GILTF Gilat Satellite Networks Ltd. (MM)

Gilat Satellite Networks Ltd. (Nasdaq:GILTF), a worldwide leader in satellite networking technology, solutions and services today reported its results for the fourth quarter and full year ending December 31, 2005. Revenues for the fourth quarter of 2005 were $56.0 million (up from $49 million in the third quarter 2005), EBITDA (3) was $6.6 million (up from $4.0 million in the third quarter 2005) and net income was $1.0 million or $0.04 diluted per share (up from a net loss of $1.7 million or $0.08 diluted per share in the third quarter 2005). By comparison, revenues for the fourth quarter of 2004 were $61.8 million, EBITDA was $9.7 million and the net loss was $1.7 million or $0.08 diluted per share. Revenues for the year ended December 31, 2005 were $209.4 million, EBITDA was $20.5 million and net loss was $3.7 million or $0.17 diluted per share. By comparison, revenues for the year ended December 31, 2004 were $241.5 million, EBITDA was $25.0 million and net loss was $11.5 million or $0.52 diluted per share. These results reflect the implementation of a Company policy to focus on projects with higher profitability. The Company also announced that its backlog increased to approximately $206 million as of December 31, 2005, from $192 million as of December 31, 2004. Gilat's Chief Executive Officer and Chairman of the Board Amiram Levinberg said, "We are pleased with our improved results in the last quarter of 2005 and with our positioning for 2006. Our backlog has increased and this is our second consecutive quarter in which we have seen an increased worldwide demand for our SkyEdge platform. In the fourth quarter of 2005, we shipped approximately 40% more VSATs than in the previous quarter." As previously announced, in December 2005, the Company revised the terms of its loan and warrant with York Capital Management. The increase in the value of the warrant in the amount of $3.8 million was recorded as a discount on the loan and an increase to equity. The discount will be amortized to financial expenses over the term of the loan. During 2005, the Company reduced its debt by $13.4 million (including the discount mentioned above), from $133.2 million as of December 31, 2004 to $119.8 million as of December 31, 2005. Recently Announced Deals -- Gilat announced that China Unicom Limited (NYSE: CHU) purchased a 1,500-site Gilat SkyEdge VSAT network. China Unicom, with 2004 revenues of more than US$9.5 billion, is one of the world's largest telecommunications operators. The VSAT equipment will be used for rural telecom applications throughout China. Gilat has already deployed nearly 600 sites in the three months since this contract was signed. -- Gilat also signed a contract to provide a SkyEdge network to Federal State Unitary Enterprise Russian Post. Russian Post is one of Russia's largest companies, operating more than 40,000 post offices and providing many other telecom, shipping, retail and financial services for annual revenue of US$1.5 billion. Gilat will deploy a SkyEdge VSAT hub station in the Siberian capital city of Novosibirsk. The network will provide broadband Internet access, always-on data communications for postal applications and telephony services to remote postal facilities throughout Siberia and far-eastern Russia. The initial order is for several hundred sites. -- Gilat announced that it has expanded its market leadership in Kazakhstan by signing contracts to deploy broadband satellite networks for four of that country's leading telecom operators -- Technoservice Lyuks, Jarykh, Astel and Kazakhtelecom. Gilat's SkyEdge VSAT networks will bring dependable, high-speed data networking to government agencies, banks and energy companies. With the addition of these new networks, nearly 3,500 Gilat VSATs are deployed throughout Kazakhstan. The majority of all telecom operators in Kazakhstan now deploy Gilat satellite equipment. -- Gilat also announced the implementation of an agreement with its long time customer Embratel and its satellite subsidiary StarOne, to deploy a 2,400 site satellite-based VSAT network for the largest cosmetics chain in Brazil, O Boticario Comercial Farmaceutica Ltda.(O Boticario). The remote sites are being deployed throughout O Boticario stores, including various locations in airports, supermarkets and shopping centers throughout Brazil. One thousand sites have already been implemented, with the remaining to be installed in the first half of 2006. -- Spacenet Inc. was chosen by Scientific Games to provide 3,000 Skystar Advantage VSAT terminals for state lottery networks in Colorado, Pennsylvania, North Dakota and South Dakota. Spacenet also provided SGI with a dedicated hub, which will be used to support the expansion of its VSAT network. About Gilat Satellite Networks Ltd. Gilat Satellite Networks Ltd. (Nasdaq:GILTF) is a leading provider of products and services for satellite-based communications networks. The Company operates under three business units: (i) Gilat Network Systems ("GNS"), which is a provider of network systems and associated professional services to service providers and operators; (ii) Spacenet Inc, in North America, which provides managed services for businesses and governments through its Connexstar service brand and for consumers through its StarBand service brand; (iii) Spacenet Rural Communications, which offers rural telephony and internet access solutions to remote areas primarily in Latin America. Gilat was founded in 1987 and has shipped over 600,000 Very Small Aperture Terminals (VSATs) to more than 85 countries across six continents. Gilat's headquarters is located in Petah Tikva, Israel. The Company has 14 local offices and 3 service facilities worldwide. Gilat markets the SkyEdge(TM) Product Family which includes the SkyEdge(TM) Pro, SkyEdge(TM) IP, SkyEdge(TM) Call, SkyEdge(TM) DVB-RCS and SkyEdge(TM) Gateway. In addition, the Company markets numerous other legacy products. Visit Gilat at www.gilat.com Notes: 1) Certain statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimate", "project", "intend", "expect", "believe" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Many factors could cause the actual results, performance or achievements of Gilat to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others, changes in general economic and business conditions, inability to maintain market acceptance to Gilat's products, inability to timely develop and introduce new technologies, products and applications, rapid changes in the market for Gilat's products, loss of market share and pressure on prices resulting from competition, introduction of competing products by other companies, inability to manage growth and expansion, loss of key OEM partners, inability to attract and retain qualified personnel, inability to protect the Company's proprietary technology and risks associated with Gilat's international operations and its location in Israel. For additional information regarding these and other risks and uncertainties associated with Gilat's business, reference is made to Gilat's reports filed from time to time with the Securities and Exchange Commission. 2) The attached summary financial statements were prepared in accordance with U.S. GAAP. The attached summary financial statements for the year ended December 31 2005 and Q4 2005 are unaudited. 3) Operating income (loss) before depreciation, amortization and exceptional items, ('EBITDA') is presented because it is a measure commonly used and is presented solely in order to improve the understanding of the Company's operating results and to provide further perspective on these results. EBITDA, however, should not be considered as an alternative to operating income (loss) or net income (loss) for the period as an indicator of the operating performance of the Company. Similarly, EBITDA should not be considered as an alternative to cash flows from operating activities as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies. EBITDA may not be indicative of the historic operating results of the Company; nor is it meant to be predictive of potential future results. Reconciliation between the Company's Operating income (loss) and EBIDTA is presented in the attached summary financial statements. -0- *T GILAT SATELLITE NETWORKS LTD. CONDENSED CONSOLIDATED BALANCE SHEET US dollars in thousands December 31, December 31, ------------ ------------ 2005 2004 ------------ ------------ Unaudited Unaudited ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents 74,929 75,771 Short-term bank deposits 3,301 - Short-term restricted cash 15,844 14,168 Restricted cash held by trustees 6,638 10,620 Trade receivables (net of allowance for doubtful accounts) 33,683 31,380 Inventories 23,253 23,277 Other current assets 27,215 27,059 ------------ ------------ Total current assets 184,863 182,275 -------------------- ------------ ------------ LONG-TERM INVESTMENTS AND RECEIVABLES: Long-term restricted cash 6,699 7,534 Long-term restricted cash held by trustees 13,692 18,994 Severance pay fund 8,467 7,933 Long-term trade receivables, receivables in respect of capital leases and other receivables, net 22,757 27,728 ------------ ------------ 51,615 62,189 ------------ ------------ PROPERTY AND EQUIPMENT, NET 124,245 137,198 ------------ ------------ INTANGIBLE ASSETS AND DEFERRED CHARGES, NET 12,254 9,432 ------------ ------------ TOTAL ASSETS 372,977 391,094 ------------ ============ ============ *T -0- *T GILAT SATELLITE NETWORKS LTD. CONDENSED CONSOLIDATED BALANCE SHEET US dollars in thousands December 31, December 31, ------------ ------------ 2005 2004 ------------ ------------ Unaudited Unaudited ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term bank credit 8,172 4,159 Current maturities of long-term loans 7,712 8,869 Trade payables 24,180 21,245 Accrued expenses 22,418 26,228 Short-term advances from customer held by trustees 15,502 13,500 Other accounts payable 36,672 40,048 ------------ ------------ Total current liabilities 114,656 114,049 -------------------------- ------------ ------------ LONG-TERM LIABILITIES: Accrued severance pay 8,396 8,172 Long-term advances from customer held by trustees 27,835 40,226 Long-term loans, net of current maturities 95,745 108,182 Accrued interest related to restructured debt 3,850 4,820 Other long-term liabilities 20,657 15,951 Excess of losses over investment in affiliates 7 2,102 Convertible subordinated notes 16,333 16,171 ------------ ------------ Total long-term liabilities 172,823 195,624 --------------------------- ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Share capital - Ordinary shares of NIS 0.2 par value 995 984 Additional paid in capital 738,724 733,582 Accumulated other comprehensive loss 16 (2,624) Accumulated deficit (654,237) (650,521) ------------ ------------ Total shareholders' equity 85,498 81,421 -------------------------- ------------ ------------ Total liabilities and shareholders' equity 372,977 391,094 ------------------------------------------ ============ ============ *T -0- *T GILAT SATELLITE NETWORKS LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS U.S. dollars in thousands (except per share data) Year ended Three months ended December 31, December 31, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Unaudited Unaudited Unaudited Unaudited --------- --------- --------- --------- Revenues 209,395 241,498 55,958 61,801 Cost of Revenues 133,219 164,395 34,665 38,071 --------- --------- --------- --------- Gross profit 76,176 77,103 21,293 23,730 --------- --------- --------- --------- Research and development expenses: Expenses incurred 16,944 19,134 3,905 5,086 Less - grants 2,950 5,255 364 810 --------- --------- --------- --------- 13,994 13,879 3,541 4,276 --------- --------- --------- --------- Selling, general and administrative expenses 60,794 69,891 15,601 17,876 Impairment of tangible and intangible assets - 2,161 - - Gain from derecognition of Liability - (245) - - --------- --------- --------- --------- Operating income (loss) 1,388 (8,583) 2,151 1,578 --------- --------- --------- --------- Financial expenses (2,677) (266) (821) (1,755) Other income (expenses) 299 (274) 159 (82) --------- --------- --------- --------- Income (loss) before taxes on income (990) (9,123) 1,489 (259) --------- --------- --------- --------- Taxes on income 3,126 4,429 473 1,733 --------- --------- --------- --------- Income (loss) after taxes on income (4,116) (13,552) 1,016 (1,992) --------- --------- --------- --------- Equity in profits of affiliated companies 400 1,242 - 305 Minority interest in losses of a subsidiary - 164 - - --------- --------- --------- --------- Net income (loss) from continuing operations (3,716) (12,146) 1,016 (1,687) --------- --------- --------- --------- Gain from cumulative effect of a change in an accounting principle - 611 - - --------- --------- --------- --------- Net income (loss) (3,716) (11,535) 1,016 (1,687) ========= ========= ========= ========= Basic net earnings (loss) per share (0.17) (0.52) 0.05 (0.08) ========= ========= ========= ========= Diluted net earnings (loss) per share (0.17) (0.52) 0.04 (0.08) ========= ========= ========= ========= Shares used in basic net earnings (loss) per share computation 22,440 22,242 22,555 22,286 ========= ========= ========= ========= Shares used in diluted net earnings (loss) per share computation 22,440 22,242 22,778 22,286 ========= ========= ========= ========= *T -0- *T GILAT SATELLITE NETWORKS LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS US dollars in thousands Year ended Three months ended December 31, December 31, -------- -------- -------- --------- 2005 2004 2005 2004 -------- -------- -------- --------- Unaudited Unaudited Unaudited Unaudited --------- --------- --------- --------- Cash flows from operating activities: ------------------------- Net income (loss) (3,716) (11,535) 1,016 (1,687) Adjustments required to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 19,116 31,674 4,464 8,137 Non cash cumulative effect relating to a subsidiary - (198) - - Loss from Disposal of a subsidiary 171 - - - Loss (gain) from disposal of a subsidiary (397) 192 (200) - Deferred Stock compensation relating to options 137 207 (201) 30 Deferred Stock compensation relating to options in a subsidiary - (764) - - Impairment of property and equipment and other intangible assets - 2,161 - - Equity in profits of affiliated companies (400) (1,242) - (305) Accrued severance pay, net (309) 431 (99) (87) Interest accrued on short and long-term restricted cash (490) (1,943) (106) (494) Exchange differences on long- term loans (973) 449 (127) 592 Exchange differences on loans to employees 213 - (11) - Minority interest in losses of a subsidiary - (164) - - Capital loss from disposal of property and equipment 315 - 15 - Deferred income taxes, net (473) 1,869 (224) 575 Decrease (increase) in trade receivables (2,440) 7,970 (2,424) 8,539 Decrease in Receivables in respect of capital leases, prepaid expenses and other accounts receivable (including long- term) 6,711 12,449 2,519 5,683 Increase in inventories (5,188) (6,848) (5,602) (5,197) Increase (decrease) in trade payables 2,941 (5,330) 5,099 2,845 Increase (decrease) in accrued expenses (4,652) (11,637) 1,794 613 Increase (decrease) in other accounts payable (including long-term) 3,509 (1,427) 6,589 (3,712) Increase (decrease) in advances from customers held in trustees, net (including long-term) (10,388) 14,207 (2,556) (3,152) -------- -------- -------- --------- Net cash provided by operating activities 3,687 30,521 9,946 12,380 -------- -------- -------- --------- *T -0- *T GILAT SATELLITE NETWORKS LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS US dollars in thousands Year ended Three months ended December 31, December 31, -------- -------- -------- --------- 2005 2004 2005 2004 -------- -------- -------- --------- Unaudited Unaudited Unaudited Unaudited --------- --------- --------- --------- Cash flows from investing activities: ------------------------- Purchase of property and equipment (3,605) (6,163) (679) (1,678) Return of investment 388 - - - Purchase of minority shares - (1,053) - - Disposal of subsidiary (181) 600 - - Consolidation of StarBand - 2,592 - - Investment in short-term bank deposits (3,301) (442) (3,301) - Proceeds from short-term bank deposits - 442 - - Proceeds from disposal of fixed assets 34 - 26 - Loans to employees - Net (3,606) - 75 - Investment in restricted cash held by trustee (3,305) (23,501) (1,060) - Proceeds from restricted cash held by trustee 13,078 22,486 5,157 3,692 Investment in restricted cash (including long-term) (13,759) (11,187) (1,120) (1,985) Investment in other assets (40) (78) 53 (33) Proceeds from restricted cash (including long-term) 13,007 9,840 5,583 1,644 -------- -------- -------- --------- Net cash provided by (used in) investing activities (1,290) (6,464) 4,734 1,640 -------- -------- -------- --------- Cash flows from financing activities: ------------------------- Exercise of options, net 1,218 432 8 414 Short-term bank credit, net 4,013 2,389 (3,264) 1,251 Repayment of long-term loans (8,823) (2,924) (1,007) (610) -------- -------- -------- --------- Net cash provided by (used in) financing activities (3,592) (103) (4,263) 1,055 -------- -------- -------- --------- Effect of exchange rate changes on cash and cash equivalents 353 36 (166) 29 -------- -------- -------- --------- Increase (decrease) in cash and cash equivalents (842) 23,990 10,251 15,104 Cash and cash equivalents at the beginning of the year 75,771 51,781 64,678 60,667 -------- -------- -------- --------- Cash and cash equivalents at the end of the year 74,929 75,771 74,929 75,771 ======== ======== ======== ========= *T -0- *T GILAT SATELLITE NETWORKS LTD. CONDENSED EBITDA US dollars in thousands Year ended Three months ended December 31, December 31, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Unaudited Unaudited Unaudited Unaudited --------- --------- --------- --------- Operating income (loss) 1,388 (8,583) 2,151 1,578 Less: Impairment of tangible and intangible assets - 2,161 - - Gain from derecognition of liability - (245) - - Deprecation and amortization 19,116 31,674 4,464 8,137 --------- --------- --------- --------- EBITDA 20,504 25,007 6,615 9,715 ========= ========= ========= ========= *T -0- *T GILAT SATELLITE NETWORKS LTD. DISCLOSURE OF NON-US GAAP NET EARNINGS (LOSS) FOR COMPARATIVE PURPOSES AND EARNINGS (LOSS) PER SHARE EXCLUDING STOCK COMPENSATION RELATED TO OPTIONS U.S. dollars in thousands Year ended Three months ended December 31, December 31, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Unaudited Unaudited Unaudited Unaudited --------- --------- --------- --------- US GAAP net earnings (loss) (3,716) (11,535) 1,016 (1,687) --------- --------- --------- --------- Stock compensation relating to options 137 (557) (201) 30 --------- --------- --------- --------- Non-US GAAP net earnings (loss) (3,579) (12,092) 815 (1,657) ========= ========= ========= ========= Basic non US GAAP net earnings (loss) per share (0.16) (0.54) 0.04 (0.07) ========= ========= ========= ========= Diluted non US GAAP net earnings (loss) per share (0.16) (0.54) 0.04 (0.07) ========= ========= ========= ========= *T