits 12 735
Marketable securities 11,919 14,138
Trade receivables (net of allowances for doubtful accounts of $ 6,445 and $6,051 as of September 30, 2018 and December 31, 2017, respectively) 416,587 385,778
Prepaid expenses and other accounts receivable 48,628 44,904
Inventories 3,845 3,299
Total current assets 752,755 694,801
LONG-TERM ASSETS:    
Deferred taxes 14,478 15,878
Prepaid expenses and other accounts receivable 20,528 16,581
Total long-term assets 35,006 32,459
INVESTMENTS IN COMPANIES ACCOUNTED FOR AT EQUITY METHOD 25,242 25,315
PROPERTY, PLANTS AND EQUIPMENT, NET 29,733 29,807
INTANGIBLE ASSETS, NET 158,360 163,983
GOODWILL 637,477 617,272
Total assets 1,638,573 1,563,637
CURRENT LIABILITIES:    
Liabilities to banks and others 128,485 70,819
Debentures 54,798 4,826
Trade payables 95,793 95,339
Deferred revenue and customer advances 59,212 58,905
Employees and payroll accrual 97,756 111,707
Other accounts payable 60,238 53,145
Liabilities in respect of business combinations 5,485 6,811
Redeemable non-controlling interests 37,660 31,395
Total current liabilities 539,427 432,947
LONG-TERM LIABILITIES:    
Liabilities to banks and others 89,058 135,616
Debentures, net of current maturities 116,448 133,739
Other long term liabilities 7,447 7,244
Deferred taxes 35,759 36,605
Deferred revenues 5,328 9,340
Liability in respect of business combinations 8,439 4,711
Redeemable non-controlling interests 21,769 21,481
Employee benefit liabilities 8,885 9,032
Total long-term liabilities 293,133 357,768
COMMITMENTS AND CONTINGENCIES
Share capital:    
Ordinary shares of NIS 1 par value - Authorized: 25,000,000 shares at September 30, 2018 and December 31, 2017; Issued: 15,308,381 and 15,307,402 at September 30, 2018 and December 31, 2017, respectively; Outstanding: 14,739,761 and 14,738,782 at September 30, 2018 and December 31, 2017, respectively 4,187 4,187
Additional paid-in capital 99,733 98,040
Retained earnings 256,671 239,156
Accumulated other comprehensive income 9,016 18,078
Treasury shares (568,620 shares as of September 30, 2018 and December 31, 2017, respectively) (259) (259)
Total equity attributable to Formula's shareholders 369,348 359,202
Non-controlling interests 436,665 413,720
Total equity 806,013 772,922
Total liabilities, redeemable non-controlling interest and equity $ 1,638,573 $ 1,563,637
Interim Condensed Consolidated Statements of Financial Position (Parenthetical)
$ in Thousands
Sep. 30, 2018
USD ($)
shares
Sep. 30, 2018
₪ / shares
Dec. 31, 2017
USD ($)
shares
Dec. 31, 2017
₪ / shares
Statement of Financial Position [Line Items]        
Allowances for doubtful accounts | $ $ 6,445   $ 6,051  
Ordinary share, authorized 25,000,000   25,000,000  
Ordinary shares, issued 15,308,381   15,307,402  
Ordinary shares, outstanding 14,739,761   14,738,782  
Number of treasury shares outstanding 568,620   568,620  
NIS [Member]        
Statement of Financial Position [Line Items]        
Ordinary shares par value | ₪ / shares   ₪ 1   ₪ 1
Interim Condensed Consolidated Statements of Profit or Loss - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Revenues:          
Proprietary software products and related services $ 91,558 $ 90,358 $ 272,400 $ 250,704 $ 341,350
Software services 270,872 258,271 826,888 737,896 1,013,789
Total revenues 362,430 348,629 1,099,288 988,600 1,355,139
Cost of revenues:          
Proprietary software products and related services 51,903 52,716 154,644 149,075 201,302
Software services 230,337 218,718 700,212 623,513 857,014
Total cost of revenues 282,240 271,434 854,856 772,588 1,058,316
Gross profit 80,190 77,195 244,432 216,012 296,823
Research and development expenses, net 9,891 10,076 31,339 29,459 39,853
Selling, marketing, general and administrative expenses 43,739 45,209 135,954 133,529 184,424
Other income 308
Operating income 26,560 21,910 77,139 53,024 72,854
Financial expenses (4,409) (3,593) (9,106) (17,279) (21,773)
Financial income 304 (12) 1,740 239 606
Group's share of profits (losses) of companies accounted for at equity, net (3) 107 (66) 517 1,124
Income before taxes on income 22,452 18,412 69,707 36,501 52,811
Taxes on income 4,297 5,504 16,020 11,834 13,371
Net income 18,155 12,908 53,687 24,667 39,440
Attributable to:          
Equity holders of the Company 6,780 4,955 21,630 5,754 10,352
Redeemable non-controlling interests 1,591 928 4,702 2,104 3,671
Non-controlling interests 9,784 7,025 27,355 16,809 25,417
Net income $ 18,155 $ 12,908 $ 53,687 $ 24,667 $ 39,440
Net earnings per share attributable to Formula Systems Shareholders          
Basic earnings per share $ 0.46 $ 0.34 $ 1.47 $ 0.4 $ 0.72
Diluted earnings per share $ 0.45 $ 0.33 $ 1.44 $ 0.38 $ 0.68
Interim Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Statement of comprehensive income [abstract]          
Net income $ 18,155 $ 12,908 $ 53,687 $ 24,667 $ 39,440
Amounts that will not be reclassified subsequently to profit or loss:          
Actuarial income (loss) from defined benefit plans 85 (791) 45 (2,069) (898)
Share in other comprehensive income (loss) of joint venture 102 104
Amounts that will be or that have been reclassified to profit or loss when specific conditions are met:          
Unrealized gain (loss) on debt instruments at fair value through other comprehensive income 40 (7) (55) 192 144
Amounts transferred to the statement of profit or loss for sale of debt instruments at fair value through other comprehensive income 12 (94) (94)
Exchange differences on translation of foreign operations 1,583 (1,756) (19,255) 35,515 41,599
Total other comprehensive income (loss), net of tax 1,708 (2,542) (19,265) 33,646 40,855
Total Comprehensive income 19,863 10,366 34,422 58,313 80,295
Total comprehensive income attributable to:          
Equity holders of the Company 7,704 3,709 12,590 21,892 30,354
Redeemable non-controlling interests 1,593 445 2,635 6,073 7,836
Non-controlling interests 10,566 6,212 19,197 30,348 42,105
Total comprehensive income $ 19,863 $ 10,366 $ 34,422 $ 58,313 $ 80,295
Interim Condensed Consolidated Statements of Changes in Equity - USD ($)
$ in Thousands
Share Capital
Additional paid-in capital
Retained earnings
Accumulated other comprehensive Loss
Treasury shares (cost)
Non-controlling interests
Total
Beginning balance at Dec. 31, 2016 $ 4,184 $ 100,571 $ 234,268 $ (2,377) $ (259) $ 387,455 $ 723,842
Beginning balance, Shares at Dec. 31, 2016 14,728,782            
Statement Line Items [Line Items]              
Net Income 5,754 16,809 22,563
Foreign currency translation reserve 17,017 14,529 31,546
Actuarial loss from defined benefit plans (1,030) (1,039) (2,069)
Unrealized loss on debt instruments at fair value through other comprehensive income, net 99 105 204
Realized gain on debt instruments at fair value through other comprehensive income (50) (56) (106)
Share in other comprehensive income of joint venture 102 102
Total other comprehensive income (loss) (1,030) 17,168 13,539 29,677
Total comprehensive income 4,724 17,168 30,348 52,240
Issuance of restricted shares to employees $ 3 (3)
Issuance of restricted shares to employees, shares 10,000            
Stock-based Compensation expenses 1,001 2,095 3,096
Transactions with non-controlling interests due to holding changes, including exercise of employees stock options (473) 1,309 836
Acquisition of non-controlling interests 3 3 6
Adjustments to redeemable non-controlling interests (2,758) (3,007) (5,765)
Dividend to Formula's shareholders (5,011) (5,011)
Dividend to non-controlling interests in subsidiaries (14,953) (14,953)
Ending balance at Sep. 30, 2017 $ 4,187 98,341 233,981 14,791 (259) 403,250 754,291
Ending balance, Shares at Sep. 30, 2017 14,738,782            
Beginning balance at Dec. 31, 2016 $ 4,184 100,571 234,268 (2,377) (259) 387,455 723,842
Beginning balance, Shares at Dec. 31, 2016 14,728,782            
Statement Line Items [Line Items]              
Net Income 10,352 25,417 35,769
Foreign currency translation reserve 20,325 17,109 37,434
Actuarial loss from defined benefit plans (453) (445) (898)
Unrealized loss on debt instruments at fair value through other comprehensive income, net 70 74 144
Realized gain on debt instruments at fair value through other comprehensive income (44) (50) (94)
Share in other comprehensive income of joint venture       104 104
Total other comprehensive income (loss) (453) 20,455 16,688 36,690
Total comprehensive income 9,899 20,455 42,105 72,459
Issuance of restricted shares to employees $ 3 (3)
Issuance of restricted shares to employees, shares 10,000            
Stock-based Compensation expenses 1,058 3,442 4,500
Transactions with non-controlling interests due to holding changes, including exercise of employees stock options (1,306) 4,553 3,247
Acquisition of non-controlling interests 3 3 6
Non-controlling interests arising from exercise of options in indirect subsidiary 28 28
Adjustments to redeemable non-controlling interests (2,283) (2,589) (4,872)
Redeemable non-controlling interests classification to non-controlling interests 2,440 2,440
Dividend to Formula's shareholders (5,011) (5,011)
Dividend to non-controlling interests in subsidiaries (23,717) (23,717)
Ending balance at Dec. 31, 2017 $ 4,187 98,040 239,156 18,078 (259) 413,720 $ 772,922
Ending balance, Shares at Dec. 31, 2017 14,738,782           14,738,782
Statement Line Items [Line Items]              
Impact of the adoption of IFRS 15 874 941 $ 1,815
Beginning balance (Including the impact of the adoption of IFRS 15) $ 4,187 98,040 240,030 18,078 (259) 414,661 774,737
Beginning balance, Shares (Including the impact of the adoption of IFRS 15) 14,738,782            
Net Income 21,630 27,355 48,985
Foreign currency translation reserve (9,035) (8,153) (17,188)
Actuarial loss from defined benefit plans 22 23 45
Unrealized loss on debt instruments at fair value through other comprehensive income, net (27) (28) (55)
Share in other comprehensive income of joint venture            
Total other comprehensive income (loss) 22 (9,062) (8,158) (17,198)
Total comprehensive income 21,652 (9,062) 19,197 31,787
Issuance of shares upon conversion of convertible debentures [1] 40 40
Issuance of shares upon conversion of convertible debentures, shares 979            
Stock-based Compensation expenses 155 3,136 3,291
Transactions with non-controlling interests due to holding changes, including exercise of employees stock options (421) 1,190 769
Acquisition of non-controlling interests (210) (547) (757)
Dilution due to issuance of Magic's ordinary shares 2,682 22,722 25,404
Non-controlling interests arising from initially consolidated companies 28 28
Adjustments to redeemable non-controlling interests (929) (1,056) (1,985)
Change in terms or expiration of redeemable non-controlling interests' put options 376 1,835 2,211
Dividend to Formula's shareholders (5,011) (5,011)
Dividend to non-controlling interests in subsidiaries (24,501) (24,501)
Ending balance at Sep. 30, 2018 $ 4,187 $ 99,733 $ 256,671 $ 9,016 $ (259) $ 436,665 $ 806,013
Ending balance, Shares at Sep. 30, 2018 14,739,761           14,739,761
[1] Less than one thousand U.S. dollar
Interim Condensed Consolidated Statements of Other Comprehensive Income - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Sep. 30, 2017
Statement Of Others Comprehensive Income [Abstract]      
Reserve from debt instruments at fair value through other comprehensive income $ 350 $ 377 $ 400
Foreign currency translation reserve 10,777 19,812 16,504
Reserve from derivatives 4 4 4
Share of other comprehensive income (loss) of companies accounted for at equity (2,115) (2,115) (2,117)
Accumulated other comprehensive loss $ 9,016 $ 18,078 $ 14,791
Interim Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Cash flows from operating activities:      
Net income $ 53,687 $ 24,667 $ 39,440
Adjustments to reconcile net income to net cash provided by operating activities:      
Group's share in losses (gains) of companies accounted for at equity 66 (517) (1,124)
Depreciation and amortization 36,049 32,553 43,646
Changes in value of debentures, net (3,252) 3,604 5,277
Increase (decrease) in employee benefit liabilities 272 (91) 752
Loss from sale of property, plants and equipment 3 13 26
Stock-based compensation expenses 3,291 3,096 4,552
Changes in value of short-term and long-term loans from banks and others and deposits, net (2,815) 5,933 6,731
Changes in deferred taxes, net (4,707) (5,941) (12,819)
Change in liability in respect of business combinations 2,717 1,494 1,531
Loss from sale and increase in value of marketable securities classified as trading 120 149
Amortization of premium and accrued interest on debt instruments at fair value through other comprehensive income 165 663 716
Realized gain from sale of debt instruments at fair value through other comprehensive income (106) (94)
Change in value of dividend preference derivative in TSG (260)
Working capital adjustments:      
Decrease (increase) in inventories (552) (796) 1,037
Increase in trade receivables (39,427) (18,403) (38,223)
Decrease (increase) in other current and long-term accounts receivable (9,141) (2,340) 755
Increase (decrease) in trade payables 163 (11,245) 6,086
Increase (decrease) in other accounts payable, employees and payroll accrual and other long-term liabilities (8,146) (7,477) 7,199
Increase (decrease) in deferred revenues (1,373) 17,431 15,718
Net cash provided by operating activities 27,000 42,658 81,095
Cash flows from investing activities:      
Payments for business acquisitions, net of cash acquired (Appendix B) (28,495) (116,043) (119,103)
Payments to former shareholders of consolidated companies (7,338) (7,598) (8,817)
Purchase of intangible assets (180)
Purchase of property and equipment (9,138) (7,028) (9,573)
Proceeds from maturity and sale net of investment in debt instruments at fair value through other comprehensive income 2,000 39,406 40,622
Proceeds from sale of property, plants and equipment 288
Investment in and loans to affiliates and other companies (25) (25)
Change in short-term and long-term deposits, net (252) (26) (888)
Capitalization of software development and other costs (6,480) (7,284) (9,338)
Net cash used in investing activities (49,595) (98,598) (107,122)
Cash flows from financing activities:      
Exercise of employees stock options in subsidiaries 769 835 3,240
Issuance of Magic's ordinary shares 25,404
Dividend paid to non-controlling interests and redeemable non- controlling interests in subsidiaries (24,517) (22,467) (31,231)
Dividend to Formula's shareholders (5,011) (7,070) (12,081)
Short-term bank credit, net 52,366 14,527 (21,176)
Repayment of long-term loans from banks and others (32,050) (32,236) (46,065)
Receipt of long term loans 26 11,181 52,734
Proceeds from issuance of debentures, net 45,356 78,229 78,229
Repayment of long-term liabilities to office of the chief scientist (213) (275) (502)
Repayment of debentures (9,383) (3,656) (3,656)
Purchase of non-controlling interests (757)
Repayment of capital lease (480) (480)
Cash paid due to exercise of put option by redeemable non-controlling interests (142)
Net cash provided by financing activities 51,848 38,588 19,012
Effect of exchange rate changes on cash and cash equivalents (3,436) 12,271 12,912
Increase (decrease) in cash and cash equivalents 25,817 (5,081) 5,897
Cash and cash equivalents at beginning of year 245,947 240,050 240,050
Cash and cash equivalents at end of year 271,764 234,969 245,947
Non-cash activities:      
Dividend payable to Formula's shareholders 5,011
Deferred payment to former shareholders of consolidated companies 652
Dividend payable to non-controlling interests and redeemable non-controlling interests $ 5,172 $ 692
Interim Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Thousands
 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Assets and liabilities of subsidiaries consolidated as of acquisition date:      
Working capital (other than cash and cash equivalents) $ 5,117 $ 7,618 $ 9,631
Property and equipment (397) (1,200) (1,332)
Goodwill and intangible assets (51,621) (140,093) (148,085)
Other long-term assets (6) (125)
Liabilities to banks and others 62 184 281
Long-term liabilities (78)
Deferred tax liability, net 5,245 17,526 17,911
Liability to formerly shareholders 6,417 2,616
Non-controlling interests at acquisition date 28
Redeemable non-controlling interests at acquisition date 6,660
Total $ (28,495) $ (116,043) $ (119,103)
General
 9 Months Ended
Sep. 30, 2018
General [Abstract]  
GENERAL

NOTE 1:-GENERAL

 

a.Formula Systems (1985) Ltd. ("Formula" or the "Company") was incorporated in Israel and began its business operations in 1985. Since 1991, Formula's ordinary shares, par value NIS 1.0 per share, have been traded on the Tel-Aviv Stock Exchange ("TASE"), and, in 1997, began trading through American Depositary Shares ("ADSs") under the symbol "FORTY" on the NASDAQ Global Market in the United States until January 3, 2011, at which date the listing of Formula's ADSs was transferred to the NASDAQ Global Select Market ("NASDAQ"). Each ADS represents one ordinary share of Formula. The Company is considered an Israeli resident. The controlling shareholder of the Company is Asseco Poland S.A. ("Asseco"), a Polish public company, traded on the Warsaw Stock Exchange.

 

b.Formula, through its investees (collectively, the "Group") is engaged in providing software services, proprietary and non-proprietary software solutions, software product marketing and support, computer infrastructure and integration solutions and training and integration. The Group operates through five directly held subsidiaries: Matrix IT Ltd. ("Matrix"); Magic Software Enterprises Ltd. ("Magic"), Sapiens International Corporation N.V ("Sapiens"), Insync Staffing Solutions, Inc. ("Insync") and Michpal Micro Computers (1983) Ltd. ("Michpal"), and one jointly controlled entity: TSG IT Advanced Systems Ltd. ("TSG").

 

c.The following table presents the ownership of Formula's directly held investees, as of the dates indicated (the list consists only of active companies):

 

     Percentage of ownership 
     September 30,   December 31, 
     2018   2017 
  Name of Investee        
           
  Matrix   49.18    49.50 
  Magic   45.21    47.12 
  Sapiens   48.16    48.14 
  Insync   90.09    90.09 
  Michpal   100    100 
  TSG   50.00    50.00 

 
Basis of Preperation
 9 Months Ended
Sep. 30, 2018
Basis Of Preperation  
BASIS OF PREPERATION

NOTE 2:-BASIS OF PREPERATION

 

The interim condensed consolidated financial statements for the three-months period and for the nine-months period ended September 30, 2018 have been prepared in accordance with International Financial Reporting Standard IAS 34 Interim financial reporting. The Interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at December 31, 2017 which were published on May 15, 2018.

  

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended December 31, 2017, except for the adoption of new standards effective as of January 1, 2018. The Group has not early adopted any standard or interpretation amendment that has been issued but is not yet effective.
New Standards, Interpretations and Amendments Adopted by the Group
 9 Months Ended
Sep. 30, 2018
New Standards Interpretations And Amendments Adopted By Group  
New Standards, Interpretations and Amendments Adopted by the Group

NOTE 3:-NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS ADOPTED BY THE GROUP

 

The Group has been applied for the first time in these financial statements IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers'. As required by IAS 34, the nature and effect of these changes are disclosed below. Several other amendments and interpretations apply for the first time in 2018 but do not have an impact on the interim condensed consolidated financial statements of the Group.

 

IFRS 15 'Revenue from Contracts with Customers'

 

IFRS 15, issued by the IASB in May 2014, supersedes IAS 11 'Construction Contracts', IAS 18 'Revenue from contracts with customers' and related Interpretations and applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards.

 

The new standard establishes a five-step model to account for revenue arising from contracts with customers and requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers:

 

Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.

Step 2: Identify the separate performance obligations in the contract.

Step 3: Determine the transaction price, including reference to variable consideration, significant financing components, non-cash consideration and any consideration payable to the customer.

Step 4: Allocate the transaction price to the distinct performance obligations on a relative stand-alone selling price basis using observable information, if it is available, or using estimates and assessments.

Step 5: Recognize revenue when a performance obligation is satisfied, either at a point in time or over time.

 

Under IFRS 15, revenues are recognized when control of the promised goods or services are transferred to the customers in an amount that reflects the consideration that the Group expects to receive in exchange for those goods or services.

 

The Group enters into contracts that can include various combinations of products and software, IT services and hardware, as detailed below, which are generally capable as being distinct from each other and accounted for as separate performance obligations.

 

For contracts with customers that contain multiple performance obligations, the Group accounts for each individual performance obligation separately, if they are distinct from each other. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices of software sales are typically estimated using the residual approach. Standalone selling prices of software and IT services are typically estimated based on observable transactions when these services are sold on a standalone basis.

 

The following is a description of principal activities from which the Group generates its revenues:

 

Sale of proprietary licenses without significant related services

 

In the event in which the sale of a proprietary license is distinct from other significant modification or implementation services, and thereby it constitutes a separate performance obligation, the Group considers whether this performance obligation in granting the license is to provide the customer with either:

 

●a right to access the entity's intellectual property in the form in which it exists throughout the licensing period; or
●a right to use the entity's intellectual property in the form in which it exists at the time of granting the license

 

The vast majority of licenses sold separately by the Group (thus representing a separate performance obligation) are intended to provide the customer with a right to use the intellectual property, which means revenues from the sale of such licenses are recognized at the point in time at which control of the license is transferred to the customer.

 

The Group recognizes revenue from software licensing transactions over time when the Group provides the customer a right to access the Group's intellectual property throughout the license period.

 

Sale of proprietary licenses with significant related services

 

Revenues from contracts that include the sale of proprietary licenses with significant related services (for example, modifications, implementation or customization to customer-specific specifications) are generally accounted by the Group as performance obligations satisfied over time. In such contracts the Group is normally committed to provide the customer with a functional IT system and the customer can only benefit from such functional system, being the final product that would normally be comprised of proprietary licenses and significant related services. The Group considers that a commitment to sell a license under such performance obligation does not satisfy the criteria of being distinct, because the transfer of the license is only part of a larger performance obligation. The Group recognizes revenue from such contracts using cost based input methods, which recognizes revenue and gross profit as the work is performed based on a ratio between actual costs incurred compared to the total estimated costs for the contract. This is because, in accordance with IFRS 15, revenues may be recognized over time of transferring control of the supplied goods and services, as long as the entity's performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date throughout the duration of the contract. Provisions for estimated losses on uncompleted contracts are made during the period in which such losses are first determined, in the amount of the estimated loss for the entire contract.

 

When appropriate, the Group also applies a practical expedient permitted under IFRS 15 whereby if the Group has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Group's performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the Group may recognize revenue in the amount it is entitled to invoice.

 

Deferred revenues, which represent a contract liability, include unearned amounts received under maintenance and support (mainly) and amounts received from customers for which revenues have not yet been recognized.

 

Maintenance services and warranties

 

Post contract support includes annual maintenance contracts providing for unspecified upgrades for new versions and enhancements on a when-and-if-available basis for an annual fee. The right for an unspecified upgrade for new versions and enhancements on a when-and-if-available basis do not specify the features, functionality and release date of future product enhancements for the customer to know what will be made available and the general timeframe in which it will be delivered.

 

The accounting policy regarding the recognition of Post contract support remained unchanged after the adoption of IFRS 15, as such services, in principle, constitute a separate performance obligation where the customer consumes the benefits of goods and services as they are delivered by the provider, as a consequence of which revenues are recognized over time during the service performance period.

 

The Group considers the post contract support performance obligation as a distinct performance obligation that is satisfied over time, and as such, it recognizes revenue for post contract support on a straight-line basis over the period for which technical support is contractually agreed to be provided to the software, typically twelve (12) months.

 

In certain cases, the Group also provides a warranty for goods and services sold (i.e. extended warranties that the scope of which is broader than just an assurance to the customer that the product/service complies with agreed-upon specifications). The Group has ascertained that such warranties granted by the Group meet the definition of service. The conclusion regarding the extended nature of a warranty is made whenever the Group contractually undertakes to repair any errors in the delivered software within a strictly specified time limit and/or when such warranty is more extensive than the minimum required by law. Under IFRS 15, the fact of granting an extended warranty indicates that the Group actually provides an additional service. As such, the Group recognizes an extended warranty as a separate performance obligation and allocates a portion of the transaction price to such service. In all cases where an extended warranty is accompanied by a maintenance service, which is even a broader category than an extended warranty itself, revenues are recognized over time because the customer consumes the benefits of such service as it is performed by the provider. If this is the case, the Group continues to allocate a portion of the transaction price to such maintenance service. Likewise, in cases where a warranty service is provided after the project completion and is not accompanied by any maintenance service, then a portion of the transaction price and analogically recognition of a portion of contract revenues will have to be deferred until the warranty service is actually fulfilled.

 

Sale of third-party licenses and services

 

Third-party licenses and services includes revenues from the sale of third-party licenses as well as from the provision of services which, due to technological or legal reasons, must be carried out by subcontractors (this applies to hardware and software maintenance and outsourcing services provided by their manufacturers). Revenues from the sale of third-party licenses are accounted for as sales of goods, which means that such revenues are recognized at the point in time at which control of the license is transferred to the customer. Concurrently, revenues from third-party services, including primarily third-party maintenance services, are recognized over time when such services are provided to the customer.

 

Whenever the Group is involved in the sale of third-party licenses or services, it will consider whether the Group acts as a principal or an agent; however, in most cases the conclusion is that the Group is the main party required to satisfy a performance obligation and therefore the resulting revenues are recognized in the gross amount of consideration

 

Sale of hardware

 

Sale of hardware includes revenues from contracts with customers for the supply of infrastructure. In this category, revenues are recognized basically at the point in time at which control of the equipment is transferred. This does not apply to contracts in which the hardware is not delivered separately from services provided alongside, in such case the sale of hardware is part of a performance obligation involving the supply of a comprehensive system. However, such comprehensive projects are a rare practice in the Group as the sale of hardware is predominantly performed on a distribution basis.

 

Variable consideration

 

In accordance with IFRS 15, if a contract consideration encompasses any amount that is variable, the Group shall estimate the amount of consideration to which it will be entitled in exchange for transferring promised goods or services to the customer, and shall include a portion or the whole amount of variable consideration in the transaction price but only to the extent that it is highly probable a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

  

Significant financing component

  

When contracts involve a significant financing component, the Group adjusts the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provide the customer with a significant benefit of financing.

 

The Group has elected to apply the practical expedient allowed by IFRS 15 according to which it does not separate the financing component in transactions whose credit terms are less than one year and will recognize revenue in the amount of the consideration stated in the contract even if the customer pays for the goods or services subsequent to their receipt.

 

Costs of contracts with customers

 

The costs of obtaining a contract are those additional (incremental) costs incurred by the Group in order to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. The Group recognizes such costs as an asset if it expects to recover those costs. Such capitalized costs of obtaining a contract shall be amortized over a period when the Group satisfies the performance obligations arising from the contract.

 

As a practical expedient, the Group recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Group would have otherwise recognized is one year or less.

 

Costs to fulfil a contract are the costs incurred in fulfilling a contract with a customer. The Group recognizes such costs as an asset if they are not within the scope of another standard (for example, IAS 2 'Inventories', IAS 16 'Property, Plant and Equipment' or IAS 38 'Intangible Assets') and if those costs meet all of the following criteria:

 

i)the costs relate directly to a contract or to an anticipated contract with a customer,
ii)the costs generate or enhance resources of the Group that will be used in satisfying (or in continuing to satisfy) performance obligations in the future, and
iii)the costs are expected to be recovered.

 

The Group pays commissions to sales and marketing and certain management personnel based on their attainment of certain predetermined sales or profit goals. Sales commissions are considered incremental costs of obtaining a contract with a customer and are deferred and amortized. The Group is required to capitalize and amortize incremental costs of obtaining a contract, such as certain sales commission costs, on a systematic basis that is consistent with the transfer to the customer of the performance obligations to which the asset relates. Amortization expenses related to these costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

 

IFRS 15 – First-time adoption

 

The Group implemented IFRS 15 as of January 1, 2018 and elected to apply the modified retrospective approach recognizing the cumulative effect from applying the standard as an adjustment to the opening balance of retained earnings. The Group has used a practical expedient allowed under IFRS 15 and exempt from the restatement of comparable data. This means that financial data reported for reporting periods prior to December 31, 2017, including for the three and nine-months periods ended September 30, 2017, has been prepared on the basis of the following standards: IAS 18 'Revenue', IAS 11 'Construction Contracts' as well as interpretations related to revenue recognition that were applicable before the effective date of IFRS 15. Results for reporting periods beginning after January 1, 2018 are presented in accordance with IFRS 15.

 

In line with the chosen approach for the implementation of IFRS 15, the Group also decided to use a practical expedient not to restate contracts in respect of all modifications that were approved before the beginning of the earliest period presented.

 

The table below presents a quantified analysis of opening balance adjustments which resulted from the upfront recognition of license revenue (mainly term-based software licenses which do not involve significant customization) and from incremental costs incurred to obtain contracts (mainly due to sales commissions). The Group has concluded that certain term-based software licenses which do not involve significant customization should now be considered as distinct performance obligations separate from other performance obligations, and thus should be measured using the relative standalone selling price basis, and recognized as revenue accordingly (at a point in time, rather than over the term of the contracts). This change in measurement results from the Group's determination that the control over such software licenses had been transferred to the customer before the end of 2017 and, pursuant to the new standard, the arising revenues should have been recognized at that time. This type of transactions concerned to licenses sold by Sapiens and therefore the effects of these adjustments were attributable also to non-controlling interests.

  

  1/1/2018  Opening balance adjustment 
  Current Assets    
  Trade receivables   20 
  Other accounts receivable and prepaid expenses   629 
  Current Liabilities     
  Deferred revenue and customer advances   (1,397)
  Other accounts payable   231 
  Equity     
 

Retained earnings

   874 
  Other components of equity – non-controlling interests   941 

 

As the Group has used the modified retrospective approach and recognized the cumulative effect of first-time adoption of IFRS 15 as of January 1, 2018, the table below presents a comparison of selected items of the interim condensed consolidated statement of financial position drawn up as of September 30, 2018 with their respective values calculated in line with the principles applied before the implementation of IFRS 15 by the Group, this is in accordance with IAS 18, IAS 11 and relevant interpretations:

 

     Balance as of September 30, 2018
(in accordance with IFRS 15)		   Reversal of the
opening balance adjustment due to IFRS 15		   Adjustment due to adoption of IFRS 15 in current period   Amounts without adoption of IFRS 15 (calculated in accordance with previous standards, i.e. IAS 11 and IAS 18) 
  Current Assets                    
  Trade receivables   416,587    (20)   (2,568)   413,999 
  Prepaid expenses and other    accounts receivable (*)   48,628    (629)   1,715    49,714 
  Long term assets                    
  Prepaid expenses and other accounts receivable (*)   20,528    -    (1,317)   19,211 
  Current Liabilities                    
  Deferred revenue and customer advances   59,212    1,397    2,146    62,755 
  Other accounts payable   60,238    (231)   (113)   59,894 
  Equity                    
  Retained earnings   256,671    (874)   (2,210)   253,587 
  Other components of equity – non-controlling interests   436,665    (941)   (1,993)   433,731 

  

(*) The impact of the implementation of IFRS 15 on the Group's short-term and long-term prepaid expenses and other accounts receivable is due to the recognition of third party expenses in the amount of $2,231 offset by the recognition of long-term income receivable in the amount of $1,954 and deferment of commission expenses in the amount of $508.

 

The table below presents the impact of changes resulting from the applied standard on the amount of revenues and profit at various levels for the nine-month period ended September 30, 2018:

 

     Nine months ended
September 30,
2018		   Adjustments due to adoption of IFRS 15 in current period   Amounts without adoption of IFRS 15 (calculated in accordance with previous standards, i.e. IAS 11 and IAS 18) 
  Revenues   1,099,288    (4,438)   1,094,850 
  Cost of revenues   854,856    -    854,856 
  Gross Profit   244,432    (4,438)   239,994 
  Research and development expenses, net   31,339    -    31,339 
  Selling, marketing, general and administrative expenses   135,954    (121)   135,833 
  Other income   -    -    - 
  Operating income   77,139    (4,317)   72,822 
  Financial expenses   (9,106)   -    (9,106)
  Financial income   1,740    -    1,740 
  Group's share of profits (losses) of companies accounted for at equity, net   (66)   -    (66)
  Income before taxes on income   69,707    (4,317)   65,390 
  Taxes on income   16,020    (114)   15,906 
  Net income   53,687    (4,203)   49,484 
  Attributable to:               
  Equity holders of the Company   21,630    (2,210)   19,381 
  Redeemable non-controlling interests   4,702    -    4,702 
  Non-controlling interests   27,355    (1,993)   25,401 

 

IFRS 9 - Financial Instruments

 

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after January 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The new Standard has been applied for the first time in these financial statements retrospectively without restatement of comparative data. The initial adoption of IFRS 9 does not have an impact on the interim condensed consolidated financial statements of the Group.

 

(a) Classification and measurement

 

Under IFRS 9, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Under IFRS 9, debt financial instruments are subsequently measured at fair value through profit or loss (FVPL), amortized cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Group's business model for managing the assets; and whether the instruments' contractual cash flows represent 'solely payments of principal and interest' on the principal amount outstanding (the 'SPPI criterion').

 

The new classification and measurement of the Group's debt financial assets are, as follows:

 

●Debt instruments at amortized cost for financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion. This category includes the Group's Trade and other receivables, and Loans included under Other non-current financial assets.

 

●Debt instruments at FVOCI, with gains or losses recycled to profit or loss on derecognition. Financial assets in this category are the Group's quoted debt instruments that meet the SPPI criterion and are held within a business model both to collect cash flows and to sell. Under IAS 39, the Group's quoted debt instruments were classified as available-for-sale (AFS) financial assets.

 

Other financial assets are classified and subsequently measured, as follows:

 

●Equity instruments at FVOCI, with no recycling of gains or losses to profit or loss on derecognition. This category only includes equity instruments, which the Group intends to hold for the foreseeable future and which the Group has irrevocably elected to so classify upon initial recognition or transition. The Group classified its unquoted equity instruments as equity instruments at FVOCI. Equity instruments at FVOCI are not subject to an impairment assessment under IFRS 9. Under IAS 39, the Group's unquoted equity instruments were classified as AFS financial assets.

 

●Financial assets at FVPL comprise derivative instruments and quoted equity instruments which the Group had not irrevocably elected, at initial recognition or transition, to classify at FVOCI. This category would also include debt instruments whose cash flow characteristics fail the SPPI criterion or are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. Under IAS 39, the Group's quoted equity securities were classified as AFS financial assets. Upon transition the AFS reserve relating to quoted equity securities, which had been previously recognized under accumulated OCI, was reclassified to Retained earnings.

 

●The accounting for the Group's financial liabilities remains largely the same as it was under IAS 39. Similar to the requirements of IAS 39, IFRS 9 requires contingent consideration liabilities to be treated as financial instruments measured at fair value, with the changes in fair value recognized in the statement of profit or loss.

 

The assessment of the Group's business models was made as of the date of initial application, 1 January 2018, and then applied retrospectively to those financial assets that were not derecognised before 1 January 2018. The assessment of whether contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the assets.

 

The accounting for the Group's financial liabilities remains largely the same as it was in under IAS 39. Similar to the requirmenets of IAS 39, IFRS 9 requires contingent consideration liabilities to be treated as financial instruments at fair value, with the changes in fair value recognized in the statement of profit or loss.

 

(b) Impairment

 

The adoption of IFRS 9 has fundamentally changes the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected loss (ECL) approach.

 

IFRS 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL. ELCs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset's original effective interest rate.
Disclosure of New Standards in the Period Prior to their Adoption
 9 Months Ended
Sep. 30, 2018
Disclosure of expected impact of initial application of new standards or interpretations [abstract]  
DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION

NOTE 4:-DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION

 

IFRS 16, "Leases":

 

In January 2016, the IASB issued IFRS 16, "Leases" ("the new Standard") effective for annual periods beginning on or after 1 January 2019. According to the new Standard, a lease is a contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for consideration.

 

According to the new Standard:

 

1.Lessees are required to recognize all leases in the statement of financial position (except in certain cases) similar to the accounting treatment of finance leases according to the existing IAS 17, "Leases".

 

2.Lessees are required to initially recognize a lease liability for the obligation to make lease payments and a corresponding right-of-use asset. Lessees will also recognize interest and depreciation expense separately.

 

3.Variable lease payments that are not dependent on changes in the Consumer Price Index ("CPI") or interest rates, but are based on performance or use (such as a percentage of revenues) are recognized as an expense by the lessees as incurred and recognized as income by the lessors as earned.

 

4.In the event of change in variable lease payments that are CPI-linked, lessees are required to remeasure the lease liability and the effect of the remeasurement is an adjustment to the carrying amount of the right-of-use asset.

 

5.The new Standard includes two exceptions according to which lessees are permitted to elect to apply a method similar to the current accounting treatment for operating leases. These exceptions are leases for which the underlying asset is of low value and leases with a term of up to one year.

 

6.The accounting treatment by lessors remains substantially unchanged, namely classification of a lease as a finance lease or an operating lease.

 

The new Standard permits lessees to use one of the following approaches:

 

1.Full retrospective approach - according to this approach, a right-of-use asset and the corresponding liability will be presented in the statement of financial position as if they had always been measured according to the provisions of the new Standard. Accordingly, the effect of the adoption of the new Standard at the beginning of the earliest period presented will be recorded in equity. Also, the Company will restate the comparative data in its financial statements. Under this approach, the balance of the liability as of the date of initial application of the new Standard will be calculated using the interest rate implicit in the lease, unless this rate cannot be easily determined in which case the lessee's incremental borrowing rate of interest on the commencement date of the lease will be used.

 

2.Modified retrospective approach - this approach does not require restatement of comparative data. The balance of the liability as of the date of initial application of the new Standard will be calculated using the lessee's incremental borrowing rate of interest on the date of initial application of the new Standard. As for the measurement of the right-of-use asset, the Company may choose, on a lease-by-lease basis, to apply one of the two following alternatives:

 

●Recognize an asset in an amount equal to the lease liability, with certain adjustments.
●Recognize an asset as if the new Standard had always been applied.

 

Any difference arising on the date of first-time recorded in equity.

 

The Group believes that it will apply the modified retrospective approach upon the initial adoption of the new Standard by measuring the right-of-use asset at an amount equal to the lease liability, as measured on the transition date.

 

The Group is evaluating the possible effects of the new Standard.

 

IFRS 3, "Business Combinations":

 

In October 2018, the IASB issued an amendment to the definition of a "business" in IFRS 3, "Business Combinations" ("the Amendment"). The Amendment is intended to assist entities in determining whether a transaction should be accounted for as a business combination or as an acquisition of an asset.

 

The Amendment consists of the following:

 

1.Clarification that to meet the definition of a business, an integrated set of activities and assets must include, as a minimum, an input and a substantive process that together significantly contribute to the ability to create output.

 

2.Removal of the reference to the assessment whether market participants are capable of acquiring the business and continuing to operate it and produce outputs by integrating the business with their own inputs and processes.

  

3.Introduction of additional guidance and examples to assist entities in assessing whether the acquired processes are substantive.

 

4.Narrowing the definitions of "outputs" and "business" by focusing on goods and services provided to customers.

 

5.Introducing an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

 

The Amendment is to be applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020, with earlier application permitted.
Business Combination
 9 Months Ended
Sep. 30, 2018
Business Combination, Significant Transaction and Sale of Business [Abstract]  
BUSINESS COMBINATION

NOTE 5:-BUSINESS COMBINATION

 

i.Sapiens

 

Acquisition of Adaptik Corporation

 

On March 7, 2018 (the "acquisition date"), Sapiens completed the acquisition of all of outstanding shares of Adaptik Corporation, a New-Jersey company engaged in the development of software solutions for P&C insurers, including policy administration, rating, billing, customer management, task management and product design, in a total cash consideration of $18,518 (out of this amount $18,318 was paid in March 2018 and $200 will be paid in March 2022). In addition, the seller has performance based payments relating to achievements of revenue targets over three years (2018-2020) of up to $3,700. Such payments are subject to continued employment and therefore, not part of the purchase price. Acquisition related costs were immaterial.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, with reference to the acquisition as of the acquisition date:

 

  Net assets  $(2,358)
  Intangible assets   12,936 
  Deferred taxes   (3,528)
  Goodwill   11,468 
        
  Net assets acquired  $18,518 

 

ii.Matrix

 

a.Acquisition of Alius Group Inc.

 

On January 18, 2018, Matrix acquired 100% of the share capital of Alius Group in the United States for a cash consideration of approximately $16,600. Alius provides consulting services in the area of regulatory and compliance in the US financial market. Acquisition related costs were immaterial. The acquisition was accounted for by the purchase method.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, with reference to the acquisition as of the acquisition date:

 

  Net assets  $(5)
  Intangible assets   3,062 
  Deferred taxes   (826)
  Goodwill   14,551 
        
  Net assets acquired  $16,782 

 

b.Acquisition of Pleasant Valley Business Solutions, LLC

 

On March 13, 2018, Matrix acquired 100% of the share capital of Pleasant Valley Business Solutions (hereafter "PVBS") in the United States for a cash consideration of approximately $7,600. In addition, the seller has performance based payments relating to achievements of profitability targets over three years (2018-2020) of up to $3,200. PVBS is engaged in the implementation and assimilation of ERP systems for US government suppliers. Acquisition related costs were immaterial. The acquisition was accounted for by the purchase method.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, with reference to the acquisition as of the acquisition date:

 

  Net assets  $(851)
  Intangible assets   3,300 
  Deferred taxes   (920)
  Goodwill   7,360 
        
  Net assets acquired  $8,889 

  

c.Acquisition of Noah Technologies Ltd.

 

On November 25, 2018, Matrix acquired 100% of the share capital of Noah Technologies Ltd in Israel for a cash consideration of approximately $1,626. In addition, the seller has performance based payment capped at NIS 4,000 (approximately $1,067), estimated on the date of the transaction at $330, relating to achievement of certain profitability targets for the years 2019-2021. The acquisition was accounted for by the purchase method.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, with reference to the acquisition as of the acquisition date:

 

  Net assets  $(473)
  Intangible assets   580 
  Deferred taxes   (133)
  Goodwill   1,485 
        
  Net assets acquired  $1,459 

  

The estimated fair values of the tangible and intangible assets referring to acquisition which were made in 2018 are provisional and are based on information that was available as of the acquisition date to estimate the fair value of these amounts. The Group's management believes the information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair value reflected are subject to change. The Group expects to finalize the tangible and intangible assets valuation and complete the acquisition accounting as soon as practicable but no later than the measurement period.

 

d.Other acquisitions by Matrix in 2018

 

During the nine-month period ended September 30, 2018 Matrix acquired additional activities whose influence on the financial statements of the Company was immaterial, for a total consideration of $2,275 including $224 estimated on the date of the transaction for performance based payment relating to achievement of certain profitability targets (provisional and is based on information that was available as of the acquisition date to estimate the fair value of this amount).
Fair Value Measurement
 9 Months Ended
Sep. 30, 2018
Fair Value Measurement [Abstract]  
FAIR VALUE MEASUREMENT

NOTE 6:-FAIR VALUE MEASUREMENT

 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

 

a.The Company's financial assets and liabilities measured at fair value on a recurring basis, including accrued interest components, consisted of the following types of instruments as of September 30, 2018 and December 31, 2017:

 

   Fair value measurements 
   September 30, 2018 
   Level 1   Level 2   Level 3   Total 
Assets:                
Government and corporate debentures  $-   $10,756   $-   $10,756 
Convertible debentures   -    1,163    -    1,163 
Dividend preference derivative in TSG (1)   -    -    2,400    2,400 
Total financial assets  $-   $11,919   $2,400   $14,319 
                     
Liabilities:                    
Redeemable non-controlling interests (2)  $-   $-   $59,429   $59,429 
Contingent consideration (2)   -    -    10,724    10,724 
Total financial liabilities  $-   $-   $70,153   $70,153 

 

   Fair value measurements 
   December 31, 2017 
   Level 1   Level 2   Level 3   Total 
Assets:                
Government and corporate debentures  $-   $12,929   $-   $12,929 
Convertible debentures   -    1,209    -    1,209 
Dividend preference derivative in TSG (1)   -    -    2,400    2,400 
Total financial assets  $-   $14,138   $2,400   $16,538 
                     
Liabilities:                    
Redeemable non-controlling interests (2)  $-   $-   $52,876   $52,876 
Contingent consideration (2)   -    -    6,345    6,345 
Total financial liabilities  $-   $-   $59,221   $59,221 

 

(1)The fair value of dividend preference derivative in TSG was estimated using the Monte-Carlo simulation technique.
(2)The fair value of redeemable non-controlling interests and contingent consideration was determined based on the present value of the future expected cash flow.

 

The following table provides a reconciliation of liability to redeemable non-controlling interests for the nine-months period ended September 30, 2018 and 2017:

 

   2018   2017 
Carrying amount as of January 1st  $52,876   $46,484 
Net income attributable to redeemable non-controlling interests   4,702    2,104 
Adjustments in redeemable non-controlling interests to fair value   1,985    5,765 
Increase in redeemable non-controlling interest as part of acquisitions   6,662    - 
Redeemable non-controlling interests classification to non-controlling due to change in terms and expiration of put options   (2,183)   - 
Exercise of put option by redeemable non-controlling interests   (142)   - 
Dividend to redeemable non-controlling interests   (2,404)   (3,236)
Foreign currency translation adjustments   (2,067)   3,969 
           
Carrying amount as of September 30  $59,429   $55,086 

 

The following table provides a reconciliation of liability to redeemable non-controlling interests for the three-months period ended September 30, 2018 and 2017:

 

   2018   2017 
Carrying amount as of July 1st  $58,062   $56,378 
Net income attributable to redeemable non-controlling interests   1,591    928 
Adjustments in redeemable non-controlling interests to fair value   596    351 
Increase in redeemable non-controlling interest as part of acquisitions   1,042    - 
Redeemable non-controlling interests classification to non-controlling due to change in terms   (1,187)   - 
Exercise of put option by redeemable non-controlling interests   -    - 
Dividend to redeemable non-controlling interests   (677)   (2,088)
Foreign currency translation adjustments   2    (483)
           
Carrying amount as of September 30  $59,429   $55,086 

 

The following table provides a reconciliation of liability to redeemable non-controlling interests for the three-months period ended December 31, 2017:

 

January 1, 2017  $46,484 
Net income attributable to redeemable non-controlling interests   3,671 
Share-based compensation attributable to redeemable non-controlling Interests   52 
Change in redeemable non-controlling interests to fair value   4,872 
Redeemable non-controlling interests classification to non-controlling Interests due to expiration of put options   (2,440)
Dividend in redeemable non-controlling interests   (3,928)
Foreign currency translation adjustments   4,165 
      
December 31, 2017  $52,876 

 

b.The carrying amount of cash and cash equivalents, short-term deposits, trade receivables, other accounts receivable, credit and loans from banks and others, debentures, trade payables, employees and payroll accrual and other accounts payable approximates their fair value.

Operating Segments
 9 Months Ended
Sep. 30, 2018
Operating Segments [Abstract]  
OPERATING SEGMENTS

NOTE 7:-OPERATING SEGMENTS

 

The chief operating decision-makers (CODM) have been identified as the CEO. The CODM reviews the Group's internal reporting in order to assess performance and allocate resources. The CODM assess the performance of the Group based on each of the Group's directly held investees' operating income. Headquarters and finance expenses of Formula are allocated proportionally among the investees. For the purpose of this interim condensed consolidated financial statements the following reporting segments were identified: Matrix, Magic, Sapiens and other investees comprised of Insync and Michpal.

 

   Matrix   Sapiens   Magic   Other   Adjustments   Total 
                         
Nine months ended September 30, 2018:                        
Revenues from external customers   643,835    216,396    211,055    28,002    -    1,099,288 
Inter-segment revenues   2,204    -    1,027    -    (3,231)   - 
Revenues   646,039    216,396    212,082    28,002    (3,231)   1,099,288 
Unallocated corporate expenses   -    -    -    -    (1,584)   (1,584)
Operating income (loss)   41,018    13,808    22,315    1,582    (1,584)   77,139 
Financial income (expense) net                            (7,366)
Group's share of profits (losses) of companies accounted for at equity, net                            (66)
Taxes on income                            (16,020)
Net income                            53,687 
                               
Nine months ended September 30, 2017:                              
Revenues from external customers   573,967    197,594    190,376    26,663    -    988,600 
Inter-segment revenues   2,482    -    1,525    -    (4,007)   - 
Revenues   576,449    197,594    191,901    26,663    (4,007)   988,600 
Unallocated corporate expenses   -    -    -    -    (2,117)   (2,117)
Operating income (loss)   37,060    (1,659)   18,313    1,427    (2,117)   53,024 
Financial income (expense) net                            (17,040)
Group's share of profits (losses) of companies accounted for at equity, net                            517 
Taxes on income                            (11,834)
Net income                            24,667 
                               
Three months ended September 30, 2018:                              
Revenues from external customers   207,544    73,237    71,994    9,655    -    362,430 
Inter-segment revenues   854    -    141    -    (995)   - 
Revenues   208,398    73,237    72,135    9,655    (995)   362,430 
Unallocated corporate expenses   -    -    -    -    (577)   (577)
Operating income (loss)   13,011    5,802    7,621    703    (577)   26,560 
Financial income (expense) net                            (4,105)
Group's share of profits (losses) of companies accounted for at equity, net                            (3)
Taxes on income                            (4,297)
Net income                            18,155 
                               
Three months ended September 30, 2017:                              
Revenues from external customers   202,783    72,011    65,007    8,828    -    348,629 
Inter-segment revenues   932    -    654    -    (1,586)   - 
Revenues   203,715    72,011    65,661    8,828    (1,586)   348,629 
Unallocated corporate expenses   -    -    -    -    (1,272)   (1,272)
Operating income (loss)   13,924    2,934    5,764    560    (1,272)   21,910 
Financial income (expense) net                            (3,605)
Group's share of profits (losses) of companies accounted for at equity, net                            107 
Taxes on income                            (5,504)
Net income                            12,908 

 

   Matrix   Sapiens   Magic   Other   Adjustments   Total 
Year ended December 31, 2017:                        
Revenues from external customers   790,946    269,194    256,207    38,792    -    1,355,139 
Inter-segment revenues   3,679    -    1,933    200    (5,812)   - 
Revenues   794,625    269,194    258,140    38,992    (5,812)   1,355,139 
Unallocated corporate expenses   -    -    -    -    (3,380)   (3,380)
Depreciation and amortization   6,865    21,969    13,611    1,209    2    43,656 
Operating income (loss)   51,307    (768)   23,974    1,721    (3,380)   72,854 
Financial income (expense) net                            (21,167)
Group's share of profits (losses) of companies accounted for at equity, net                            1,124 
Taxes on income                            (13,371)
Net income                            39,440 
Significant Events During the Period
 9 Months Ended
Sep. 30, 2018
Useful Life Of Other Iintangible Assets  
SIGNIFICANT EVENTS DURING THE PERIOD

NOTE 8:-SIGNIFICANT EVENTS DURING THE PERIOD

 

a.On January 31, 2018, the Company has completed a private placement to qualified investors in Israel of an additional aggregate NIS 150 million par value of Series A Secured Debentures at a price of NIS 1,034.7 for each NIS 1,000 principal amount. The aggregate gross proceeds totaled NIS 155.2 million (approximately $45.6 million), excluding issuance costs of $0.2 million. As a result of the private placement, the total outstanding principal amount of the Series A Secured Debentures increased to approximately NIS 239.5 million (or $69.1 million). The terms of the Series A Secured Debentures sold in the private placement are identical in all respects to those of the Series A Secured Debentures sold in Formula's September 2015 public offering. In accordance with the terms of the indenture related to Series A Secured debentures, Formula pledged additional 1,692,954 shares of Matrix and 3,487,198 shares of Magic.

 

b.In May 2018 Formula declared a cash dividend of approximately $5,011 million (or $0.34 per share) to shareholders of record on June 5, 2018 that was paid on June 20, 2018.

 

c.On July 12, 2018 Magic concluded a private placement issuing 3,150,559 of its ordinary shares to several leading Israeli institutional investors and 1,117,734 ordinary shares to Formula under the same terms. The Group's gross proceeds from the offering amounted to $25,405 based on a price of $8.20 per share. Magic intends to use the net proceeds of the offering to support its continued organic growth momentum and funding of potential acquisitions. Following the private placement, Formula's share interest in Magic was diluted from 47% to 45%.

 
Subsequent Events
 9 Months Ended
Sep. 30, 2018
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 9:-SUBSEQUENT EVENTS

 

a.On November 12, 2018 Michpal acquired 80% of the share capital of Effective Solutions Ltd. for cash consideration of approximately $6,529. Effective Solutions Ltd. is an Israeli company which provides consulting services in the fields of operational cost savings and procurement, as well as salary control and monitoring.

 

b.In December 2018 Formula declared a cash dividend of approximately $5,011 million (or $0.34 per share) to shareholders of record on December 31, 2018 that was paid on January 16, 2019.

 

c.On January 22, 2019 Matrix acquired 80% of the share capital of Dana Engineering Ltd. in Israel for a cash consideration of approximately $14,000. Matrix and the seller hold mutual Call and Put options respectively for the remaining 20% interest in Dana Engineering during the first two years from the acquisition. Dana Engineering provides project management services in the field of national infrastructure.

 

d.On February 20, 2019 Matrix acquired 100% of the share capital of MedaTech Ltd. in Israel for a cash consideration of approximately $23,600. MedaTech is Israel's leading Business Partner of Priority ERP with over 1,000 customers in a variety of verticals.
General (Tables)
 9 Months Ended
Sep. 30, 2018
General [Abstract]  
Schedule of information ownership investees of Formula's
   Percentage of ownership 
     September 30,   December 31, 
     2018   2017 
  Name of Investee        
           
  Matrix   49.18    49.50 
  Magic   45.21    47.12 
  Sapiens   48.16    48.14 
  Insync   90.09    90.09 
  Michpal   100    100 
  TSG   50.00    50.00 
New Standards, Interpretations and Amendments Adopted by the Group (Tables)
 9 Months Ended
Sep. 30, 2018
New Standards Interpretations And Amendments Adopted By Group  
Schedule of assets and liabilities

  1/1/2018  Opening balance adjustment 
  Current Assets    
  Trade receivables   20 
  Other accounts receivable and prepaid expenses   629 
  Current Liabilities     
  Deferred revenue and customer advances   (1,397)
  Other accounts payable   231 
  Equity     
 

Retained earnings

   874 
  Other components of equity – non-controlling interests   941 
Schedule of cumulative effect of first-time adoption

     Balance as of September 30, 2018
(in accordance with IFRS 15)		   Reversal of the
opening balance adjustment due to IFRS 15		   Adjustment due to adoption of IFRS 15 in current period   Amounts without adoption of IFRS 15 (calculated in accordance with previous standards, i.e. IAS 11 and IAS 18) 
  Current Assets                    
  Trade receivables   416,587    (20)   (2,568)   413,999 
  Prepaid expenses and other    accounts receivable (*)   48,628    (629)   1,715    49,714 
  Long term assets                    
  Prepaid expenses and other accounts receivable (*)   20,528    -    (1,317)   19,211 
  Current Liabilities                    
  Deferred revenue and customer advances   59,212    1,397    2,146    62,755 
  Other accounts payable   60,238    (231)   (113)   59,894 
  Equity                    
  Retained earnings   256,671    (874)   (2,210)   253,587 
  Other components of equity – non-controlling interests   436,665    (941)   (1,993)   433,731 

  

(*) The impact of the implementation of IFRS 15 on the Group's short-term and long-term prepaid expenses and other accounts receivable is due to the recognition of third party expenses in the amount of $2,231 offset by the recognition of long-term income receivable in the amount of $1,954 and deferment of commission expenses in the amount of $508.
Schedule of impact of changes resulting from the applied standard on the amount of revenues and profit

     Nine months ended
September 30,
2018		   Adjustments due to adoption of IFRS 15 in current period   Amounts without adoption of IFRS 15 (calculated in accordance with previous standards, i.e. IAS 11 and IAS 18) 
  Revenues   1,099,288    (4,438)   1,094,850 
  Cost of revenues   854,856    -    854,856 
  Gross Profit   244,432    (4,438)   239,994 
  Research and development expenses, net   31,339    -    31,339 
  Selling, marketing, general and administrative expenses   135,954    (121)   135,833 
  Other income   -    -    - 
  Operating income   77,139    (4,317)   72,822 
  Financial expenses   (9,106)   -    (9,106)
  Financial income   1,740    -    1,740 
  Group's share of profits (losses) of companies accounted for at equity, net   (66)   -    (66)
  Income before taxes on income   69,707    (4,317)   65,390 
  Taxes on income   16,020    (114)   15,906 
  Net income   53,687    (4,203)   49,484 
  Attributable to:               
  Equity holders of the Company   21,630    (2,210)   19,381 
  Redeemable non-controlling interests   4,702    -    4,702 
  Non-controlling interests   27,355    (1,993)   25,401 
Business Combination (Tables)
 9 Months Ended
Sep. 30, 2018
Adaptik Corporation [Member]  
Disclosure of detailed information about business combination [line items]  
Schedule of estimated fair values of the assets acquired and liabilities
  Net assets  $(2,358)
  Intangible assets   12,936 
  Deferred taxes   (3,528)
  Goodwill   11,468 
        
  Net assets acquired  $18,518 
Alius Group Inc [Member]  
Disclosure of detailed information about business combination [line items]  
Schedule of estimated fair values of the assets acquired and liabilities
  Net assets  $(5)
  Intangible assets   3,062 
  Deferred taxes   (826)
  Goodwill   14,551 
        
  Net assets acquired  $16,782 
Pleasant Valley Business Solutions, LLC [Member]  
Disclosure of detailed information about business combination [line items]  
Schedule of estimated fair values of the assets acquired and liabilities

  Net assets  $(851)
  Intangible assets   3,300 
  Deferred taxes   (920)
  Goodwill   7,360 
        
  Net assets acquired  $8,889 
Noah Technologies Ltd [Member]  
Disclosure of detailed information about business combination [line items]  
Schedule of estimated fair values of the assets acquired and liabilities

  Net assets  $(473)
  Intangible assets   580 
  Deferred taxes   (133)
  Goodwill   1,485 
        
  Net assets acquired  $1,459 
Fair Value Measurement (Tables)
 9 Months Ended
Sep. 30, 2018
Fair Value Measurement [Abstract]  
Schedule of financial assets and liabilities measured at fair value on a recurring basis
   Fair value measurements 
   September 30, 2018 
   Level 1   Level 2   Level 3   Total 
Assets:                
Government and corporate debentures  $-   $10,756   $-   $10,756 
Convertible debentures   -    1,163    -    1,163 
Dividend preference derivative in TSG (1)   -    -    2,400    2,400 
Total financial assets  $-   $11,919   $2,400   $14,319 
                     
Liabilities:                    
Redeemable non-controlling interests (2)  $-   $-   $59,429   $59,429 
Contingent consideration (2)   -    -    10,724    10,724 
Total financial liabilities  $-   $-   $70,153   $70,153 

 

   Fair value measurements 
   December 31, 2017 
   Level 1   Level 2   Level 3   Total 
Assets:                
Government and corporate debentures  $-   $12,929   $-   $12,929 
Convertible debentures   -    1,209    -    1,209 
Dividend preference derivative in TSG (1)   -    -    2,400    2,400 
Total financial assets  $-   $14,138   $2,400   $16,538 
                     
Liabilities:                    
Redeemable non-controlling interests (2)  $-   $-   $52,876   $52,876 
Contingent consideration (2)   -    -    6,345    6,345 
Total financial liabilities  $-   $-   $59,221   $59,221 

 

(1)The fair value of dividend preference derivative in TSG was estimated using the Monte-Carlo simulation technique.
(2)The fair value of redeemable non-controlling interests and contingent consideration was determined based on the present value of the future expected cash flow.
Schedule of reconciliation of liability to redeemable non-controlling interests

   2018   2017 
Carrying amount as of January 1st  $52,876   $46,484 
Net income attributable to redeemable non-controlling interests   4,702    2,104 
Adjustments in redeemable non-controlling interests to fair value   1,985    5,765 
Increase in redeemable non-controlling interest as part of acquisitions   6,662    - 
Redeemable non-controlling interests classification to non-controlling due to change in terms and expiration of put options   (2,183)   - 
Exercise of put option by redeemable non-controlling interests   (142)   - 
Dividend to redeemable non-controlling interests   (2,404)   (3,236)
Foreign currency translation adjustments   (2,067)   3,969 
           
Carrying amount as of September 30  $59,429   $55,086 

 

   2018   2017 
Carrying amount as of July 1st  $58,062   $56,378 
Net income attributable to redeemable non-controlling interests   1,591    928 
Adjustments in redeemable non-controlling interests to fair value   596    351 
Increase in redeemable non-controlling interest as part of acquisitions   1,042    - 
Redeemable non-controlling interests classification to non-controlling due to change in terms   (1,187)   - 
Exercise of put option by redeemable non-controlling interests   -    - 
Dividend to redeemable non-controlling interests   (677)   (2,088)
Foreign currency translation adjustments   2    (483)
           
Carrying amount as of September 30  $59,429   $55,086 

 

January 1, 2017  $46,484 
Net income attributable to redeemable non-controlling interests   3,671 
Share-based compensation attributable to redeemable non-controlling Interests   52 
Change in redeemable non-controlling interests to fair value   4,872 
Redeemable non-controlling interests classification to non-controlling Interests due to expiration of put options   (2,440)
Dividend in redeemable non-controlling interests   (3,928)
Foreign currency translation adjustments   4,165 
      
December 31, 2017  $52,876 
Operating Segments (Tables)
 9 Months Ended
Sep. 30, 2018
Operating Segments [Abstract]  
Schedule of reporting on operating segments

   Matrix   Sapiens   Magic   Other   Adjustments   Total 
                         
Nine months ended September 30, 2018:                        
Revenues from external customers   643,835    216,396    211,055    28,002    -    1,099,288 
Inter-segment revenues   2,204    -    1,027    -    (3,231)   - 
Revenues   646,039    216,396    212,082    28,002    (3,231)   1,099,288 
Unallocated corporate expenses   -    -    -    -    (1,584)   (1,584)
Operating income (loss)   41,018    13,808    22,315    1,582    (1,584)   77,139 
Financial income (expense) net                            (7,366)
Group's share of profits (losses) of companies accounted for at equity, net                            (66)
Taxes on income                            (16,020)
Net income                            53,687 
                               
Nine months ended September 30, 2017:                              
Revenues from external customers   573,967    197,594    190,376    26,663    -    988,600 
Inter-segment revenues   2,482    -    1,525    -    (4,007)   - 
Revenues   576,449    197,594    191,901    26,663    (4,007)   988,600 
Unallocated corporate expenses   -    -    -    -    (2,117)   (2,117)
Operating income (loss)   37,060    (1,659)   18,313    1,427    (2,117)   53,024 
Financial income (expense) net                            (17,040)
Group's share of profits (losses) of companies accounted for at equity, net                            517 
Taxes on income                            (11,834)
Net income                            24,667 
                               
Three months ended September 30, 2018:                              
Revenues from external customers   207,544    73,237    71,994    9,655    -    362,430 
Inter-segment revenues   854    -    141    -    (995)   - 
Revenues   208,398    73,237    72,135    9,655    (995)   362,430 
Unallocated corporate expenses   -    -    -    -    (577)   (577)
Operating income (loss)   13,011    5,802    7,621    703    (577)   26,560 
Financial income (expense) net                            (4,105)
Group's share of profits (losses) of companies accounted for at equity, net                            (3)
Taxes on income                            (4,297)
Net income                            18,155 
                               
Three months ended September 30, 2017:                              
Revenues from external customers   202,783    72,011    65,007    8,828    -    348,629 
Inter-segment revenues   932    -    654    -    (1,586)   - 
Revenues   203,715    72,011    65,661    8,828    (1,586)   348,629 
Unallocated corporate expenses   -    -    -    -    (1,272)   (1,272)
Operating income (loss)   13,924    2,934    5,764    560    (1,272)   21,910 
Financial income (expense) net                            (3,605)
Group's share of profits (losses) of companies accounted for at equity, net                            107 
Taxes on income                            (5,504)
Net income                            12,908 

 

   Matrix   Sapiens   Magic   Other   Adjustments   Total 
Year ended December 31, 2017:                        
Revenues from external customers   790,946    269,194    256,207    38,792    -    1,355,139 
Inter-segment revenues   3,679    -    1,933    200    (5,812)