Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
6-K
REPORT
OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES
EXCHANGE ACT OF 1934
For
the month of March 2005
INTERNET
GOLD-GOLDEN LINES LTD.
(Name of
Registrant)
1
Alexander Yanai Street Petach-Tikva, Israel
(Address
of Principal Executive Office)
Indicate
by check mark whether the registrant files or will file annual reports under
cover of Form 20-F or Form 40-F.
Form
20-F x Form
40-F o
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1): o
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7): o
Indicate
by check mark whether by furnishing the information contained in this Form, the
registrant is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes o
No x
If
"Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- __________
Internet
Gold-Golden Lines Ltd.
6-K
Items
1. |
Financial
Statements of Internet Gold -Golden Lines Ltd. as of December 31, 2004
|
2. |
Operating
and Financial Review and Prospects |
3. |
Exhibit
12.1-Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as
amended |
4. |
Exhibit
12.2-Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and Rule 15d-14(a) of the Securities Exchange Act, as
amended |
5. |
Exhibit
13.1-Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
6. |
Exhibit
13.2-Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
Item
1
Internet
Gold - Golden Lines Ltd.
Financial
Statements
As
at December 31, 2004 |
Internet
Gold - Golden Lines Ltd.
Financial
Statements as at December 31, 2004
|
Page |
|
|
Report
of Independent Registered Public Accounting Firm |
F-2 |
|
|
Balance
Sheets as of December 31, 2004 and 2003 |
F-3 |
|
|
Statements
of Operations for the years ended |
|
December 31, 2004, 2003 and 2002 |
F-5 |
|
|
Statements
of Changes in Shareholders’ Equity for the years ended |
|
December
31, 2004, 2003 and 2002 |
F-6 |
|
|
Statements
of Cash Flows for the years ended |
|
December
31, 2004, 2003 and 2002 |
F-7 |
|
|
Notes
to the Financial Statements |
F-10 |
|
|
Annex
A to the Financial Statements |
F-54 |
[LOGO] |
Somekh
Chaikin
KPMG
Millennium Tower
17
Ha'arba'a Street, PO Box 609
Tel
Aviv 61006 Israel |
Telephone
972 3 684 8000
Fax
972 3 684 8444
Internet
www.kpmg.co.il |
Report of Independent Registered Public Accounting
Firm
The Board of Directors and Shareholders of
Internet Gold - Golden Lines Ltd.
We have audited the accompanying consolidated and company balance
sheets of Internet Gold - Golden Lines Ltd. (hereinafter - the “Company”) as of
December 31, 2004 and 2003, and the related consolidated and company statements
of operations, changes in shareholders’ equity and cash flows, for each of the
years in the three year period ended December 31, 2004. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated and company financial statements
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2004 and 2003 and the results of its
operations, the changes in shareholders’ equity and its cash flows for each of
the years in the three year period ended December 31, 2004, in conformity with
generally accepted accounting principles in Israel.
As explained in Note 2C the financial statements for dates and
reporting periods subsequent to December 31, 2003 are stated in reported
amounts, in accordance with the accounting standards of the Israel Accounting
Standards Board. The financial statements for dates and reporting periods that
ended up to the aforementioned date are stated in values that were adjusted to
that date according to the changes in the general purchasing power of the
Israeli currency, in accordance with opinions of the Institute of Certified
Public Accountants in Israel.
Accounting principles generally accepted in Israel vary in certain
significant respects from accounting principles generally accepted in the United
States of America. Information relating to the nature and effect of such
differences is presented in Note 21 to the consolidated financial
statements.
As discussed in Note 21 to the consolidated financial statements,
the Company adopted Financial Standards Board Interpretation No. 46(R)
"Consolidation of Variable Interest Entities" in 2004 by restating the
consolidated financial statements of 2003 and 2002 with a cumulative effect
adjustment as of the beginning of 2002 in the amount of NIS 4,382
thousand.
/s/ Somekh Chaikin
Somekh Chaikin
Certified Public Accountants (Isr.)
Member Firm of KPMG International
Tel Aviv, Israel
February 17, 2005
Balance
Sheets - Consolidated and Company
|
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|
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|
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|
|
Convenience |
|
|
|
|
|
|
|
|
|
|
|
|
|
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
2E) |
|
|
|
|
|
Consolidated |
|
Company |
|
Consolidated |
|
|
|
|
|
December
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
|
|
Reported |
|
Adjusted |
|
Reported |
|
Adjusted |
|
|
|
|
|
|
|
Amounts* |
|
Amounts** |
|
Amounts* |
|
Amounts** |
|
|
|
|
|
Note |
|
NIS
thousands |
|
US$
thousands |
|
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
3 |
|
|
75,637
|
|
|
81,891
|
|
|
75,323
|
|
|
81,660
|
|
|
17,557
|
|
Trade
receivables, net |
|
|
4 |
|
|
52,682
|
|
|
35,569
|
|
|
37,723
|
|
|
26,601
|
|
|
12,231
|
|
Other
receivables |
|
|
5 |
|
|
8,948
|
|
|
12,769
|
|
|
7,408
|
|
|
10,539
|
|
|
2,077
|
|
Deferred
taxes |
|
|
16 |
|
|
2,564
|
|
|
1,914
|
|
|
-
|
|
|
-
|
|
|
595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
|
|
|
139,831
|
|
|
132,143
|
|
|
120,454
|
|
|
118,800
|
|
|
32,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Investments
in |
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
investee
companies |
|
|
6 |
|
|
-
|
|
|
1,550
|
|
|
16,821
|
|
|
8,287
|
|
|
-
|
|
Deferred
taxes |
|
|
16 |
|
|
22
|
|
|
21
|
|
|
-
|
|
|
-
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
1,571
|
|
|
16,821
|
|
|
8,287
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment,
net |
|
|
7 |
|
|
40,583
|
|
|
29,160
|
|
|
36,075
|
|
|
26,796
|
|
|
9,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred
charges |
|
|
8 |
|
|
114,956
|
|
|
51,130
|
|
|
112,253
|
|
|
49,895
|
|
|
26,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
allocated to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operation |
|
|
20 |
|
|
4,631
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
|
|
|
300,023 |
|
|
214,004 |
|
|
285,603 |
|
|
203,778 |
|
|
69,644 |
|
/s/ Eli
Holtzman |
|
/s/
Doron Turgeman |
|
|
|
Chief
Executive Officer and Director |
|
Chief
Financial Officer |
Date of
signature: February 17, 2005
* With
respect to discontinuance of adjustment to the effect of inflation as from the
CPI of December 2003 (see Note 2C).
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
The
accompanying notes are an integral part of the financial
statements.
Internet
Gold - Golden Lines Ltd.
|
|
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|
Convenience |
|
|
|
|
|
|
|
|
|
|
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|
|
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
into |
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
2E) |
|
|
|
|
|
Consolidated |
|
Company |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
2004 |
|
|
|
|
|
Reported |
|
Adjusted |
|
Reported |
|
Adjusted |
|
|
|
|
|
|
|
Amounts* |
|
Amounts** |
|
Amounts* |
|
Amounts** |
|
|
|
|
|
Note |
|
NIS
thousands |
|
US$
thousands |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
bank loans |
|
|
9 |
|
|
10,950
|
|
|
5,259
|
|
|
7,668
|
|
|
2,459
|
|
|
2,542
|
|
Accounts
payable |
|
|
10 |
|
|
73,383
|
|
|
***36,591
|
|
|
69,414
|
|
|
***33,915
|
|
|
17,034
|
|
Other
payables |
|
|
11 |
|
|
13,784
|
|
|
***14,037
|
|
|
8,742
|
|
|
***9,888
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities |
|
|
|
|
|
98,117
|
|
|
55,887
|
|
|
85,824
|
|
|
46,262
|
|
|
22,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
of liabilities over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
in investees |
|
|
6 |
|
|
-
|
|
|
7,706
|
|
|
-
|
|
|
7,706
|
|
|
-
|
|
Long-term
loans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
long-term
obligations |
|
|
12 |
|
|
72,117
|
|
|
27,389
|
|
|
72,111
|
|
|
27,193
|
|
|
16,740
|
|
Deferred
revenues |
|
|
|
|
|
3
|
|
|
23
|
|
|
3
|
|
|
23
|
|
|
1
|
|
Liability
for severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pay,
net |
|
|
13 |
|
|
6,240
|
|
|
4,928
|
|
|
5,772
|
|
|
4,523
|
|
|
1,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities |
|
|
|
|
|
78,360
|
|
|
40,046
|
|
|
77,886
|
|
|
39,445
|
|
|
18,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
allocated to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operation |
|
|
20 |
|
|
1,653
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
0.01 par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(501,000,000
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized;
18,431,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
issued and fully paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
at December 31, 2004) |
|
|
|
|
|
197
|
|
|
197
|
|
|
197
|
|
|
197
|
|
|
46
|
|
Additional
paid in capital |
|
|
|
|
|
215,040
|
|
|
215,040
|
|
|
215,040
|
|
|
215,040
|
|
|
49,916
|
|
Accumulated
deficit |
|
|
|
|
|
(93344 |
|
|
(97166 |
) |
|
|
) |
|
|
) |
|
(21667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity |
|
|
|
|
|
121,893
|
|
|
118,071
|
|
|
121,893
|
|
|
118,071
|
|
|
28,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity |
|
|
|
|
|
300,023
|
|
|
214,004
|
|
|
285,603
|
|
|
203,778
|
|
|
69,644
|
|
*
With respect to discontinuance of adjustment to the effect of inflation as from
the CPI of December 2003 (see Note 2C).
**
Amounts adjusted to reflect inflation in terms of NIS of December 31,
2003.
***
Reclassified
The
accompanying notes are an integral part of the financial
statements.
Internet
Gold - Golden Lines Ltd.
Statements
of Operations - Consolidated and Company
|
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|
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|
|
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|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
into
US Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
2E) |
|
|
|
|
|
Consolidated |
|
Company |
|
Consolidated |
|
|
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
|
|
|
|
Reported |
|
Adjusted |
|
Adjusted |
|
Reported |
|
Adjusted |
|
Adjusted |
|
|
|
|
|
|
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
|
|
|
|
Note |
|
NIS
thousands (except for per share data) |
|
US$
thousands |
|
Revenues |
|
|
15A
|
|
|
219,577
|
|
|
179,642
|
|
|
184,318
|
|
|
180,343
|
|
|
157,394
|
|
|
169,052
|
|
|
50,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
15B
|
|
|
96,820
|
|
|
92,871
|
|
|
99,564
|
|
|
80,819
|
|
|
78,008
|
|
|
85,798
|
|
|
22,474
|
|
Selling
and marketing expenses |
|
|
15C
|
|
|
73,155
|
|
|
41,393
|
|
|
37,125
|
|
|
65,842
|
|
|
42,538
|
|
|
37,981
|
|
|
16,981
|
|
General
and administrative expenses |
|
|
15D
|
|
|
24,258
|
|
|
21,908
|
|
|
21,209
|
|
|
19,810
|
|
|
18,959
|
|
|
18,712
|
|
|
5,631
|
|
Total
costs and expenses |
|
|
|
|
|
194,233
|
|
|
156,172
|
|
|
157,898
|
|
|
166,471
|
|
|
139,505
|
|
|
142,491
|
|
|
45,086
|
|
Income
from operations |
|
|
|
|
|
25,344
|
|
|
23,470
|
|
|
26,420
|
|
|
13,872
|
|
|
17,889
|
|
|
26,561
|
|
|
5,884
|
|
Financing
income (expenses), net |
|
|
15E
|
|
|
122
|
|
|
(3,235 |
) |
|
2,151
|
|
|
2,452
|
|
|
587
|
|
|
3,701
|
|
|
28
|
|
Other
(expenses) income, net |
|
|
|
|
|
(1,077 |
) |
|
(2,592 |
) |
|
(3 |
) |
|
503
|
|
|
17
|
|
|
(110 |
) |
|
(250 |
) |
Income
from continued operations before income taxes |
|
|
|
|
|
24,389
|
|
|
17,643
|
|
|
28,568
|
|
|
16,827
|
|
|
18,493
|
|
|
30,152
|
|
|
5,662
|
|
Income
tax benefit |
|
|
16
|
|
|
301
|
|
|
1,935
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
70
|
|
Income
after income tax |
|
|
|
|
|
24,690
|
|
|
19,578
|
|
|
28,568
|
|
|
16,827
|
|
|
18,493
|
|
|
30,152
|
|
|
5,732
|
|
Company's
share in net income (loss) of investees |
|
|
|
|
|
(396 |
) |
|
(1,538 |
) |
|
(1,530 |
) |
|
7,467
|
|
|
(453 |
) |
|
(3,114 |
) |
|
(92 |
) |
Income
from continued operations |
|
|
|
|
|
24,294
|
|
|
18,040
|
|
|
27,038
|
|
|
24,294
|
|
|
18,040
|
|
|
27,038
|
|
|
5,640
|
|
Company's
share in loss of a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
discontinued operations |
|
|
20 |
|
|
(4,763 |
) |
|
(3,737 |
) |
|
(7,080 |
) |
|
(4,763 |
) |
|
(3,737 |
) |
|
(7,080 |
) |
|
(1,106 |
) |
Net
income |
|
|
|
|
|
19,531
|
|
|
14,303
|
|
|
19,958
|
|
|
19,531
|
|
|
14,303
|
|
|
19,958
|
|
|
4,534
|
|
Income
(loss) per share, basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per NIS 0.01 par value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
(in NIS) from continuing operations |
|
|
|
|
|
1.32 |
|
|
0.
98 |
|
|
1.
47 |
|
|
1.32 |
|
|
0.98
|
|
|
1.47
|
|
|
0.31 |
|
Net
loss per NIS 0.01 par value of shares (in NIS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
discontinued operation |
|
|
|
|
|
(0.26 |
) |
|
(0.
20 |
) |
|
(0.39 |
) |
|
(0.26 |
) |
|
(0.20 |
) |
|
(0.39 |
) |
|
(0.06 |
) |
Net
income per NIS 0.01 par value of shares (in NIS) |
|
|
|
|
|
1.06 |
|
|
0.78
|
|
|
1.08 |
|
|
1.06 |
|
|
0.78
|
|
|
1.08
|
|
|
0.25
|
|
Weighted
average number of shares outstanding (in thousands) |
|
|
|
|
|
18,432
|
|
|
18,432
|
|
|
18,432
|
|
|
18,432
|
|
|
18,432
|
|
|
18,432
|
|
|
18,432
|
|
*
With respect to discontinuance of adjustment to the effect of inflation as from
the CPI of December 2003 (see Note 2C).
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
The
accompanying notes are an integral part of the financial
statements.
Internet
Gold - Golden Lines Ltd.
Statements
of Changes in Shareholders’ Equity
|
|
Share
capital * |
|
|
|
|
|
|
|
|
|
Number
of |
|
Amount |
|
Additional |
|
Accumulated |
|
|
|
|
|
shares |
|
|
|
paid-in
capital |
|
Deficit |
|
Total |
|
|
|
Amounts
adjusted to the effect of inflation in terms of NIS of December
2003 |
|
|
|
NIS
0.01 par value |
|
NIS
thousands |
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
January
1, 2002 |
|
|
18,431,500
|
|
|
197
|
|
|
215,040
|
|
|
(131427.00 |
) |
|
83,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
during 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,958
|
|
|
19,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2002 |
|
|
18,431,500
|
|
|
197
|
|
|
215,040
|
|
|
(111469.00 |
) |
|
103,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
during 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,303
|
|
|
14,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
18,431,500
|
|
|
197
|
|
|
215,040
|
|
|
(97166.00 |
) |
|
118,071
|
|
|
|
Share
capital (*) |
|
Additional |
|
|
|
|
|
|
|
Number
of |
|
Amount |
|
paid-in |
|
Accumulated |
|
|
|
|
|
shares |
|
|
|
capital |
|
Deficit |
|
Total |
|
|
|
Reported
Amounts** |
|
|
|
NIS
0.01 par value |
|
NIS
thousands |
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
18,431,500
|
|
|
197
|
|
|
215,040
|
|
|
(97166.00 |
) |
|
118,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
during 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
purchase of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investee
company |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15709.00 |
) |
|
(15709.00 |
) |
Net
income for the year |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19,531
|
|
|
19,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
18,431,500
|
|
|
197
|
|
|
215,040
|
|
|
(93344.00 |
) |
|
121,893
|
|
*
Number of authorized shares - 501,000,000
**
With respect to discontinuance of adjustment to the effect of inflation as from
the CPI at December 31, 2003 (see
Note 2C).
The
accompanying notes are an integral part of the financial
statements.
Internet
Gold - Golden Lines Ltd.
Statements
of Cash Flows - Consolidated and Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
US Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
2E) |
|
|
|
Consolidated |
|
Company |
|
Consolidated |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
|
|
Reported |
|
Adjusted |
|
Adjusted |
|
Reported |
|
Adjusted |
|
Adjusted |
|
|
|
|
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
|
|
|
|
NIS
thousands |
|
US$
thousands |
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
19,531
|
|
|
14,303
|
|
|
19,958
|
|
|
19,531
|
|
|
14,303
|
|
|
19,958
|
|
|
4,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from discontinued operations |
|
|
4,763
|
|
|
3,737
|
|
|
7,080
|
|
|
4,763
|
|
|
3,737
|
|
|
7,080
|
|
|
1,106
|
|
Depreciation
and amortization |
|
|
21,856
|
|
|
16,219
|
|
|
15,333
|
|
|
19,445
|
|
|
13,621
|
|
|
13,754
|
|
|
5,072
|
|
Increase
in liability for termination of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employer
- employee relations, net |
|
|
1,284
|
|
|
1,147
|
|
|
202
|
|
|
1,249
|
|
|
1,060
|
|
|
2
|
|
|
298
|
|
Company's
share in net loss (income) of investees |
|
|
396
|
|
|
1,538
|
|
|
1,530
|
|
|
(7,467 |
) |
|
453
|
|
|
3,114
|
|
|
92
|
|
Interest
on long -term loans |
|
|
(2,161 |
) |
|
(374 |
) |
|
(644 |
) |
|
1,196
|
|
|
(4,012 |
) |
|
(1,043 |
) |
|
(502 |
) |
(Gain)
loss on sale of property and equipment |
|
|
(382 |
) |
|
16
|
|
|
110
|
|
|
(413 |
) |
|
16
|
|
|
110
|
|
|
(89 |
) |
Impairment
of investments |
|
|
1,551 |
|
|
2,609
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
360
|
|
Deferred
taxes |
|
|
(301 |
) |
|
(1,935 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(70 |
) |
Changes
in assets and liabilities, net of effect of
acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
companies
and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in trade receivables |
|
|
(15,041 |
) |
|
(4,362 |
) |
|
(2,939 |
) |
|
(11,122 |
) |
|
(918 |
) |
|
(675 |
) |
|
(3,491 |
) |
(Increase)
decrease in other receivables |
|
|
(2,158 |
) |
|
(2,548 |
) |
|
1,987
|
|
|
(2,962 |
) |
|
(1,189 |
) |
|
3,815
|
|
|
(501 |
) |
(Decrease)
increase in accounts payable |
|
|
11,774
|
|
|
***(3,290 |
) |
|
***(656 |
) |
|
12,610
|
|
|
(775 |
) |
|
(675 |
) |
|
2,733
|
|
(Decrease)
increase in other payables |
|
|
(2,927 |
) |
|
***2,112
|
|
|
***(758 |
) |
|
(1,166 |
) |
|
(797 |
) |
|
(5,067 |
) |
|
(679 |
) |
Net
cash provided by continued operating activities |
|
|
38,185
|
|
|
29,172
|
|
|
41,203
|
|
|
35,664
|
|
|
25,499
|
|
|
40,373
|
|
|
8,863
|
|
Net
cash used in discontinued operating activities |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
cash provided by operating activities |
|
|
38,185
|
|
|
29,172
|
|
|
41,203
|
|
|
35,664
|
|
|
25,499
|
|
|
40,373
|
|
|
8,863
|
|
*
With respect to discontinuance of adjustment to the effect of inflation as from
the CPI of December 2003 (see Note 2C).
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
***
Reclassified
The
accompanying notes are an integral part of the financial
statements.
Internet
Gold - Golden Lines Ltd.
Statements
of Cash Flows - Consolidated and Company (cont'd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
US Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
2E) |
|
|
|
Consolidated |
|
Company |
|
Consolidated |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
|
|
Reported |
|
Adjusted |
|
Adjusted |
|
Reported |
|
Adjusted |
|
Adjusted |
|
|
|
|
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
|
|
|
|
NIS
thousands |
|
US$
thousands |
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment |
|
|
(22,830 |
) |
|
(13,450 |
) |
|
(11,153 |
) |
|
(23,210 |
) |
|
(13,119 |
) |
|
(10,202 |
) |
|
(5,299 |
) |
Proceeds
from sales of property and equipment |
|
|
1,266
|
|
|
65
|
|
|
248
|
|
|
1,046
|
|
|
65
|
|
|
248
|
|
|
294
|
|
Grant
of long-term loans to investee company |
|
|
(30,500 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,080 |
) |
Grant
of long-term loans |
|
|
-
|
|
|
-
|
|
|
(1,266 |
) |
|
-
|
|
|
-
|
|
|
(1,266 |
) |
|
-
|
|
Repayment
of long-term loans |
|
|
4,741
|
|
|
1,079
|
|
|
956
|
|
|
4,741
|
|
|
1,079
|
|
|
956
|
|
|
1,101
|
|
Investment
in investee companies |
|
|
-
|
|
|
(6,474 |
) |
|
-
|
|
|
(32,540 |
) |
|
(9,624 |
) |
|
(16,364 |
) |
|
-
|
|
Investment
in other assets |
|
|
(69,220 |
) |
|
(51,926 |
) |
|
(1,048 |
) |
|
(67,898 |
) |
|
(50,598 |
) |
|
-
|
|
|
(16,068 |
) |
Acquisition
of formerly investee company (Appendix A) |
|
|
(1,122 |
) |
|
-
|
|
|
116
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(261 |
) |
Net
cash used in continued investment activities |
|
|
(117,665 |
) |
|
(70,706 |
) |
|
(12,147 |
) |
|
(117,861 |
) |
|
(72,197 |
) |
|
(26,628 |
) |
|
(27,313 |
) |
Net
cash used in discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investment
activities |
|
|
-
|
|
|
-
|
|
|
(1 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
cash used in investment activities |
|
|
(117,665 |
) |
|
(70,706 |
) |
|
(12,148 |
) |
|
(117,861 |
) |
|
(72,197 |
) |
|
(26,628 |
) |
|
(27,313 |
) |
Cash
flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in short-term bank loans |
|
|
3,549
|
|
|
(4,717 |
) |
|
(29,983 |
) |
|
5,844
|
|
|
4
|
|
|
(15,095 |
) |
|
824
|
|
Receipt
of long-term loans under lease agreement |
|
|
81,039
|
|
|
60,181
|
|
|
-
|
|
|
81,039
|
|
|
60,181
|
|
|
-
|
|
|
18,811
|
|
Receipt
of long-term loans from bank |
|
|
30,500
|
|
|
-
|
|
|
-
|
|
|
30,500
|
|
|
-
|
|
|
-
|
|
|
7,080
|
|
Repayment
of long-term loans under lease agreement |
|
|
(41,862 |
) |
|
(17,184 |
) |
|
(1,545 |
) |
|
(41,523 |
) |
|
(16,869 |
) |
|
(1,226 |
) |
|
(9,717 |
) |
Net
cash provided by (used in) continued financing
activities |
|
|
73,226
|
|
|
38,280
|
|
|
(31,528 |
) |
|
75,860
|
|
|
43,316
|
|
|
(16,321 |
) |
|
16,998
|
|
Net
cash provided by discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
financing
activities |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
cash provided by (used in) financing activities |
|
|
73,226
|
|
|
38,280
|
|
|
(31,528 |
) |
|
75,860
|
|
|
43,316
|
|
|
(16,321 |
) |
|
16,998
|
|
*
With respect to discontinuance of adjustment to the effect of inflation as from
the CPI of December 2003 (see Note 2C).
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
The
accompanying notes are an integral part of the financial
statements.
Internet
Gold - Golden Lines Ltd.
Statements
of Cash Flows - Consolidated and Company (cont'd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convenience
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
US Dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
2E) |
|
|
|
Consolidated |
|
Company |
|
Consolidated |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
|
|
Reported |
|
Adjusted |
|
Adjusted |
|
Reported |
|
Adjusted |
|
Adjusted |
|
|
|
|
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
Amounts* |
|
Amounts** |
|
Amounts** |
|
|
|
|
|
NIS
thousands (except for per share data) |
|
US$
thousands |
|
Changes
in cash and cash equivalents |
|
|
(6,254 |
) |
|
(3,254 |
) |
|
(2,473 |
) |
|
(6,337 |
) |
|
(3,382 |
) |
|
(2,576 |
) |
|
(1,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year |
|
|
81,891
|
|
|
85,145
|
|
|
87,618
|
|
|
81,660
|
|
|
85,042
|
|
|
87,618
|
|
|
19,009
|
|
Cash
and cash equivalents at end of year |
|
|
75,637
|
|
|
81,891
|
|
|
85,145
|
|
|
75,323
|
|
|
81,660
|
|
|
85,042
|
|
|
17,557
|
|
Non-cash
investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable in respect of fixed assets |
|
|
3,337
|
|
|
2,352
|
|
|
3,952
|
|
|
3,283
|
|
|
2,255
|
|
|
3,952
|
|
|
775
|
|
Investment
in subsidiary |
|
|
-
|
|
|
(4,252 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Cash
reserve from purchase of investee company from a related
party |
|
|
15,709
|
|
|
-
|
|
|
-
|
|
|
15,709
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Cash
paid for interest, net |
|
|
323
|
|
|
553
|
|
|
1,592
|
|
|
247
|
|
|
323
|
|
|
1,592
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appendix
A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
of formerly investee company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
capital, net of cash |
|
|
3,878
|
|
|
-
|
|
|
181
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
900
|
|
Property
and equipment, net |
|
|
(2,125 |
) |
|
-
|
|
|
(173 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
(493 |
) |
Other
assets |
|
|
(700 |
) |
|
-
|
|
|
104
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(162 |
) |
Assets
allocated to discontinued operations |
|
|
(4,631 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,075 |
) |
Liabilities
allocated to discontinued operations |
|
|
1,653
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
384
|
|
Long-term
liabilities |
|
|
28
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6
|
|
Capital
reserve from purchase of investee company from a related
party |
|
|
(15,709 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,646 |
) |
Investment
in investee |
|
|
16,484
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,825
|
|
|
|
|
(1,122 |
) |
|
-
|
|
|
116
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(261 |
) |
Appendix
B - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit
from consolidation of a previously consolidated
subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital, net of cash |
|
|
-
|
|
|
-
|
|
|
(31,735 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Property
and equipment, net |
|
|
-
|
|
|
-
|
|
|
13,248
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Long-term
liabilities |
|
|
-
|
|
|
-
|
|
|
(12,598 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Customer
list, net |
|
|
-
|
|
|
-
|
|
|
9,638
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Minority
interest |
|
|
-
|
|
|
-
|
|
|
16,621
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Company's
share in excess of liabilities over assets in investees |
|
|
-
|
|
|
-
|
|
|
4,825
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
- |
|
|
-
|
|
|
(1 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
* With
respect to discontinuance of adjustment to the effect of inflation as from the
CPI of December 2003 (see Note 2C).
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
The
accompanying notes are an integral part of the financial
statements.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
1 - General
Internet
Gold - Golden Lines Ltd. (hereinafter “the Company”) was incorporated in Israel
in 1992. From 1996, the Company has operated as a provider of internet services,
tailored to meet the needs of residential and business subscribers, including
internet access and related value-added services, as well as content through
portals. The Company launched its international Telephone Service (ITS) under
the brand "015" in august 2004. The license to provide ITS was granted for 20
years.
Internet
Gold is a public company and its ordinary shares currently trade on the NASDAQ
national market.
Note
2 - Reporting Principles and Accounting Policies
A. Basis of
preparation of financial statements
These
financial statements are prepared in accordance with generally accepted
accounting principles in Israel. See Note 21 for a reconciliation to generally
accepted accounting principles in the United States.
B. Definitions
In these
financial statements -
|
(1) |
The
Company Internet Gold - Golden Lines Ltd.
|
|
(2) |
The
Group - Internet Gold - Golden Lines Ltd. and its investee companies
as specified in Annex A list of Group
Companies. |
|
(3) |
Subsidiary
- A company, including a partnership or joint venture, the financial
statements of which are fully consolidated, directly or indirectly, with
the financial statements of the Company. |
|
(4) |
Affiliated
company - A company, other than a subsidiary and including a
partnership or joint venture, the Company's investment in which is stated,
directly or indirectly, under the equity
basis. |
|
(5) |
Investee
company - A subsidiary or affiliated
company |
|
(6) |
Related
party - As defined in Opinion No. 29 of the Institute of Certified
Public Accountants in Israel (hereinafter - the
ICPAI). |
|
(7) |
Interested
party as defined in Paragraph (1) of the definition of an "interest
party" in Section 1 of the Securities Law -
1968. |
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
2 - Reporting Principles and Accounting Policies
B. Definitions
(cont'd)
|
(8) |
Controlling
shareholder - As defined in the Securities Regulations (Financial
Statement Presentation of Transactions between a company and its
controlling shareholder) - 1996. |
|
(9) |
CPI
- The Consumer Price Index as published by the Central Bureau of
Statistics. |
|
(10) |
Adjusted
amount - the nominal historical amount adjusted in accordance with the
provisions of Opinions 23 and 34 and Opinions 36 and
37. |
|
(11) |
Reported
amount - The adjusted amount as at the transition date (December 31,
2003), with the addition of amounts in nominal values that were added
after the transition date and less amounts eliminated after the transition
date. |
|
(12) |
Adjusted
financial reporting - Financial reporting based on the provisions of
Opinions 23, 34, 36, 37 and 50. |
|
(13) |
Nominal
financial reporting - Financial reporting based on reported
amounts. |
C. Financial
statements in reported New Israeli Shekels (NIS)
In
October 2001, the Israel Accounting Standards Board published Accounting
Standard No. 12, "Discontinuance of Adjustment of Financial Statements".
Pursuant to this standard and in accordance with Accounting Standard No. 17 that
was published in December 2002, the adjustment of financial statements was
discontinued as of January 1, 2004. Up to December 31, 2003, the Company
continued to prepare adjusted financial statements in accordance with Opinion
No. 36 of the Institute of Certified Public Accountants in Israel. The adjusted
amounts included in the financial statements as at December 31, 2003 constitute
the starting point for the nominal financial report as of January 1, 2004. The
Company has implemented the provisions of the standard and has accordingly
discontinued the adjustments as of January 1, 2004.
1.
In the past the Company prepared its financial statements on the basis of
historical cost adjusted for the changes in the Consumer Price Index. The
adjusted amounts that are included in the financial statements as at December
31, 2003 constitute the starting point for the nominal financial report as of
January 1, 2004. Any additions made during the period are included according to
their nominal values.
2.
Amounts of non-monetary assets do not necessarily reflect their realizable value
or updated economic value, but only the reported amounts of such
assets.
3.
The term "cost" in these financial statements means the reported amount of
cost.
4.
All the comparative data for prior periods is stated adjusted to the index at
December 31, 2003.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
2 - Reporting Principles and Accounting Policies
C. Financial
statements in reported New Israeli Shekels (NIS) (cont'd)
Balance
sheets:
|
a. |
Non-monetary
items are stated at reported amounts. |
|
b. |
Monetary
items are stated in the balance sheet at their nominal historical values
as at balance sheet date. |
Statement
of operations:
|
A. |
Income
and expenses deriving from non-monetary items from provisions included in
the balance sheet are derived from the difference between the reported
amounts of the opening balance and the reported amounts of the closing
balance. |
|
B. |
The
other income and expense items (such as: sales, purchases, current
manufacturing costs, etc.) are presented at their nominal
values. |
D. Use of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
E. Convenience
translation
For the
convenience of the reader, the reported NIS figures of December 31, 2004 have
been presented in U.S. Dollars thousands, translated at the representative rate
of exchange as of December 31, 2004 (NIS 4.308 = U.S. Dollar 1.00). The U.S.
Dollar (hereinafter - $) amounts presented in these financial statements should
not be construed as representing amounts receivable or payable in U.S. Dollars
or convertible into U.S. Dollars, unless otherwise indicated.
F. Principles of
consolidation
The
consolidated financial statements include those of the Company and all its
subsidiary companies. All material intercompany transactions and balances have
been eliminated in the consolidated financial statements.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
2 - Significant Accounting Policies (cont’d)
G. Exchange rate
and Consumer Price Index data
1.
Transactions in foreign currency
Transactions
denominated in foreign currency are recorded upon their initial recognition
according to the exchange rate in effect on the date of the transaction.
Exchange rate differences arising upon the settlement of monetary items or upon
reporting the Company's monetary items at exchange rates that are different than
those by which they were initially recorded during the period, or reported in
previous financial statements, are charged to income or expenses.
2.
Representative rates of exchange (as published by the Bank of Israel) and
Consumer Price Indices (as published by the Israeli Central Bureau of
Statistics) are as follows:
|
|
Exchange
|
|
Consumer |
|
|
|
rate |
|
Price |
|
|
|
of
the $ |
|
Index |
|
As
of December 31, 2002 |
|
|
4.737 |
|
|
182.01
points |
|
As
of December 31, 2003 |
|
|
4.379 |
|
|
178.58
points |
|
As
of December 31, 2004 |
|
|
4.308 |
|
|
180.74
points |
|
|
|
|
|
|
|
|
|
Changes
during the: |
|
|
|
|
|
|
|
Year
ended December 31, 2002 |
|
|
7.27 |
% |
|
6.49 |
% |
Year
ended December 31, 2003 |
|
|
(7.56 |
%) |
|
(1.88 |
%) |
Year
ended December 31, 2004 |
|
|
(1.625 |
%) |
|
1.21 |
% |
H. Cash and cash
equivalents
The
Company considers as cash equivalents all highly-liquid investments, including
short-term bank deposits with an original maturity of three months or less,
which are not encumbered by a lien.
I. Allowance for
doubtful accounts
The
allowance for doubtful accounts represents management’s estimate of the aged
receivable balance considered uncollectible, based on past
experience.
J. Investments
Investee
companies
Investments
in investee companies, in which the Company has significant influence
(affiliated companies) are stated under the equity method, that is, at cost plus
the Company’s share of the post-acquisition gains or losses.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
2 - Significant Accounting Policies (cont’d)
K. Property and
equipment
Property
and equipment are stated at cost less depreciation.
Depreciation
is calculated using the straight-line method, over the assets estimated useful
lives.
Annual
depreciation rates are as follows:
|
|
|
% |
|
Network
equipment and computers |
|
|
25
- 33 |
|
Motor
vehicles |
|
|
15 |
|
Furniture
and office equipment |
|
|
6 -
15 |
|
Leasehold
improvements |
|
|
10 |
|
The cost
of maintenance and repairs is charged to expenses as incurred. The cost of
significant renewals and improvements is added to the carrying amount of the
respective asset.
L. Other
assets
1. Special
content web sites
Certain
costs relating to self construction of special content web-sites have been
capitalized according to EITF-00-02 and amortized over a period of 18 months
from completion of construction. Such capitalized costs are presented as part of
other assets.
2. Rights of
Use (ROU) of international fiber optic lines
The
Company signed a long-term agreement with two of its suppliers (see Note 14F).
The ROU purchase is presented in the financial statements as a capital lease.
Amortization is computed by the straight-line method over the term of the
agreement (15 years) subject to technological obsolescence effects.
3. Deferred
charges
The
Company defers costs incurred relating to the expansion of customer base by
long-term contracts granting the customers incentives such as Routers, firewall,
etc. The consideration in such long-term contracts is refundable. The Company
amortizes such costs over the term of the agreement. The Company reflects
long-term deferred charges net of current maturities that are presented as
prepaid expenses.
In
addition, the company granted the Ministry of Communication in Israel a
guarantee related to the International telephoning services license. The
commission regarding this guarantee is amortized over the term of the
guarantee.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
2 - Significant Accounting Policies (cont’d)
M. Deferred
income
The
deferred income in the consolidated financial statements is derived from Post
Contract Customer Support ("PCS") and from advertising services. Those revenues
are recognized ratably over the period that services are provided (see also Note
2N).
N. Revenue
recognition
(1) Sales of
products
Revenues
from sales of products are recognized upon the delivery to the customer and the
transfer of the principal risks and rewards arising from ownership over the sold
products.
Revenues
from the electronic commerce and "after sale" activity are recognized as the
services are performed or when the goods are delivered, as
applicable.
(2) Revenues
from services
Revenues
from services are recognized proportionately over the period of the agreement or
upon the performance of the service if it is certain that the economic benefits
attributed to the performance of the service will be received.
Most of
the Company's revenues from services are derived from Internet access. These
revenues are recognized ratably over the period that services are provided.
Other revenues include website hosting, advertising revenues and recently
international telephony services. Revenues from website hosting are recognized
as the services are performed. Advertising revenues are recognized on a
straight-line over the term of the contract. Revenues from international carrier
services are recognized according to minutes of traffic.
(3) Multiple
element sale agreements
Revenues
from sale agreements which do not include a general right of return and which
include a number of elements such as: hardware, software and support agreements,
are split into separate accounting units and are recognized separately with
respect to each accounting unit. An element constitutes a separate accounting
unit if, and only if, it has a separate value to the customer and there is
reliable and objective evidence regarding the fair value of all the elements of
the agreement/the fair value of undelivered elements. Elements that not split
into an accounting unit due to non-fulfillment of the conditions specified above
are grouped together under one accounting unit. Revenues from the various
accounting units are recognized when the conditions for recognizing the revenues
from the elements included in that same accounting unit according to their type
have been fulfilled, and only up to the amount of the consideration that is not
contingent upon the completion/execution of the other elements of the
contract.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
2 - Significant Accounting Policies (cont’d)
N. Revenue
recognition (cont'd)
(4) Revenues
from the sale of software
Revenues
from the sale of software are recognized in accordance with American Statement
of Position SOP 97-2 "Software Revenue Recognition" (as amended by SOP 98-9).
According to the standard, revenues from the sale of software licenses are
recognized when all the following conditions have been met: the software has
been delivered to the customer, collection of the payment is probable, the
amount of the contract has been or can be determined and there is objective and
persuasive evidence of the contract and of the Company's ability to allocate the
consideration between the elements of the contract.
O. Income
taxes
Income
taxes are provided on the basis of the liability method of accounting. Under the
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences of differences between the carrying amounts of existing
assets and liabilities and their respective tax bases, as well as tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years when these temporary
differences are expected to be recovered or settled.
In the
reporting period, the Company has reported profits and utilized a portion of the
tax loss carryforward but, due to the uncertainty inherent in the intense
competition in the market which has developed in recent months, the Company's
management cannot be reasonably assured as to the Company's ability to further
utilize the tax asset in the foreseeable future. Therefore, a valuation
allowance has been provided to the full amount of these losses.
The
Company believes that two of its subsidiaries will utilize their carryforward
tax losses and therefore a deferred tax asset has been recorded in those
subsidiaries (See Note 16B).
P. Financial
instruments
The
financial statements include disclosures relating to the fair value of financial
instruments.
With
regard to current financial assets and liabilities and long-term liabilities,
there is no material difference between the value recorded in the Company’s
books of account and their fair value.
Q. Income (loss)
per share
Income
(loss) per share is computed based on the weighted average number of shares
outstanding during each period not including share options granted, in
accordance with Opinion No. 55 of the ICPAI.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
2 - Significant Accounting Policies (cont’d)
R. Impairment of
assets
In
February 2003, the Israel Accounting Standards Board (hereinafter - IASB)
published Accounting Standard No. 15 - "Impairment of Assets".
The Standard provides procedures which a company must apply in order to ensure
that its assets in the consolidated balance sheet, are not presented at an
amount which is in excess of their recoverable value, which is the higher of the
net selling price or the present value of the estimated future cash flows
expected to be derived from use and disposal of the asset. In addition, the
Standard provides rules for presentation and disclosure with respect to assets
whose value has declined.
The
Standard applies to financial statements for periods beginning January 1, 2003.
The Standard provides that in most cases the transition will be effected by
means of the "from hereon" method.
According
to the Standard, Internet Gold International Ltd., a wholly-owned subsidiary of
the Company, has fully written off its investment in an Internet group in Greece
(see Note 6A(3)). The impairment charges of NIS 2,609 in 2003 and NIS 1,555
in 2004 are presented as other expenses.
The
adoption of the Standard had no impact on the operations of the former
affiliated company as the client list was partially impaired prior to the
release of the standard.
S. Segment
reporting
Segment
reporting is represented according to Accounting Standard No. 11 of the
IASB.
T. Discontinued
operation
Discontinued
operations are presented in accordance with Accounting Standard No. 8 and are
separated from the information regarding continuing operations.
U. Disclosure of
effect of new accounting standards in the period prior to their
implementation
In July
2004, the Israeli Accounting Standards Board published Accounting Standard No.
19, "Taxes on Income". The Standard provides that a liability for deferred taxes
is to be recorded for all temporary differences subject to tax, except for a
limited number of exceptions. In addition, a deferred tax asset is to be
recorded for all temporary differences that may be deducted, losses for tax
purposes and tax benefits not yet utilized, if it is anticipated that there will
be taxable income against which they can be offset, except for a limited number
of exceptions. The new Standard applies to financial statements for periods
beginning on January 1, 2005. The Standard provides that it is to be implemented
by means of a cumulative effect of a change in accounting method. In the
Company's estimation, the impact of the Standard on its results of operations,
financial position and cash flows will not be material.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note 3 -
Cash and Cash Equivalents
The
Company holds its available funds in US$ dollar short-term deposits bearing
interest rates ranging from 1% to 2%.
Note
4 - Trade Receivables, Net
Trade
receivables consist of:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31, 2005 |
|
December
31, 2005 |
|
December
31, 2005 |
|
December
31, 2005 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Open
accounts and accrued revenues |
|
|
43,750
|
|
|
29,050
|
|
|
29,102
|
|
|
19,165
|
|
Checks,
debit orders and credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
cards
receivable |
|
|
15,775
|
|
|
13,134
|
|
|
13,506
|
|
|
12,526
|
|
|
|
|
59,525
|
|
|
42,184
|
|
|
42,608
|
|
|
31,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts |
|
|
(6,843 |
) |
|
(6,615 |
) |
|
(4,885 |
) |
|
(5,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,682
|
|
|
35,569
|
|
|
37,723
|
|
|
26,601
|
|
Changes
in the allowance for doubtful accounts were as follows:
|
|
|
Consolidated |
|
|
Company |
|
Balance
as of December 31, 2002 |
|
|
7,241
|
|
|
5,919
|
|
Additions
charged to bad debt expenses |
|
|
1,538
|
|
|
1,358
|
|
Write-downs
charged against the allowance |
|
|
(863 |
) |
|
(846 |
) |
Recoveries
of amounts previously written off |
|
|
(1,301 |
) |
|
(1,341 |
) |
|
|
|
|
|
|
|
|
Balance
as of December 31, 2003 |
|
|
6,615
|
|
|
5,090
|
|
|
|
|
|
|
|
|
|
Additions
charged to bad debt expenses |
|
|
2,118
|
|
|
679
|
|
Write-downs
charged against the allowance |
|
|
(1,212 |
) |
|
(572 |
) |
Recoveries
of amounts previously written off |
|
|
(678 |
) |
|
(312 |
) |
|
|
|
|
|
|
|
|
Balance
as of December 31, 2004 |
|
|
6,843
|
|
|
4,885
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
5 - Other Receivables
Other
receivables consist of:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Prepaid
expenses |
|
|
6,762
|
|
|
5,121
|
|
|
6,230
|
|
|
4,906
|
|
Related
parties (see Note 17) |
|
|
1,213
|
|
|
2,554
|
|
|
429
|
|
|
560
|
|
Other |
|
|
973
|
|
|
5,094
|
|
|
749
|
|
|
5,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,948
|
|
|
12,769
|
|
|
7,408
|
|
|
10,539
|
|
Note
6 - Investments in Investee Companies
A. Data
in respect of the Company’s subsidiaries and affiliated is as follows:
GT, a
wholly owned subsidiary, owns e-commerce activity, the P-1000 Mega-Mall, which
was launched on June 30, 2000. At the end of 2002, GT has shifted its e-commerce
activity to a tender site. As such, this activity is based on commission of
about 7% of sales. The revenue is recorded on a net basis.
During
December 2004, the Company acquired all of the shares of GT from a related party
and from others.
The
excess of consideration over the GT's value in the related party financial
statement recorded as a capital reserve.
The
excess of consideration over Gold Trade's value in Eurocom books was recorded as
capital reserve.
As of
December 31, 2004, Gold Trade had incurred losses of NIS 73.5 million ($ 17.1
million). Most of Gold Trade losses were covered by capital
infusions.
The
Company recorded its share of GT's losses amounting to NIS 5.16 million in 2004
(NIS 5.28 million in 2003).
Regarding
discontinuance of operations in 2004, see Note 20.
(2) MSN Israel
Ltd. (MSN)
MSN
Israel was established in April 2000, and is an independent company jointly
owned by Internet Gold (50.1%) and The Microsoft Corporation (49.9%). This
portal, with the same look and feel as MSN Worldwide, uniquely combines leading
Israeli content and e-commerce providers and integrates with Microsoft's leading
network services such as Messenger, Hotmail (in Hebrew), Passport and Web
Communities offering local users access to the most advanced online Internet
services in the world. This portal constitutes the first step toward realizing
the vision of an "everyday web" in Israel.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
6 - Investments in Investee Companies (cont'd)
A. (cont'd)
(2) MSN Israel
Ltd. (MSN) (cont'd)
The
consolidated financial statements include those of MSN. The Company recorded its
share of MSN's net income amounting to NIS 2.2 million in 2004 (net losses of
NIS 2.4 million in 2003).
The
Company has an obligation to finance losses of MSN Israel up to US$ 10 million,
therefore, the Company is recording 100% of MSN's losses and the recovery of the
losses. The Company has already financed approximately $ 8.8 million as of
balance sheet date (including $7.3 million accumulated deficit).
In
November 2002, MSN exercised an option to obtain 50% of the portal "Start" for
no immediate consideration but was obligated to pay royalties to the other
shareholder at the amount of 20% of the revenues of "Start" for a period of 36
months. Minimum payments per month was of $8 thousand. MSN sold its 50% share of
Start to Gold Mind at the end of 2004 for no consideration.
(3) Internet Gold
International Ltd. (IGI)
Established
in January 2000 as a wholly owned subsidiary of Internet Gold, with a goal of
becoming a regional Internet Group. IGI's strategy included acquiring and
partnering with local Internet Service Providers, IT companies and Media Groups
in emerging markets. Currently, IGI holds 15.2% in shares of an Internet Group
in Greece (the investment, of US$ 1 million, has been fully written off). The
impairment charges of NIS 2,609 and NIS 1,550 for 2003 and 2004, respectively,
are presented as other expenses. IGI operates an international ISP services to
customers outside Israel. The investment is presented on a cost basis. The
Company recorded its share of IGI's losses amounting to NIS 0.5 million in 2004
most of which was derived from the impairment (loss of NIS 1.6 million in 2003).
The Company's investment in IGI is in the form of a nominal non-interest bearing
capital note plus loans amounting to NIS 5.6 million.
(4) Gold Mind
Ltd. (GM)
Established
in January 2000 as a wholly owned subsidiary, the company is currently engaged
in virtual magazine sales and sale of value-added services such as anti Virus
and anti Spam. At the end of 2004 GM acquired 50% of the portal Start from the
former shareholder (including a loan) and the remaining 50% from MSN. As of
December 31, 2004, GM holds 100% from Start shares. The Company recorded its
share of GM's profits amounting to NIS 6.2 million in 2004 (profits of NIS 5
million in 2003).
(5) Start Net
Ltd. (Start)
Start is
a wholly owned subsidiary, it owns portal content-web communities offering local
users access to the most advanced online internet services in the
world.
At the
end of 2004 GM acquired 50% of the portal Start from the former shareholder
(including a loan) and the remaining 50% from MSN.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
6 - Investments in Investee Companies (cont'd)
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
B. |
|
|
|
|
|
|
|
|
|
Investments
in subsidiaries |
|
|
|
|
|
|
|
|
|
Consists
of the following: |
|
|
|
|
|
|
|
|
|
Cost
of shares |
|
|
-
|
|
|
-
|
|
|
24,046
|
|
|
55
|
|
Accumulated
losses |
|
|
-
|
|
|
-
|
|
|
(73,421 |
) |
|
(45,550 |
) |
Capital
reserve from |
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
of investee |
|
|
|
|
|
|
|
|
|
|
|
|
|
company |
|
|
-
|
|
|
-
|
|
|
(15,709 |
) |
|
-
|
|
|
|
|
- |
|
|
-
|
|
|
(65,084 |
) |
|
(45,495 |
) |
Loans |
|
|
-
|
|
|
-
|
|
|
81,905
|
|
|
53,782
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
-
|
|
|
16,821
|
|
|
8,287
|
|
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
C. Investments
in |
|
|
|
|
|
|
|
|
|
investee
companies: |
|
|
|
|
|
|
|
|
|
Cost
of shares |
|
|
-
|
|
|
24,418
|
|
|
-
|
|
|
22,868
|
|
Accumulated
losses |
|
|
-
|
|
|
(30,574 |
) |
|
-
|
|
|
(30,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
(6,156 |
) |
|
-
|
|
|
(7,706 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presented
as investments in |
|
|
|
|
|
|
|
|
|
|
|
|
|
investee
companies |
|
|
-
|
|
|
1,550
|
|
|
16,821
|
|
|
8,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presented
as part of long- |
|
|
|
|
|
|
|
|
|
|
|
|
|
term
liabilities |
|
|
-
|
|
|
7,706
|
|
|
-
|
|
|
7,706
|
|
Internet Gold - Golden Lines Ltd.
Notes to the Financial Statements
(All amounts in thousands of reported NIS, except where
otherwise stated)
Note 7 - Property and Equipment,
Net
Property
and equipment consists of:
A. Consolidated
|
|
Network |
|
Furniture
and |
|
Motor |
|
Leasehold |
|
|
|
|
|
equipment
and |
|
office
equipment |
|
vehicles
(1) |
|
improvements |
|
Total |
|
|
|
computers |
|
|
|
|
|
|
|
|
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
74,518
|
|
|
18,359
|
|
|
7,426
|
|
|
9,681
|
|
|
109,984
|
|
Additions |
|
|
18,346
|
|
|
4,170
|
|
|
-
|
|
|
1,299
|
|
|
23,815
|
|
Acquisition
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
Trade |
|
|
8,472
|
|
|
595
|
|
|
240
|
|
|
2,063
|
|
|
11,370
|
|
Disposals |
|
|
(511 |
) |
|
(15 |
) |
|
(4,091 |
) |
|
(38 |
) |
|
(4,655 |
) |
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
100,825
|
|
|
23,109
|
|
|
3,575
|
|
|
13,005
|
|
|
140,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
58,181
|
|
|
9,907
|
|
|
4,944
|
|
|
7,792
|
|
|
80,824
|
|
Depreciation
for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
year |
|
|
8,455
|
|
|
3,382
|
|
|
902
|
|
|
894
|
|
|
13,633
|
|
Acquisition
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
Trade |
|
|
6,772
|
|
|
533
|
|
|
188
|
|
|
1,752
|
|
|
9,245
|
|
Disposals |
|
|
(500 |
) |
|
(15 |
) |
|
(3,218 |
) |
|
(38 |
) |
|
(3,771 |
) |
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
72,908
|
|
|
13,807
|
|
|
2,816
|
|
|
10,400
|
|
|
99,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
27,917
|
|
|
9,302 |
|
|
759
|
|
|
2,605
|
|
|
40,583
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
16,337
|
|
|
8,452
|
|
|
2,482
|
|
|
1,889
|
|
|
29,160
|
|
|
(1) |
|
Includes
cost of motor vehicles under financial lease agreements totaling NIS 3,536
as of December 31, 2004 (NIS 7,391 as of December 31, 2003). Liens have
been placed on such vehicles, in favor of the lessor, (see also Note
14(E)). |
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
7 - Property and Equipment, Net (cont'd)
B. Company
|
|
Network |
|
Furniture
and |
|
Motor |
|
Leasehold |
|
|
|
|
|
equipment
and |
|
office
equipment |
|
Vehicles(1) |
|
improvements |
|
Total |
|
|
|
computers |
|
|
|
|
|
|
|
|
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
69,416
|
|
|
18,184
|
|
|
5,947
|
|
|
9,504
|
|
|
103,051
|
|
Additions |
|
|
17,517
|
|
|
4,088
|
|
|
-
|
|
|
860
|
|
|
22,465
|
|
Disposals |
|
|
(511 |
) |
|
(15 |
) |
|
(3,356 |
) |
|
(38 |
) |
|
(3,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
86,422
|
|
|
22,257
|
|
|
2,591
|
|
|
10,326
|
|
|
121,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
54,563
|
|
|
9,866
|
|
|
4,133
|
|
|
7,693
|
|
|
76,255
|
|
Depreciation
for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
year |
|
|
7,590
|
|
|
3,369
|
|
|
709
|
|
|
885
|
|
|
12,553
|
|
Disposals |
|
|
(500 |
) |
|
(15 |
) |
|
(2,734 |
) |
|
(38 |
) |
|
(3,287 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
61,653
|
|
|
13,220
|
|
|
2,108
|
|
|
8,540
|
|
|
85,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment,
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004 |
|
|
24,769
|
|
|
9,037
|
|
|
483
|
|
|
1,786
|
|
|
36,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2003 |
|
|
14,853
|
|
|
8,318
|
|
|
1,814
|
|
|
1,811
|
|
|
26,796
|
|
|
(1) |
|
Includes
cost of motor vehicles under financial lease agreements totaling NIS 2,581
as of December 31, 2004 (NIS 5,938 as of December 31, 2003). Liens have
been placed on such vehicles, in favor of the
lessor. |
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
8 - Other Assets and Deferred Charges
Consists
of:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Web
site construction for self use |
|
|
|
|
|
|
|
|
|
(see
Note 2L (1)) |
|
|
7,029
|
|
|
5,888
|
|
|
219
|
|
|
219
|
|
Amortization
of web sites |
|
|
(5,925 |
) |
|
(4,707 |
) |
|
(219 |
) |
|
(219 |
) |
|
|
|
1,104
|
|
|
1,181
|
|
|
-
|
|
|
-
|
|
Right
of use of International |
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication
Lines |
|
|
|
|
|
|
|
|
|
|
|
|
|
(see
Note 2L (2)) |
|
|
117,797
|
|
|
50,598
|
|
|
117,797
|
|
|
50,598
|
|
Less:
amortization |
|
|
(8,423 |
) |
|
(1,573 |
) |
|
(8,423 |
) |
|
(1,573 |
) |
|
|
|
109,374
|
|
|
49,025
|
|
|
109,374
|
|
|
49,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portal
start |
|
|
868
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Less:
amortization |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
868
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
charges and other (see |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
2L (3)) |
|
|
3,610 |
|
|
924
|
|
|
2,879
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,956 |
|
|
51,130
|
|
|
112,253
|
|
|
49,895
|
|
Note
9 - Short-Term Bank Loans
Short-term
loans and credit from banks consist of:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Short-term
loans at Prime* |
|
|
10,817
|
|
|
4,279
|
|
|
7,598
|
|
|
1,754
|
|
Current
maturities of long-term loans |
|
|
133
|
|
|
980
|
|
|
70
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
5,259
|
|
|
7,668
|
|
|
2,459
|
|
* The Prime
rate as of December 31, 2004 was 5.2% (December 31, 2003- 6.7%).
See Note
14C with regard to bank guarantees.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
10 - Accounts Payable
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Trade
payables - open account |
|
|
60,736
|
|
|
27,992
|
|
|
58,855
|
|
|
26,358
|
|
Trade
payables abroad |
|
|
1,195
|
|
|
758
|
|
|
1,195
|
|
|
758
|
|
Checks
payable |
|
|
4,258
|
|
|
2,444
|
|
|
3,201
|
|
|
2,023
|
|
Accrued
expenses |
|
|
7,194
|
|
|
*5,397
|
|
|
6,163
|
|
|
*4,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,383
|
|
|
36,591
|
|
|
69,414
|
|
|
33,915
|
|
Note
11 - Other Payables
Other
payables consist of:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Employees
and payroll accruals |
|
|
7,197
|
|
|
5,465
|
|
|
5,399
|
|
|
4,578
|
|
Related
parties (see Note 17) |
|
|
2,211
|
|
|
*4,507
|
|
|
1,399
|
|
|
*2,718
|
|
Liability
for vacation and |
|
|
|
|
|
|
|
|
|
|
|
|
|
recreation
pay |
|
|
1,905
|
|
|
1,707
|
|
|
1,682
|
|
|
1,514
|
|
Deferred
income |
|
|
2,205
|
|
|
1,489
|
|
|
107
|
|
|
206
|
|
Other |
|
|
266
|
|
|
869
|
|
|
155
|
|
|
872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,784
|
|
|
14,037
|
|
|
8,742
|
|
|
9,888
|
|
*
Reclassified
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
12 - Long-Term Loans and Other Long-Term obligations
Long-term
loans and other long-term obligations under capital and operating leases are as
follows:
|
|
|
|
Consolidated |
|
Company |
|
|
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
Interest
rate |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Capital
lease |
|
|
|
|
|
|
|
|
|
|
|
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles
(linked |
|
|
|
|
|
|
|
|
|
|
|
to
C.P.I.) |
|
|
5%-7 |
% |
|
139
|
|
|
1,253
|
|
|
70
|
|
|
782
|
|
Less:
current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
maturities |
|
|
|
|
|
(133 |
) |
|
(980 |
) |
|
(70 |
) |
|
(705 |
) |
|
|
|
|
|
|
6
|
|
|
273
|
|
|
-
|
|
|
77
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lines
(linked |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
the US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exchange
rate) |
|
|
*LIBOR
+0.5 |
% |
|
82,040
|
|
|
43,911
|
|
|
82,040
|
|
|
43,911
|
|
Less:
current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(presented
as |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounts
payable) |
|
|
|
|
|
(40,429 |
) |
|
(16,795 |
) |
|
(40,429 |
) |
|
(16,795 |
) |
|
|
|
|
|
|
41,611
|
|
|
27,116
|
|
|
41,611
|
|
|
27,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans |
|
|
PRIME
+ 0.2 |
% |
|
30,500
|
|
|
-
|
|
|
30,500
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,117
|
|
|
27,389
|
|
|
72,111
|
|
|
27,193
|
|
|
* |
The
LIBOR rates ranges from 1.10% to 1.12%. |
Amortization
of assets held under capital leases is included as part of depreciation
expenses.
Aggregate
maturities are as follows:
|
|
As
at |
|
|
|
December
31 |
|
|
|
2004 |
|
2005 |
|
|
40,562
|
|
|
|
|
|
|
2006 |
|
|
39,481
|
|
2007 |
|
|
16,488
|
|
2008 |
|
|
7,176
|
|
2009 |
|
|
8,443
|
|
2010 |
|
|
529
|
|
|
|
|
72,117
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
13 - Liability for Severance Pay, Net
The
Company’s liability for termination of employer-employee relations is computed
according to Israeli Labor Law on the basis of the latest salary paid to each
employee multiplied by the number of years of employment.
The liability is partially covered by deposits
in executive insurance policies at insurance companies.
The
Company's net liabilities disclosed in the balance sheet represents the balance
of the liability not funded as above:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
Liability
for severance pay |
|
|
12,471
|
|
|
9,876
|
|
|
11,298
|
|
|
8,959
|
|
Less:
amounts funded |
|
|
(6,231 |
) |
|
(4,948 |
) |
|
(5,526 |
) |
|
(4,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,240
|
|
|
4,928
|
|
|
5,772
|
|
|
4,523
|
|
The
expenses in respect to severance pay for the years ended December 31, 2004, 2003
and 2002 are NIS 1,631 (Company - NIS 1,395) NIS 2,372 (Company - NIS 2,162) and
NIS 1,796 (Company - NIS 1,673), respectively.
Note
14 - Guarantees, Commitments and Contingent Liabilities
|
A. |
License
and regulations |
|
1. |
The
Company received a license from the Ministry of Communications in Israel
(hereinafter "MOC") on June 2, 2004 for a period of 20 years. The license
grants the Company the right to provide international telephone services,
subject to several conditions mentioned in the
license. |
Under the
Telecommunications Law, the MOC is entitled to amend the conditions of the
license based upon various considerations such as government policy and public
interest. The MOC is also entitled to cancel the license if the Company fails to
comply with the terms of the license.
|
2. |
The
Company has received a license from the MOC which was renewed on January
24, 2002 for a period of five years. The license grants the Company the
right to provide Internet and related services, subject to several
conditions mentioned in the license. |
Under the
Telecommunications Law, the MOC is entitled to amend the conditions of the
license based upon various considerations such as government policy and public
interest. The MOC is also entitled to cancel the license if the Company fails to
comply with the terms of the license.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
14 - Guarantees, Commitments and Contingent Liabilities
(cont'd)
|
A. |
License
and regulations (cont'd) |
|
3. |
The
Company expects to face competition in the future from companies that
provide connections to consumers' homes, such as telecommunications
providers, digital broadcast satellite (hereinafter - "DBS") providers and
cable television companies as well as wireless communication
companies. |
During
2003, the significant increase in demand for broadband was coupled with intense
competition between all ISPs, which resulted in price reductions by all ISPs.
Due to this market environment, the Company adopted a more aggressive marketing
policy in order to attract a greater number of broadband customers while
continuing to keep tight control over expenses.
The
Company expects that the competition in the Internet industry will intensify,
which, along with possible regulatory changes, may have an adverse effect on
revenues and profitability.
In
addition, during 2002, the cable television companies received a license to
operate as an ISP.
|
1. |
In
July 2003 a lawsuit was filed against the Company by an Israeli company
claiming for an alleged breach of agreement. The lawsuit seeks damages of
NIS 300. In the Company’s management view, after consulting with its legal
consultants, the Company’s position is fairly well established. A
provision of NIS 100 has been recorded. |
|
2. |
From
time to time, claims arising from the normal course of business are
brought against the Company. In the opinion of management, based on the
advice of legal counsel, the ultimate disposition of these matters will
not have a material adverse effect on the financial position, liquidity or
results of operations of the
Company. |
|
C. |
Guarantees
and assigned notes
receivable |
|
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
Guarantees
in favor of: |
|
|
|
|
|
Others* |
|
|
10,892
|
|
|
547
|
|
|
|
|
|
|
|
|
|
|
|
|
10,892
|
|
|
547
|
|
|
* |
The
amounts stated above represent the maximum undiscounted exposure to the
Company, including a guarantee in the sum of NIS 10,111 in favor of the
MOC related to the International telephony services
license. |
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note 14 - Guarantees, Commitments and Contingent
Liabilities (cont'd)
|
D. |
Subsequent
to the balance sheet date, the Company entered a commitment to purchase
network equipment amounting to approximately NIS
3,700. |
|
E. |
Subsequent
to the balance sheet date, the Company entered a commitment to purchase
network equipment amounting to approximately NIS
3,700. |
1.
The Company leases office premises of 4,250 sq. m. for periods of up to ten
years with a renewal option for an additional ten years. Future annual rental
expenses under the agreement are approximately NIS 2,140 linked to the rate of
exchange of the U.S. Dollar.
The
Company's support department rented from a related party 250 square meters of
office space in Ramat Gan, Israel. The facilities are leased from Eurocom
Holdings until June 30, 2005 (see Note 17A).
In
addition, MSN, the Company's subsidiary, was engaged in agreements for the lease
of office premises of 325 sq. m. until December 31, 2003 (the termination of the
first option period) for the year ended December 31, 2004 for the lease of 700
sq. m., and since January 1, 2005, for the lease of 800 sq. m. This is a
sub-lease from GT, the Company's subsidiary. Future monthly rent for all the
facilities leased by MSN is NIS 21 (US$ 4.9). Since January 1, 2004, MSN uses
the premises on a monthly basis without renewing the lease agreement (this
action is consistent with GT's lease agreement).
The
Company has also entered into lease agreements for several sites at which part
of the communications equipment is located.
Rental
expenses were NIS 2,670 (Company - NIS 2,310), NIS 2,984 (Company - NIS 2,754)
and NIS 2,516 (company - NIS 2,283), for the years ended December 31, 2004, 2003
and 2002, respectively.
|
2. |
The
Group has entered into motor vehicle operating lease agreements for the
lease of 110 motor vehicles (Company - 87 motor vehicles) for a period of
three years. The Group deposited NIS 598 (Company - NIS 454) pursuant to
the terms of the operating lease
agreements. |
Future
minimum lease payments are as follows (assuming renewal options will not be
exercised):
|
|
Consolidated |
|
|
|
As
of December 31, 2004 |
|
|
|
Vehicle
leases |
|
Office
leases |
|
2005 |
|
|
3,026
|
|
|
2,236
|
|
2006 |
|
|
2,565
|
|
|
2,236
|
|
2007 |
|
|
1,537
|
|
|
2,236
|
|
2008 |
|
|
24
|
|
|
2,236
|
|
2009
and thereafter |
|
|
-
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
7,152
|
|
|
11,180
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note 14 - Guarantees, Commitments and Contingent
Liabilities (cont'd)
The
Company has signed a long-term agreements with Barak I.T.C. (1995) Ltd. and
Bezeq International Ltd., two of Israel’s long distance carriers, to purchase
Rights Of Use (ROU) for international fiber optic lines until the year 2017,
with the option to extend the agreement for an additional five year period.
According
to the agreement, the Company is obligated to pay ROU charges for each new
leased international line ordered in respect of each circuit in thirty-six (36)
monthly installments.
As of the
balance sheet date, the Company has operated 10 lines with Barak and an
additional 2 lines with Bezeq International.
The
Company presents the ROU purchase in its financial statements as a capital lease
as part of other assets at the net sum of NIS 109,374.
Future
installments -
2005 |
|
|
40,429
|
|
2006 |
|
|
32,299
|
|
2007 |
|
|
9,312
|
|
|
|
|
|
|
|
|
|
82,040
|
|
|
G. |
The
amount of liabilities which are secured by liens
is: |
|
|
Consolidated |
|
Company |
|
|
|
As
of |
|
As
of |
|
|
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2004 |
|
Short-term
loans (current maturities of long term loans) |
|
|
133
|
|
|
70
|
|
Long-term
loans |
|
|
6
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
70
|
|
A lien
has been placed on motor vehicles to secure the said liabilities, (see also Note
7).
|
H. |
The
Board of Directors has adopted a plan for the issuance of 2,000,000
options to purchase the Company’s Ordinary Shares (hereinafter -
“options”) to the Company’s directors, officers and employees (hereinafter
- “the 1999 Plan”). The exercise price of the options was determined at
the issuance of the options (see Note
21A(6)). |
The plan
expired in August 2004 and no plan has replaced it yet.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
14 - Guarantees, Commitments and Contingent Liabilities
(cont'd)
|
I. |
The
Board of Directors has resolved to indemnify the directors and officers of
the Company in respect of damages that they may incur in connection with
the Company being a public company, to the extent that these damages are
not covered by the directors’ and officers’ liability
insurance. |
|
J. |
The
Company established with Microsoft an Israeli subsidiary: MSN Israel. The
Company holds 50.1% of MSN Israel shares. The Company has an obligation to
finance losses of MSN Israel up to US$ 10 million, therefore, the Company
is recording 100% of MSN's losses. The accumulated deficit of MSN Israel
as at December 31, 2004 is NIS 31.5 million (US$ 7.3
million). |
The
Company is obligated to pay royalties to the MOC in respect of revenues from its
international telephone services pursuant to the Bezeq Regulations (Royalties),
2001.
The
royalties are primarily calculated at the rate of 3.5%. As at December 31, 2004,
the maximum amount of the Company's liability in respect of such royalties is
estimated to be NIS 150 (US$ 35).
Stamp
duty applies in Israel to various types of documents at various rates, depending
primarily on the type of the document and the amount specified, or not, therein.
In June 2003, the statute imposing stamp duty was amended. Following
this amendment, the Israeli Tax Authority has increased enforcement of this
statute. The amendment to the statute and the enforcement actions taken by
the Israeli Tax Authority are in legal dispute before the Israeli Supreme Court,
which has not yet ruled on this matter. In addition, under current
legislation the stamp duty statute is expected to be gradually abolished until
its complete cancellation in 2008. To date, the Company has not
received a demand for payment of stamp duty following this amendment. The
Company does not believe that any stamp duty that may be imposed on it as a
result of this amendment will be material to the Company’s financial position or
results of operations.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
15 - Additional Statement of Operations Data
A. Revenues
Revenues
consist of:
|
|
Consolidated |
|
Company |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
Access |
|
|
|
|
|
|
|
|
|
|
|
|
|
revenues |
|
|
156,385
|
|
|
146,906
|
|
|
156,336
|
|
|
153,755
|
|
|
136,523
|
|
|
153,973
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
telephone |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services |
|
|
9,381
|
|
|
-
|
|
|
-
|
|
|
9,381
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues |
|
|
53,811
|
|
|
32,736
|
|
|
27,982
|
|
|
17,207
|
|
|
20,871
|
|
|
15,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219,577
|
|
|
179,642
|
|
|
184,318
|
|
|
180,343
|
|
|
157,394
|
|
|
169,052
|
|
B. Cost
of revenues
Cost of
revenues consists of:
|
|
Consolidated |
|
Company |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
Communication |
|
|
|
|
|
|
|
|
|
|
|
|
|
services |
|
|
29,985
|
|
|
32,920
|
|
|
41,635
|
|
|
27,950
|
|
|
32,882
|
|
|
41,645
|
|
Cost
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
goods
sold |
|
|
6,744
|
|
|
6,035
|
|
|
5,622
|
|
|
6,744
|
|
|
4,951
|
|
|
5,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,729
|
|
|
38,955
|
|
|
47,257
|
|
|
34,694
|
|
|
37,833
|
|
|
47,267
|
|
Salaries
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
expenses |
|
|
32,440
|
|
|
28,358
|
|
|
25,167
|
|
|
27,233
|
|
|
24,292
|
|
|
21,923
|
|
Depreciation |
|
|
10,683
|
|
|
10,421
|
|
|
11,367
|
|
|
8,571
|
|
|
7,941
|
|
|
9,672
|
|
Other |
|
|
16,968
|
|
|
15,137
|
|
|
15,773
|
|
|
10,321
|
|
|
7,942
|
|
|
6,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,820
|
|
|
92,871
|
|
|
99,564
|
|
|
80,819
|
|
|
78,008
|
|
|
85,798
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
15 - Additional Statement of Operations Data (cont'd)
C. Selling
and marketing expenses
|
|
Consolidated |
|
Company |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
Advertising
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses |
|
|
40,751
|
|
|
17,512
|
|
|
13,702
|
|
|
39,844
|
|
|
21,680
|
|
|
16,261
|
|
Salaries
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
expenses |
|
|
29,200
|
|
|
21,177
|
|
|
20,777
|
|
|
23,907
|
|
|
18,460
|
|
|
19,355
|
|
Depreciation |
|
|
2,091
|
|
|
2,398
|
|
|
2,365
|
|
|
2,091
|
|
|
2,398
|
|
|
2,365
|
|
Other |
|
|
1,113
|
|
|
306
|
|
|
281
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,155
|
|
|
41,393
|
|
|
37,125
|
|
|
65,842
|
|
|
42,538
|
|
|
37,981
|
|
D. General
and administrative expenses
|
|
Consolidated |
|
Company |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
|
|
NIS
thousands |
|
Professional
fees |
|
|
3,198
|
|
|
3,750
|
|
|
2,776
|
|
|
2,519
|
|
|
3,249
|
|
|
2,377
|
|
Salaries
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
expenses |
|
|
13,086
|
|
|
10,259
|
|
|
7,940
|
|
|
9,818
|
|
|
8,801
|
|
|
7,017
|
|
Postal
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communication |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses |
|
|
897
|
|
|
2,188
|
|
|
2,227
|
|
|
918
|
|
|
2,155
|
|
|
2,302
|
|
Provision
for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
doubtful
debts |
|
|
828
|
|
|
80
|
|
|
1,942
|
|
|
367
|
|
|
(93 |
) |
|
1,612
|
|
Legal
reserve, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net |
|
|
(672 |
) |
|
309
|
|
|
(604 |
) |
|
(672 |
) |
|
-
|
|
|
(604 |
) |
Depreciation |
|
|
1,593
|
|
|
1,676
|
|
|
1,622
|
|
|
1,593
|
|
|
1,576
|
|
|
1,539
|
|
Office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
maintenance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
rent |
|
|
3,610
|
|
|
2,599
|
|
|
3,925
|
|
|
3,329
|
|
|
2,312
|
|
|
3,518
|
|
Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fee
to related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
party* |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
904
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
1,718
|
|
|
1,047
|
|
|
1,381
|
|
|
1,034
|
|
|
959
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,258
|
|
|
21,908
|
|
|
21,209
|
|
|
19,810
|
|
|
18,959
|
|
|
18,712
|
|
* See
also Note 17(B)
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
15 - Additional Statement of Operations Data (cont’d)
E. Financing
(income) expenses, net
Financing
income, net, consists of:
|
|
Consolidated |
|
Company |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
(expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
income
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
short-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
from |
|
|
|
|
|
|
|
|
|
|
|
|
|
banks
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
others |
|
|
(171 |
) |
|
(187 |
) |
|
(343 |
) |
|
(137 |
) |
|
25
|
|
|
(492 |
) |
Exchange
rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
differentials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
short-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
deposits |
|
|
79
|
|
|
(4,822 |
) |
|
1,852
|
|
|
79
|
|
|
(4,822 |
) |
|
1,913
|
|
Exchange
rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
differentials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
long-term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans |
|
|
133
|
|
|
537
|
|
|
(376 |
) |
|
200
|
|
|
537
|
|
|
(269 |
) |
Other,
mainly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derived
from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
devaluation
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivables
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
trade
payables |
|
|
81
|
|
|
1,237
|
|
|
1,018
|
|
|
2,310
|
|
|
4,847
|
|
|
2,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
(3,235 |
) |
|
2,151
|
|
|
2,452
|
|
|
587
|
|
|
3,701
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
16 - Income Taxes
A.
Adjustments for inflation
The
Income Tax Law (Inflationary Adjustments) - 1985 (hereinafter - the Law) is
effective as from the 1985 tax year. The Law introduced the concept of
measurement of results for tax purposes on a real (net of inflation) basis. The
various adjustments required by the aforesaid Law are designed to achieve
taxation of income on a real basis. However, adjustment of the historical income
pursuant to the provisions of the tax laws is not always identical with such
adjustment for financial reporting purposes based on opinions published by the
Institute of Certified Public Accountants in Israel. As a result, differences
arise between the inflation adjusted income appearing in the financial
statements and the inflation adjusted income reported for tax
purposes.
|
B. |
Amendments
to the Income Tax Ordinance |
On June
29, 2004, the Knesset passed the “Law for the Amendment of the Income Tax
Ordinance (Amendment No. 140 and Temporary Order) - 2004” (hereinafter - the
Amendment). The Amendment provides for a gradual reduction in the company tax
rate from 36% to 30% in the following manner: in 2004 the tax rate will be 35%,
in 2005 the tax rate will be 34%, in 2006 the tax rate will be 32% and from 2007
onward the tax rate will be 30%.
The
current taxes and the deferred taxes balances as at December 31, 2004 are
calculated in accordance with the new tax rates specified in the Amendment. The
effect of the change on the consolidated financial statements as at the
beginning of 2004 is immaterial.
|
C. |
The
Company has received final tax assessments up to and including the 1999
tax year. |
|
D. |
Results
of operations of the Company for tax purposes are computed in accordance
with the Income Tax Law (Inflationary Adjustments), 1985, in real terms,
in order to calculate taxation on inflationary earnings after taking into
account the changes in the Index.
Income
is taxed at the regular corporate tax rate - 35% for
2004. |
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
16 - Income Taxes (cont'd)
|
E. |
Reconciliation
of income tax expense: |
A
reconciliation of the theoretical tax expense computed on the pre-tax income at
the statutory tax rate and the actual income tax provision is as
follows:
|
|
Consolidated |
|
Company |
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
Income
before |
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax as |
|
|
|
|
|
|
|
|
|
|
|
|
|
per
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
statements |
|
|
24,389
|
|
|
17,643
|
|
|
28,568
|
|
|
16,827
|
|
|
18,493
|
|
|
30,152
|
|
Primary
tax rate |
|
|
35 |
% |
|
36 |
% |
|
36 |
% |
|
35 |
% |
|
36 |
% |
|
36 |
% |
Tax
calculated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
according
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
primary
tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate |
|
|
8,536
|
|
|
6,351
|
|
|
10,284
|
|
|
5,889
|
|
|
6,657
|
|
|
10,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
resulting
from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses |
|
|
1,053
|
|
|
451
|
|
|
587
|
|
|
420
|
|
|
420
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
valuation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
allowance
in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
respect
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred
taxes |
|
|
(9,371 |
) |
|
(9,343 |
) |
|
(10,001 |
) |
|
(6,378 |
) |
|
(6,602 |
) |
|
(10,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
difference |
|
|
(519 |
) |
|
606
|
|
|
(870 |
) |
|
69
|
|
|
(475 |
) |
|
(670 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,837 |
) |
|
(8,286 |
) |
|
(10,284 |
) |
|
(5,889 |
) |
|
(6,657 |
) |
|
(10,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(301 |
) |
|
(1,935 |
) |
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note 16 -
Income Taxes (cont'd)
F.
Deferred taxes comprise:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Tax
loss carryforward |
|
|
39,545
|
|
|
27,330
|
|
|
4,401
|
|
|
10,671
|
|
Accrued
employee rights |
|
|
2,495
|
|
|
2,389
|
|
|
2,236
|
|
|
2,173
|
|
Allowance
for doubtful accounts |
|
|
2,362
|
|
|
2,381
|
|
|
1,661
|
|
|
1,832
|
|
Deferred
tax asset |
|
|
44,402
|
|
|
32,100
|
|
|
8,298
|
|
|
14,676
|
|
Valuation
allowance |
|
|
*(41,816 |
) |
|
(30,165 |
) |
|
(8,298 |
) |
|
(14,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset |
|
|
2,586
|
|
|
1,935
|
|
|
- |
|
|
-
|
|
* The
valuation allowance for December 31, 2004 includes NIS 21,022 regarding
carryforward losses of GT
that was consolidated as of December 31, 2004.
Deferred
tax assets for future benefits are included where their realization is more
likely than not.
The Group
has an operating loss carryforward for tax purposes, as of December 31, 2004 of
approximately NIS 112,985 thousand consolidated - including the reconsolidated
subsidiary Gold Trade with NIS 60 million (Company - NIS 11,377 thousand). The
operating loss carryforward is linked to the Index and has no expiry
date.
The
Company's management has assessed its deferred tax asset and the need for a
valuation allowance. Such as assessment considers whether it is more likely than
not that some portion or all of the deferred tax assets may not be realized. The
assessment requires considerable judgment on the part of management, with
respect to, amongst others, benefits that could be realized from available tax
strategies and future taxable income, as well as other positive and negative
factors. The ultimate realization of deferred tax assets is dependent upon the
Company's ability to generate the appropriate character of future taxable income
sufficient to utilize loss carryforwards or tax credits before their
expiration.
In
determining the potential requirement to establish a valuation allowance, the
Company has evaluated all positive and negative evidence, including the work
plans of the Group's management and the analysis of scenarios for achieving the
work plans. The underlying assumptions utilized in forecasting its future
forecasted taxable income require judgment and may be subject to revision based
on future business developments. As a result of this assessment, the Company has
recorded a valuation allowance on its deferred tax assets, except for two of its
subsidiaries.
Note
17 - Related Parties
|
A. |
Related
party balances arise from the ordinary course of business and are as
follows: |
Related
parties are comprised of principal shareholders (10% and over of the Company’s
share capital) the Company’s management, immediate family members of the
aforementioned and subsidiary and affiliated companies of the
aforementioned.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
17 - Related Parties (cont'd)
|
A. |
Related
party balances arise from the ordinary course of business and are as
follows: (cont'd) |
The
Company conducts transactions with related parties as detailed below.
Transactions with related parties are mainly as follows:
(a)
Communication
services, inter alia via satellite, are conducted through a related
party.
|
(b) |
Purchase
of office equipment for both self use and promotion and cellular mobile
phones from related parties. |
|
(c) |
Reimbursement
for actual expenses (certain employee compensation expenses, including in
respect of the CEO and overhead) to the ultimate parent
company. |
|
(d) |
Rental
of certain office premises from a related
party. |
|
(e) |
Advertising
through a related party radio station. |
Related
parties' balances are presented as follows:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Debit
balance (Note 5) |
|
|
1,213
|
|
|
2,554
|
|
|
429
|
|
|
560
|
|
Credit
balance (Note 11) |
|
|
2,211
|
|
|
4,507
|
|
|
1,399
|
|
|
2,718
|
|
B.
Related party transactions were reflected in the statements of operations as
follows:
|
|
Consolidated |
|
Company |
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Revenues |
|
|
3,290
|
|
|
1,973
|
|
|
1,870
|
|
|
3,621
|
|
Cost
of revenues - |
|
|
|
|
|
|
|
|
|
|
|
|
|
communications
expenses |
|
|
19
|
|
|
4,873
|
|
|
19
|
|
|
4,873
|
|
Participation
in compensation and |
|
|
|
|
|
|
|
|
|
|
|
|
|
other
expenses |
|
|
110
|
|
|
503
|
|
|
(407 |
) |
|
579
|
|
Rental
expenses |
|
|
275
|
|
|
281
|
|
|
275
|
|
|
281
|
|
Selling
and marketing expenses - |
|
|
|
|
|
|
|
|
|
|
|
|
|
advertising
expenses |
|
|
3,365
|
|
|
1,113
|
|
|
4,614
|
|
|
6,245
|
|
General
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses - |
|
|
|
|
|
|
|
|
|
|
|
|
|
Participation
in compensation and |
|
|
|
|
|
|
|
|
|
|
|
|
|
other
expenses |
|
|
972
|
|
|
677
|
|
|
417
|
|
|
520
|
|
Interest
(income) expense |
|
|
-
|
|
|
(60 |
) |
|
(2,013 |
) |
|
(2,859 |
) |
Note
18 - Financial Instruments
Concentration
of credit risk
Financial
instruments which potentially subject the Company to significant concentrations
of credit risk consist principally of bank deposits deposited in one bank
account in the sum of NIS 75,304, trade receivables, other receivables and
long-term loans. With respect to trade receivables the Company believes that
there is limited credit risk exposure due to the relatively small amount owed to
the Company by each customer and the large size of the Company’s customer
base.
With
respect to long-term loans, see Note 14(G).
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
19 - Segment Reporting
The
Company has identified five reportable segments in 2004, i.e. the provision of
Internet services, International telephony services, website content provision,
portal operating and after sale activity, and operates in one geographic area,
i.e. Israel.
The
Company reported for the first time the International telephony services
activity as a reportable segment
|
|
Year
ended December 31, 2004 |
|
|
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ISP
(1) |
|
Telephony |
|
Portal(3) |
|
Website(4) |
|
After
sale(5) |
|
Commerce(6) |
|
Adjustments |
|
Consolidated |
|
|
|
|
|
services(2) |
|
operating |
|
content |
|
and
others |
|
|
|
|
|
|
|
External
revenues for the segment |
|
|
156,385
|
|
|
9,381
|
|
|
23,886
|
|
|
12,718
|
|
|
17,207
|
|
|
-
|
|
|
-
|
|
|
219,577
|
|
Internal
revenues for the segment |
|
|
-
|
|
|
-
|
|
|
4,924
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,924 |
) |
|
-
|
|
Total
revenues for the segment |
|
|
156,385
|
|
|
9,381
|
|
|
28,810
|
|
|
12,718
|
|
|
17,207
|
|
|
-
|
|
|
(4,924 |
) |
|
219,577
|
|
Income
(loss) from operations |
|
|
18,315
|
|
|
(10,471 |
) |
|
4,351
|
|
|
5,973
|
|
|
7,178
|
|
|
-
|
|
|
(2 |
) |
|
25,344
|
|
Financial
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,194 |
) |
Financial
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,316
|
|
Other
expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,077 |
) |
Company's
share in net loss of investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(396 |
) |
|
|
|
|
(396 |
) |
Company's
share in loss of a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiary
from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,763 |
) |
|
|
|
|
(4,763 |
) |
Tax
benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,531
|
|
Total
assets for the segment |
|
|
257,767
|
|
|
11,629
|
|
|
14,324
|
|
|
9,344
|
|
|
-
|
|
|
9,620
|
|
|
(2,661 |
) |
|
300,023
|
|
Total
liabilities for the segment |
|
|
166,719
|
|
|
2,696
|
|
|
45,817
|
|
|
6,585
|
|
|
-
|
|
|
37,166
|
|
|
(80,853 |
) |
|
178,130
|
|
Excess
liabilities over assets in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investee
companies for the segment |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
liabilities |
|
|
166,719
|
|
|
2,696
|
|
|
45,817
|
|
|
6,585
|
|
|
-
|
|
|
37,166
|
|
|
(80,853 |
) |
|
178,130
|
|
Capital
expenditure |
|
|
78,734
|
|
|
11,629
|
|
|
2,316
|
|
|
170
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
92,849
|
|
Depreciation
and amortization |
|
|
18,569
|
|
|
950
|
|
|
2,016
|
|
|
321
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21,856
|
|
(1) ISP-Internet
Service Provider - Offering a wide range of Internet access and Internet
services.
(2) International
telephony services - Offering a wide range of International telephony
services.
(3) Portal
MSN Israel - The portal offers an electronic advertising media.
(4) Selling
Internet content such as electronic newspaper, radio, anti virus and other
related products.
(5) Selling
products to the subscribers through a variety of on-line shopping and
transactional opportunities.
(6) An
e-commerce activity which enables the user to make transactions through the
Internet
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
19 - Segment Reporting (cont’d)
|
|
Year
ended December 31, 2003 |
|
|
|
ISP
|
|
Portal |
|
Web
site |
|
After
sale |
|
Commerce |
|
Adjustments |
|
Consolidated |
|
|
|
|
|
operating |
|
content |
|
and
others |
|
|
|
|
|
|
|
External
revenues for the segment |
|
|
146,007
|
|
|
15,460
|
|
|
5,155
|
|
|
13,020
|
|
|
-
|
|
|
-
|
|
|
179,642
|
|
Internal
revenues for the segment |
|
|
899
|
|
|
6,257
|
|
|
82
|
|
|
-
|
|
|
-
|
|
|
(7,238 |
) |
|
-
|
|
Total
revenues for the segment |
|
|
146,906
|
|
|
21,717
|
|
|
5,237
|
|
|
13,020
|
|
|
-
|
|
|
(7,238 |
) |
|
179,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations |
|
|
13,363
|
|
|
1,419
|
|
|
3,149
|
|
|
5,534
|
|
|
-
|
|
|
5
|
|
|
23,470
|
|
Financial
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,831 |
) |
Financial
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,596
|
|
Other
expenses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,592 |
) |
Company's
share in net loss of investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,538 |
) |
|
|
|
|
(1,538 |
) |
Company's
share in loss of a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiary
from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,737 |
) |
|
|
|
|
(3,737 |
) |
Tax
benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,935
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets for the segment |
|
|
197,869
|
|
|
11,960
|
|
|
4,693
|
|
|
-
|
|
|
-
|
|
|
(518 |
) |
|
214,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities for the segment |
|
|
84,983
|
|
|
45,600
|
|
|
8,131
|
|
|
-
|
|
|
-
|
|
|
(50,487 |
) |
|
88,227
|
|
Excess
liabilities over assets in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investee
companies for the segment |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,706
|
|
|
-
|
|
|
7,706
|
|
Total
liabilities |
|
|
84,983
|
|
|
45,600
|
|
|
8,131
|
|
|
-
|
|
|
7,706
|
|
|
(50,487 |
) |
|
95,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure |
|
|
62,020
|
|
|
1,688
|
|
|
68
|
|
|
-
|
|
|
- |
|
|
- |
|
|
63,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
13,705
|
|
|
2,363
|
|
|
158
|
|
|
-
|
|
|
- |
|
|
(7 |
) |
|
16,219
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
19 - Segment Reporting (cont’d)
|
|
Year
ended December 31, 2002 |
|
|
|
ISP
|
|
Portal |
|
Web
site |
|
After
sale |
|
Commerce |
|
Adjustments |
|
Consolidated |
|
|
|
|
|
operating |
|
content |
|
and
others |
|
|
|
|
|
|
|
External
revenues for the segment |
|
|
155,403
|
|
|
8,900
|
|
|
4,935
|
|
|
15,080
|
|
|
-
|
|
|
-
|
|
|
184,318
|
|
Internal
revenues for the segment |
|
|
933
|
|
|
4,769
|
|
|
40
|
|
|
-
|
|
|
-
|
|
|
(5,742 |
) |
|
-
|
|
Total
revenues for the segment |
|
|
156,336
|
|
|
13,669
|
|
|
4,975
|
|
|
15,080
|
|
|
-
|
|
|
(5,742 |
) |
|
184,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations |
|
|
20,584
|
|
|
(4,396 |
) |
|
2,956
|
|
|
7,174
|
|
|
-
|
|
|
102
|
|
|
26,420
|
|
Financial
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,857 |
) |
Financial
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,008
|
|
Other
expenses, net |
|
|
` |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Company's
share in net loss of investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,530 |
) |
|
|
|
|
(1,530 |
) |
Company's
share in loss of a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,080 |
) |
|
|
|
|
(7,080 |
) |
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets for the segment |
|
|
159,489
|
|
|
9,025
|
|
|
815
|
|
|
-
|
|
|
-
|
|
|
(277 |
) |
|
169,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities for the segment |
|
|
41,838
|
|
|
41,247
|
|
|
9,338
|
|
|
-
|
|
|
-
|
|
|
(40,296 |
) |
|
52,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
liabilities over assets in investee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
companies
for the segment |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,157
|
|
|
-
|
|
|
13,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
41,838
|
|
|
41,247
|
|
|
9,338
|
|
|
-
|
|
|
-
|
|
|
(40,296 |
) |
|
62,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditure |
|
|
10,874
|
|
|
2,692
|
|
|
19
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
13,450
|
|
|
1,828
|
|
|
157
|
|
|
-
|
|
|
-
|
|
|
(102 |
) |
|
15,333
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
20 - Discontinued Operation
In the
end of 2004, Gold Trade's board of directors reached the decision to close down
all its operations except the e-commerce activity P-1000 site. In addition, Gold
Trade reached the decision in June 2002 to close down its operation in the line
of business of imported merchandise sold through self produced mail order
catalog.
The
reclassification of the assets and certain liabilities was implemented based on
specific allocations. Other liabilities were attributed according to a ration
between the deficit derived from the continuing and discontinuing
operations.
The
reclassification of revenues and expenses to discontinued operations has been
implemented on a specific basis with the exception of the financing expenses
which were reclassified according to the ratio of liabilities attributed to
discontinued operations.
The
assets and liabilities of the discontinued operation are as
follows:
|
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
|
|
NIS
thousands |
|
NIS
thousands |
|
Assets
attributable to discontinued operations |
|
|
|
|
|
Trade
receivables, net |
|
|
4,463
|
|
|
-
|
|
Other
receivables |
|
|
168
|
|
|
-
|
|
Intangible
asset - client list* |
|
|
-
|
|
|
-
|
|
|
|
|
4,631
|
|
|
-
|
|
*
The intangible asset - client list was attributed to |
|
|
|
|
|
|
|
the ongoing operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
attributable to discontinued operations |
|
|
|
|
|
|
|
Short-term
bank loans |
|
|
41
|
|
|
-
|
|
Account
payable |
|
|
944
|
|
|
-
|
|
Other
payables |
|
|
668
|
|
|
-
|
|
|
|
|
1,653
|
|
|
-
|
|
The
results of the discontinued operation are as follows:
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
Revenues |
|
|
-
|
|
|
-
|
|
|
-
|
|
Cost
of revenues |
|
|
-
|
|
|
-
|
|
|
-
|
|
Selling
and marketing expenses |
|
|
-
|
|
|
-
|
|
|
-
|
|
General
and administrative expenses |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
- |
|
|
-
|
|
|
-
|
|
Loss
from operations |
|
|
-
|
|
|
-
|
|
|
-
|
|
Financing
expenses, net |
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss after financing expenses |
|
|
-
|
|
|
-
|
|
|
-
|
|
Minority
share in loss of subsidiary from discontinued |
|
|
|
|
|
|
|
|
|
|
operations |
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
loss from discontinued operation |
|
|
-
|
|
|
-
|
|
|
-
|
|
Company's
share in net loss of investees |
|
|
(4,763 |
) |
|
(3,737 |
) |
|
(7,080 |
) |
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
21 - Significant Differences Between Israeli GAAP and U.S. GAAP and
Their
Effect on the Financial Statements
|
A. |
The
Company’s financial statements are prepared in accordance with generally
accepted accounting principles in Israel (Israeli GAAP), which differ in
certain respects from generally accepted accounting principles in the
United States (U.S. GAAP). Differences which have a significant effect on
the net assets, income, shareholders' equity or cash flows of the Company
and Consolidated, are set out below. |
1. Effect of
inflation:
The
Company, in accordance with Israeli GAAP, comprehensively includes the effect of
price level changes in the accompanying financial statements, as described in
Note 2C. According to such Israeli accounting principles, the Company has
discontinued the adjustment of the financial statements as of January 1,
2004.
U.S. GAAP
does not provide for recognition of the effects of such price level changes.
Such effects have not been included in a reconciliation to U.S.
GAAP.
2. Liability for
severance pay
Under
Israeli GAAP, amounts funded by purchase of insurance policies are deducted from
the related severance pay liability.
Under
U.S. GAAP, the cash surrender value of such insurance policies should be
presented in the balance sheet as long-term investments and the full severance
pay liability should be presented in the balance sheet as a long-term liability.
As at December 31, 2004 and 2003, such funded amounts were NIS 6,231 (Company -
NIS 5,526), and NIS 4,948 (Company - NIS 4,436) respectively.
3. Affiliate
equity amendment deriving from application of U.S. GAAP as a correction to the
financial statements under Israeli GAAP
According
to Israeli GAAP as prescribed in Accounting Standard 15, the affiliated company
- Gold Trade ("GT") wrote down the customer list to its carrying value using the
discounted projected cash flows derived from the activity incorporating the
customer list over its useful life term.
In the
past, GT termed this asset as goodwill since there was no distinction between
the titles. Under U.S. GAAP, GT cannot reclassify intangible assets derived from
acquisitions unless it meets certain criteria stipulated in EITF D-100. Since
this asset is considered to be goodwill under U.S. GAAP it was fully written
off, after applying the impairment test that is prescribed in FAS142. In
accordance with the said test that was applied on June 30, 2002 GT identified
that the reporting unit to which the goodwill is attributed was impaired. When
GT applied the second step of the impairment test GT determined that the implied
fair value of the goodwill is zero since GT had to attribute fair value to the
customer list that was not previously recorded. This year, in its Israeli GAAP
figures, GT continued to amortize this client list (previously titled
"goodwill") amounting to NIS 3,980. Under US GAAP this asset was fully written
off in 2002. (the Company's share of this amortization is NIS 1,921). The
amortization described above is reversed in the reconciliation note.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
21 - Significant Differences Between Israeli GAAP and U.S. GAAP and their
Effect on the Financial Statements
(cont'd)
A. (cont'd)
4. Changes in
exchange rate
According
to Israeli GAAP, the effects of changes in exchange rates in cash are reflected
as cash flows from operating activities in the statement of cash
flows.
Under
U.S. GAAP, the effect of changes in exchange rates on cash are presented
separately in the statement of cash flows (see Note 21B.4).
5. Loans in
respect of capital leases
According
to Israeli GAAP, receipt of loans in respect of capital leases are reflected in
the statement of cash flows as cash flows from financing activities as against
investing activities from the acquisition of the fixed assets - financed by the
lease.
Under
U.S. GAAP, as prescribed by SFAS 95, the above mentioned items are reflected as
non-cash financing activities (see Note 21B.3).
6. Employee
Stock Option Plan
The Board
of Directors has adopted a plan for the issuance of 2,000,000 options to
purchase the Company’s Ordinary Shares (hereinafter - “options”) to the
Company’s directors, officers and employees (hereinafter - “the 1999 Plan”). The
exercise price of the options was determined at the issuance of the
options.
During
1999, the Board of Directors approved the grant of 653,793 options to the
Company’s officers. According to the 1999 Plan, each employee shall receive
equal numbers of options from each of the groups detailed below, without
consideration, to be held in trust in accordance with the Israeli Income Tax
Ordinance - Section 102.
Options
(from all groups) which would not be exercised within the period of 63 months
following the allotment date will expire. The following table summarizes the
terms of the option groups:
Group |
Vesting
(in months) |
Exercise
price (in $) |
A |
12 |
10.8 |
B |
24 |
9.6 |
C |
36 |
8.4 |
D |
48 |
7.2 |
E |
60 |
6 |
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
21 - Significant Differences Between Israeli GAAP and U.S. GAAP and
their
Effect on the Financial Statements
(cont'd)
A. (cont'd)
6. Employee
Stock Option Plan (cont'd)
Stock
option activity during the period indicated is as follows:
|
|
Number
of |
|
Weighted |
|
|
|
shares |
|
average |
|
|
|
|
|
exercise
price |
|
|
|
NIS |
|
NIS |
|
Balance
at December 31, 2002 |
|
|
195,393
|
|
|
36.8
|
|
Granted |
|
|
-
|
|
|
-
|
|
Forfeited |
|
|
(28,650 |
) |
|
-
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003 |
|
|
166,743
|
|
|
36.8
|
|
Granted |
|
|
-
|
|
|
-
|
|
Forfeited* |
|
|
(166,743 |
) |
|
-
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004 |
|
|
-
|
|
|
-
|
|
|
* |
As
of December 31, 2004, the options expired according to the 1999 Plan
provisions. |
As
applicable according to Israeli GAAP, employee stock compensation expenses are
not recorded as long as options are not exercised.
Under
U.S. GAAP, in accordance with the Accounting Principles Board (hereinafter -
“APB”) No. 25, recording of compensation expense is required over the vesting
period. Under the provisions of APB-25, based on the initial public offering
price of $12 per share, aggregate compensation expense is approximately NIS
2,666 (expenses of NIS 102 for the year ended December 31, 2004, and income of
NIS 109 for the year ended December 31, 2003, and expenses of NIS 530 for the
year ended December 2002).
7. Consolidation
of Variable Interest Entities
In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." This Interpretation
addresses the consolidation by business enterprises of variable interest
entities when the equity investors do not have the characteristics of a
controlling financial interest (as defined in the Interpretation). In December
2003, the FASB issued Interpretation No. 46R, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." The FASB deferred the
effective date for implementation of this Interpretation until fiscal years
ending after March 15, 2004.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
21 - Significant Differences Between Israeli GAAP and U.S. GAAP and
their
Effect on the Financial Statements (cont'd)
A. (cont'd)
7. Consolidation
of Variable Interest Entities (cont'd)
The
Company, according to Israeli GAAP as prescribed in Opinion No. 57 of the
Institute of Certified Public Accountants in Israel, treated the investment in
its affiliated company GT, a subsidiary of the Company until December 31, 2001.
For the years ended December 31, 2002 through December 31, 2003, the Company
accounted for its investment under the equity method. The Company has
consolidated GT as of December 31, 2004.
Under the
provisions of FIN 46R, the Company is required to consolidate GT for all years
presented, due to a number of factors which indicate that the Company is the
primary beneficiary of GT.
The
Company has applied FIN 46R by retroactively restating previously issued
financial statements, and recorded a cumulative effect of accounting change as
of January 1, 2002 in the amount of NIS 4,382.
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
21 - Significant Differences Between Israeli GAAP and U.S. GAAP and
their
Effect on the Financial Statements (cont'd)
|
B. |
The
effect of the material differences between Israeli GAAP and U.S. GAAP on
the financial statements. |
The
following is summary of the material adjustments to net income and shareholders'
equity which would have been required if US GAAP had been applied instead of
Israeli GAAP.
1. Consolidated
Balance Sheets
|
|
Consolidated |
|
Consolidated |
|
|
December
31, 2004 |
|
December
31, 2003 |
|
|
|
Israeli
|
|
GAAP |
|
U.S.
|
|
Israeli
|
|
GAAP |
|
U.S.
|
|
|
|
GAAP |
|
reconciliation |
|
GAAP |
|
GAAP |
|
reconciliation |
|
GAAP |
|
|
|
Reported
amounts* |
|
Adjusted
amounts** |
|
|
|
NIS
thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated*** |
|
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
75,637
|
|
|
-
|
|
|
75,637
|
|
|
81,891
|
|
|
10
|
|
|
81,901
|
|
Trade
receivables, net |
|
|
52,682
|
|
|
-
|
|
|
52,682
|
|
|
35,569
|
|
|
2,085
|
|
|
37,654
|
|
Other
receivables |
|
|
8,948
|
|
|
-
|
|
|
8,948
|
|
|
12,769
|
|
|
4,331
|
|
|
17,100
|
|
Deferred
taxes |
|
|
2,564
|
|
|
-
|
|
|
2,564
|
|
|
1,914
|
|
|
-
|
|
|
1,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
139,831
|
|
|
-
|
|
|
139,831
|
|
|
132,143
|
|
|
6,426
|
|
|
138,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investee
companies |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,550
|
|
|
-
|
|
|
1,550
|
|
Deferred
taxes |
|
|
22
|
|
|
-
|
|
|
22
|
|
|
21
|
|
|
-
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
-
|
|
|
22
|
|
|
1,571
|
|
|
-
|
|
|
1,571
|
|
Restricted
assets for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
termination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefits |
|
|
-
|
|
|
6,231
|
|
|
6,231
|
|
|
-
|
|
|
5,139
|
|
|
5,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
equipment,
net |
|
|
40,583
|
|
|
-
|
|
|
40,583
|
|
|
29,160
|
|
|
3,133
|
|
|
32,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred
charges |
|
|
114,956
|
|
|
-700 |
|
|
114,256
|
|
|
51,130
|
|
|
-
|
|
|
51,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
allocated to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operation |
|
|
4,631
|
|
|
-
|
|
|
4,631
|
|
|
-
|
|
|
15,980
|
|
|
15,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
300,023
|
|
|
5,531
|
|
|
305,554 |
|
|
214,004
|
|
|
30,678
|
|
|
244,682
|
|
*
With
respect to discontinuance of adjustment to the effect of inflation as from the
CPI of December 2003 (see Note 2C).
**
Amounts
adjusted to reflect inflation in terms of NIS at December 31, 2003.
***
Restated
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note 21
- Significant Differences Between Israeli GAAP and U.S. GAAP and
their
Effect on the Financial Statements (cont'd)
|
B. |
The
effect of the material differences between Israeli GAAP and U.S. GAAP on
the financial statements (cont'd) |
1. Consolidated
Balance Sheets (cont'd)
|
|
Consolidated |
|
Consolidated |
|
|
|
|
|
|
|
|
|
Israeli
|
|
GAAP |
|
U.S.
|
|
Israeli
|
|
GAAP |
|
U.S.
|
|
|
|
GAAP |
|
reconciliation |
|
GAAP |
|
GAAP |
|
reconciliation |
|
GAAP |
|
|
|
Reported
amounts* |
|
Adjusted
amounts** |
|
|
|
NIS
thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated*** |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
bank loans |
|
|
10,950
|
|
|
-
|
|
|
10,950
|
|
|
5,259
|
|
|
3,010
|
|
|
8,269
|
|
Accounts
payable |
|
|
73,383
|
|
|
-
|
|
|
73,383
|
|
|
36,591
|
|
|
677
|
|
|
37,268
|
|
Other
payables |
|
|
13,784
|
|
|
-
|
|
|
13,784
|
|
|
14,037
|
|
|
1,551
|
|
|
15,588
|
|
Total
current liabilities |
|
|
98,117
|
|
|
-
|
|
|
98,117
|
|
|
55,887
|
|
|
5,238
|
|
|
61,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
of liabilities over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets
in investees |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,706
|
|
|
(7,706 |
) |
|
-
|
|
Long-term
loans and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
long-term
obligations |
|
|
72,117
|
|
|
-
|
|
|
72,117
|
|
|
27,389
|
|
|
-
|
|
|
27,389
|
|
Deferred
revenues |
|
|
3
|
|
|
-
|
|
|
3
|
|
|
23
|
|
|
-
|
|
|
23
|
|
Liability
for severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay |
|
|
6,240
|
|
|
6,231
|
|
|
12,471
|
|
|
4,928
|
|
|
5,177
|
|
|
10,105
|
|
Total
long-term liabilities |
|
|
78,360
|
|
|
6,231
|
|
|
84,591
|
|
|
40,046
|
|
|
(2,529 |
) |
|
37,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
allocated to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
discontinued
operation |
|
|
1,653
|
|
|
-
|
|
|
1,653
|
|
|
-
|
|
|
41,610
|
|
|
41,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
shares, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
0.01 par value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(501,000,000
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized;
18,431,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
issued and fully paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
at December 31, 2004) |
|
|
197
|
|
|
-
|
|
|
197
|
|
|
197
|
|
|
-
|
|
|
197
|
|
Additional
paid in capital |
|
|
215,040
|
|
|
-
|
|
|
215,040
|
|
|
215,040
|
|
|
-
|
|
|
215,040
|
|
Capital
reserve from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchase
of investee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
company
from a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
party |
|
|
(15,709 |
) |
|
18,379
|
|
|
2,670
|
|
|
|
|
|
6,585
|
|
|
6,585
|
|
Capital
reserve from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
employee
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
plan |
|
|
-
|
|
|
2,666
|
|
|
2,666
|
|
|
-
|
|
|
2,564
|
|
|
2,564
|
|
Accumulated
deficit |
|
|
(77,635 |
) |
|
(21,745 |
) |
|
(99,380 |
) |
|
(97,166 |
) |
|
(22,790 |
) |
|
(119,956 |
) |
Total
shareholders’ equity |
|
|
121,893
|
|
|
(700 |
) |
|
121,193
|
|
|
118,071
|
|
|
(13,641 |
) |
|
104,430
|
|
Total
liabilities and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders'
equity |
|
|
300,023
|
|
|
5,531
|
|
|
305,554
|
|
|
214,004
|
|
|
30,678
|
|
|
244,682
|
|
*
With respect to discontinuance of adjustment to the effect of inflation as from
the CPI of December 2003 (see Note 2C).
** Amounts adjusted to reflect inflation
in terms of NIS at December 31, 2003.
*** Restated
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
21 - Significant Differences Between Israeli GAAP and U.S. GAAP and
their
Effect on the Financial Statements (cont'd)
|
B. |
The
effect of the material differences between Israeli GAAP and U.S. GAAP on
the financial statements (cont'd) |
2. Statement of
operations
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002
|
|
|
Reported |
|
|
|
|
|
|
|
amounts* |
|
Adjusted
amounts** |
|
|
|
|
Restated*** |
Net
income from continued operations according |
|
|
|
|
|
|
|
to
Israeli GAAP |
|
|
24,294
|
|
|
18,040
|
|
|
27,038
|
|
|
|
|
|
|
|
|
|
|
|
|
Application
of FIN 46R (A7) |
|
|
(308 |
) |
|
(445 |
) |
|
5,673
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of customer list (A3) |
|
|
3,280
|
|
|
1,170
|
|
|
(5,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
Application
of APB 25 (A6) |
|
|
(102 |
) |
|
109
|
|
|
(530 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
income from continued operations according to |
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP |
|
|
27,164
|
|
|
18,874
|
|
|
27,051
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations according |
|
|
|
|
|
|
|
|
|
|
to
U.S. GAAP |
|
|
(6,588 |
) |
|
(6,803 |
) |
|
(21,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting |
|
|
|
|
|
|
|
|
|
|
principle |
|
|
-
|
|
|
-
|
|
|
(4,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
income in accordance with U.S. GAAP |
|
|
20,576
|
|
|
12,071
|
|
|
1,541
|
|
Basic
and diluted net income from continued |
|
|
|
|
|
|
|
|
|
|
operations
per share (in NIS) in accordance with |
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP |
|
|
1.47
|
|
|
1.02
|
|
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss from discontinued |
|
|
|
|
|
|
|
|
|
|
operations
per share (in NIS) in accordance with |
|
|
|
|
|
|
|
|
|
|
U.S.
GAAP |
|
|
(0.36 |
) |
|
(0.37 |
) |
|
(1.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted cumulative effect of change |
|
|
|
|
|
|
|
|
|
|
in
accounting principle per share (in NIS) |
|
|
|
|
|
|
|
|
|
|
in
accordance with U.S. GAAP |
|
|
-
|
|
|
-
|
|
|
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net income (loss) per share (in |
|
|
|
|
|
|
|
|
|
|
NIS)in
accordance with U.S. GAAP |
|
|
1.11
|
|
|
0.65
|
|
|
0.08
|
|
*
With respect to discontinuance of adjustment to the effect of inflation as from
the CPI of December 2003 (see Note
2C).
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
*** Restated
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
21 - Significant Differences Between Israeli GAAP and U.S. GAAP and
their
Effect on the Financial Statements (cont'd)
|
B. |
The
effect of the material differences between Israeli GAAP and U.S. GAAP on
the financial statements (cont'd) |
3. Condensed
Cash Flows
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
December
31 |
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
Reported |
|
|
|
|
|
|
|
amounts* |
|
Adjusted
amounts** |
|
|
|
|
|
Restated*** |
|
Net
cash provided by continuing operating |
|
|
|
|
|
|
|
activities |
|
|
38,185
|
|
|
29,172
|
|
|
41,203
|
|
Applying
FIN 46R |
|
|
24,580
|
|
|
55
|
|
|
10,388
|
|
Changes
in exchange rates |
|
|
1,270
|
|
|
6,299
|
|
|
(6,394 |
) |
Net
cash provided by continuing operating activities |
|
|
|
|
|
|
|
|
|
|
according
to U.S. GAAP |
|
|
64,035
|
|
|
35,526
|
|
|
45,147
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in continued investment activities |
|
|
(117,665 |
) |
|
(70,706 |
) |
|
(12,147 |
) |
Capital
lease |
|
|
39,177
|
|
|
42,997
|
|
|
-
|
|
Applying
FIN 46R |
|
|
10,627
|
|
|
24,280
|
|
|
(18,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in continued investment activities |
|
|
|
|
|
|
|
|
|
|
according
to U.S. GAAP |
|
|
(67,861 |
) |
|
(3,429 |
) |
|
(30,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) continued |
|
|
|
|
|
|
|
|
|
|
financing
activities |
|
|
73,226
|
|
|
38,280
|
|
|
(31,528 |
) |
Capital
lease |
|
|
(39,177 |
) |
|
(42,997 |
) |
|
-
|
|
Applying
FIN 46R |
|
|
(30,521 |
) |
|
(9,488 |
) |
|
1,398
|
|
Net
cash provided by continued financing activities |
|
|
|
|
|
|
|
|
|
|
according
to U.S. GAAP |
|
|
3,528
|
|
|
(14,205 |
) |
|
(30,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) discontinued |
|
|
|
|
|
|
|
|
|
|
operations
according to U.S. GAAP |
|
|
(4,696 |
) |
|
(14,860 |
) |
|
6,978
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in exchange rates |
|
|
(1,270 |
) |
|
(6,299 |
) |
|
6,394
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in cash and cash equivalents |
|
|
(6,254 |
) |
|
(3,254 |
) |
|
(2,472 |
) |
|
|
|
|
|
|
|
|
|
|
|
Changes
in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
according
to U.S. GAAP |
|
|
(6,264 |
) |
|
(3,267 |
) |
|
(2,451 |
) |
*
With
respect to discontinuance of adjustment to the effect of inflation as from the
CPI of December 2003 (see Note
2C).
** Amounts adjusted to
reflect inflation in terms of NIS at December 31, 2003.
***
Restated
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
22 - Condensed Financial Statements of the Company in Nominal NIS (For Tax
Purposes)
A. Balance
sheets
|
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
|
|
|
2004 |
|
|
2003 |
|
Current
assets |
|
|
|
|
|
Cash
and cash equivalents |
|
|
75,323
|
|
|
81,660
|
|
Trade
receivables, net |
|
|
37,723
|
|
|
26,601
|
|
Other
receivables |
|
|
7,408
|
|
|
10,539
|
|
|
|
|
|
|
|
|
|
Total
current assets |
|
|
120,454
|
|
|
118,800
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
8,675
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
35,793
|
|
|
26,277
|
|
|
|
|
|
|
|
|
|
Other
assets and deferred charges |
|
|
112,559
|
|
|
50,238
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
277,481
|
|
|
195,315
|
|
|
|
As
at |
|
As
at |
|
|
|
December
31 |
|
December
31 |
|
|
|
|
2004 |
|
|
2003 |
|
Liabilities |
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
Short-term
bank loans |
|
|
7,668
|
|
|
2,459
|
|
Accounts
payable |
|
|
69,414
|
|
|
*33,915
|
|
Other
payables |
|
|
8,742
|
|
|
*9,888
|
|
Total
current liabilities |
|
|
85,824
|
|
|
46,262
|
|
Long-term
liabilities |
|
|
|
|
|
|
|
Excess
of liabilities over assets in subsidiaries |
|
|
-
|
|
|
2,118
|
|
Long-term
loans |
|
|
72,111
|
|
|
27,193
|
|
Deferred
revenues |
|
|
3
|
|
|
23
|
|
Liability
for severance pay, net |
|
|
5,772
|
|
|
4,523
|
|
Total
long-term liabilities |
|
|
77,886
|
|
|
33,857
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity (deficit) |
|
|
|
|
|
|
|
Ordinary
shares |
|
|
184
|
|
|
184
|
|
Additional
paid-in capital |
|
|
200,983
|
|
|
200,983
|
|
Accumulated
deficit |
|
|
(87,396 |
) |
|
(85,971 |
) |
Total
shareholders’ equity |
|
|
113,771
|
|
|
115,196
|
|
|
|
|
|
|
|
|
|
|
|
|
277,481
|
|
|
195,315
|
|
*
Reclassified
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
22 - Condensed Financial Statements of the Company in Nominal NIS (For Tax
Purposes) (cont’d)
B. Statement
of operations
|
|
Year
ended |
|
Year
ended |
|
|
|
December
31 |
|
December
31 |
|
|
|
|
2004 |
|
|
2003 |
|
Revenues |
|
|
180,343
|
|
|
159,472
|
|
|
|
|
|
|
|
|
|
Costs
and expenses: |
|
|
|
|
|
|
|
Cost
of revenues |
|
|
80,762
|
|
|
78,702
|
|
Selling
and marketing expenses |
|
|
65,779
|
|
|
42,971
|
|
General
and administrative expenses |
|
|
19,765
|
|
|
19,076
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses |
|
|
166,306
|
|
|
140,749
|
|
|
|
|
|
|
|
|
|
Income
from operations |
|
|
14,037
|
|
|
18,723
|
|
Financing
income (expenses), net |
|
|
2,443
|
|
|
(1,848 |
) |
Other
expenses, net |
|
|
549
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
Income
after taxes on income |
|
|
17,029
|
|
|
16,866
|
|
Company's
share in net loss of investee |
|
|
(2,745 |
) |
|
(4,368 |
) |
|
|
|
|
|
|
|
|
Net
income |
|
|
14,284
|
|
|
12,498
|
|
Internet
Gold - Golden Lines Ltd.
Notes
to the Financial Statements
(All
amounts in thousands of reported NIS, except where otherwise
stated)
Note
22 - Condensed Financial Statements of the Company in Nominal NIS (For
Tax Purposes)
(cont’d)
C. Statement
of changes in shareholders equity
|
|
Share
capital |
|
|
|
|
|
|
|
|
|
Number
of |
|
Amount |
|
Additional |
|
Accumulated |
|
|
|
|
|
shares |
|
|
|
paid-in
capital |
|
deficit |
|
Total |
|
|
|
NIS
0.01 par value |
|
NIS
thousands |
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
18,431,500
|
|
|
184
|
|
|
200,983
|
|
|
(98,469 |
) |
|
102,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during
2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
the year |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12,498
|
|
|
12,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
18,431,500
|
|
|
184
|
|
|
200,983
|
|
|
(85,971 |
) |
|
115,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during
2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
purchase of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investee
company |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15,709 |
) |
|
(15,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
the year |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,284
|
|
|
14,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
18,431,500
|
|
|
184
|
|
|
200,983
|
|
|
(87,396 |
) |
|
113,771
|
|
List
of principal investees and other companies
Annex
A
|
|
Equity |
|
Control |
|
|
|
As
at December 31, 2004 |
|
|
|
|
Subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSN
Israel Ltd. |
|
|
50.1 |
% |
|
50.1 |
% |
|
|
|
|
|
|
|
|
Internet
Gold International Ltd. |
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
Gold
Mind Ltd. |
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
Start-Net
Ltd. |
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
Gold
Trade Ltd. |
|
|
100 |
% |
|
100 |
% |
F-54
Item
2
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
A. Operating
Results
The
following discussion and analysis is based on and should be read in conjunction
with our consolidated financial statements, including the related notes, and the
other financial information included in this Report. The
following discussion contains forward-looking statements that reflect our
current plans, estimates and beliefs and involve risks and uncertainties. Our
actual results may differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below and elsewhere in this Report.
Overview
We are a
leading Israeli Internet service provider serving as of December 31, 2004,
339,146 residential subscribers and 3,510 business subscribers. We provide a
wide array of Internet services tailored to meet the needs of our subscribers,
including Internet access and other value-added services, e-commerce and content
services.
We
currently provide Internet services through a nationwide network providing
dial-up, broadband, web hosting, web security and integration services. We offer
a wide range of Internet access packages to meet the needs of our residential
and business subscribers. We also offer related value-added Internet services,
such as web faxing, virtual magazines, anti-virus, anti-spam and hosting, to
attract and retain subscribers, increase usage and create additional revenue
streams. By offering high-quality, price-competitive Internet access and related
services at a varied range, we seek to develop both our residential and business
subscriber base. In addition to providing Internet access and related services,
we are a major operator in the portals and advertising market through our
subsidiary MSN Israel (a joint venture with Microsoft Corp.) and in the
e-commerce market through our e-commerce P1000 site.
From the
end of 2000 until the fourth quarter of 2002, we concentrated on a strategy
focused on profitability rather than market share. During the fourth quarter of
2002, the significant increase in demand for broadband was coupled with intense
competition between all local ISPs, which resulted in reductions of service
prices by all Internet service providers, or ISPs. Due to this market
environment, we adopted a more aggressive marketing policy in order to attract a
greater number of broadband customers while continuing to keep tight control on
our expenses. This strategy yielded a 54% increase in the number of broadband
customers in 2004 as compared to 2003. We have decided to continue this policy
during 2005. Due to the price reductions caused by the aggressive competition in
the broadband market and the expenses associated with our marketing efforts to
attract customers, our profitability may be negatively impacted in the
future.
On June
2, 2004 we received a license to provide international telephony services. We
launched these services on August 7, 2004. The first service we offered was
direct calls from Israel to the rest of the world (approximately 240 countries).
We intend to offer supplemental services in the near future, such as pre-paid
services, post-paid services and 1-800 services. We offer our services to
residential and business subscribers. As of December 31, 2004 we had
approximately 86,300 subscribers for these services.
The
international telephony market, as well as the internet market, is a very
competitive market. Due to the conditions of the market and the entrance of two
new competitors (Netvision Ltd and Xfone), we have adopted an aggressive
penetration strategy in order to gain subscribers and market share. At this time
we are continuing to keep tight control on our expenses but it could be that
this strategy could impact negatively on our profitability.
Critical
Accounting Policies
We have
identified the policies below as critical to the understanding of our financial
statements. The application of these policies requires management to make
estimates and assumptions that affect the valuation of assets and expenses
during the reporting period. There can be no assurance that actual results will
not differ from these estimates.
We
prepare our financial statements in accordance with Israeli GAAP. As such, we
are required to make certain estimates, judgments, and assumptions that
management believes are reasonable based upon the information available. These
estimates, judgments and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. Differences between Israeli
GAAP and U.S. GAAP as they relate to our financial statements are described in
Note 21 to our financial statements.
In
accordance with applicable Israeli accounting principles, we maintain our
accounts and present our financial statements in NIS, adjusted for changes in
the Israeli consumer price index through December 31, 2003. Consequently, all
previously published NIS amounts in our financial statements were adjusted each
time we published new financial statements in order to reflect changes in the
Israeli consumer price index, and so all information is presented in NIS
adjusted to December 2003 and constitute the starting point for our nominal
financial reports as of January1, 2004. See Note 2C to the financial statements.
Any additions made during 2004 are included according to their nominal values.
This presentation of the comparative figures permits the financial information
to be presented in NIS with identical purchasing power. The translation of NIS
amounts into dollars has been made solely for the convenience of the reader at
the representative rate of exchange (as published by the Bank of Israel) at
December 31, 2004 of NIS 4.308 = $1.00.
The
significant accounting policies that we believe are most critical to aid a
reader in fully understanding and evaluating our financial condition and results
of operation under Israeli generally accepted accounting principles are
discussed below.
Revenue
recognition.
Most of
our revenues are derived from Internet access. These revenues are
recognized ratably over the period that services are provided. Other
revenues include international telephony services, website hosting, electronic
commerce and advertising revenues. Revenues
from international carrier services are recognized according to minutes of
traffic, Website
hosting revenues are recognized as the services are performed. Electronic
commerce revenues are recognized as the services are performed or when the goods
are delivered, as applicable. Advertising revenues are recognized on a
straight-line basis over the term of the contract. We
consider revenue
recognition to be critical since we have many revenue engines which involve
subjective estimates by our management.
Revenues
from sale agreements which do not include a general right of return and which
include a number of elements such as: hardware, software and support agreements
are split into separate
accounting
units and are recognized separately with respect to each accounting unit. An
element constitutes a separate accounting unit if, and only if, it has a
separate value to the customer and there is reliable and objective evidence
regarding the fair value of all the elements of the agreement/the fair value of
undelivered elements. Elements that are not split into an accounting unit due to
non-fulfillment of the conditions specified above are grouped together under one
accounting unit. Revenues from the various accounting units are recognized when
the conditions for recognizing the revenues from the elements included in that
same accounting unit according to their type have been fulfilled, and only up to
the amount of the consideration that is not contingent upon the
completion/execution of the other elements of the contract.
Revenues
from the sale of software licenses are recognized when all the following
conditions have been met: the software has been delivered to the customer,
collection of the payment is probable, the amount of the contract has been or
can be determined and there is objective and persuasive evidence of the contract
and of our ability to allocate the consideration between the elements of the
contract.
We
evaluate our revenue recognition policy every quarter with respect to existing
and new accounting principles. In addition, every quarter we examine the
different parameters that may affect our revenues and their recognition, such as
customer credits, accrued revenues and revenues from cooperation with third
parties. According to these examinations we decide on the required changes, if
any, in our revenue recognition policies. Based on
our past experience, our
policy was appropriate and did not require complex estimates.
Allowance
for doubtful accounts. The
allowance for doubtful accounts represents management's estimate of the aged
receivable balance considered uncollectible, based on past experience. All
accounts aged over 150 days and
accounts which have been forwarded to our lawyers are considered as doubtful
accounts and are
recorded as such. We
evaluate our guidelines every quarter and examine
the material parameters that might affect the assessment of our doubtful
accounts, such as the population tendency to make timely payments, rate of
checks returned for insufficient payment and blocked bank accounts. Our policy
has been consistent and has proven itself over the years. Therefore, based on
our past experience we believe this policy is appropriate.
"Impairment
of Assets." In
February 2003, the Israel Accounting Standards Board published Accounting
Standard No. 15 - "Impairment of Assets." The Standard provides procedures which
a company must apply in order to ensure that its assets in the consolidated
balance sheet are not presented in an amount which is in excess of their
recoverable value, which is the higher of the net selling price or the present
value of the estimated future cash flows expected to be derived from use and
disposal of the asset. With respect to the implementation of this standard,
subjective
estimates are involved in the process of decision making. In
addition, the Standard provides rules for presentation and disclosure with
respect to assets whose value has declined.
The
Standard applies to financial statements for periods beginning January 1, 2003.
The Standard provides that in most cases the transition will be effected by
means of the "from hereon" method. As required under the Standard we evaluate
its impact every quarter, review cash flow analysis, the market prices of our
assets and other relevant estimates to ensure an adequate implementation of the
Standard.
The
Effect of New Israeli Accounting Standards in the Pre-Application
Period
In July
2004, the Israeli Accounting Standards Board published Accounting Standard No.
19, "Taxes on Income". The Standard provides that a liability for deferred taxes
is to be recorded for all temporary differences subject to tax, except for a
limited number of exceptions. In addition, a deferred tax asset is to be
recorded for all temporary differences that may be deducted, losses for tax
purposes and tax benefits not yet utilized, if it is anticipated that there will
be taxable income against which they can be offset, except for a limited number
of exceptions. The new Standard applies to financial statements for periods
beginning on January 1, 2005. The Standard provides that it is to be implemented
by means of a cumulative effect of a change in accounting method. In our
estimation, the impact of the Standard on our results of operations, financial
position and cash flows will not be material.
Business
Background
We earn
revenues from Internet access services and value-added Internet services,
advertising on our portals, e-commerce and international telephony services. To
date, we have generated most of our revenues from our Internet access services
to residential, SOHO (small office and home office) and business subscribers.
Internet access revenues primarily consist of monthly subscription for broadband
and dial-up access to the Internet. As a result, our revenues are directly
affected by the total number of our paying residential, SOHO and business
subscribers and the average price for our Internet access service per
subscriber. At December 31, 2004 the number of our residential and SOHO
subscribers was 339,146 a 9% growth rate in our residential and SOHO subscribers
compared to December 31, 2003. The number of our business subscribers increased
by 35% in 2004. The following table includes the number of our residential
(including SOHO) and business subscribers in 2003 and 2004 (in thousands):
|
|
2003 |
|
2004 |
|
Broadband |
|
|
107 |
|
|
164 |
|
Dial-Up |
|
|
63 |
|
|
31 |
|
Occasional
|
|
|
143 |
|
|
144 |
|
Total
residential subscribers |
|
|
313 |
|
|
339 |
|
Business
subscribers |
|
|
2.6 |
|
|
3.5 |
|
Most of
our subscribers may cancel their subscriptions at any time. Some of our
subscribers, who enter into annual, bi-annual or tri-annual contracts under
special packages, are subject to certain penalty payments if they cancel during
the contract period, including payments for the free benefits they received as
part of the special package. Cash received from subscribers is applied to
working capital when received.
We also
earn revenues from value-added Internet services, such as global roaming, web
hosting, web faxing, virtual magazines, anti-virus, anti-spam and online
e-commerce site implementation. We earn revenues for these services based either
on our fixed prices for the service or a negotiated fee. In addition, we earn
revenues from portal advertising at negotiated fees.
In August 2004 we began to earn revenues from
international telephony services. These revenues are generated from payments for
the minutes used by subscribers. We offer monthly packages and offer discounts
to subscribers. Our customers for these services include monthly subscribers and
occasional users.
We bill
for Internet access and for the international telephony on a monthly basis,
which generally runs from the 20th day of the calendar month to the 19th day of
the following calendar month. Revenues for services are accrued until the last
day of the reporting period. Revenues for other services are recognized as the
services are provided, including virtual magazines, anti-virus and website
hosting and as products are delivered, including e-commerce activities. In cases
where we assume responsibility for the goods sold in e-commerce transactions, we
recognize the gross revenues. In cases where we act as a middleman we recognize
the net commission as our revenues.
For both
Internet access services and other services, we generally bill our residential
subscribers on a monthly basis. Most of our residential subscribers pay us by
credit card or a bank debit order. Business customers are billed on a monthly
(or quarterly) basis, and we generally receive payment in full within 10 to 70
days of invoice.
Significant
Costs and Expenses
Cost
of Revenues.
Our cost
of revenues consists primarily of costs of communication services, salaries and
related expenses, facilities costs and depreciation expenses. The communication
services costs include costs for providing local telephone lines into our points
of presence, the use of third party networks and leased lines to connect each of
our points of presence to our regional network operations centers, the
connection between our regional network operations centers, points of presence
and the Internet backbone. We also include in the cost of revenues
telecommunication services expenses related to the international telephony
services. Since the launch of the international telephony service in August 2004
we have entered into agreements with several international carriers for the
purchase of international long distance voice services to about 240 destinations
around the world.
We
believe that a high level of subscriber satisfaction with the speed and
reliability of our network is not only essential for retaining subscribers, but
also essential for attracting new subscribers through personal referrals.
Accordingly, we have spent significant sums on trans-Atlantic leased lines, to
ensure adequate bandwidth to the United States.
We
include salary costs for our technical and technical support staff in our cost
of revenues. These employees are directly involved in providing our Internet
access service and our international telephony services to our subscribers. Most
of our technical staff is full-time salaried employees and most of our technical
support staff is part-time salaried employees.
Our cost
of revenues also includes the costs of facilities used to provide technical
services and depreciation, principally in respect of our network
equipment.
Selling
and Marketing Expenses.
Selling
and marketing expenses consist primarily of media advertisement and sales
promotion costs as well as salaries, commissions and related costs for our sales
representatives, facilities costs related to sales and marketing and credit card
commissions. Credit card commissions are merchant fees based on the percentage
of our revenue earned through credit cards.
General
and Administrative Expenses.
General
and administrative expenses consist primarily of salary and related costs
associated with our executive and administrative functions, lease payments for
our administrative facilities and other miscellaneous expenses. As of December
31, 2004, we (excluding our subsidiaries) employed 293 full-time salaried
employees and 542 part-time employees who are paid on an hourly basis. Staff
costs include direct salary costs and related costs such as severance pay,
social security and retirement fund contributions, vacation and recreation pay.
Financing
Income (Expenses) Net.
Net
financing income (expenses) includes financing costs, interest income on our
cash reserves and exchange rate differentials in real terms as well as
devaluation of monetary assets and monetary liabilities. Beginning January 1,
2004 all of these items are stated in nominal values.
Income
tax. We
assessed our deferred tax assets and the need for a valuation allowance. Such an
assessment considers whether it is more likely than not that some portion or all
of the deferred tax assets may not be realized. The assessment requires
considerable judgment on the part of management, with respect to, among other
things, benefits that could be realized from available tax strategies and future
taxable income, as well as other positive and negative factors. The ultimate
realization of deferred tax assets is dependent upon our ability to generate the
appropriate character of future taxable income sufficient to utilize loss carry
forwards before their expiration.
Non-Cash
Charges. Under
U.S. GAAP, but not under Israeli GAAP, we would recognize for the years ended
December 31, 1999 through 2004, non-cash charges aggregating NIS 2.7 million ($
0.6 million) according to Accounting Principles Board Opinion No. 25 (“APB 25”)
on account of our Stock Option plan from 1999 (expenses of NIS 102 thousands for
the year ended December 31, 2004, and income of NIS 109 thousands for the year
ended December 31, 2003, and expenses of NIS 530 thousands for the year ended
December 2002).
If in the
future, we issue options under a stock option plan with exercise prices below
fair market value at the time of issuance, U.S. GAAP, but not Israeli GAAP,
would require us to recognize an additional non-cash charge with respect to such
issuance.
Results
of Operations
The
following discussion of our results of operations for the years ended December
31, 2002, 2003 and 2004, including the percentage from revenues data in the
following table, is based upon our consolidated statements of operations
contained in our consolidated audited financial statements for those periods,
and the related notes, included elsewhere in this Report:
|
|
Year
ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Access
revenues |
|
|
85 |
% |
|
82 |
% |
|
71 |
% |
International
telephony services |
|
|
- |
|
|
- |
|
|
4 |
|
Other
revenues |
|
|
15 |
|
|
18 |
|
|
25 |
|
Total
revenues |
|
|
100 |
|
|
100 |
|
|
100 |
|
Cost
and expenses: |
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
54 |
|
|
52 |
|
|
44 |
|
Selling
and marketing expenses |
|
|
20 |
|
|
23 |
|
|
33 |
|
General
and administrative expenses |
|
|
12 |
|
|
12 |
|
|
11 |
|
Total
cost and expenses |
|
|
86 |
|
|
87 |
|
|
88 |
|
Income
from operations |
|
|
14 |
|
|
13 |
|
|
12 |
|
Financing
income (expenses), net |
|
|
1 |
|
|
(2 |
) |
|
- |
|
Other
expenses, net |
|
|
- |
|
|
(1 |
) |
|
- |
|
Net
income after financing expenses |
|
|
15 |
|
|
10 |
|
|
12 |
|
Income
tax benefit |
|
|
- |
|
|
1 |
|
|
- |
|
|
|
Year
ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
Net
income after income tax benefit |
|
|
15 |
|
|
11 |
|
|
12 |
|
Company’s
share in net loss of investees |
|
|
(1 |
) |
|
(1 |
) |
|
- |
|
Minority
interest in loss of a subsidiary |
|
|
- |
|
|
- |
|
|
- |
|
Net
income from continued operations |
|
|
14 |
|
|
10 |
|
|
12 |
|
Company's
share in loss of investees from discontinued operations |
|
|
(4 |
) |
|
(2 |
) |
|
(2 |
) |
Net
income |
|
|
10 |
|
|
8 |
|
|
10 |
|
Year
Ended December 31, 2004 Compared to Year Ended December 31,
2003
Under
Israeli GAAP
Revenues.
Revenues increased by 22% from NIS 179.6 million (US$ 41.7 million) for the year
ended December 31, 2003 to NIS 219.6 million (US$ 51 million) for the year ended
December 31, 2004. The increase is primarily due to revenues from the new 015
international telephony services that was launched on August 7, 2004 and due to
the substantial growth of our interactive advertising and content-based value
added services as well as our intense efforts in after-sale activities. We
believe the growth rate of our revenues will improve in 2005, driven primarily
by the continued expansion of our telephony and e-Advertising businesses, and
due to the full year consolidation of our e-commerce P1000 site's revenues in
2005.
Access
Revenues. Revenues
from Internet access services provided to residential and business subscribers,
which represented 71% of our total revenues for 2004, increased by 6% from NIS
146.9 million (US$ 34.1 million)
for 2003 to NIS 156.4 million (US$ 36.3 million) for 2004. The increase is
primarily due to our major efforts to keep our market share regardless of the
sharp competition in the market. We
expect that in 2005 our access revenues will remain at the same level, based on
our forecasts regarding the development of the access services market in Israel.
International
Telephony Services. Since
the successful launch of our 015 international telephony service on August 7,
2004 we gained revenues of NIS 9.4 million (US$ 2.2 million) which represents 4%
of our total revenues. We believe the growth rate of our revenues from this
activity will improve substantially in 2005, driven primarily by the continued
expansion of this activity by entering into supplemental activities in the
market such as pre-paid, post-paid, calling card services and other related
activities.
Other
Revenues. Other
revenues, which represented 25% of our total revenues for 2004, increased by 64%
from NIS 32.7 million (US$ 7.6 million)
for 2003 to NIS 53.8 million (US$ 12.5 million) for 2004. The increase is
primarily due to the substantial growth of our interactive advertising and
content-based value added services as well as our intense efforts in after-sale
activities. We expect that our other revenues will increase in 2005, based on
our market research findings that the interactive advertising market should
increase in Israel in 2005 and due to the full year consolidation of our
e-commerce P1000 site's revenues in 2005.
Cost
of Revenues. Cost of
revenues increased by 4% from NIS 92.9 million (US$ 21.6 million)
for 2003 to NIS 96.8 million
(US$ 22.5 million) for 2004. The increase is primarily due to costs of
telecommunication services expenses related to the international telephony
services. Since the launch of the international telephony service in August 2004
we entered into agreements with several international carriers all over the
world for the purchase of international long distance voice services to about
240 destinations around the world. We anticipate that our cost of revenues will
increase in 2005, based on our forecasts and estimates of the growth of all of
our major activities and due to the full year consolidation of our e-commerce
P1000 site activity in 2005.
Selling
and Marketing Expenses. Selling
and marketing expenses increased by 77% from NIS 41.4 million (US$ 9.6 million)
for 2003 to NIS 73.2 million (US$ 17 million) for 2004. The increase is
primarily due to the initial intensive marketing campaign and other marketing
activities for the launch of the new 015 international telephony service, and
due to our market share strategy to extend our share of the broadband market,
including our advertising campaigns. We expect that our selling and marketing
expenses will increase in 2005 due to our continued implementation of our
strategy to increase our market share in all of our activities and their related
markets.
General
and Administrative Expenses. General
and administrative expenses increased by 11% from NIS 21.9 million (US$ 5.1
million) for 2003 to NIS 24.3 million (US$ 5.6 million) for 2004. The increase
was primarily due to general expenses related to our new international telephony
services and as a result of our initial and intensive preparations for this
activity. We expect that our general and administrative expenses will increase
in 2005, primarily due to expected increase in our revenues.
Financing
Income (Expenses), Net. In 2004
we had net financing income of NIS 0.12 million
(US$0.03 million)
compared to net financing expenses of NIS 3.2 million (US$0.8 million) for 2003.
Our
financing income
(expenses) are
attributed to the exchange rate differentials on the U.S. dollar cash deposits
that remained from our initial public offering. We also
have U.S. dollar denominated liabilities (rights of use leasing obligations for
our international lines).
Other
Expenses, Net. In 2004
we had net other expenses of NIS 1.1 million (US$ 0.26 million) compared with
NIS 2.6 million (US$ 0.6 million) in 2003. Our other expenses are primarily
attributable to Internet
Gold International Ltd's
recording of an additional impairment charge of NIS 1.6 million (US$0.4 million)
with respect to its investment in Compulink, a Greek ISP, in which it holds a
15.2% interest. With this impairment charge Internet Gold International has
written off its entire investment in Compulink and its operations can no longer
adversely influence our results.
Income
Taxes. As of
December 31, 2004, we had a tax loss carry forward on a consolidated basis of
approximately NIS 113 million (US$ 26.2 million) - including our
reconsolidated subsidiary Gold Trade with a tax loss carry forward of NIS 60
million. We assessed our deferred tax assets and the need for a valuation
allowance. Such an assessment considers whether it is more likely than not that
some portion or all of the deferred tax assets may not be realized. The
assessment requires considerable judgment on the part of management, with
respect to, among other things, benefits that could be realized from available
tax strategies and future taxable income, as well as other positive and negative
factors. We cannot be reasonably assured of our ability to further utilize the
tax asset in the foreseeable future, except that we anticipate that we will be
able to utilize Start-Net's tax loss carry forward for which we recorded a
deferred tax asset of NIS 2.3 million (US$ 0.5 million). In 2003 we recorded
deferred tax assets of Gold Mind's tax loss carry forward of NIS 1.9 million
($0.4 million). During 2004, we utilized most of Gold Mind's tax loss carry
forward.
Company’s
Share in Net Loss of Investees. In 2004
we recorded NIS 0.4 million (US$ 0.09 million) as our share in the net loss of
investees from continued operations of our investees compared to NIS 1.5 million
(US$ 0.35 million) in 2003. In 2004, we recorded NIS 4.8 million (US$ 1.1
million) as our share in the net loss of investees from discontinued operations
of our investees compared to NIS 3.7 million (US$ 0.9 million) in 2003. At the
end of 2004, Gold Trade's board of directors reached the decision to close down
all of its operations except the e-commerce activity P-1000 site.
Net
Income. We
reported net income of NIS 19.5 million (US$ 4.5 million), for the year ended
December 31, 2004 as compared to a net income of NIS 14.3 million (US$ 3.3
million) for the year ended December 31, 2003.
Under
U.S. GAAP
Unless
otherwise explained, there are no significant differences between Israeli GAAP
and U.S. GAAP
In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." This Interpretation
addresses the consolidation by business enterprises of variable interest
entities when the equity investors do not have the characteristics of a
controlling financial interest (as defined in the Interpretation). In December
2003, the FASB issued Interpretation No. 46R, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." The FASB deferred the
effective date for implementation of this Interpretation until fiscal years
ending after March 15, 2004.
According
to Israeli GAAP as prescribed in Opinion No. 57 of the Institute of Certified
Public Accountants in Israel, we treated the investment in our affiliated
company Gold Trade, as a subsidiary of our company until December 31, 2001. For
the years ended December 31, 2002 and December 31, 2003, we accounted for our
investment under the equity method. During December 2004, we acquired all of the
shares of Gold Trade from a related party and from others therefore we once
again consolidated Gold Trade as a subsidiary as of December 31,
2004.
Under the
provisions of FIN 46R, we were required to consolidate Gold Trade which met the
definition of a VIE for all years presented, due to a number of factors which
indicate that we are the primary beneficiary of Gold Trade.
We
applied FIN 46R by retroactively restating previously issued financial
statements, and recorded a cumulative effect of accounting change as of January
1, 2002 in the amount of NIS 4.4 million (US$ 1 million).
Revenues.
Revenues increased by 23% from NIS 185.6 million (US$ 43 million) for the year
ended December 31, 2003 to NIS 228.8 million (US$ 53.1 million) for the year
ended December 31, 2004. The increase was primarily due to revenues from our new
015 international telephony service that was launched on August 7, 2004 and due
to the substantial growth of our interactive advertising and content-based value
added services as well as our intense efforts in after-sale
activities.
Other
Revenues. Other
revenues, which represented 28% of our total revenues for 2004, increased by 63%
from NIS 38.7 million (US$ 8.9 million)
for 2003 to NIS 63 million (US$ 14.6 million) for 2004. The increase was
primarily due to the substantial growth of our interactive advertising and
content-based value added services as well as intense efforts in after-sale
activities.
Cost
of Revenues. Cost of
revenues increased by 4.5% from NIS 93.9 million (US$ 21.8 million)
for 2003 to NIS 98.1 million
(US$ 22.8 million) for 2004. The increase was primarily due to costs of
telecommunication services expenses related to our new international telephony
services. Since the launch of our international telephony service in August 2004
we have entered into agreements with several international carriers all over the
world for the purchase of international long distance voice services to about
240 destinations around the world. The
differences between Israeli GAAP and U.S. GAAP relating to our cost of
revenues expenses was
due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R.
Selling
and Marketing Expenses. Selling
and marketing expenses increased by 70% from NIS 46.4 million (US$ 10.8 million)
for 2003 to NIS 78.7 million (US$ 18.3 million) for 2004. The increase was
primarily due to the initial intensive marketing campaign and other marketing
activities associated with our launch of the new 015 service, and due to the
implementation of our market share strategy to extend our share of the broadband
market, including the costs of our advertising campaigns. The
differences between Israeli GAAP and U.S. GAAP relating to our selling
and marketing expenses was
due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R,
General
and Administrative Expenses. General
and administrative expenses increased by 12% from NIS 24.3 million (US$ 5.6
million) for 2003 to NIS 27.3 million (US$ 6.3 million) for 2004. The
differences between Israeli GAAP and U.S. GAAP relating to our general and
administrative expenses was due to
the consolidation of Gold Trade under
U.S. GAAP as required by FIN 46R, the
amortization of Gold
Trade 's
customer list of NIS 3.3 million compared to NIS 1.2 million in 2003 and the
recording of compensation expenses under U.S. GAAP with respect to grants under
our employee stock option plan as required under APB No. 25 - an expense of NIS
0.1 million in 2004 compared to income of NIS 0.11 million in 2003.
Financing
Income (Expenses), Net. In 2004
we had net financing expenses of NIS 0.08 million
(US$0.02 million)
compared to NIS 3.6 million (US$0.84 million) for 2003. Our
financing expenses were primarily attributable to the exchange rate
differentials on the U.S. dollar cash deposits that remained from our initial
public offering. We also
have U.S. dollar denominated liabilities (rights of use leasing obligations for
our international lines). The
differences between Israeli GAAP and U.S. GAAP relating to our financing
expenses
are due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R.
Net
Loss from Discontinued Operations. At the
end of 2004, Gold Trade's board of directors reached the decision to close down
all its operations except the e-commerce activity P-1000 site. In 2004 we
recorded a net loss of NIS 6.6 million (US$ 1.5 million) net loss from
discontinued operations compared to a net loss of NIS 6.8 million (US$ 1.6
million) in 2003.
Net
Income. We
reported net income of NIS 20.6 million (US$ 4.8 million), for the year ended
December 31, 2004 as compared to a net income of NIS 12.1 million (US$ 2.8
million) for the year ended December 31, 2003. The
differences between Israeli GAAP and U.S. GAAP relating to our net
income are
due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R.
Year
Ended December 31, 2003 Compared to Year Ended December 31,
2002
Under
Israeli GAAP
Revenues. Revenues
decreased by 3% from NIS 184.3 million (US$ 42.8 million)
for the year ended December 31, 2002 to NIS 179.6 million
(US$ 41.7 million)
for the year ended December 31, 2003. The decrease was primarily due to the
sharp competition in the market which
resulted in lower access fees.
Access
Revenues. Revenues
from Internet access services provided to residential and business subscribers,
which represented 82% of our total revenues for 2003, decreased by 6% from NIS
156.3 million (US$ 36.3 million)
for 2002 to NIS 146.9 million (US$ 34.1 million) for 2003. The decrease was
primarily due to the sharp competition in the market.
Other
Revenues. Other
revenues, which represented 18% of our total revenues for 2003, increased by 17%
from NIS 28 million (US$ 6.5 million)
for 2002 to NIS 32.7 million (US$ 7.6 million) for 2003. The increase was
primarily due to the substantial growth of our interactive advertising and
content-based value added services as well as our intense efforts in after-sale
activities.
Cost
of Revenues.
Cost of
revenues decreased by 7% from NIS 99.6 million (US$ 23.1 million)
for 2002 to NIS 92.9 million
(US$ 21.6 million) for 2003. The decrease was primarily due to our efforts in
reducing the costs of international lines. Cost of revenues as a percentage of
revenues decreased from 54% for 2002 to 52% for 2003.
Selling
and Marketing Expenses. Selling
and marketing expenses increased by 12% from NIS 37.1 million (US$ 8.6 million)
for 2002 to NIS 41.4 million (US$ 9.6 million) for 2003. The increase was
primarily due to costs incurred in implementing our market share strategy to
extend our share of the broadband market, including our advertising campaigns.
General
and Administrative Expenses. General
and administrative expenses were similar to the expenses in the year 2002, NIS
21.2 million (US$ 4.9 million) for 2002 to NIS 21.9 million (US$ 5.1 million)
for 2003.
Financing
Income (Expenses), Net. In 2003
we had net financing expenses of NIS 3.2 million
(US$ 0.7 million)
compared to net financing income of NIS 2.2 million (US$ 0.5 million) for 2002.
Our
financing expenses were attributable to the exchange rate differentials on the
U.S. dollar cash deposits that remained from our initial public offering.
Other
Expenses, Net. Internet
Gold International recorded an impairment charge of NIS 2.6 million (US$ 0.6
million) with respect to its investment in Compulink, a Greek ISP, in which it
holds a 15.2% interest.
Income
Taxes. As of
December 31, 2003, we had a tax loss carry forward on a consolidated basis of
approximately NIS 81.3 million (US$ 18.9 million).
Company’s
Share in Net Loss of Affiliates. In 2003
we recorded NIS 1.5 million (US$ 0.3 million) of our share in the net loss of
our affiliates from continued operations compared to NIS 1.5 million (US$ 0.3
million) in 2002. We also recorded NIS 3.7 million (US$ 0.9 million) of our
share in net loss of our affiliates from discontinued operations compared to NIS
7.1 million (US$ 1.6 million) in 2002.
Net
Income. We
reported net income from continued operations of NIS 18 million (US$ 4.2
million), for the year ended December 31, 2003 as compared to a net income from
continued operations of NIS 27 million (US$ 6.3 million) for the year ended
December 31, 2002. We reported a net loss from discontinued operations of NIS
3.7 million (US$ 0.9 million), for the year ended December 31, 2003 as compared
to a net loss from discontinued operations of NIS 7.1 million (US$ 1.6 million)
for the year ended December 31, 2002. We also reported net income of NIS 14.3
million (US$ 3.3 million) for the year ended December 31, 2003 as compared to
net income of NIS 20 million (US$ 4.6 million) for the year ended December 31,
2002.
Under
U.S. GAAP
Unless
otherwise explained, there are no significant differences between Israeli GAAP
and U.S. GAAP
Under the
provisions of FIN 46R, we were required to consolidate the financials of Gold
Trade which met the definition of a VIE for all years presented, due to a number
of factors which indicated that we were the primary beneficiary of Gold
Trade.
We
applied FIN 46R by retroactively restating previously issued financial
statements.
Revenues. Revenues
decreased by 5% from NIS 194.6 million (US$ 45.2 million)
for the year ended December 31, 2002 to NIS 185.6 million
(US$ 43.1 million)
for the year ended December 31, 2003. The decrease was primarily due to the
sharp competition in the market which
resulted in lower access fees.
Other
Revenues. Other
revenues were similar in both years, increasing from NIS 38.3 million (US$
8.9 million)
for 2002 to NIS 38.7 million (US$ 8.9 million) for 2003
Cost
of Revenues.
Cost of
revenues decreased by 10% from NIS 103.4 million (US$ 24 million)
for 2002 to NIS 93.9 million
(US$ 21.8 million) for 2003. The decrease was primarily due to our efforts in
reducing costs of our international lines. The
differences between Israeli GAAP and U.S. GAAP relating to our net
income was
due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R.
Selling
and Marketing Expenses. Selling
and marketing expenses increased by 4% from NIS 44.8 million (US$ 10.4 million)
for 2002 to NIS 46.4 million (US$ 10.8 million) for 2003. The increase was
primarily due to the costs associated with the implementation of our market
share strategy to extend our share of the broadband market, including the costs
of our advertising campaigns. The
differences between Israeli GAAP and U.S. GAAP relating to our net
income was
due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R.
General
and Administrative Expenses. General
and administrative expenses were similar in both years, increasing from NIS 23.8
million (US$ 5.5 million) in 2002 compared to NIS 24.4 million (US$ 5.7 million)
in 2003. The
differences between Israeli GAAP and U.S. GAAP relating to our net
income was
due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R.
Financing
Income (Expenses), Net. In 2003
we had net financing expenses of NIS 3.6 million
(US$ 0.8 million)
compared to net financing income of NIS 2.1 million (US$ 0.5 million) for 2002.
Our
financing expenses were attributable to the exchange rate differentials on the
U.S. dollar cash deposits that remained from our initial public offering.
The
differences between Israeli GAAP and U.S. GAAP relating to our net
income were
due to
the consolidation of Gold Trade under U.S. GAAP as required by FIN
46R.
Net
Loss from Discontinued Operations. We
reported a net loss from discontinued operations of NIS 6.8 million (US$ 1.6
million), for the year ended December 31, 2003 as compared to a net loss from
discontinued operations of NIS 21.1 million (US$ 4.9 million) for the year ended
December 31, 2002.
Net
Income. We
reported net income of NIS 12.1 million (US$ 2.8 million), for the year ended
December 31, 2003 as compared to a net income of NIS 1.5 million (US$ 0.3
million) for the year ended December 31, 2002 (including a cumulative effect of
accounting change as of January 1, 2002 in the amount of NIS 4.4 million (US$ 1
million)). The
differences between Israeli GAAP and U.S. GAAP relating to our net
income was
due to
the consolidation of Gold Trade under
U.S. GAAP as required by FIN 46R.
Quarterly
Results of Operations
The
following table sets forth our results of operations for our last eight
quarters. The data has been derived from our quarterly earnings releases for
those periods which, in the opinion of our management, have been prepared on
substantially the same basis as the audited financial statements included in
this report. The data for any quarter is not necessarily indicative of the
revenues that may be expected for any future period. The percentage data shows
revenues and expenses as a percentage of total revenues.
|
|
Three
Months Ended |
|
|
|
Mar.
31,
2003 |
|
Jun.
30,
2003 |
|
Sept.
30,
2003 |
|
Dec.
31,
2003 |
|
Mar.
31, 2004 |
|
Jun.
30,
2004 |
|
Sept.
30, 2004 |
|
Dec.
31, 2004 |
|
|
|
Adjusted
amounts** |
|
reported
amounts* |
|
|
|
Unaudited |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Access
revenues |
|
|
37,180 |
|
|
36,424 |
|
|
36,151 |
|
|
37,151 |
|
|
39,124 |
|
|
40,537 |
|
|
38,571 |
|
|
38,153 |
|
International
telephony services |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
- |
|
|
2,092 |
|
|
7,289 |
|
Other
revenues |
|
|
6,725 |
|
|
7,531 |
|
|
8,181 |
|
|
10,299 |
|
|
11,852 |
|
|
12,662 |
|
|
13,629 |
|
|
15,668 |
|
Total
revenues |
|
|
43,905 |
|
|
43,955 |
|
|
44,332 |
|
|
47,450 |
|
|
50,976 |
|
|
53,199 |
|
|
54,292 |
|
|
61,110 |
|
Cost
and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
24,267 |
|
|
23,468 |
|
|
22,797 |
|
|
22,339 |
|
|
22,566 |
|
|
21,625 |
|
|
25,344 |
|
|
27,285 |
|
Selling
and marketing
expenses |
|
|
9,624 |
|
|
9,917 |
|
|
9,843 |
|
|
12,009 |
|
|
14,915 |
|
|
17,370 |
|
|
20,462 |
|
|
20,408 |
|
General
and administrative expenses |
|
|
5,144 |
|
|
5,408 |
|
|
5,478 |
|
|
5,878 |
|
|
5,830 |
|
|
5,481 |
|
|
6,572 |
|
|
6,375 |
|
Total
costs and expenses |
|
|
39,035 |
|
|
38,793 |
|
|
38,118 |
|
|
40,226 |
|
|
43,311 |
|
|
44,476 |
|
|
52,378 |
|
|
54,068 |
|
Operating
income |
|
|
4,870 |
|
|
5,162 |
|
|
6,214 |
|
|
7,224 |
|
|
7,665 |
|
|
8,723 |
|
|
1,914 |
|
|
7,042 |
|
Financing
income (expenses), net |
|
|
(1,058 |
) |
|
(5,721 |
) |
|
3,695 |
|
|
(151 |
) |
|
460 |
|
|
(549 |
) |
|
342 |
|
|
(131 |
) |
Other
income (expenses),
net |
|
|
(4 |
) |
|
(12 |
) |
|
(2,587 |
) |
|
11 |
|
|
(642 |
) |
|
(856 |
) |
|
54 |
|
|
367 |
|
Net
income (loss) after financing expenses |
|
|
3,808 |
|
|
(571 |
) |
|
7,322 |
|
|
7,084 |
|
|
7,483 |
|
|
7,318 |
|
|
2,310 |
|
|
7,278 |
|
Income
tax (expenses) benefit |
|
|
- |
|
|
2,465 |
|
|
(354 |
) |
|
(176 |
) |
|
(519 |
) |
|
(782 |
) |
|
(240 |
) |
|
1,842 |
|
Net
income after income tax |
|
|
3,808 |
|
|
1,894 |
|
|
6,968 |
|
|
6,908 |
|
|
6,964 |
|
|
6,536 |
|
|
2,070 |
|
|
9,120 |
|
Company’s
share in net loss of investees |
|
|
(278 |
) |
|
(459 |
) |
|
(48 |
) |
|
(753 |
) |
|
(398 |
) |
|
(210 |
) |
|
105
|
|
|
107 |
|
Net
income from continued operations |
|
|
3,530 |
|
|
1,435 |
|
|
6,920 |
|
|
6,155 |
|
|
6,566 |
|
|
6,326 |
|
|
2,175 |
|
|
9,227 |
|
Company’s
share in net loss of investees from discontinued
operations |
|
|
(414 |
) |
|
(1,385 |
) |
|
(878 |
) |
|
(1,060 |
) |
|
(576 |
) |
|
(675 |
) |
|
(695 |
) |
|
(2,817 |
) |
Net
income |
|
|
3,116 |
|
|
50 |
|
|
6,042 |
|
|
5,095 |
|
|
5,990 |
|
|
5,651 |
|
|
1,480 |
|
|
6,410 |
|
Number
of subscribers (at the end of the period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
subscribers |
|
|
307,136 |
|
|
305,314 |
|
|
305,261 |
|
|
312,256 |
|
|
318,889 |
|
|
322,863 |
|
|
324,035 |
|
|
339,146 |
|
Business
subscribers |
|
|
1,946 |
|
|
2,128 |
|
|
2,333 |
|
|
2,600 |
|
|
2,879 |
|
|
3,016 |
|
|
3,142 |
|
|
3,510 |
|
* With
respect to discontinuance of adjustment to the effect of inflation as from the
CPI of December 2003.
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
|
|
Three
Months Ended |
|
|
|
|
Mar.
31,
2003 |
|
|
Jun.
30,
2003 |
|
|
Sept.
30,
2003 |
|
|
Dec.
31,
2003 |
|
|
Mar.
31, 2004 |
|
|
Jun.
30, 2004 |
|
|
Sept.
30, 2004 |
|
|
Dec.
31, 2004 |
|
|
|
(As
percentage of total
revenues) |
Revenues: |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
Access
revenues |
|
|
85 |
|
|
83 |
|
|
82 |
|
|
78 |
|
|
77 |
|
|
76 |
|
|
71 |
|
|
62 |
|
International
telephony services |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
4 |
|
|
12 |
|
Other
revenues |
|
|
15 |
|
|
17 |
|
|
18 |
|
|
22 |
|
|
23 |
|
|
24 |
|
|
25 |
|
|
26 |
|
Total
revenues |
|
|
100 |
|
|
100 |
|
|
100 |
|
|
100 |
|
|
100 |
|
|
100 |
|
|
100 |
|
|
100 |
|
Costs
and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
55 |
|
|
53 |
|
|
51 |
|
|
47 |
|
|
44 |
|
|
41 |
|
|
47 |
|
|
45 |
|
Selling
and marketing expenses |
|
|
22 |
|
|
23 |
|
|
22 |
|
|
25 |
|
|
29 |
|
|
33 |
|
|
38 |
|
|
33 |
|
General
and administrative expenses |
|
|
12 |
|
|
12 |
|
|
12 |
|
|
12 |
|
|
11 |
|
|
10 |
|
|
12 |
|
|
10 |
|
Total
costs and expenses |
|
|
89 |
|
|
88 |
|
|
85 |
|
|
84 |
|
|
84 |
|
|
84 |
|
|
97 |
|
|
88 |
|
Operating
income |
|
|
11 |
|
|
12 |
|
|
15 |
|
|
16 |
|
|
16 |
|
|
16 |
|
|
3 |
|
|
12 |
|
Financing
income (expenses), net |
|
|
(2 |
) |
|
(13 |
) |
|
8 |
|
|
- |
|
|
1 |
|
|
(1 |
) |
|
1 |
|
|
- |
|
Other
income (expenses), net |
|
|
- |
|
|
- |
|
|
(6 |
) |
|
- |
|
|
(1 |
) |
|
(2 |
) |
|
- |
|
|
1 |
|
Net
income (loss) after financing expenses |
|
|
9 |
|
|
(1 |
) |
|
17 |
|
|
16 |
|
|
16 |
|
|
13 |
|
|
4 |
|
|
13 |
|
Income
tax (expenses) benefit |
|
|
- |
|
|
6 |
|
|
(1 |
) |
|
- |
|
|
(1 |
) |
|
(1 |
) |
|
- |
|
|
3 |
|
Net
income after income tax |
|
|
9 |
|
|
5 |
|
|
16 |
|
|
16 |
|
|
15 |
|
|
12 |
|
|
4 |
|
|
16 |
|
Company’s
share in net loss of investees |
|
|
(1 |
) |
|
(1 |
) |
|
- |
|
|
(2 |
) |
|
(1 |
) |
|
- |
|
|
- |
|
|
- |
|
Net
income from continued operations |
|
|
8 |
|
|
4 |
|
|
16 |
|
|
14 |
|
|
14 |
|
|
12 |
|
|
4 |
|
|
16 |
|
Company’s
share in net loss of investees from
discontinued operations |
|
|
(1 |
) |
|
(3 |
) |
|
(2 |
) |
|
(2 |
) |
|
(1 |
) |
|
(1 |
) |
|
(1 |
) |
|
(5 |
) |
Net
income |
|
|
7 |
|
|
1 |
|
|
14 |
|
|
12 |
|
|
13 |
|
|
11 |
|
|
3 |
|
|
11 |
|
Conditions
in Israel
We are
incorporated under the laws of, and our principal executive offices are located
in, the State of Israel. Accordingly, we are directly affected by political,
economic and military conditions in Israel.
Political
Conditions
Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors, and a state of hostility,
varying from time to time in
intensity
and degree, has led to security and economic problems for Israel. Since
September 2000, there has been a marked increase in violence, civil unrest and
hostility, including armed clashes, between the State of Israel and the
Palestinians, and acts of terror has been committed inside Israel and against
Israeli targets in the West Bank and Gaza. There is no indication as to how long
the current hostilities will last or whether there will be any further
escalation. Any further escalation in these hostilities or any future armed
conflict, political instability or violence in the region may have a negative
effect on our business condition, harm our results of operations and adversely
affect our share price. Furthermore, there are a number of countries that
restrict business with Israel or Israeli companies. Restrictive laws or policies
of those countries directed towards Israel or Israeli businesses may have an
adverse impact on our operations, our financial results or the expansion of our
business.
In
addition, some of our employees in Israel are subject to being called upon to
perform military service in Israel, and their absence may have an adverse effect
upon our operations. Generally, unless exempt, male adult citizens and permanent
residents of Israel under the age of 45 are obligated to perform up to 36 days
of military reserve duty annually and all such residents are subject to being
called to active duty at any time under emergency circumstances. While we have
operated effectively under these requirements since we began operations, we
cannot assess the full impact of these requirements on our workforce or business
if conditions should change, and we cannot predict the effect on us of any
expansion or reduction of these obligations.
Economic
Conditions
In recent
years Israel has gone through a period of recession in economic activity,
resulting in low growth rates and growing unemployment. Our operations could be
adversely affected if the economic conditions in Israel continue to deteriorate.
In addition, due to significant economic measures proposed by the Israeli
Government, there have been several general strikes and work stoppages in 2004,
affecting all banks, airports and ports. These strikes have had an adverse
effect on the Israeli economy and on business, including our ability to deliver
products to our customers. Following the passage by the Israeli Parliament of
laws to implement the economic measures, the Israeli trade unions have
threatened further strikes or work-stoppages, and these may have a material
adverse effect on the Israeli economy and on us.
Trade
Agreements
Israel is
a member of the United Nations, the International Monetary Fund, the
International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is a signatory to the General Agreement on Tariffs
and Trade, which provides for reciprocal lowering of trade barriers among its
members. In addition, Israel has been granted preferences under the Generalized
System of Preferences from the U.S., Australia, and Canada. These preferences
allow Israel to export products covered by such programs either duty-free or at
reduced tariffs.
Israel
and the European Union Community concluded a Free Trade Agreement in
July 1975 which confers certain advantages on Israeli exports to most
European countries and obligates Israel to lower its tariffs on imports from
these countries over a number of years. In 1985, Israel and the U.S. entered
into an agreement to establish a free trade area. The free trade area has
eliminated all tariff and specified non-tariff barriers on most trade between
the two countries. On January 1, 1993, an agreement between Israel and the
European Free Trade Association, known as EFTA, which includes Austria, Finland,
Iceland, Liechtenstein, Norway, Sweden and Switzerland, established a free-trade
zone between Israel and the EFTA nations. In November 1995, Israel entered
into a new agreement with the European Union, which includes redefinition of
rules of origin and other improvements, including providing for Israel to become
a member of the research and technology programs of the European Union. In
recent years, Israel has established commercial and trade relations with a
number of other nations, including China, India, Russia, Turkey and other
nations in Eastern Europe and Asia.
Impact
of Devaluation on the NIS vs.
US$
on Results of Operations, Liabilities and Assets
The
dollar cost of our operations in Israel is influenced by the exchange rate of
U.S. dollar. Devaluation or an increase in valuation of the NIS against the U.S.
dollar might reflect on our results of operations.
The
following table presents information about the devaluation of the NIS against
the dollar:
Year
ended
December 31, |
NIS devaluation
rate
% |
2000 |
(2.7) |
2001 |
9.3 |
2002 |
7.3 |
2003 |
(7.6) |
2004 |
(1.6) |
A
devaluation of the NIS in relation to the dollar has the effect of reducing the
dollar amount of any of our expenses or liabilities which are payable in NIS,
unless those expenses or payables are linked to the dollar. This devaluation
also has the effect of decreasing the dollar value of any asset which consists
of NIS or receivables payable in NIS, unless the receivables are linked to the
dollar. Conversely, any increase in the value of the NIS in relation to the
dollar has the effect of increasing the dollar value of any unlinked NIS assets
and the dollar amounts of any unlinked NIS liabilities and expenses. We cannot
assure you that in the future our results of operations may not be materially
adversely affected by currency fluctuations.
Because
exchange rates between the NIS and the dollar fluctuate continuously, with a
historically declining trend in the value of the NIS, exchange rate
fluctuations, particularly larger periodic devaluations, may have an impact on
our profitability and period-to-period comparisons of our results.
As a
result of the devaluation of the dollar in 2004, we recorded exchange rate
expenses on our U.S. deposits of NIS 1.3 million (US$ 0.3 million).
We have
U.S. dollar denominated liabilities (rights of use leasing obligations for our
international lines).
According
to a new accounting standard, Accounting Standard No. 12, on “Discontinuance
of Adjustment of Financial Statements”, commencing January 1, 2004, the
adjustment of financial statements were discontinued. Consequently, through
December 31, 2003, we prepared adjusted financial statements in accordance with
Opinion No. 36 of the Institute of Certified Public Accountants in Israel. The
adjusted amounts included in the financial statements as at December 31, 2003,
constituted the starting point for the nominal financial report as of January 1,
2004.
Effective
Corporate Tax Rate
Israeli
companies are generally subject to income tax at the rate of 35% of taxable
income. For tax purposes, results of operations are measured in real terms. From
1992 through December 31, 2002 we incurred net operating losses. As of December
31, 2004, we had consolidated net operating loss carry forwards of approximately
NIS 113 million (US$ 26.2 million)
- including the reconsolidated subsidiary Gold Trade with NIS 60 million. Under
current Israeli tax laws, operating loss carry forwards do not expire, are
linked to the Israeli inflation rate and may be offset against future taxable
income. Corporate Tax rates are declining gradually - in 2005-34%, 2006-32% and
2007-30%.
B. Liquidity
and Capital Resources
Liquidity.
We have
required substantial capital resources to finance the construction of our
network and to fund our operations. Historically we financed the construction of
our network and funded our operations principally from cash flow from
operations, short-term bank credit, revolving short-term bank loans and the
proceeds of the initial public offering of our ordinary shares in August 1999.
Working
Capital. Our
working capital as of December 31, 2004 was NIS 41.7 million (US$ 9.7 million)
as compared to working capital of NIS 76.3 million (US$ 17.7 million) as of
December 31, 2003. The decrease in our working capital is primarily due to the
increase in current maturities of long-term obligations arising from our
purchase of rights of use of international lines. This ratio shall further drop
as we continue to lease additional lines.
The
following table summarizes our cash flows for the indicated years:
|
|
Year
Ended December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
Adjusted amounts** |
|
Adjusted
amounts** |
|
reported
amounts* |
|
|
|
(In
thousand) |
|
Net
Income (loss) |
|
|
19,958 |
|
|
14,303 |
|
|
19,531 |
|
Other
adjustments for non-cash items |
|
|
23,611 |
|
|
22,957 |
|
|
27,006 |
|
Net
changes in assets and liabilities |
|
|
(2,366 |
) |
|
(8,088 |
) |
|
(8,352 |
) |
Net
cash provided by (used in) continued operating activities |
|
|
41,203 |
|
|
29,172 |
|
|
38,185 |
|
Net
cash provided by (used in) discontinued operating
activities |
|
|
-
|
|
|
- |
|
|
- |
|
Net
cash provided by (used in) operating activities |
|
|
41,203 |
|
|
29,172 |
|
|
38,185 |
|
Net
cash provided by (used in) continued investing activities |
|
|
(12,147 |
) |
|
(70,706 |
) |
|
(117,665 |
) |
Net
cash provided by (used in) discontinued investing
activities |
|
|
(1 |
) |
|
- |
|
|
- |
|
Net
cash provided by (used in) investing activities |
|
|
(12,148 |
) |
|
(70,706 |
) |
|
(117,665 |
) |
Net
cash provided by (used in) continued financing activities |
|
|
(31,528 |
) |
|
38,280 |
|
|
73,226 |
|
Net
cash provided by (used in) discontinued financing
activities |
|
|
- |
|
|
- |
|
|
- |
|
Net
cash provided by (used in) financing activities |
|
|
(31,528 |
) |
|
38,280 |
|
|
73,226 |
|
Net
increase (decrease) in cash and cash equivalents |
|
|
(2,473 |
) |
|
(3,254 |
) |
|
(6,254 |
) |
* With
respect to discontinuance of adjustment to the effect of inflation as from the
CPI of December 2003.
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
Net cash
provided by operating activities was NIS 38.2 million
(US$ 8.9 million)
in 2004, net cash provided by operating activities was NIS 29.2 million
(US$ 6.8 million)
in 2003 and net cash provided by operating activities was NIS 41.2 million (US$
9.6 million)
in 2002. The increase in the net cash provided by operating activities in 2004
compared to 2003 is due to our continuing efforts to implement our profitability
strategy.
Net cash
used in investing activities was NIS 117.7 million (US$ 27.3 million) in 2004
and NIS 70.7 million (US$ 16.4 million) in 2003. Our investing activities have
primarily involved purchases of rights of use for international communication
lines presented as capital leases, network components, expansion of our network
and computer hardware and software costs.
The
increase in our investing activities was primarily related to the purchase of
seven international communication lines during 2004 in the total amount of NIS
69.2 million (US$ 16.1 million) which are presented as capital leases, and also
due to the purchase of network components, expansion of our network and computer
hardware and software costs in connection with our intensive preparations to
provide international telephony services. In December 2004 we obtained long term
loans of NIS 30.5 million (US$ 7.1 million) from banks (presented as cash
provided by financing activities) and granted a loan in the same amount to Gold
Trade to cover its obligations to its banks.
According
to Israeli GAAP, receipt of loans in respect of capital leases are reflected in
the statements of cash flows as cash flows from financing activities rather than
investing activities from the acquisition of assets financed by the lease. Under
U.S. GAAP, this should be reflected as a non-cash financing
activity.
Net cash
provided by financing activities was NIS 73.2 million (US$ 17 million) in 2004
and NIS 38.3 million (US$ 8.9 million) in 2003. Our financing activities in 2004
included receipt of long-term loans from banks as mentioned above and long term
loans with respect to the purchase of rights of use in international
communication lines presented as capital leases.
Financing
Arrangements.
We have a
credit line equal to the deposits that we hold with the First International Bank
of Israel Ltd.. As of December 31, 2004, our deposits totaled NIS 75.3 million
(US$ 17.5 million). The credit line is repayable on demand. As of December 31,
2004, NIS 10.8 million (US$ 2.5 million) was outstanding under the credit
line. Long-term obligations to suppliers for the right of use of international
lines are linked to the U.S. dollar exchange rate, and our long-term leasing
agreements for cars are linked to the consumer price index and bear interest at
annual rates ranging from 5% to 7%. As of December 31, 2004, there was NIS 41.6
million (US$ 9.7 million) outstanding under our long-term leasing
arrangements.
The
following table summarizes our bank debt as of December 31, 2002, 2003 and
2004:
|
|
At
December 31, |
|
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
Adjusted
amounts** |
|
Adjusted
amounts** |
|
reported
amounts* |
|
|
|
(In
thousand) |
|
Short-term: |
|
|
|
|
|
|
|
|
|
|
Credit |
|
|
8,996 |
|
|
4,279 |
|
|
10,817 |
|
Current
maturities of long-term loans under lease arrangements |
|
|
1,461 |
|
|
980 |
|
|
133 |
|
Total
short-term debt |
|
|
10,457 |
|
|
5,259 |
|
|
10,950 |
|
Long-term: |
|
|
|
|
|
|
|
|
|
|
Long-term
loans maturities |
|
|
1,330 |
|
|
273 |
|
|
30,506 |
|
Total
long-term debt |
|
|
1,330 |
|
|
273 |
|
|
30,506 |
|
Liabilities
attributed to discontinued operations |
|
|
- |
|
|
- |
|
|
1,653 |
|
Total
debt |
|
|
11,787 |
|
|
5,532 |
|
|
43,109 |
|
* With
respect to discontinuance of adjustment to the effect of inflation as from the
CPI of December 2003.
**
Amounts adjusted to reflect inflation in terms of NIS at December 31,
2003.
Capital
Expenditures.
In 2004,
we invested NIS 23.8 million (US$ 5.5 million) in fixed assets, which included
purchases of network components, expansion of our network and computer hardware
and software costs. During 2005, we expect to incur capital expenditures of
approximately NIS 13 million (US$ 3 million) (not including the purchase of
rights of use of the international lines), of which US$ 0.6 million of which is
already subject to contractual obligations. We anticipate that these
expenditures will be funded from our cash
flow from operations and borrowings under credit facilities which we may
negotiate. Where feasible, we may also finance certain of these expenditures
through capital leases or installment purchases if these financing alternatives
are available on terms acceptable to us.
Long
Term Loans under Lease Arrangements. Our
lease obligations as of December 31, 2004 were NIS 41.6 million
(US$ 9.7 million), compared to NIS 27.4 million (US$ 6.4 million) for December
31, 2003. Such leasing obligations relate to rights of use of twelve
international lines under financial lease arrangements and 24 motor vehicles
that are under financial lease arrangements as well.
In
December 2004, the monthly costs for the rights of use of international lines
amounted to NIS 3 million
(US$ 0.7 million) and the monthly rental costs for such vehicles amounted to NIS
90 thousands (US$ 20.9 thousands).
Based on
our current operating plan, we believe that these sources will be sufficient to
fund our operating activities, capital expenditures and other obligations
through at least until June 2006. However, if during that period or thereafter
we are not successful in generating sufficient cash flows from operations or in
raising additional capital, whether debt or equity, when required, in sufficient
amounts and on terms acceptable to us, our business, results of operations and
financial condition could suffer. In addition, if additional funds are raised
through the issuance of equity securities, the percentage ownership of our
then-current shareholders would be diluted.
C. Research
and Development, Patents and Licenses
We have
not sponsored any material research and development activities in the last three
fiscal years.
D. Trend
Information
Recent
Accounting Pronouncements Not Yet Fully Adopted
Israeli
GAAP:
Accounting
Standard No. 19 on "Taxes on Income"
In July
2004, the Israeli Accounting Standards Board published Accounting Standard No.
19, "Taxes on Income". The Standard provides that a liability for deferred taxes
is to be recorded for all temporary differences subject to tax, except for a
limited number of exceptions. In addition, a deferred tax asset is to be
recorded for all temporary differences that may be deducted, losses for tax
purposes and tax benefits not yet utilized, if it is anticipated that there will
be taxable income against which they can be offset, except for a limited number
of exceptions. The new Standard applies to financial statements for periods
beginning on January 1, 2005. The Standard provides that it is to be implemented
by means of a cumulative effect of a change in accounting method. In our
estimation, the impact of the Standard on its results of operations, financial
position and cash flows will not be material.
U.S.
GAAP:
FASB
Statement No. 123 (Revision 2004), Share-Based Payment
In
December 2004, the FASB issued SFAS No. 123 (Revision 2004), "Share-Based
Payment", (SFAS 123R) that addresses the accounting for share-based payment
transactions in which employee services are received in exchange for either
equity instruments of the Company, liabilities that are based on the fair value
of the Company's equity instruments or that may be settled by the issuance of
such equity instruments. SFAS 123R eliminates the ability to account for
share-based compensation transactions using the intrinsic value method as
prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Instead, SFAS 123R requires that such transactions be accounted for using a
fair-value-based method and that compensation expense be recognized in the
statement of operations rather than disclosing the pro forma
impact of the stock based compensation. SFAS
123R provides two alternative adoption methods. The first method is a modified
prospective transition method whereby a company would recognize share-based
employee costs from the beginning of the fiscal period in which the recognition
provisions are first applied as if the fair-value-based accounting method had
been used to account for all employee awards granted, modified, or settled after
the effective date and to any awards that were not fully vested as of the
effective date. Measurement and attribution of compensation cost for awards that
are unvested as of the effective date of SFAS 123R would be based on the same
estimate of the grant-date fair value and the same attribution method used
previously under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”). The second adoption method is a modified retrospective transition method
whereby a company would recognize employee compensation cost for periods
presented prior to the adoption of SFAS 123R in accordance with the original
provisions of SFAS 123; that is, an entity would recognize employee compensation
costs in the amounts reported in the pro forma disclosures provided in
accordance with SFAS 123. A company would not be permitted to make any changes
to those amounts upon adoption of SFAS 123R unless those changes represent a
correction of an error. The provisions of SFAS 123R are effective for periods
beginning after June 15, 2005. As of December 31,2004 we did not have any
outstanding options that were granted to employees and have no assumption as to
the amount of options that may be granted in the future. Accordingly, there is
no expected impact of FAS 123R on our future results of operations.
E.
Off-Balance
Sheet Arrangements
We are
not a party to any material off-balance sheet arrangements. In addition, we have
no unconsolidated special purpose financing or partnership entities that are
likely to create material contingent obligations.
F.
Tabular
Disclosure of Contractual Obligations
The
following table summarizes our minimum contractual obligations and commercial
commitments, including obligations of discontinued operations, as of December
31, 2004 and the effect we expect them to have on our liquidity and cash flow in
future periods.
Contractual
Obligations |
|
Payments
due by Period |
|
|
|
Total |
|
less
than 1 year |
|
1-3
Years |
|
3-5
Years |
|
more
than 5 years |
|
Long-term
debt obligations |
|
|
- |
|
|
-
|
|
|
- |
|
|
-
|
|
|
- |
|
Capital
(finance) lease obligations |
|
|
122,558 |
|
|
43,337 |
|
|
78,936 |
|
|
285 |
|
|
- |
|
Operating
lease obligations |
|
|
18,332 |
|
|
5,262 |
|
|
10,834 |
|
|
2,236 |
|
|
- |
|
Purchase
obligations |
|
|
3,700 |
|
|
3,700 |
|
|
- |
|
|
- |
|
|
- |
|
Other
long-term liabilities reflected on the company’s balance sheet under
Israeli GAAP |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Total |
|
|
144,590 |
|
|
52,300 |
|
|
89,770 |
|
|
2,521 |
|
|
- |
|
Not all
items were recorded in our balance sheet at December 31, 2004. See Notes 12 and
14 of our Consolidated Financial Statements found elsewhere in this Report. We
believe that we will be able to meet these obligations as they become
due.
Item
3
Exhibit
12.1
CERTIFICATION
PURSUANT TO
SECTION
302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Eli
Holtzman certify that:
1. I have
reviewed this filing of the financial statements for the year ended December 31,
2004 on Form 6-K of Internet Gold -Golden Lines Ltd.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13(a)-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated Subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
[Reserved]
(c)
Evaluated the effectiveness of the registrant s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant s internal control over
financial reporting that occurred during the registrant s most recent fiscal
quarter (the registrant s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant s internal control over financial reporting; and
5. The
registrant s other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant s auditors and the audit committee of the registrant s board of
directors (or persons performing the equivalent function):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant s internal control over financial
reporting.
Date:
March 18, 2005
/s/
Eli Holtzman*
Eli
Holtzman
Chief
Executive Officer
* The
originally executed copy of this Certification will be maintained at the Company
s offices and will be made available for inspection upon request.
CERTIFICATION
PURSUANT TO
SECTION
302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Doron
Turgeman, certify that:
1. I have
reviewed this filing of the financial statements for the year ended December 31,
2004 on Form 6-K of Internet Gold - Golden Lines Ltd.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13(a)-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed
such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated Subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
[Reserved]
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officers and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent function):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial
reporting.
Date:
March 18, 2005
Doron
Turgeman*
Doron
Turgeman
Chief
Financial Officer
* The
originally executed copy of this Certification will be maintained at the
Company’s offices and will be made available for inspection upon
request.
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the filing of the financial statements for the year-ended
December 31, 2004 of Internet Gold - Golden Lines Ltd. (the “Company”) on Form
6-K as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Eli Holtzman, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the
Company.
/s/
Eli Holtzman*
Eli
Holtzman
Chief
Executive Officer
March 18,
2005
* The
originally executed copy of this Certification will be maintained at the
Company’s offices and will be made available for inspection upon
request.
Item
6
Exhibit
13.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the filing of the financial statements for the year-ended
December 31, 2004 of Internet Gold - Golden Lines Ltd. (the “Company”) on Form
6-K as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Doron Turgeman, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.
/s/
Doron Turgeman*
Doron
Turgeman
Chief
Financial Officer
March 18,
2005
* The
originally executed copy of this Certification will be maintained at the
Company’s offices and will be made available for inspection upon
request.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INTERNET
GOLD-GOLDEN LINES LTD.
(Registrant)
By
/s/Eli Holtzman
Eli
Holtzman
Chief
Executive Officer
Date:
March 18, 2005