SMLC 012 Smile.Communications Ltd. (MM)

Internet Gold Golden Lines Ltd., (NASDAQ Global Market: IGLD) (TASE: IGLD) today reported its financial results for the fourth quarter and full year ended December 31, 2009.

Highlights

• Record revenues and strong profitability for the quarter: Revenues for the fourth quarter reached NIS 324 million ($86 million) and net income was NIS 42 million ($11 million).
• Record revenues and strong profitability for 2009: Revenues for the full year reached a record of NIS 1,244 ($330 million) and net income was NIS 101 million ($27 million).
• Progress of Bezeq Acquisition: Actions completed to date include:
  • The completion of the sale of 012 Smile.Communications’ legacy telecommunications business for NIS 1.2 billion, a prerequisite established by Israel’s regulators, for the acquisition of the controlling interest in Bezeq - The Israel Telecommunications Corporation Ltd.
  • The signing of a NIS 3.9 billion financing agreement with a consortium of banks led by Bank Hapoalim.
  • The signing of a financing agreement of up to NIS 500 million (up to $133 million) with Migdal Insurance.

Financial Results for the Fourth Quarter

Revenues: Revenues for the fourth quarter of 2009 were NIS 324 million (US $86 million), a 3.7% increase compared with NIS 312.4 million in the fourth quarter of 2008, and a 4.6% sequential increase compared with NIS 309.8 million in the third quarter of 2009. The increased revenues reflect the record results delivered by 012 Smile.Communications, together with the modest contribution of Smile.Media.

Operating Income: Operating income for the fourth quarter reached a record NIS 56.7 million (US $15 million), a 104.7% increase compared with NIS 27.7 million in the fourth quarter of 2008. In accordance with U.S. generally accepted accounting principles, NIS 23 million (US $6 million) of scheduled depreciation and amortization costs associated with the legacy telecommunication assets that were the subject of a sale agreement entered into in November 2009 and finalized in January 2010, were not charged to operating expenses.

Net Financial Income: Net financial income, for the fourth quarter of 2009 totaled NIS 30.6 million (US $8 million). Net financial income primarily includes: (i) NIS 48.1 million (US $12.8 million) associated with the mark-to-market accounting for certain marketable securities held for sale whose values increased as a result of the global improvement in the capital markets and the sale of certain of such marketable securities; and (ii) financial expenses of NIS 16 million (US $4.2 million) associated with the Company’s debt.

Net income: Net income for the quarter was NIS 42 million (US $11 million), or NIS 2.32 (US $0.61) per basic share and NIS 2.21 (US $0.58) per diluted share, compared to a net loss of NIS 8.4 million, or NIS 0.41 loss per basic and diluted share, for the fourth quarter of 2008.

Financial Results for 2009

Revenues: Revenues for the year ended December 31, 2009 were NIS 1,244 million ($329.5 million), a 6.6% increase compared to NIS 1,167 million for 2008.

Operating Income: Operating income for 2009 reached NIS 173 million (US $45.8 million), a 37.6% increase compared with NIS 125.7 million for 2008. Adjusted EBITDA for the year reached NIS 278 million (US $74 million), a 10% increase compared with NIS 254 million for 2008. Net income for 2009 was NIS 101 million (US $26.7 million), or NIS 5.5 (US $1.46) per basic share and NIS 5.44 (US $1.44) per diluted share, compared to a net loss of NIS 24 million, or NIS 1.13 loss per basic and diluted share for 2008.

Balance Sheet: Total assets as of December 31, 2009 were approximately NIS 2,869 million (US $760 million). In accordance with ASC 360-10 (Formerly known as FAS 144), “Accounting for the Impairment or Disposal of Long-Lived Asset,” the Company’s legacy telecommunications assets and liabilities that were sold subsequent to the balance sheet date were classified as “held for sale” in the Company’s balance sheet as of December 31, 2009. As of December 31, 2009, assets held for sale totaled NIS 1,370 million (US $363 million) and liabilities held for sale totaled NIS 297 million (US $79 million).

Comments of Management

Commenting on the results, Eli Holtzman, Internet Gold’s CEO, said: "For the past decade, we have been constantly pursuing growth, organically and through M&A activity. Our strategy was to become the leader of our telecommunications market and I am satisfied that we have achieved this goal with our group's pending acquisition of the controlling stake in Bezeq, the Israel telecommunication incumbent. We are fully committed to this transaction and are focused on obtaining the remaining required regulatory approvals. We feel very comfortable with the progress and foresee completion of the acquisition on time as planned."

Business Segments

012 Smile.Communications Ltd. (NASDAQ: SMLC) (TASE: SMLC):

• Record revenues and profitability for the quarter: Revenues for the fourth quarter reached NIS 305 million ($81 million) and net income was a record NIS 60 million ($16 million).

• Record revenues and profitability for 2009: Revenues for the full year reached a record of NIS 1,174 ($311 million) and net income was a record NIS 150 million ($40 million).

Smile.Media Ltd.: Smile.Media delivered a modest revenue increase during the fourth quarter. The segment’s revenues for the fourth quarter were NIS 19.2 million (US $5.1 million), derived primarily from its e-commerce businesses. Its adjusted EBITDA for the quarter was NIS 636,000 (US $168,000).

Other: During the fourth quarter, Internet Gold incurred operating expenses of approximately NIS 1.5 million (US $0.4 million). These expenses were primarily for the continued investigation of potential joint venture and M&A opportunities, and for activities related to the Company’s listing on public securities exchanges, including expenses such as investor relations, Sarbanes Oxley compliance, insurance, legal and accounting expenses.

Notes:

A) ASC 360-10: In accordance with ASC 360-10, the telecommunications business classified as “held for sale” was initially quantified at the lower of its carrying amount or “fair value less cost to sell” as of the date on which the Company’s management was committed to a plan to sell it, and was not depreciated or amortized from that date.

B) NON-GAAP MEASUREMENTS: Reconciliation between the Company's results on a GAAP and non-GAAP basis is provided in a table immediately following the Consolidated Statement of Operations (Non-GAAP Basis). Non-GAAP financial measures consist of GAAP financial measures adjusted to exclude amortization of acquired intangible assets, as well as certain business combination accounting entries. The purpose of such adjustments is to give an indication of our performance exclusive of non-cash charges and other items that are considered by management to be outside of our core operating results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. We believe these non-GAAP financial measures provide consistent and comparable measures to help investors understand our current and future operating cash flow performance. These non-GAAP financial measures may differ materially from the non-GAAP financial measures used by other companies. Reconciliation between results on a GAAP and non-GAAP basis is provided in a table immediately following the Consolidated Statement of Operations.

EBITDA is a non-GAAP financial measure generally defined as earnings before interest, taxes, depreciation and amortization. We define adjusted EBITDA as net income before financial income (expenses), net, impairment and other charges, expenses recorded for stock compensation in accordance with ASC 718-10 (Formerly known as SFAS 123(R)), income tax expenses and depreciation and amortization. We present adjusted EBITDA as a supplemental performance measure because we believe that it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structure (most particularly affecting our interest expense given our recently incurred significant debt), tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age of, and depreciation expenses associated with, fixed assets (affecting relative depreciation expense).

Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations or cash flow data prepared in accordance with GAAP as a measure of our profitability or liquidity. Adjusted EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, adjusted EBITDA, as presented in this press release, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

Convenience Translation to Dollars: For the convenience of the reader, the reported NIS figures of December 31, 2009 have been presented in thousands of U.S. dollars, translated at the representative rate of exchange as of December 31, 2009 (NIS 3.775 = U.S. Dollar 1.00). The U.S. Dollar ($) amounts presented should not be construed as representing amounts receivable or payable in U.S. Dollars or convertible into U.S. Dollars, unless otherwise indicated.

About Internet Gold

In October 2009, Internet Gold announced that its approximately 75.3% owned subsidiary, 012 Smile.Communications (Nasdaq: SMLC), had signed a definitive agreement to purchase the controlling interest (approximately 30.6%) in Bezeq, The Israel Telecommunication Corp., Israel’s largest telecommunications provider (TASE: BZEQ).

For further information, please visit our website: http://www.Igld.com.

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to risks associated with the pending acquisition of the controlling interest in Bezeq and other risks detailed from time to time in Internet Gold's filings with the Securities Exchange Commission, including Internet Gold's Annual Report on Form 20-F. These documents contain and identify other important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statement.

Consolidated Balance Sheets

   

 

 

Convenience

 

translation into

 

U.S. dollars

 

$1=NIS 3.775

December 31

 

December 31

2009 2008

 

2009

(Unaudited) (Audited)

 

(Unaudited)

NIS thousands NIS thousands

 

$ thousands

  Current assets Cash and cash equivalents 1,350,694 86,090 357,799 Marketable securities 99,131 214,895 26,260 Trade receivables, net 14,077 217,796 3,729 Related parties receivable 6,077 1,729 1,610

Prepaid expenses and other current assets

8,432 27,046 2,234 Deferred tax assets 1,755 26,116 465   Total current assets 1,480,166 573,672 392,097   Assets classified as held for sale 1,370,072 - 362,933   Investments Long-term trade receivables - 6,350 - Marketable securities - 279,823 - Assets held for employee severance benefits 1,434 17,786 380 Deferred tax assets 39 57 10 Property and equipment, net 1,164 171,104 308 Other assets, net 9,482 302,934 2,512 Other intangible assets, net - 174,640 - Goodwill 6,492 416,888 1,720   Total assets 2,868,849 1,943,254 759,960     Current liabilities Short-term bank credit 462,836 42,738 122,606 Current maturities of long-term obligations 149 11,238 39 Accounts payable 7,095 148,580 1,879 Current maturities of convertible debentures 17,682 17,516 4,684 Current maturities of debentures 215,994 100,142 57,217 Other payable and accrued expenses 69,654 125,388 18,451 Related parties payable 188 3,223 50 Total current liabilities 773,598 448,825 204,926   Liabilities classified as held for sale 296,868 - 78,641   Long term liabilities Long-term obligations and other payables - 760 - Convertible debentures 73,357 84,857 19,432 Debentures 1,051,024 812,254 278,417 Deferred tax liabilities 21,653 46,856 5,736 Liability for employee severance benefits 2,140 34,626 567 Total long term liabilities 1,148,174 979,353 304,152   Total liabilities 2,218,640 1,428,178 587,719   Shareholders' equity 431,036 324,604 114,182 Non-controlling interest 219,173 190,472 58,059   Total equity 650,209 515,076 172,241     Total liabilities and shareholders' equity 2,868,849 1,943,254 759,960   Consolidated Statements of Operations All amounts are in thousands except for per share data         Convenience translation into U.S. dollars $1=NIS 3.775 Year ended Year ended December 31 December 31 2009 2008 2007 2009 (Unaudited) (Audited) (Audited) (Unaudited) NIS thousands $ thousands   Revenue 1,244,090   1,167,327   1,175,946   329,560     Costs and operating expenses Cost of revenue 852,775 799,914 802,296 225,901 Selling and marketing 151,258 175,780 176,250 40,068 General and administrative 65,130 71,548 69,843 17,253 Impairment and other expenses (income), net 1,888   (5,581 ) 14,589   500     Total operating expenses 1,071,051   1,041,661   1,062,978   283,722     Operating income 173,039 125,666 112,968 45,838   Financial (income) expenses, net (25,760 ) 122,073 57,533 (6,824 ) Gain from issuance of shares in subsidiary -   -   (120,310 ) -     Income before income taxes 198,799 3,593 175,745 52,662 Income tax expenses 59,328   14,550   50,460   15,716     Income (loss) after income tax expenses 139,471   (10,957 ) 125,285   36,946   Net income attributable to non-controlling interest (38,597 ) (13,338 ) (1,267 ) (10,224 )   Net income (loss) 100,874   (24,295 ) 124,018   26,722     Income (loss) per share, basic Net income (loss) per share 5.50   (1.13 ) 5.74   1.46   Weighted average number of shares outstanding (in thousands) 18,346   21,551   21,617   18,346     Income (loss) per share, diluted Net (loss) income per share 5.44   (1.13 ) 5.44   1.44   Weighted average number of shares outstanding (in thousands) 19,915   21,551   24,795   19,915    

Reconciliation Table of Non-GAAP Measures

        Convenience translation into dollars $1=NIS 3.775 Year ended Year ended December 31 December 31 2009 2008 2007 2009 (Unaudited) (Unaudited) (Unaudited) (Unaudited) NIS thousands NIS thousands NIS thousands $ thousands   GAAP operating income 173,039 125,666 112,968 45,838  

Adjustments

Amortization of acquired intangible assets 18,761 27,280 31,938 4,970 Impairment and other expenses, net 1,888 7,258 10,433 500 Share-based compensation in accordance with ASC 718 (previously SFAS 123(R)) 4,956   3,429   -   1,313     Non-GAAP adjusted operating income 198,644   163,633   155,339   52,621       GAAP tax expenses, net 59,328 14,550 50,460 15,716    

Adjustments

  Amortization of acquired intangible assets Included in tax expenses, net 6,900   7,365   9,262   1,828     Non-GAAP tax expenses, net 66,228   21,915   59,722   17,544       Net income (loss) as reported 100,874 (24,295 ) 124,018 26,722   Non-controlling interest in operations of consolidated subsidiaries 38,597 13,338 1,267 10,224 Gain from issuance of shares in subsidiary - - (120,310 ) - Income tax expenses 59,328 14,550 50,460 15,716 Impairment and other expenses, net 1,888 7,258 10,433 500 Share-based compensation in accordance with ASC 718 (previously SFAS 123(R)) 4,956 3,429 - 1,313 Financial (income) expenses, net (25,760 ) 122,073 57,537 (6,824 ) Depreciation and amortization 98,586   117,503   116,848   26,115     Adjusted EBITDA 278,469   253,856   240,253   73,766